<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
For the fiscal year ended Commission file number
September 30, 1998 0-24012
- ------------------------- ----------------------
ALLIED DEVICES CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 13-3087510
------------------------ ---------------------
(State of incorporation) (IRS Employer
Identification Number)
2365 Milburn Avenue, Baldwin, New York 11510
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 223-9100
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Title of Class Number of Shares Outstanding
- ----------------------------- as of December 28, 1998
Common Stock, $.001 par value -----------------------------
4,947,942
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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
---- ----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB X
---
Issuer's revenues for its most recent fiscal year: $18,448,483
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on December 31,1998 is approximately
$4,737,634.
<PAGE>
PART I
ITEM 1 - BUSINESS
Allied Devices Corporation ("Allied Devices" or the "Company")
is a broad-line manufacturer and distributor of high precision
mechanical components used in the manufacture and maintenance
of industrial and commercial instruments and equipment. The
Company has the capability of producing close tolerance parts
and intricate assemblies at competitive costs and with short
lead times. The Company's business strategy is to provide
prompt service and technical support in certain industrial and
high technology markets where customers generally expect
extended lead times, missed deadlines and otherwise poor
customer service and support.
The Company's major product groups include precision motion
control and servo assemblies, instrument related fasteners,
gears and gear products, and other components and
sub-assemblies built to customer specifications. Allied
Devices' customers are primarily original equipment
manufacturers ("OEMs").
Allied Devices' principal marketing tool is its highly
effective technical manual of standardized instrument
components available through the Company. This catalog is in
the hands of buyers and engineers throughout the United States
and generates sales nationwide. Management estimates that the
Company has distributed more than 85,000 copies of its printed
catalog over the last decade, of which approximately 35,000
copies were distributed during the last three fiscal years.
The current edition was published in November, 1998, and is
over 650 pages in length. During 1998, the catalog was fully
digitized and formatted for inclusion in the Company's
Internet website, making it simple for users to download the
Company's standard technical data and drawings. Management
projects that the catalog and its search tools will be ready
for on-line interactive access on the Internet through a broad
range of website links in January, 1999.
The breadth and standardized nature of the product line result
in multiple applications in many industries, stimulating
demand at the level of both OEMs and distributors. The Company
sells to a wide range of industries, such as medical and
operating room equipment; laser equipment; robotics; computer
peripherals; aerospace instrumentation; factory automation
equipment and controls; machine tool builders; research and
development facilities; semiconductor equipment makers; high
vacuum and spectrometric devices; flow control and metering
equipment makers; seals and glands; scientific
instrumentation; and optics.
A typical customer is an OEM selling high ticket capital goods
equipment. The components supplied by Allied Devices going
into such equipment generally constitute a small percentage of
the OEM's direct cost of manufacturing, typically $250 to $800
per unit. Failure to deliver reliable quality in a timely
manner can have an impact far in excess of the modest direct
cost of the parts. As a result, the majority of Allied
Devices' customers deem it imperative that parts supplied
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be on time and of reliably high quality. While these
performance criteria are not contractual requirements, they
are critical determinants in the placement of repeat business.
Allied Devices has structured itself as far as possible to
provide the service of "one stop shopping" for mechanical
instrument assemblies and components. Furthermore, the
Company's organization and inventory policies are designed to
provide fast and timely response to customer orders, and to
support "just in time" ("JIT") methods of material sourcing
being used by more and more companies. Because the Company's
lead times in response to customer orders are generally short
(four weeks or less), backlog is not a meaningful indicator of
business trends; therefore, no effort is made to monitor
backlog closely.
Allied Devices' sales volume is not dependent on just a few
large customers. The Company draws from a customer list of
over 6,000, thereby limiting its exposure to the fortunes of
any one industry or group of customers. In each of the past
three years, the Company's twenty largest customers have
represented as many as ten different industries and account
collectively for only about 35% of shipments. Geographic
concentration is relatively low and fluctuates with conditions
in each of the regions served. Allied Devices uses independent
multi-line manufacturers' representatives to gain national
coverage, thereby fielding some 70 salespeople in virtually
all significant territories in the United States.
As the market for the Company's products has evolved, the
Company has met its customers' needs by dividing operations
into two areas: Catalog Sales and Distribution ("Catalog
Operations") and Manufacturing and Subcontracting
("Manufacturing Services"). These two areas of the Company
have been defined solely for internal operating effectiveness.
Both areas serve the same markets and customer base and do not
represent separate business segments.
CATALOG OPERATIONS
The majority of product sold through Catalog
Operations is either manufactured by Catalog Operations or
procured from the Manufacturing Services operations of the
Company. The product mix includes standard products (as listed
in the Company's catalogs) and customized or non-standard
products manufactured to the specific requirements of a given
customer. What is not manufactured internally is purchased
from a broad variety of reliable sources. This operation
includes telephone sales, inventory and shipping, gear-making,
assembly and light manufacturing operations. This part of the
Company also sells certain of its standard catalog products to
its major competitors on a wholesale basis. In the aggregate,
revenues for the Catalog Operations were approximately as
follows for the last five years ended September 30th.
<TABLE>
<CAPTION>
<S> <C>
1998 $14,507,000
1997 $13,604,000
1996 $15,145,000
1995 $13,363,000
</TABLE>
2
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<TABLE>
<CAPTION>
<S> <C>
1994 $10,509,000
</TABLE>
The decrease in revenues for 1997 was the result of a sharp
downturn in one sector of the U.S. economy (semiconductor
manufacturing equipment). While such severe downturns have
been abnormal for the industries served by Allied, they are
not unprecedented. In this instance, it was caused by excess
inventory accumulation and overcapacity, and the duration of
the slowdown appears to have been one year. While a recovery
in this sector started in fiscal 1998, financial and economic
turmoil in Asia during the year caused yet another downturn
that appears to be continuing into fiscal 1999. The Company
has therefore undertaken to replace this lost business with
additional products and more intensive marketing. The return
to growth in fiscal 1998 is attributable to these efforts.
CATALOG INDUSTRY COMPETITION
The Company competes principally with W.M. Berg Co., a
subsidiary of BTR Ltd.; PIC Design, a subsidiary of Wells
Benrus; Nordex Inc.; and Sterling Instrument, a division of
Designatronics. Each of these companies publishes a catalog
similar to that issued by the Company, offering a wide range
of mechanical instrument components adhering to a single set
of standards. In addition, there are many other companies
offering a limited selection of materials or "single product"
catalogs, most often not adhering to any widely accepted
standards. This marketplace is highly competitive, yet
management believes, based upon feedback from vendors and
customers, that the Company's operating principles of
immediate product availability, excellent quality control,
competitive pricing and responsive customer service and
technical support have permitted the Company to maintain and
improve its market position.
MANUFACTURING SERVICE OPERATIONS
The Company's strategy has called for manufacturing the
majority of the products that it sells. Management believes that such vertical
integration ensures superior quality control, timely deliveries, control of
priorities and cost efficiencies. During fiscal 1998, the Company added
significantly to its manufacturing capacity through acquisition of a
state-of-the-art machine shop facility. Thus, Allied now has four manufacturing
divisions, each with particular specialties and focus on its capabilities. In
order to promote maximum utilization of productive equipment, each manufacturing
operation markets and sells its capabilities direct to customers. The following
operations comprise Manufacturing Services:
Absolute Precision Co. A sophisticated computer numerically
Ronkonkoma, New York controlled ("CNC") machine shop
specializing in close tolerance,
intricate machining of small complex
parts that are sold both direct to end
users in the
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fluid power and instrument industries
and through Catalog Operations.
Adco Devices Co. A screw-machine house manufacturing
Freeport, New York instrument quality shoulder screws,
thumb screws, nuts, shafting, pins,
knobs and washers. Standard stock and
custom components are sold to numerous
jobbers, distributors and wholesalers.
Astro Instrument Co. A general machine shop with diversified
Joplin, Missouri CNC and conventional capabilities,
producing the Kay Pneumatics product
line and manufacturing components for an
established customer base in several
industries.
APPI, Inc. A state-of-the-art CNC machining
(Atlantic Precision operation specializing in close
Products) tolerance,intricate machining of complex
Biddeford, Maine parts made from exotic materials and
used in the medical, flow control,
instrument, and seal/gland industries.
Each of the support operations in Manufacturing Services
produces components sold both through Catalog Operations and
to other catalog houses, generally at uniform list prices. In
addition, each operation bids for specialized custom
manufacturing work in the open market, taking on machining
jobs on fixed price contracts. While long production runs are
periodically accepted, the structure of Manufacturing
Services' organization and facilities is oriented to shorter
runs with higher margins. Pricing is based on combined
material cost and standard hourly shop rates for labor and
overhead.
Approximate revenues for Manufacturing Services were as
follows for the last three years:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Sales to Catalog Operations * $2,422,000 $2,360,000 $2,812,000
Sales to Outside Customers 3,841,000 2,612,000 2,648,000
--------------------------------------------------------------------------------------------
Total Revenues $6,263,000 $4,972,000 $5,460,000
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
-----------
* These revenue figures for Catalog Operations represent
interdivisional sales that are eliminated in
consolidation.
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Sales to Catalog Operations increased commensurate with the
overall volume of shipments by Catalog Operations. The
increase in Sales to Outside Customers in fiscal 1998 was
attributable principally to the acquisition of Atlantic
Precision Products in July, 1998. The Company does not report
results for Catalog Operations and Manufacturing Services
separately, but management believes that both divisions make a
positive contribution to operations. While the Company has
stepped up efforts to market its Manufacturing Services,
management believes that existing capacity will support a
substantial increase in volume without significant additions
to current production facilities. Operations are now primarily
single shift, representing an estimated 65% of capacity,
giving the Company the flexibility to respond to increases in
sales volume. Management intends, on a continuous basis, to
examine its manufacturing methods, equipment and tooling,
seeking ways to improve the quality and responsiveness of its
capacity while minimizing the labor content (and related cost)
in its product. The Company is prepared to commit capital to
making such improvements, consistent with internal and
confidential rate-of-return guidelines established by
management.
