<PAGE>
FORM 10-QSB QUARTERLY REPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0 - 24012
ALLIED DEVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
13-3087510
(I.R.S. Employer Identification No.)
2365 MILBURN AVENUE, BALDWIN, N.Y. 11510
(Address of principal executive offices - Zip code)
Issuer's telephone number, including area code: 516 - 223 - 9100
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes \X\ No\ \
Common Stock, Par Value $.001 4,947,942
(CLASS) (SHARES OUTSTANDING AT DECEMBER 28, 1998)
- ------------------------------ -----------------------------------------
1
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 411,755 $ 275,238
Accounts receivable 2,290,991 2,526,068
Inventories 9,170,915 8,903,220
Prepaid and other 378,788 366,057
Deferred income taxes 41,000 41,000
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL CURRENT 12,293,449 12,111,583
PROPERTY, PLANT AND EQUIPMENT, NET 7,598,611 7,607,246
GOODWILL 2,826,625 2,880,523
OTHER 373,935 374,267
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL ASSETS $23,092,620 $22,973,619
----------------------------------------------------------------------- ---------------------- ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,192,242 $ 1,243,306
Taxes payable 16,100 -
Accrued expenses 245,035 286,900
Current portion of long term debt and capital lease obligations 1,155,964 986,625
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL CURRENT 2,609,341 2,516,831
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 10,957,242 11,031,687
DEFERRED TAXES 309,000 309,000
----------------------------------------------------------------------- ---------------------- ----------------------
TOTAL LIABILITIES 13,875,583 13,857,518
STOCKHOLDERS' EQUITY:
Capital stock 4,948 4,948
Paid-in capital 3,624,721 3,624,721
Retained earnings 5,587,368 5,486,432
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TOTAL STOCKHOLDERS' EQUITY 9,217,037 9,116,101
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,092,620 $22,973,619
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</TABLE>
3
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 1997
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(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $5,370,454 $4,382,769
COST OF SALES 3,593,270 2,961,775
-------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,777,184 1,420,994
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,365,849 971,644
-------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 411,335 449,350
INTEREST EXPENSE (NET) 253,343 38,232
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INCOME BEFORE PROVISION FOR TAXES ON INCOME 157,992 411,118
TAXES ON INCOME 57,056 153,000
-------------------------------------------------------------------------------------------------------------------
NET INCOME $ 100,936 $ 258,118
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BASIC EARNINGS PER SHARE $ 0.02 $ 0.06
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BASIC WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 4,947,942 4,609,942
-------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.02 $ 0.06
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DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 4,965,738 4,681,448
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4
</TABLE>
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 1997
----------------------------------------------------------------------- ---------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 100,936 $ 258,118
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 358,159 108,892
Provision for bad debts - -
Reserve for note receivable - -
Gain on sale of equipment - (2,825)
Decrease (increase) in:
Accounts receivable 235,077 208,053
Inventories (267,695) 11,026
Prepaid expenses and other current assets (12,731) (127,571)
Other assets (18,761) 3,305
Increase (decrease) in:
Accounts payable (51,064) 121,867
Taxes payable 16,100 92,013
Accrued expenses (41,865) 24,933
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NET CASH PROVIDED BY OPERATING ACTIVITIES 318,156 697,811
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (199,611) (146,121)
Proceeds from sale of equipment - 3,000
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NET CASH USED IN INVESTING ACTIVITIES (199,611) (143,121)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank borrowings 150,000 (325,000)
Payments of long-term debt and capital lease obligations (132,028) (31,916)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,972 (356,916)
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NET INCREASE IN CASH 136,517 197,774
CASH, AT BEGINNING OF PERIOD 275,238 162,094
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CASH, END OF PERIOD $ 411,755 $ 359,868
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</TABLE>
5
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
1. BUSINESS Allied Devices Corporation and subsidiaries
(the "Company") are engaged primarily in the
manufacture and distribution of standard and
custom precision mechanical components and a
line of screw machine products throughout
the United States.
2. SUMMARY OF (A) BASIS OF PRESENTATION/PRINCIPLES
SIGNIFICANT OF CONSOLIDATION
ACCOUNTING
POLICIES The accompanying consolidated
financial statements include the
accounts of Allied Devices
Corporation and its wholly-owned
subsidiaries, Empire-Tyler
Corporation ("Empire") and
APPI, Inc. ("APPI"),
(collectively, the "Company").