MANUFACTURING SERVICES COMPETITION
Each of the divisions in Manufacturing Services faces intense
competition from the many thousands of machine shops and screw
machine houses throughout the United States. Each division
endeavors to differentiate itself from its competition on the
basis of: i) accepting short-run work; ii) offering short lead
times; iii) providing exceptional responsiveness to customer
requirements; iv) supporting demand-pull and JIT requirements;
and v) conforming consistently to unbending quality standards.
QUALITY ASSURANCE
Although not legally required to do so in order to conduct its
current business, the Company has emphasized rigorous
standards of high quality in its products and in its
manufacturing methods. In the 1980s, this led to the
development of an internal quality control manual that sets
forth both policies and procedures used throughout the
Company. This manual meets or exceeds the requirements of
MIL-STD-45208A, which defines acceptable standards for small
business suppliers to the U.S. Government. In management's
opinion, loss of qualification under MIL-STD-45208A would not
have a material impact on the Company's ability to do
business; likewise, in management's opinion, such
qualification provides an indication to customers and
potential customers of the degree of diligence that the
Company exercises in adhering rigorously to high standards in
pursuit of consistent quality. The Company's measuring
instruments are calibrated to standards traceable to the
National Bureau of Standards.
To ensure consistent awareness and application of quality
procedures, management has established an on-going program of
meetings, lessons and training sessions through its quality
assurance manager, disseminating information
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on basic skills, policies, procedures and new developments.
Under the auspices of the New York State Industrial
Effectiveness Program, the Company undertook in fiscal 1998 to
implement a program of continuous improvement in pursuit of
qualification under "Total Quality Management" and ISO-9000 (a
voluntary set of standards and guidelines provided by the
International Standards Organization). A certification audit
is scheduled for February, 1999, to register the Company's
first facilities as conforming to ISO-9002. Upon successful
completion of that audit, management intends to continue with
the process until all of the Company's facilities have been
certified, with the goal of Company-wide registration by the
end of fiscal 2000.
EXPANSION PLANS
Management has developed a plan to expand the size of the
Company. Basically, the plan has four elements: (1) expand the
core business through more intensive marketing efforts; (2)
add products within the existing line of business; (3) expand
beyond the Company's core business into related lines of
business through an acquisition program that will not only add
volume and capacity but also provide marketing, operating and
administrative synergies; and (4) raise additional equity
capital as required to reduce the Company's indebtedness,
thereby limiting financial leverage while expansion plans are
being implemented. Certain elements of management's marketing
plans have commenced (principally an on-going advertising
campaign and publication of an Internet catalog), while others
are in development. Management is pursuing its acquisition
strategy, having completed two acquisitions in fiscal 1998 and
having targeted a series of additional strategic candidates
for acquisition in fiscal 1999. Effectively all of the capital
deployed in these acquisitions was raised in the form of
senior debt. Management has raised (cumulatively) $2,163,000
in equity since the beginning of fiscal 1994, 60% in a private
placement and the balance through the exercise of warrants and
options. All such equity funds have been applied to working
capital. Additional equity funds, if and when raised, will
also be applied, at management's discretion, to working
capital, thus being available for use in routine operations or
for carrying out the Company's expansion plans.
MARKETING PROGRAMS
The Company has developed a program to stimulate substantial
growth within its existing line of business. Feedback from
customers and informal market research indicate that Allied
Devices does not yet have a widespread customer awareness in
the markets it serves. Thus the principal thrust of the
Company's plan is to make its target markets more fully aware
of the Company's range of capabilities and of the usefulness
of standardized components in general. The program is divided
into modules and is being implemented as management deems
appropriate.
The plan includes expansion of the Company's advertising
campaign, begun on a restricted budget in 1993. As part of the
program, management has undertaken to improve, on a continuous
basis, the standards of service and support provided to the
Company's customers. Phasing in of expanded engineering
support, assembly capabilities, new products, and electronic
accessibility for customers are also
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important elements of the Company's program. Management
believes that implementation of its plan will result in
accelerated growth of sales and profits.
ACQUISITION PROGRAM
As part of its plans for growth, management intends to carry
out an acquisition program. By its own assessment, management
views the market in which it competes as large (over $1
billion), highly fragmented, and poised for consolidation.
Strategically, management intends to focus on acquiring
businesses with the following characteristics: (a) significant
potential for sales growth; (b) high prospects for synergy
and/or consolidation in marketing, manufacturing and
administrative support functions; (c) relatively high gross
margins (30% or more); (d) effective operating management in
place; (e) a reputation for quality in its products; and (f)
represents lateral or vertical integration. Management has
completed two acquisitions and is assessing additional
prospective candidates.
OTHER FACTORS
Raw materials for the Company's operations are readily
available from multiple sources, such as bar stock of
stainless steel and aircraft grade aluminum from metal
distributors. Management expects no change to this situation
in the foreseeable future. The technological maturity of the
Company's product line has resulted in general stability of
demand in its markets and of availability of raw materials at
stable prices. No material portion of the Company's business
is subject to renegotiation of profits or termination of
contracts at the election of the United States government or
its prime contractors. Procurement of patents is not material
to the Company's present marketing program.
REGULATION
The Company is not subject to any particular form of
regulatory control. The Company does not expect that continued
compliance with existing federal, state or local environmental
regulations will have a material effect on its capital
expenditures, earnings or competitive position.
EMPLOYEES
The Company currently employs 52 salaried and 209 hourly
personnel. Wage rates and benefits are competitive in the
labor markets from which the Company draws. Thirty of its
hourly employees are represented by two local unions (18 by
the National Organization of Industrial Trade Unions ("NOITU")
and 12 by Local 999 of the Teamsters). The contract with Local
999 expires in August 2000, and the contract with NOITU
expires in November 2000. The Company has had no strikes,
walkouts or other forms of business disruption attributable to
poor labor relations. Relations with employees and the unions
are open and constructive.
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CAPITAL EQUIPMENT
The Company uses a wide variety of machinery and equipment in
manufacturing and assembly of its product line. While most of
the equipment is owned by the Company or its subsidiaries,
certain key pieces of equipment are leased. Nine leases,
covering certain specific CNC machines, have original lease
terms ranging from four to five years, with purchase options
at the end of each lease. Rates vary from 7.785% to 10.288%,
and expiration dates range from 1999 to 2003. The aggregate
value of these leases was $2,518,000 as of September 30, 1998.
ITEM 2 - PROPERTIES
Listed below are the principal plants and offices of the
Company. All property occupied by the Company is leased except
as otherwise noted.
<TABLE>
<CAPTION>
Location Square Feet Lease Expiration Principal Activities
- ---------------------- -------------- -------------------- -----------------------------
<S> <C> <C> <C>
Baldwin, NY 18,000 December 1999 Catalog Manufacturing and
Distribution Operations
Freeport, NY 10,000 December 1999 Screw Machine Operations
Freeport, NY 5,200 January 1999* Catalog Manufacturing
Operations
Biddeford, ME 30,000 June 2003 CNC Machine Shop
Windham, ME 10,000 June 2003 CNC Machine Shop
Ronkonkoma, NY 8,200 April 2004 CNC Machine Shop
Joplin, MO 13,000 (Owned) CNC and Conventional
Machine Shop
</TABLE>
- ---------------------
*At the mutual convenience of the landlord and the Company, this facility has
been leased on a month-to-month basis. Management expects to execute a new
3-year lease in January 1999.
ITEM 3 - LEGAL PROCEEDINGS
The Company knows of no litigation pending, threatened, or
contemplated, or unsatisfied judgements, or any proceedings in
which it or any of its officers or directors in their capacity
as such is a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock was originally listed on National
Association of Securities Dealers Automated SmallCap Market
("NASDAQ") as of November 17, 1994. Trading in the Company's
stock has been active and regular since then. A total of 1,721
trades representing approximately 2,929,370 shares (as
reported by NASDAQ in their routine statistical summaries)
were completed during fiscal 1998. As of September 30, 1998,
the Company had 441 holders of record of its common stock. The
Company has 11 listed market-makers, and the trading ranges by
quarter for the year were as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
--------------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter ........... $2.8125 $2.00 $3.0625 $1.9375
Second Quarter .......... $2.4375 $1.875 $3.375 $2.125
Third Quarter ........... $2.5625 $2.125 $3.0625 $2.375
Fourth Quarter .......... $3.00 $1.5312 $2.875 $2.0625
</TABLE>
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following selected consolidated financial data have been
derived from the audited financial statements of Allied
Devices Corporation. The selected financial data should be
read in conjunction with the consolidated financial statements
and related notes included elsewhere in this Form 10-KSB.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1998 1997
---- ----
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ..................... $18,448,483 $16,215,931
Net income .................... $ 1,030,673 $ 1,061,883
Earnings per share:
Basic ...................... $ .22 $ .24
Diluted .................... $ .22 $ .22
Weighted average
number of shares
outstanding
Basic ...................... 4,699,526 4,472,141
Diluted .................... 4,763,404 4,751,739
BALANCE SHEET DATA:
Total assets .................. $22,973,619 $10,976,983
Working capital ............... $ 9,594,752 $ 7,307,751
Long-term debt ................ $11,031,687 $ 2,084,239
Stockholders' equity .......... $ 9,116,101 $ 7,025,928
</TABLE>
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RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1997.
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.
During fiscal 1998, the Company successfully completed two
acquisitions as part of its plan for growth by acquisition.
The two companies acquired were as follows:
- Kay Pneumatic Valves, Inc. ("Kay"), manufactures a line of
three-way and four-way direction control and power valves
with a reputation for exceptional durability and speed.
The standard, "off-the-shelf" product is described in a
set of detailed catalogs and appears to offer attractive
potential as a lateral addition to the Company's other
catalog offerings to its targeted markets. Kay's revenues
were somewhat over $800,000 in calendar 1997, and
management believes that, under the stewardship of prior
management, marketing efforts were ineffective and
production inefficient. The assets and operations of the
business were acquired for $850,000 in cash in January,
1998, and transferred from Long Island to the Company's
Astro Instrument facilities in Joplin, Missouri in
February, 1998. Management expects that, for the first
year, the revamped operation will be dedicated to gaining
a thorough understanding of production economies and the
existing marketing mix (product focus, pricing,
distribution strategy, competition, inventory balancing,
and customer service strategy). Thereafter, management
expects to be aggressive in promoting the Kay product
line, both through its Catalog Operations and under the
Kay trade name.
- Atlantic Precision Products, Inc. ("APPI" or "Atlantic")
is a state-of-the-art CNC machining operation with
locations in Biddeford and Windham, Maine.
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APPI sells intricate and complex custom machined
components to leading edge customers in the aircraft
instrument, flow metering/control, and seal/gland
industries, primarily in New England. Sales volume of $9.3
million in calendar 1997 was relatively concentrated in 5
customers, with four of those being on Kanban or other
dedicated sole-source supply arrangements. Management
believes that their manufacturing methods and know-how
will permit substantial growth in throughput at Atlantic
while, through technology interchange, enabling the
Company as a whole to manufacture more efficiently.
Consideration at closing for the business was $7.2 million
in cash and 250,000 shares of the Company's common stock.
Performance consideration is a negotiated percentage of
earnings for APPI for each of the first three years of its
operation as a division of Allied.
On the night of April 8, 1998, a fire broke out at the
Company's headquarters in Baldwin, New York, destroying all of
the Company's central computer and data communications
equipment and certain underlying records. The Company thus had
to reconstruct those portions of its records which were lost
from the remaining hard-copy records and back up files. The
result, during the succeeding four months, was a substantial
number of late deliveries and a low rate of responsiveness to
new business while records were being reconstructed and data
was being built into the new system. While it is impossible to
determine the exact impact of the fire, management estimates
that between $350,000 and $500,000 of business was lost during
the recovery period. While many of the Company's customers
were patient and tolerated the recovery process, others were
not and switched to competitors during this period. Management
has launched a program to recover those customers lost in the
aftermath of the fire.
Net sales for fiscal 1998 were $18,448,000 as compared to
$16,216,000 in fiscal 1997. This increase of 13.8% was
principally the result of four factors: (1) the added revenues
from Kay and Atlantic amounted to $2,225,000, mostly
concentrated in the fourth quarter; (2) the fire caused a loss
of sales estimated by management at between $350,000 and
$500,000; (3) the economic and financial turmoil in East Asia
induced a sharp downturn in several capital goods sectors of
the U.S. economy beginning in the third quarter of the fiscal
year, resulting in a commensurate slowdown for the Company
with customers in those industries estimated by management to
amount to over $1 million; and (4) on-going marketing
initiatives appear to have been effective in stimulating
continued growth in other sectors of approximately 10%. In
particular, the aerospace instrumentation, medical equipment,
robotics and scientific/analytical instrumentation sectors
exhibited strength throughout the year.
The Company's gross margin was 34.07% of net sales in fiscal
1998, down from 36.49% in fiscal 1997. This was principally
the result of two elements: (1) materials expense as a
percentage of sales decreased, increasing gross margins by
0.81%; and (2) factory payroll and overhead as a percentage of
sales increased,
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lowering gross margins by 3.23%. This decrease in margin is
attributable to the following factors:
- The consummation and assimilation of the two acquisitions
completed during the fiscal year resulted in temporary
operating diseconomies while integrating the acquired
entities into the Company. Higher levels of payroll and
duplication of overhead expenses are common at such
times, and management expects the period of transition
following each acquisition to be approximately six
months. Following this, management projects a return to
gross margins more in line with the Company's objectives.
- The fire in April destroyed the Company's production
planning and control system. As a direct outcome, during
the ensuing five months, the normally orderly flow of
production work in Catalog Operations was regularly
disrupted by "emergency" production runs made to cover
late deliveries of materials. The resultant combination of
high levels of overtime and extremely short lot sizes
eroded margins during the recovery period (April through
September, 1998). Management made a conscious decision to
tolerate this temporary condition rather than risk further
deterioration of the Company's service performance to its
customers.
- When signs of slowdown in certain sectors materialized at
the end of the third fiscal quarter, management made a
decision to delay taking cost cutting measures until after
the end of the fiscal year. This decision was also
prompted by management's asserting a higher priority on
maintaining service levels than on short term maintenance
of gross margins. The lower level of throughput to sales
and inventory on relatively fixed costs of factory
operations resulted in a decrease in gross margins during
the fourth quarter.
- Atlantic's factory operations rely more heavily on
state-of-the-art equipment than do the Company's other
operations, displacing operating costs with depreciation
charges and increasing operating leverage. Atlantic's
productivity during the Company's fourth quarter of fiscal
1998 was lower than historic norms, as often happens in
the six months following an acquisition. Thus,
depreciation charges during this quarter were higher
without an offset of lower operating costs. Management
projects that this will come into line with the Company's
objectives by the end of the first quarter of fiscal 1999.
The Company did not increase prices materially in fiscal 1998.
Selling, general and administrative expenses as a percentage
of net sales were 23.2% in fiscal 1998, as compared to 24.8%
in fiscal 1997. While actual expenditures in fiscal 1998 were
$260,000 higher than in fiscal 1997, such costs did not
increase as much as sales volume. The following factors
account for this change: (1) selling and shipping expenses and
commissions decreased as a percentage of net sales by
approximately 0.8% as shipping volume increased while spending
on the Company's marketing strategy remained effectively flat;
13
<PAGE>
(2) administrative payroll, benefits and expenses increased by
$106,000 but decreased as a percentage of net sales by 0.8%;
and (3) other administrative expenses (collectively) remained
unchanged as a percentage of net sales. Included in
administrative expenses were certain non-recurring costs
incurred during the third and fourth quarters of fiscal 1998
related to recovery from the fire, as extraordinary hours put
in by Allied's employees, supplemented by some outside
professional help, minimized the potentially disastrous
effects of the fire, but at a cost. While the Company's
casualty and business interruption insurance reimbursed much
of this, management estimates that approximately $100,000 of
cost was not recovered from insurance. In addition, there were
approximately $70,000 of additional administrative expenses in
the fourth quarter that resulted from acquiring Atlantic.
Interest expense increased by $184,000 in fiscal 1998, as the
Company increased its borrowings to finance the acquisitions
of Kay and Atlantic.
Provision for income taxes in fiscal 1998 was $584,000, or
36.2% of pre-tax income. See the notes to the consolidated
financial statements for a reconciliation to the federal
statutory rate.
RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1997, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1996
Net sales for fiscal 1997 were $16,216,000 as compared to
$17,793,000 in fiscal 1996. This decrease of 8.9% was
principally the result of a sharp downturn in the
semiconductor equipment sector of the U.S. economy. The impact
of this was evident in the Company's shipments from July, 1996
through August, 1997, during which time the Company's
customers in that industry virtually stopped all shipments of
materials for production requirements. Collectively, all other
sectors showed continued growth, materializing in both Catalog
Operations and Manufacturing Services. Management continues to
attribute such growth to a combination of factors: (1) a
continuing series of advertisements in various industry/trade
magazines, which appear to be gradually creating more
wide-spread awareness of the Company and its products and
services; (2) carrying out of a series of programs of
continuous improvement, particularly in the areas of customer
service and support; (3) a program to expand the range of
support services provided to the Company's larger customers;
and (4) continued strength in certain sectors of the U.S.
economy serviced by the Company. In particular, the aerospace
instrumentation, medical equipment, robotics and scientific
instrumentation sectors remained healthy throughout the year.
The Company's gross margin was 36.49% of net sales in fiscal
1997, up from 33.60% in fiscal 1996. The lower level of sales
activity permitted the Company
14
<PAGE>
to manufacture more and purchase less, resulting in the
following changes from fiscal 1996: (1) net materials expense
decreased as a percentage of sales, increasing gross margins
by 4.75%; and (2) the Company shipped a lower volume of
product on relatively stable costs of factory operations,
decreasing gross margins by 1.86%. The Company did not
increase prices materially in fiscal 1997.
Selling, general and administrative expenses as a percentage
of net sales were 24.8% in fiscal 1997, as compared to 23.2%
in fiscal 1996. While actual expenditures in fiscal 1997 were
$98,000 lower than in fiscal 1996, such costs did not decrease
as much as sales volume. The following factors account for
these changes: (1) selling and shipping expenses and
commissions increased as a percentage of net sales by
approximately 0.4% as shipping volume decreased more than
spending on the Company's marketing strategy; (2)
administrative payroll, benefits, and expenses increased by
$133,000, resulting in an increase of such expenses of 1.8% as
a percentage of net sales; and (3) other administrative
expenses (collectively) decreased as a percentage of net sales
by approximately 0.6%.
Interest expense decreased by $60,000 in fiscal 1997, as the
Company lowered its borrowings and enjoyed more favorable
rates as a result of its new credit agreement.
Provision for income taxes in fiscal 1997 was $629,000, or
37.2% of pre-tax income. See the notes to the consolidated
financial statements for a reconciliation to the federal
statutory rate.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained healthy during
fiscal 1998 as operations generated net cash of $599,000. In
addition, financing activities (net) generated cash of
$8,212,000 over the course of the year. These funds were used
15
<PAGE>
for capital expenditures (net) of $417,000 and acquisition
financing of $8,281,000, with the remaining $113,000 being
added to cash on hand. Net working capital increased by
$2,287,000 to $9,595,000 during the year. The following are
changes in current assets and current liabilities for the year
ended September 30, 1998:
- Accounts receivable (net of reserve for doubtful accounts)
increased by $200,000 during the year. This increase was a
function of lower shipping rates at year end ($346,000);
the acquisition of $91,000 of Kay receivables; the
acquisition of $576,000 of Atlantic receivables; and a
decrease in the average collection period from 47 days at
the end of fiscal 1997 to 45 days at the end of fiscal
1998 ($121,000).