All significant intercompany
accounts and transactions have
been eliminated in consolidation.
The consolidated financial
statements and related notes
thereto as of December 31, 1998
and 1997, and for the three months
then ended, are unaudited and have
been prepared on a basis
consistent with the Company's
annual financial statements. Such
unaudited financial statements
include all adjustments
(consisting of normal recurring
adjustments) that the Company
considers necessary for a fair
presentation of such data. Results
for the three months ended
December 31, 1998 are not
necessarily indicative of the
results that may be expected for
the entire year ending September
30, 1999.
For further information, refer to
the consolidated financial
statements and footnotes thereto
included in the Company's Annual
Report on Form 10-KSB for the year
ended September 30, 1998.
(B) INVENTORIES
Inventories are valued at the
lower of cost (last-in, first-out
(LIFO) method) or market. For the
three months ended December 31,
1998 and 1997, inventory was
determined by applying a gross
profit method, as opposed to the
year ended September 30, 1998,
when inventory was determined by a
physical count.
6
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
(C) DEPRECIATION AND AMORTIZATION
Property, plant and equipment is
stated at cost. Depreciation and
amortization of property, plant
and equipment is computed using
the straight-line method over the
estimated useful lives of the
assets. The estimated useful lives
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 30 years
Machinery and equipment 10 years
Furniture, fixtures and office equipment 5-7 years
Tools, molds and dies 8 years
Leasehold improvements Lease term
</TABLE>
(D) INCOME TAXES
The Company and its subsidiaries
file a consolidated federal income
tax return and separate state
income tax returns. The Company
follows the liability method of
accounting for income taxes.
7
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
(E) EARNINGS PER SHARE
In 1997, the Financial Accounting
Standards Board issued Statement
of Financial Accounting Standards
No. 128 EARNINGS PER SHARE.
Statement 128 replaced the
previously reported primary and
fully diluted earnings per share
with basic and diluted earnings
per share. Unlike primary earnings
per share, basic earnings per
share excludes any dilutive
effects of options, warrants and
convertible securities. Diluted
earnings per share is very similar
to the previously reported fully
diluted earnings per share. All
earnings per share amounts for all
periods have been presented, and
where necessary restated, to
conform to Statement 128
requirements.
(F) INTANGIBLE ASSETS
The excess of cost over fair value
of net assets acquired is being
amortized over periods of 15 years
(for fiscal 1998 acquisitions) and
20 years (for prior acquisitions).
(G) REVENUE RECOGNITION
Sales are recognized upon shipment
of products.
(H) STATEMENT OF CASH FLOWS
For purposes of the statement of
cash flows, the Company considers
all highly liquid debt instruments
purchased with a maturity of three
months or less to be cash
equivalents.
8
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
3. INVENTORIES Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
----------------------------------------- ------------------- ------------------
<S> <C> <C>
Raw materials $1,145,157 $1,056,504
Work-in-process 1,000,567 964,563
Finished goods 8,535,943 8,392,905
----------------------------------------- ------------------- ------------------
10,681,667 10,413,972
Less: adjustment to LIFO (1,510,752) (1,510,752)
----------------------------------------- ------------------- ------------------
$9,170,915 $8,903,220
----------------------------------------- ------------------- ------------------
</TABLE>
9
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS
ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
ITEM 2- RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED
WITH THREE MONTHS ENDED DECEMBER 31, 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.
Net sales for the first quarter of fiscal 1999 were $5,370,000
as compared to $4,383,000 in the first quarter of fiscal 1998. This
increase of 22.5% was principally the result of two partially
off-setting factors: (1) the two businesses acquired in fiscal 1998
(during the second and fourth quarters respectively) contributed
approximately $2.1 million in sales volume to the first quarter of
fiscal 1999; and (2) each of the Company's operating units (including
the acquired businesses) was impacted by general economic conditions
and experienced a decline in sales volume for the first quarter of
fiscal 1999 when compared to the same period of the prior year,
resulting in approximately $1.1 million less in shipments. Several
capital goods industries have slowed down sharply as a result of
economic and financial turmoil in offshore markets, principally East
Asia, and many of the Company's important customers in these sectors
have seen their volume shrink by as much as 40%. Management believes
that its marketing efforts have served to mitigate the impact of these
10
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS
ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
conditions on the Company when compared to its competitors. Other
sectors of the U.S. economy appear to have remained healthy, with the
Company continuing to see growth in sales to customers in those
sectors. The Company has intensified its attention to providing
superior service to customers in those industries, in particular, the
aerospace instrumentation, medical equipment, robotics and scientific
instrumentation sectors. While it is not possible to forecast with any
accuracy when a recovery may occur in the affected sectors, general
consensus currently holds that it will be June, 1999, at the earliest
before conditions improve materially.