- Inventories increased by $2,501,000 during the fiscal
year, with the turnover rate decreasing from 1.6 times in
fiscal 1997 to 1.4 times at the end of fiscal 1998. Of
this increase, a portion ($1,595,000) was acquired with
Kay and Atlantic. The balance ($906,000) built up from the
combined effects of losing the computer-based inventory
and production control systems and a sharp slowdown with
many of the Company's most important customers. Current
industrial procurement practices, Kanban and demand-pull
systems in particular, leave manufacturers vulnerable to
such temporary build-ups, since production builds on the
basis of forecasted needs as much as three months in
advance of actual demand. Management expects that most of
the inventory built up at year-end will be shipped during
fiscal 1999 as the industrial sectors impacted by Asia
recover. As an operating principle, management has made
prompt service, product availability and quick turnaround
of production orders key strategic factors in gaining a
strong competitive position in the Company's markets.
Substantial inventories are, in management's judgment, a
necessity in supporting this strategy and responding to
demanding delivery requirements imposed by the Company's
customers. As the Company's growth plan continues to
unfold, management expects to see improvement in the
inventory turnover rate.
- Prepaid expenses and other current assets increased by
$298,000 as the Company capitalized certain prepaid
administrative expenses $32,000, and accrued for casualty
losses reimbursable from insurance of $266,000.
- Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations, decreased by
$43,000 (net), as the acquisitions completed during the
year added $314,000 to payables, acquired payables were
brought to standard terms (a decrease of $169,000), the
Company's average payment period on accounts payable and
accrued expenses was shortened from 36 days in fiscal 1997
to 35 days in fiscal 1998 (a decrease of $43,000), and the
Company's income taxes payable decreased by $145,000.
- Current portions of long-term debt and capital lease
obligations increased by $868,000 (net) as a function of
the terms of acquisition financings.
- Cash balances increased by $113,000.
16
<PAGE>
Management believes that the Company's working capital as now
constituted will be adequate for the needs of the on-going
core business (inclusive of acquired entities). During fiscal
1998, to finance acquisitions and to allow for on-going
working capital requirements, the Company entered into a new
credit facility with its bank consisting of a $6.25 million
term loan, a $10 million revolving credit facility, and an
increase to the existing equipment lease line from $2 million
to $3.2 million. The Company, at the end of fiscal 1998, was
using approximately $3,250,000 of its revolving credit
facility.
Management believes that, in light of the Company's expansion
objectives, the Company's working capital 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. Success in
this part of the Company's growth program will rely, in large
measure, upon success in completing such additional financing.
The Company is not relying on receipt of such funds in its
operating budgets or projections. 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 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 any such capital.
Outlay for capital expenditures in fiscal 1998 amounted to
$637,000 ($869,000 including capital leases, net of equipment
dispositions), as compared to $309,000 ($328,000 in new
equipment, net of $19,000 in equipment dispositions; no new
equipment leases) in fiscal 1997. These expenditures represent
two facets of the Company's capital spending program: (1) a
continuation of management's program of continuous improvement
through modernization and automation of facilities ($709,000),
and (2) support and installation of a comprehensive new
computer system ($168,000). Capital spending plans for fiscal
1999 call for additional investment in software and hardware
for the Company's computer system and a somewhat increased
level of additions to high-efficiency production machinery.
Management expects to fund such spending plans out of working
capital and credit facilities.
During the second quarter, the Company acquired Kay Pneumatic
Valves, Inc. for $850,000 in cash. Additional expenditures
attendant to this acquisition amounted to approximately
$110,000, including legal fees, moving expenses, space
preparation, additions to tooling and inventories, training
costs, and certain marketing expenses. The acquisition price
was funded through new term debt of $1,000,000, provided by
the Company's bank and secured in the fixed assets of the
Company.
During the third quarter, the Company acquired effectively all
of the assets, properties, business and rights of, and assumed
specified liabilities of Atlantic.
17
<PAGE>
Consideration for the assets, net of liabilities, of Atlantic
consisted of the following: (i) $7,237,500 in cash, delivered
at Closing; (ii) 250,000 shares of the Company's common stock
delivered at Closing; and (iii) a commitment to make
additional payments to the seller based on the performance of
APPI during each of the first three one-year operating periods
following the Closing. $6,250,000 of the cash consideration at
closing was provided by the term loan and $987,500 was drawn
from the revolving credit facility. Refinancing of assumed
term debt in the amount of $1,233,000 was completed by drawing
against the Company's equipment lease line.
VULNERABILITY TO RECESSION
The Company's cost structure is largely made up of "fixed
costs", with "variable costs" accounting for less than 40% of
net sales. The Company could, therefore, experience materially
adverse effects on profitability from any marked downturn in
sales volume until management was able to reduce fixed costs.
Because the Company's delivery lead-times are relatively
short, there is, as a result, little backlog at any given
time, and the effect of a downturn in sales volume would be
felt almost immediately.
EXPANSION PLANS
Management has developed a plan to expand the size of the
Company. Basically, the plan has four elements: (1) expand the
core business through more intensive marketing efforts; (2)
add products within the existing line of business; (3) expand
beyond the Company's core business into related lines of
business through an acquisition program that will not only add
volume and capacity but also provide marketing, operating and
administrative synergies; and (4) raise additional equity
capital as required to reduce the Company's indebtedness,
thereby limiting financial leverage while expansion plans are
being implemented. Certain elements of management's marketing
plans have commenced (principally an on-going advertising
campaign and publication of an Internet catalog), while others
are in development. Management is pursuing its acquisition
strategy, having completed two acquisitions in fiscal 1998 and
having targeted a series of additional strategic candidates
for acquisition in fiscal 1999. Plans to raise additional
equity will be carried out when management considers it
appropriate to do so and believes market conditions to be
favorable to existing stockholders.
IMPACT OF INFLATION AND OTHER BUSINESS CONDITIONS
Management believes that inflation has no material impact on
the operations of the business. The Company has been able to
react to increases in material and labor
18
<PAGE>
costs through a combination of greater productivity and
selective price increases. The Company has no exposure to
long-term fixed price contracts.
RECENT ACCOUNTING PRONOUNCEMENTS
A. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which established standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized
under current accounting standards as components of
comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. SFAS 130 is not
expected to materially impact the Company's disclosures when
adopted.
B) Reporting Segments of an Enterprise
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), which supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise".
SFAS 131 establishes standards for the way public companies
report information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments
as components of a company about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The Company
is currently evaluating the impact of the statement on its
financial reporting.
19
<PAGE>
C) Investment Derivatives and Hedging Activities Income
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivatives and Hedging
Activities Income" ("SFAS 133"), which requires the recording
of all derivative instruments as assets or liabilities
measured at fair value. Among other disclosures, SFAS 133
requires that all derivatives be recognized and measured at
fair value regardless of the purpose or intent of holding the
derivative.
SFAS 133 is effective for financial statements for periods
beginning after June 15, 1999. Because of the recent issuance
of this standard, management has been unable to fully evaluate
the impact, if any, the standard will have on future financial
statements.
ITEM 7 - FINANCIAL STATEMENTS
(1) Financial Statements
See index to Financial Statements on Page F-2.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS
The Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD WITH COMPANY
- ------ ------- -------------------------------
<S> <C> <C>
Mark Hopkinson 51 Chairman of the Board of Directors,
Chief Executive Officer, Secretary
P.K. Bartow 50 President, Director
Salvator Baldi 76 Executive Vice President, Director
Andrew J. Beck 50 Assistant Secretary
Christopher T. Linen 51 Director
Michael Michaelson 76 Director
Paul M. Cervino 44 Principal Financial Officer, Principal
Operating Officer, Principal
Accounting Officer, Treasurer
</TABLE>
21
<PAGE>
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Brief biographies of the Executive Officers and Directors of
the Company are set forth below. All Directors hold office
until the next Annual Stockholders' Meeting or until their
death, resignation, retirement, removal, disqualification or
until their successors have been elected and qualified.
Vacancies in the existing Board may be filled by majority vote
of the remaining Directors. Officers of the Company serve at
the will of the Board of Directors. There are no written
employment contracts outstanding.
Mark Hopkinson, age 51, has been Chairman of the Board since
1981, when he and Mr. Bartow organized the acquisition of the
Company. He also served as President of the Company from 1981
until March 1994. He is a graduate of the University of
Pennsylvania and of the Harvard Graduate School of Business
Administration. Prior to acquiring Allied Devices, he was a
management consultant, working originally with Theodore Barry
& Associates from 1977 to 1978 and later as an independent and
with the Nicholson Group from 1978 to 1981. The focus of his
work in the period leading up to 1981 was development of
emerging growth companies, both in the United States and in
lesser developed countries. He served as an officer in the
United States Navy from 1969 to 1972.
P.K. Bartow, age 50, has been President of the Company since
March 1994. He also served as Vice President of the Company
from when he and Mr. Hopkinson organized its acquisition in
1981 until March 1994. Prior to acquiring Allied Devices, Mr.
Bartow had joined the Nicholson Group in 1978, and performed
facility and feasibility studies for emerging growth
companies. While at Allied Devices, he has been the Director
of Marketing from 1981 onwards, and in that capacity has set
up a network of independent manufacturers' representatives
across the United States and in the United Kingdom, Israel and
selected regions in Canada. He has also organized and
published Allied Devices' 650+ page catalog. Mr. Bartow
received a B.A. degree from Williams College in 1970, and a
M.Arch degree from the University of Pennsylvania in 1974.
Salvator Baldi, age 76, was one of the original founders of
the Company in 1947. He has been a Director of the Company
since February 1994. The business was started as a general
machine shop and developed through the years as a supplier to
certain principal competitors of the Company in the market for
standardized precision mechanical parts. By the late 1970's,
the Company had become a competitor, offering its own catalog
of components. He and his partners sold the Company to the
investor group assembled by Mr. Hopkinson and Mr. Bartow in
October 1981, with Mr. Baldi remaining with the Company under
an employment contract. By the time his contract expired two
years later, Mr. Baldi had negotiated to repurchase an
interest in the Company. He currently works on an abbreviated
work schedule.
22
<PAGE>
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Andrew J. Beck, age 50, has been a partner with the law firm
of Haythe & Curley since prior to 1989. He became Assistant
Treasurer of the Company in March 1994. Mr. Beck holds a B.A.
in economics from Carleton College and a J.D. from Stanford
University Law School.
Christopher T. Linen, age 51, became a Director of the Company
during fiscal 1997. He is currently principal of Christopher
Linen & Company, through which he has invested in a series of
early stage, internet and technology-related enterprises.
Prior to this, from 1975 until 1996, he was an executive with
Time Inc. (later Time Warner Inc.) where he managed a series
of six subsidiaries or divisions in Asia, Latin America, the
United States, and worldwide. Prior to that, he was Assistant
Financial Director of the Italhai Holding Company, Ltd.
(Bangkok), during which tenure he was Publisher of the Bangkok
World, an English language daily newspaper. He is a director
of Starmedia Networks Inc., Chairman of Nirvana Soft Inc., and
a Trustee of The Family Academy, an experimental public
school. He holds a B.A. from Williams College and attended the
Graduate School of Business Administration at New York
University.
Michael Michaelson, age 76, has been a Director of the Company
since 1990. He has been President and sole stockholder of
Rainwater Enterprises, Ltd. since 1979, providing management
and marketing consultation services to clients principally in
publishing and related industries. He is also on the board of
directors of Retail Entertainment Group, Inc., a public
company. From 1986 to 1989, he was Chairman of the Council on
Economic Priorities. From 1977 to 1979, he was co-founder and
Chairman of the Board of Games Magazine, which was sold to
Playboy magazine in 1979. From 1970 to 1978, Mr. Michaelson
worked for Publishers Clearing House, where he was Senior Vice
President. From 1968 to 1970, he was President and Founder of
Campus Subscriptions, Inc. Mr. Michaelson served in the United
States Army in the South Pacific during World War II, where he
was a Company Commander in the 35th infantry, 25th division
and received the Bronze Star and the Purple Heart. He received
a B.S. degree from New York University in 1948.
Paul M. Cervino, age 44, has been the Chief Operating Officer
of the Company since November 1998. From January 1995 until
October 1998, he served as Chief Financial Officer. Prior to
1995, he was employed by Sotheby's Holdings, Inc., an
international art auction house. From 1992 to 1995, he was a
member of the European Board of Directors and Chief Financial
Officer of Sotheby's Europe and Asia, operating in London.
From 1985 to 1992, he was a Director and Chief Financial and
Administrative Officer of Sotheby's North America. From 1976
to 1985, he worked for Sotheby's in various other financial
capacities.
23
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the salary and bonus
compensation paid during the fiscal years ended September 30,
1998, 1997 and 1996 to the Chairman and Chief Executive
Officer of the Company. No other Executive Officer of the
Company received fiscal 1998 salary and bonus compensation
which exceeded $100,000. The Company's Directors receive
$1,250 per meeting for their services as such and
reimbursement for any expenses they may incur in connection
with their services as Directors.
<TABLE>
<CAPTION>
"Summary Compensation Table"
- --------------------------------------------------------------------------------------------------
Name and Principal Fiscal Year Salary Other Annual Long Term Compensation
Position Compensation Awards-Options/ SAR's
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Hopkinson, 1998 $110,005 $0 0
Chairman and Chief
Executive Officer
1997 $97,221 $0 27,400
1996 $98,098 $0 29,000
</TABLE>
Under the terms of the Company's 1993 Incentive Stock Option
Plan, the following options were granted to the Chief
Executive Officer of the Company during fiscal year 1998.
<TABLE>
<CAPTION>
"Option/SAR Grants in Last Fiscal Year"
- --------------------------------------------------------------------------------------------------
Name Number of % of Total Options Exercise or Expiration
Securities Granted to Base Price Date
Underlying Employees in Fiscal ($/Sh)
Options Granted Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark Hopkinson 0 0%
</TABLE>
Aggregated Options/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values.
<TABLE>
<CAPTION>
Name Shares Value Number of Value of
Acquired on Realized ($) Securities Unexercised
Exercise (#) Underlying In-the-Money
Unexercised Options/SARs at
Options/SARs at FY-End ($)
FY-End (#)
Exercisable/
Exercisable/ Unexercisable
Unexercisable
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Hopkinson - $ - 257,000/0 $43,706/$0
</TABLE>
(1) In-the-money options are those for which the fair market
value of the underlying Common Stock exceeds the exercise
price of the option. The value of the in-the-money options is
determined in accordance with regulations of the Securities
and Exchange Commission by subtracting the aggregate exercise
price of the option from the aggregate year-end value of the
underlying Common Stock.
No compensation to management has been waived or accrued to
date.
24
<PAGE>
Under the terms of its employee stock option plan (adopted in
October, 1993 and amended in December, 1995 and March, 1998),
the Board of Directors is empowered at its discretion to award
options to purchase an aggregate of 1,500,000 shares of the
Company's common stock to key employees. Prior to fiscal 1998,
the Company had granted options to purchase an aggregate of
1,192,000 shares to key employees and Directors, with exercise
prices ranging from $0.35 to $3.00 per share. During fiscal
1998, the Company granted options to purchase 50,000 shares of
the Company's common stock, at exercise prices ranging from
$1.88 to $2.25, to 13 individuals (one executive, and twelve
non-executive managers). Also in fiscal 1998, options to
purchase 135,000 shares expired unexercised with exercise
prices ranging from $2.35 to $ 3.00.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number and percentage of
the Company's shares of Common Stock owned of record and
beneficially by each person or entity owning more than 5% of
such shares and by all executive officers and directors, as a
group at September 30, 1998:
<TABLE>
<CAPTION>
Name Number of Current
Shares Owned Percentage
-------------------------------------------------------------------------
<S> <C> <C>
Mark Hopkinson(1) (3) (7)
2365 Milburn Avenue 1,012,571 19.76%
PO Box 502
Baldwin, NY 11510
P.K. Bartow (1) (4) (7) 850,688 16.73%
2365 Milburn Ave.
PO Box 502
Baldwin, NY 11510
Salvator Baldi (1) (5) (7) 756,473 14.62%
2365 Milburn Ave.
PO Box 502
Baldwin, NY 11510
Michael Michaelson (2)(6)(7) 183,584 3.63%
2365 Milburn Ave.
PO Box 502
Baldwin, NY 11510
Christopher T. Linen (2)(10)
203 Poverty Hollow Road 115,000 2.31%
Redding, CT 06896
Andrew J. Beck (8)(9) 16,000 0.30%
71 Willow Street, Apt. 1
Brooklyn, NY 11201
Paul M. Cervino (8) (11) 110,000 2.18%
2365 Milburn Ave.
PO Box 502
Baldwin, NY 11510
All Executive Officers and 3,044,316 51.55%
Directors as a Group (7 persons)
</TABLE>
25
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
(1) Officer and Director
(2) Director only.
(3) Mark Hopkinson is General Partner of the Hopkinson
Family Partnership (in which he has exclusive
management rights), which owns 700,000 of the shares
included herein. Mr. Hopkinson owns 33,500 shares in
his own name. Also included in Mr. Hopkinson's
shareholdings are 5,660 shares represented by
warrants exercisable by Mr. Hopkinson until December
31, 1999 and 257,000 shares represented by currently
exercisable options. Mr. Hopkinson disclaims
beneficial ownership of 15,700 shares owned by his
wife.
(4) Included in Mr. Bartow's shareholdings are 1,722
shares represented by warrants exercisable by Mr.
Bartow until December 31, 1999 and 225,000 shares
represented by currently exercisable options. Mr.
Bartow disclaims ownership of 15,000 shares owned by
members of his immediate family.
(5) Included in Mr. Baldi's shareholdings are 898 shares
represented by warrants exercisable by Mr. Baldi
until December 31, 1999 and 225,000 shares
represented by currently exercisable options.
(6) Included in Mr. Michaelson's shareholdings are 2,584
shares represented by warrants exercisable by Mr.
Michaelson until December 31, 1999 and 110,000 shares
represented by currently exercisable options. Mr.
Michaelson disclaims ownership of 160,000 shares
owned by his wife.
(7) As consideration for various services rendered to the
Company in the period 1983 until 1990, the Company
issued certain stockholders warrants to purchase up
to 340,000 shares of common stock at prices ranging
from $0.30 per share to $0.70 per share. 329,136 of
those warrants have been exercised, prior to their
expiration, and 10,864 of those warrants remained
exercisable at September 30, 1998.
(8) Officer only.
(9) Includes 10,000 shares represented by currently
exercisable options.
(10) Includes 25,000 shares represented by currently
exercisable options.
(11) Includes 94,400 shares represented by currently
exercisable options.
26
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1990, Allied Devices granted Michael Michaelson, a
Director, 50,000 warrants to purchase Allied Devices shares in
return for uncompensated service to the Company. Each warrant
was exercisable at a price of $.30 per warrant into one share
of Common Stock until April 15, 1998. Mr. Michaelson exercised
these warrants in fiscal 1998.
In August 1987, certain officers and stockholders purchased
unsecured 10% promissory notes from Allied Devices in the
aggregate amount of $157,680: Mark Hopkinson, $75,000; P.K.
Bartow; $25,000; Salvator Baldi, $7,680; Michael Michaelson,
$25,000; and Edward G. Lord, $25,000. In December 1994, all
such notes were retired by paying 10% of the principal amount
due in cash, the balance in the form of new 10% unsecured
promissory notes due December 31, 1995, and granting warrants
to purchase Common Stock at the rate of one warrant per $20 of
principal on the notes being retired, as follows:
<TABLE>
<CAPTION>
Principal
Value of Number of
Cash Paid New Notes Warrants
--------- --------- ---------
<S> <C> <C> <C>
Salvator Baldi $ 1,796.59 $ 16,169.32 898
P.K. Bartow $ 3,445.14 $ 31,006.25 1,722
Mark Hopkinson $11,319.74 $101,877.69 5,660
Michael Michaelson $ 5,167.71 $ 46,509.37 2,584
</TABLE>
Each warrant is exercisable at a price of $2.00 per warrant
into one share of Common Stock until December 31, 1999. The
notes were retired during fiscal 1996.
27
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required to be filed as a part of the form
are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K
A report on Form 8-K was filed with the Securities and
Exchange Commission in July, 1998. An amendment to that
report was filed on Form 8-K/A in September, 1998.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALLIED DEVICES CORPORATION
--------------------------
Mark Hopkinson
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
Chairman of the Board,
- ------------------------- Principal Executive Officer,
Mark Hopkinson and Director
- ------------------------- President and Director
Philip Key Bartow
- ------------------------- Executive Vice President
Salvator Baldi and Director
- ------------------------- Director
Michael Michaelson
- ------------------------- Director
Christopher T. Linen
- ------------------------- Principal Financial Officer, Principal Operating Officer,
Paul M. Cervino Principal Accounting Officer, Treasurer
</TABLE>
29
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
Allied Devices Corporation
Baldwin, New York
We hereby consent to the incorporation by reference and inclusion in the
Prospectuses constituting part of the Registration Statements filed on Form
S-8 on April 6, 1994 and April 8, 1996 of our report dated January 8, 1999
relating to the consolidated financial statements of Allied Devices
Corporation and subsidiaries appearing in the Company's Annual Report on
Form 10-KSB for the year ended September 30, 1998.
BDO SEIDMAN, LLP
January 13, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-1
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
INDEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets F-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Notes to financial statements F-8 - F-24
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allied Devices Corporation
Baldwin, New York
We have audited the accompanying consolidated balance sheets of Allied Devices
Corporation and subsidiaries as of September 30, 1998 and 1997 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial consolidated statements referred to above
present fairly, in all material respects, the financial position of Allied
Devices Corporation and subsidiaries at September 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Melville, New York
January 8, 1999
F-3
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 5)
cURRENT:
Cash $ 275,238 $ 162,094
Accounts receivable, net of allowance for doubtful accounts of $42,706
and $47,876, respectively (Note 5) 2,526,068 2,326,179
Inventories (Notes 3 and 5) 8,903,220 6,402,688
Prepaid expenses and other current assets 366,057 67,606
Deferred income taxes (Note 10) 41,000 41,000
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,111,583 8,999,567
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION (NOTES 4, 5 AND 7) 7,607,246 1,837,225
---------- ---------
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET OF ACCUMULATED
AMORTIZATION OF $412,569 AND $349,661 (NOTE 2) 2,880,523 88,664
---------- ---------
OTHER ASSETS 374,267 51,527
- -------------------------------------------------------------------------------------------------------------------
$22,973,619 $10,976,983
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,243,306 $ 1,186,291
Income taxes payable (Note 10) - 145,263
Accrued expenses and other (Note 6) 286,900 241,781
Current portion of long-term debt and capital lease obligations (Note 7) 986,625 118,481
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,516,831 1,691,816
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (NOTES 5 AND 7) 11,031,687 2,084,239
DEFERRED INCOME TAXES (NOTE 10) 309,000 175,000
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 13,857,518 3,951,055
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTES 2, 8 AND 9)
STOCKHOLDERS' EQUITY (NOTES 2 AND 9)
Common stock, $.001 par value, authorized 25,000,000 shares, issued
and outstanding 4,947,942 and 4,609,942 4,948 4,610
Additional paid-in capital 3,624,721 2,565,559
Retained earnings 5,486,432 4,455,759
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 9,116,101 7,025,928
- -------------------------------------------------------------------------------------------------------------------
$22,973,619 $10,976,983
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $18,448,483 $16,215,931
COST OF SALES 12,163,602 10,298,766
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT 6,284,881 5,917,165
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,282,634 4,022,326
- ------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 2,002,247 1,894,839
INTEREST EXPENSE, NET 387,574 203,956
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR TAXES ON INCOME 1,614,673 1,690,883
TAXES ON INCOME (NOTE 10) 584,000 629,000
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,030,673 $ 1,061,883
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE - BASIC (NOTE 1) $ .22 $ .24
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE - DILUTED ( NOTE 1) $ .22 $ .22
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common-Stock $0.001 par
value
-------------------------------------- Additional Total
Number of Paid-in Retained stockholders
Shares Amount Capital Earnings equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 4,401,842 $4,402 $2,409,086 $3,393,876 $5,807,364
NET INCOME - - - 1,061,883 1,061,883
PROCEEDS FROM THE EXERCISE OF
OPTIONS AND WARRANTS (NOTE 9) 208,100 208 156,473 - 156,681
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 4,609,942 4,610 2,565,559 4,455,759 7,025,928
NET INCOME - - - 1,030,673 1,030,673
STOCK ISSUED IN CONJUNCTION
WITH ACQUISITION (NOTE 2) 250,000 250 891,250 - 891,500
PROCEEDS FROM THE EXERCISE OF
OPTIONS AND WARRANTS AND
VALUE OF WARRANTS GRANTED
IN CONJUNCTION WITH BANK
FINANCING (NOTE 9) 88,000 88 167,912 - 168,000
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 4,947,942 $4,948 $3,624,721 $5,486,432 $9,116,101
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,030,673 $ 1,061,883
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 701,362 485,550
Deferred income taxes 134,000 (48,188)
Gain on sale and involuntary conversion of equipment (142,825) (12,428)
Provision for doubtful accounts - 1,899
Changes in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in:
Accounts receivable 468,422 (134,472)
Inventories (906,249) (520,132)
Prepaid expenses and other current assets (298,451) (25,987)
Other assets (30,740) 23,320
Increase (decrease) in:
Accounts payable and accrued expenses (211,628) (102,721)
Income taxes payable (145,263) 89,570
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments (431,372) (243,589)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 599,301 818,294
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (636,907) (328,468)
Business acquisitions, net of cash acquired (8,280,674) -
Proceeds from sale and involuntary conversion of equipment 219,886 19,750
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,697,695) (308,718)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term note 6,250,000 -
Increase in revolving credit borrowings 1,325,000 -
Proceeds from financing of equipment 1,067,400 -
Principal payments on long-term debt and capital lease obligations (291,408) (559,082)
Net proceeds from sale of common stock, options and warrants 71,000 156,681
Deferred financing costs (210,454) -
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,211,538 (402,401)
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 113,144 107,175
CASH, BEGINNING OF PERIOD 162,094 54,919
- ---------------------------------------------------------------------------------------------------------------------
CASH, AT END OF PERIOD $ 275,238 $ 162,094
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SUMMARY OF (a) BUSINESS
ACCOUNTING POLICIES
The Company is comprised of Allied
Devices Corporation ("ADCO"), and
its wholly-owned subsidiaries,
Empire Tyler Company ("Empire") and
APPI, Inc. ("APPI"), (collectively
the "Company").
The Company is engaged primarily in
the manufacture and distribution of
standard and custom precision
mechanical components and a line of
screw machine products. The Company
sells all of its products to the
same base of customers located
throughout the United States.
Because the Company's product line
comprises a comparable group of
precision manufactured parts sold
to a similar customer base, it
considers itself to be engaged in a
single business segment.
(b) BASIS OF PRESENTATION
The consolidated financial
statements include the accounts of
ADCO and its subsidiaries. All
significant intercompany balances
and transactions have been
eliminated.
(c) INVENTORIES
Inventories are valued at the lower
of cost (last-in, first-out (LIFO)
method) or market. Management
periodically analyzes inventories
for obsolescence and records
writeoffs as required. Such
writeoffs have historically been
immaterial.
(d) 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:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment 10 years
Tools, molds and dies 8 years
Furniture, fixtures and office
equipment 5-7 years
Buildings and improvements 30 years
Leasehold improvements Lease term
</TABLE>
F-8
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(e) INCOME TAXES
The Company and its subsidiaries
file a consolidated federal income
tax return and separate state
income tax returns.
Deferred tax assets and liabilities
are recognized for the future tax
consequences attributable to
differences between the financial
statement carrying amounts of
existing assets and liabilities and
their respective tax bases and tax
credit carryforwards. Deferred tax
assets and liabilities are measured
using enacted tax rates expected to
apply to taxable income in the
years in which those temporary
differences are expected to be
recovered or settled. The effect on
deferred tax assets and liabilities
of a change in tax rate is
recognized in income in the period
that includes the enactment date.
(f) EARNINGS PER SHARE
During 1997, the Financial
Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 128 ("SFAS 128")
"Earnings Per Share". The
statement, effective for financial
statements issued after December
15, 1997, provides for the
calculation of "basic" and
"diluted" net earnings per share.
Basic earnings per share is
computed by dividing income
available to common shareholders by
the weighted average shares
outstanding for the period and
reflect no dilution for the
potential exercise of stock
options and warrants. Diluted
earnings per share reflect, in
periods in which they have a
dilutive effect, the dilution
which would occur upon the
exercise of stock options and
warrants. As required by this
statement, all periods presented
have been restated to comply with
the provisions of SFAS 128. A
reconciliation of the shares used
in calculating basic and diluted
earnings per share follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Weighted average shares outstanding -
basic 4,699,526 4,472,141
Dilutive effect of options and warrants 63,878 279,598
---------------------------------------------------------------
Weighted average shares outstanding
diluted 4,763,404 4,751,739
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
Options and warrants totalling 988,500 and 331,500 at September 30, 1998 and
1997, respectively, were antidilutive and accordingly, excluded from the
diluted calculation.
F-9
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(g) INTANGIBLE ASSETS
The excess of cost over the fair
value of net assets acquired is
being amortized over periods of 15
years (for the 1998 acquisitions,
see Note 2) and 20 years (for
prior acquisitions).
(h) LONG-LIVED ASSETS
The Company reviews the carrying
values of its long-lived and
identifiable intangible assets for
possible impairment whenever events
or changes in circumstances
indicate that the carrying amount
of the assets may not be
recoverable. Any long-lived assets
held for disposal are reported at
the lower of their carrying amounts
or fair value less cost to sell.
(i) REVENUE RECOGNITION
Sales are recognized upon shipment
of products. All sales are shipped
F.O.B. shipping point and are not
sold subject to a right of return
unless the products are defective.
The Company's level of returns
arising from defective products has
historically been immaterial.
(j) USE OF ESTIMATES
In preparing financial statements
in conformity with generally
accepted accounting principles,
management is required to make
estimates and assumptions that
affect the reported amounts of
assets and liabilities and the
disclosure of contingent assets and
liabilities at the dates of the
financial statements and the
reported amounts of revenues and
expenses during the reported
periods. Actual results could
differ from those estimates.
(k) FAIR VALUE FINANCIAL INSTRUMENTS
The carrying amounts of financial
instruments, including cash and
short-term debt, approximated fair
value as of September 30, 1998 and
1997. The carrying value of
long-term debt and obligations
under capital leases, including the
current portion, approximates fair
value as of September 30, 1998 and
1997 based upon the borrowing rates
currently available to the Company
for bank loans with similar terms
and average maturities.
F-10
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(l) CONCENTRATIONS OF CREDIT RISK
The Company extends credit based on
an evaluation of the customer's
financial condition, generally
without requiring collateral.
Exposure to losses on receivables
is principally dependent on each
customer's financial condition. The
Company monitors its exposure for
credit losses and maintains
allowances for anticipated losses.
No individual customer is
considered to be significant.
(m) RECENT ACCOUNTING PRONOUNCEMENTS
(i) COMPREHENSIVE INCOME
In June, 1997, the Financial
Accounting Standards Board issued
SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"),
which addresses standards for
reporting and display of
comprehensive income, its
components and accumulated
balances. Comprehensive income is
defined to include all changes in
equity except those resulting from
investments by owners and
distributions to owners. Among
other disclosures, SFAS 130
requires that all items that are
required to be recognized under
current accounting standards as
components of comprehensive income
be reported in a financial
statement that is displayed with
the same prominence as other
financial statements.
SFAS 130 is effective for financial
statements for periods beginning
after December 15, 1997 and
requires comparative information
for earlier years to be restated.
SFAS 130 is not expected to
materially impact the Company's
disclosures when adopted.
F-11
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ii) REPORTING FOR SEGMENTS OF AN
ENTERPRISE
In June 1997, the Financial
Accounting Standards Board issued
SFAS No., 131, "Disclosures about
Segments of an Enterprise and
Related Information" ("SFAS 131"),
which supersedes SFAS 14,
"Financial Reporting for Segments
of a Business Enterprise". SFAS 131
establishes standards for the way
public companies report information
about operating segments in annual
financial statements and requires
reporting of selected information
about operating segments in interim
financial statements issued to the
public. It also establishes
standards for disclosures regarding
products and services, geographic
areas and major customers. SFAS 131
defines operating segments as
components of a company about which
separate financial information is
available that is evaluated
regularly by the chief operating
decision maker in deciding how to
allocate resources and in assessing
performance.
SFAS 131 is effective for financial
statements for periods beginning
after December 15, 1997 and
requires comparative information
for earlier years to be restated.
The Company is currently
evaluting the impact of the
statement on its financial
reporting.
(iii) INVESTMENT DERIVATIVES AND
HEDGING ACTIVITIES
In June 1998, the Financial
Accounting Standards Board issued
SFAS No. 133, "Accounting for
Derivative Investments and Hedging
Activities" ("SFAS 133"),
which requires the recording of all
derivative instruments as assets or
liabilities measured at fair value.
Among other disclosures, SFAS 133
requires that all derivatives be
recognized and measured at fair
value regardless of the purpose or
intent of holding the derivative.
SFAS 133 is effective for financial
statements for periods beginning
after June 15, 1999. Because of the
recent issuance of this standard,
management has been unable to
evaluate fully, the impact if any,
the standard will have on future
financial statements.
F-12
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(n) RECLASSIFICATION
Certain 1997 balances were
reclassified to conform with the
1998 presentation.
2. ACQUISITIONS (a) On July 8, 1998 (effective as of
July 1, 1998), the Company
acquired the assets and business
of Atlantic Precision Products,
Inc., ("APPI"), a manufacturer
of high precision, machined
components for original
equipment manufacturers with
advanced engineering
requirements. The price of net
assets (including assumption of
specified liabilities) was made
up of cash, stock, and
performance consideration. The
tangible consideration was
$7,237,500 in cash and 250,000
shares of the Company's common
stock. The common stock portion
of the tangible consideration
was recorded at the value
guaranteed by the Company ($4
per share), discounted to its
present value. The Company also
capitalized approximately
$190,000 of costs related to the
acquisition. The tangible
portion of the purchase price
exceeded the fair value of the
net assets acquired (principally
machinery and equipment and
inventory) by $2,846,026. This
excess has been recorded as
goodwill which is being
amortized over a fifteen year
period.
The Company financed this
acquisition with proceeds from
a new credit agreement with its
bank (see Note 5).
The performance consideration is a
stipulated percentage of the future
earnings (as defined) for APPI for
three years. The Company's policy
with respect to any such
contingent consideration is to
record a liability for such
amounts as the defined earnings
are achieved. As of September 30,
1998, no contingent consideration
has been recorded. All such
contigent consideration is
subject to a subordination
agreement between the Seller and
the Lending Institution (note 5).
The acquisition of APPI has been
accounted for by the purchase
method of accounting and,
accordingly, the operating results
of APPI have been included in the
Company's results of operations
from the effective date.
F-13
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The summarized unaudited pro forma
results set forth below assumes the
acquisition occurred as of the
beginning of each of these periods:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
--------------------------------------------------------------------
<S> <C> <C>
Net sales $ 24,660,580 $ 25,195,387
Net income 1,290,135 2,015,834
Net income per share - basic $ .26 $ .43
Net income per share - diluted $ .26 $ .40
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
(b) In January 1998, the Company
acquired Kay Pneumatic Valves Inc.
("Kay") for $850,000 in cash. Kay's
assets were comprised principally
of inventories and fixed assets.
The operations of Kay prior to
acquisition were not material and,
accordingly, pro forma operational
results have not been presented
herein.
3. INVENTORIES Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,056,504 $ 310,260
Work-in-process 964,563 514,437
Finished goods 8,392,905 6,888,412
----------------------------------------------------------------
10,413,972 7,713,109
Less: adjustment to LIFO 1,510,752 1,310,421
----------------------------------------------------------------
$ 8,903,220 $6,402,688
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
F-14
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The adjustment to LIFO represents
the excess of current cost (valued
at first-in, first-out FIFO) over
the LIFO value of the inventories.
4. PROPERTY, PLANT AND Property, plant and equipment
EQUIPMENT consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
-------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $10,231,675 $4,656,948
Tools, molds and dies 1,913,027 1,553,884
Furniture, fixtures and office equipment 607,312 453,205
Leasehold improvements 322,615 169,749
Building and improvements 94,520 94,520
Land 5,000 5,000
-------------------------------------------------------------------
13,174,149 $6,933,306
Less: accumulated depreciation and
amortization 5,566,903 5,096,081
-------------------------------------------------------------------
$ 7,607,246 $1,837,225
-------------------------------------------------------------------
</TABLE>
Included in machinery and equipment
and office equipment at September
30, 1998 and 1997 is approximately
$2,922,000 and $560,000 of
equipment under capital lease
agreements (see Note 7) with
related accumulated amortization
amounts of approximately $326,000
and $165,000, respectively.
Depreciation expense for the years
ended September 30, 1998 and 1997
was approximately $625,000 and
$447,000, respectively.
5. CREDIT FACILITIES In July, 1998 the Company entered
into a new credit agreement with
its existing lender and repaid all
amounts due with respect to its
previous credit facility. The new
credit agreement provided for a
revolving credit line and a term
note.
Under the terms of the new three
year revolving credit loan, the
Company may borrow up to the lesser
of (a) $10,000,000 or (b) 85% of
eligible receivables plus 60% of
eligible inventory (to an inventory
maximum of $5,000,000). Interest
is computed at the higher of the
bank's prime lending rate (8.25%
at September 30, 1998) or the
Federal Funds Rate plus 1/2%. The
Company is required to pay a
commitment fee on the average
unused portion of the revolving
credit commitment of 1/4% per
annum. Borrowings under the
revolving credit loan were
$3,250,000 at September 30, 1998.
The revolving credit loan matures
in July 2001.
Under the terms of the five and
one half years (66 months) term
note, the Company borrowed
F-15
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$6,250,000, and interest thereon
is computed at the higher of the
bank's prime rate plus 1/4% or the
Federal Funds Rate plus 1/2%. The
term note is payable in twenty
quarterly installments of principal
beginning in March 1999. The
quarterly principal installments
increase ratably from $150,000 per
quarter during the first year to
$400,000 per quarter for the last
year plus a final installment of
$950,000 on December 31, 2003. The
proceeds of the term note and a
portion of the funds drawn against
the revolving credit loan were used
to finance the APPI acquisition
(see Note 2). In conjunction with
the issuance of the term note the
Company issued the lender warrants
to purchase 125,000 shares of its
common stock (see Note 9). The
value of the warrants totaled
$97,000 and was accounted for as
deferred financing costs (include
in other assets) and is being
amortized over the term of the
credit agreement.
Borrowings under the credit
facility are secured by a first
priority security interest in the
Company's assets. In addition, the
Company must meet certain financial
covenants.
Under its previous three year
credit facility, the Company had
available a revolving credit
agreement permitting it to borrow
the lesser of $4,000,000 or
stipulated percentages of eligible
receivables and inventories.
Borrowings were collateralized by a
first priority security interest in
the Company's assets. Borrowings
under this credit agreement were
$1,925,000 at September 30, 1997.
6. ACCRUED EXPENSES Accrued expenses consist of the
AND OTHER following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
----------------------------------------------------
<S> <C> <C>
Commissions $ 69,603 $ 93,285
Payroll and related 63,531 83,548
Other 153,766 64,948
----------------------------------------------------
$286,900 $241,781
----------------------------------------------------
----------------------------------------------------
</TABLE>
7. LONG-TERM DEBT AND Long term debt consists of the
CAPITAL LEASE following:
OBLIGATIONS
F-16
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Revolving credit loan (Note 5) $ 3,250,000 $1,925,000
Term note (Note 5) 6,250,000 -
Capital lease obligations with varying monthly
payments and interest rates ranging from
7.8% to 10.3% per annum maturing 1999
through 2003; secured by an interest in
specific machinery and equipment (Note 4) 2,518,312 277,720
-------------------------------------------------------------------------
Subtotal 12,018,312 2,202,720
Less: current maturities 986,625 118,481
-------------------------------------------------------------------------
Long-term debt and capital lease obligations $11,031,687 $2,084,239
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
The following is a schedule by
years of future minimum lease
payments under capital leases,
together with the present value of
the net minimum lease payments as
of September 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 722,016
2000 681,945
2001 620,476
2002 617,028
2003 364,654
---------------------------------------------------------------------
Total minimum lease payments 3,006,119
Less: amount representing interest 487,807
---------------------------------------------------------------------
Present value of net minimum lease
payments $2,518,312
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following is a schedule of long
term debt maturities (including
capital lease obligations) as of
September 30, 1998:
1999 $ 986,625
2000 1,441,665
2001 4,773,311
2002 1,750,891
2003 1,953,320
2004 1,112,500
--------------------------------------------------------------------
$12,018,312
--------------------------------------------------------------------
--------------------------------------------------------------------
8. LEASES The Company rents facilities in Baldwin,
Ronkonkoma and Freeport, New York and
in Biddeford and Windham, Maine under
various operating lease agreements
expiring through June 2003. In addition,
the Company also leases certain
machinery and equipment and office
equipment under various capital lease
agreements expiring through 2004 (see
Note 7). Rent expense amounted to
approximately $325,000 and $277,000
for the fiscal years ended
September 30, 1998 and 1997,
respectively.
9. STOCKHOLDERS' EQUITY (a) WARRANTS
At September 30, 1998 and 1997, the
Company had 195,864 and 120,864
stock warrants outstanding,
respectively. The warrants to
purchase the Company's common stock
were held by the following parties:
<TABLE>
<CAPTION>
<S> <C>
Officers/stockholders/consultants (1) 10,864
Public (1) 60,000
Bank (2) 125,000
---------------------------------------------------------
195,864
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
F-18
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Each warrant held by members
of management and certain
stockholders grant them the
right to purchase one share of
common stock at various prices
between $.30 and $2.00 per
share. These warrants have a
weighted average exercise
price of $.60 per share and a
weighted average remaining
contractual life of 0.8 years.
During fiscal 1996 the Company
issued warrants to purchase
60,000 shares of common stock,
respectively, at prices
ranging from $3.00 to $4.25
per share to financial
consultants to the Company.
The weighted average exercise
price, of these warrants is
$3.75 per share, with a term
that expired in October, 1998.
(2) As discussed in Note 5, the
Company issued warrants to its
secured lender to purchase
125,000 shares of common stock
at an exercise price of $2.00
per share. These warrants
expire on July 7, 2003.
(b) INCENTIVE STOCK OPTION PLAN
In October 1993, the Board of
Directors adopted an incentive
stock option plan. The Plan, as
amended in December 1995 and March
1998 allows the Board of Directors
to issue options to purchase an
aggregate of 1,500,000 shares of
the Company's common stock to key
employees.
As of September 30, 1998, the
Company had issued options to
purchase an aggregate of 1,053,400
shares of the Company's common
stock to members of the Company's
Board of Directors and employees.
The Company estimates the fair
value of each stock option at the
grant date by using the
Black-Scholes option-pricing model
with the following weighted average
assumptions used for grants in 1997
and 1998; no dividend yield,
expected volatility of 46.10%, risk
free interest rates of 5.50% to
5.59%, with an expected life of 7.5
years. If compensation cost for the
Company's stock option plan had
been determined in accordance with
SFAS No. 123, net income would have
been reduced in 1997 and 1998 by
approximately $54,000 and $18,000,
respectively, and net income per
share would have been $.21 for each
year.
The following table summarizes
information about stock options
F-19
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------
Number Weighted
Outstanding Average Weighted Weighted
Remaining Average Average
Contractual Exercise Number Exercise
Life (years) Price Exercisable Price
--------------------------------------------------------------------------------
Exercise Prices:
<S> <C> <C> <C> <C> <C>
$1.00 - 2.35 775,000 4.4 2.35 775,000 2.35
.35 - 3.00 24,600 6.2 2.50 24,600 2.50
2.00 - 3.00 99,400 7.5 2.65 99,400 2.65
.35 - 2.44 104,400 8.5 1.91 79,900 1.73
1.88 - 2.25 50,000 9.3 1.94 22,000 1.91
--------------------------------------------------------------------------------
1,053,400 5.4 2.32 1,000,900 2.33
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Changes in qualified and
non-qualified options and warrants
outstanding are summarized as
follows:
<TABLE>
<CAPTION>
Warrants Options
--------------------------------------------------------------------------------
Option price Weighted average
Shares Exercise Price Shares per share exercise price
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding September 30,
1996 1,275,414 $.30 - $4.25 1,077,600 $.35 - $3.00 2.34
Granted - - 92,000 2.25 - 2.44 2.28
Cancelled - - - - -
Exercised (202,500) .35 - .70 (5,600) 2.25 2.25
Warrants converted
to options (12,400) .35 - .70 12,400 .35 - .70 .69
Expired (939,650) 2.50 - 3.00 - - -
--------------------------------------------------------------------------------------------------------
Outstanding September
30, 1997 120,864 $2.00 - $4.25 1,176,400 2.32
Granted 125,000 2.00 50,000 1.88 - 2.25 1.94
Cancelled - - (135,000) 2.35 - 3.00 2.43
Exercised (50,000) .30 (38,000) 1.00 - 2.00 1.47
Warrants converted
to options - - - - -
Expired - - - - -
--------------------------------------------------------------------------------------------------------
Outstanding September
30, 1998 195,864 1,053,400 2.32
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998, there were
1,000,900 options exercisable at a
weighted average exercise price of
$2.33. The weighted average fair
value of options granted during
fiscal 1997 and 1998 were $1.40 and
$1.94, respectively.
F-21
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. TAXES ON INCOME Provisions for income taxes
(benefit) on income in the
consolidated statement of
operations consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
------------------------------------------------------------
Current:
<S> <C> <C>
Federal $425,000 $570,192
State 25,000 106,996
------------------------------------------------------------
Total current 450,000 677,188
------------------------------------------------------------
Deferred:
Federal 113,000 (40,574)
State 21,000 (7,614)
------------------------------------------------------------
134,000 (48,188)
------------------------------------------------------------
Total taxes on income $584,000 $629,000
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
Deferred tax (assets) liabilities
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Tax depreciation in excess of book $ 457,000 $ 385,000
Investment tax credit carryforward (198,000) (222,000)
Insurance recovery - IRC section 1136
adjustments) 91,000 -
Provision on note receivable (included in
other assets) (35,000) (38,000)
Inventory capitalization (30,000) (23,000)
Other temporary differences - net (32,000) 17,000
------------------------------------------------------------------------
Deferred tax liabilities 253,000 119,000
Valuation allowance 15,000 15,000
------------------------------------------------------------------------
Net deferred tax liabilities $ 268,000 $ 134,000
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The provision for income taxes on
income before taxes differs from
the amounts computed applying the
applicable Federal statutory rates
due to the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C>
Provision for Federal income taxes at
the statutory rate $549,000 $574,900
Increase (decrease):
State taxes, net of Federal tax benefit 30,000 65,600
Other 5,000 (11,500)
---------------------------------------------------------------------------------
Provision for taxes on income $584,000 $629,000
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
11. CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure of cash flow
information
Cash paid during the year:
Interest $387,574 $221,265
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Income taxes $561,575 $637,521
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing:
Equipment acquired under capital
lease $232,000 $ -
Value of warrants issued in $ 97,000 $ -
connection with financing
</TABLE>
F-23
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In connection with the business
acquisitions (Note 2), the Company
used cash as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 1998
--------------------------------------------------------------
<S> <C>
Fair value of assets acquired, excluding cash* $9,827,036
Less liabilities assumed** 1,546,362
--------------------------------------------------------------
Net cash paid (including acquisition costs) $8,280,674
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
*excludes non-cash portion of
purchase price relating to stock
issued totalling $891,500.
**the Company also refinanced
approximately $1,233,000 of the
assumed capitalized leases in
conjunction with this acquisition.
F-24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
1998 10-K.
</LEGEND>
<CIK> 0000869495
<NAME> ALLIED DEVICES CORP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 275,238
<SECURITIES> 0
<RECEIVABLES> 2,568,774
<ALLOWANCES> 42,706
<INVENTORY> 8,903,220
<CURRENT-ASSETS> 12,111,583
<PP&E> 13,174,149
<DEPRECIATION> 5,566,903
<TOTAL-ASSETS> 22,973,619
<CURRENT-LIABILITIES> 2,516,831
<BONDS> 0
0
0
<COMMON> 4,948
<OTHER-SE> 9,111,153
<TOTAL-LIABILITY-AND-EQUITY> 22,973,619
<SALES> 18,448,483
<TOTAL-REVENUES> 18,448,483
<CGS> 12,163,602
<TOTAL-COSTS> 12,163,602
<OTHER-EXPENSES> 4,282,634
<LOSS-PROVISION> 42,706
<INTEREST-EXPENSE> 387,574
<INCOME-PRETAX> 1,614,673
<INCOME-TAX> 584,000
<INCOME-CONTINUING> 1,030,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,030,673
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