Reported gross margin for the first quarter of fiscal 1999 was
33.09% of net sales, as compared to 32.42% for the comparable period of
fiscal 1998. The lower level of sales activity compared to historical
levels (including the acquired businesses) permitted the Company to
manufacture more and purchase less, resulting in the following changes
from fiscal 1998: (1) net materials expense decreased as a percentage
of sales, increasing gross margins by 6.75%; and (2) the Company
shipped a lower volume of product on relatively fixed costs of factory
operations, decreasing gross margins by 6.08%. The Company did not
increase prices in the first quarter of fiscal 1999. LIFO reserves
remained unchanged during the period.
Selling, general and administrative expenses as a percentage
of net sales were 25.4% in the first quarter of fiscal 1999, as
compared to 22.2% in the comparable period of fiscal 1998. While actual
expenditures in fiscal 1999 were lower than in fiscal 1998 (after
allowing for the additions related to the two acquired businesses),
such costs did not decrease as much as sales volume. The following
factors account for these changes: (1) selling and shipping expenses
and commissions decreased as a percentage of net sales by approximately
2.2% as management reduced spending on certain aspects of the Company's
marketing program; (2) administrative payroll, benefits, and related
expenses increased by $272,000, primarily arising from the acquisition
completed in the final quarter of fiscal 1998, resulting in an increase
of such expenses of 3.7% as a percentage of net sales; and (3) other
administrative expenses (collectively) increased as a percentage of net
sales by approximately
11
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS
ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
1.7%, again partly as a result of the acquisition completed in
the final quarter of fiscal 1998. Management has set into motion a
plan to bring administrative payroll and general and administrative
expenses into line with historic norms during the second and third
quarters of fiscal 1999.
Interest expense of $253,000 in the first quarter of fiscal
1999 was $215,000 higher than in the comparable period of fiscal 1998,
a result of additional debt assumed by the Company to finance
acquisitions during the second and fourth quarters of fiscal 1998.
Provision for income taxes is estimated at 36.1% of pre-tax
income for the fiscal 1999 period, as a combination of federal and
state taxes.
LIQUIDITY AND FINANCIAL RESOURCES
During the first quarter of fiscal 1999, the Company's financial
condition remained healthy. Operations generated cash of $318,000, and
financing activities generated cash of $18,000. Capital expenditures
used $199,000 of this, with the balance increasing cash on hand by
$137,000. Working capital increased by $89,000 to $9,684,000
during the quarter, principally as a result of the following changes in
current assets and current liabilities:
o Accounts receivable decreased by $235,000 as a result of
shortening the average collection period from about 45 days at
the end of fiscal 1998 to about 39 days at the end of the
first quarter of fiscal 1999.
o Inventories increased by $268,000 during the quarter. Turns on
inventory were 1.6 times during the quarter, as compared to
1.4 times at the end of fiscal 1998. This change is
attributable to the increase in shipping volume contributed by
the acquisition completed in the fourth quarter of fiscal
1998.
o Prepaid and other current assets increased by $12,000 as the
Company recorded (and accrued for) certain annual
administrative expenses.
12
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS
ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
o Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations, decreased
$77,000 as accounts payable and accrued expenses decreased
$93,000, and taxes payable increased by $16,000.
o Current portions of long-term debt and capital lease
obligations increased by $170,000.
o Cash balances increased by $137,000.
Net capital expenditures in the quarter were $199,000
($276,000 including capital lease acquisitions) as management
continued to add to capacity and to modernize and streamline
its manufacturing processes. Management's capital spending
plans for the remaining three quarters of fiscal 1999 include
additional expenditures of approximately $350,000 for
productive equipment and approximately $25,000 for expansion
into additional space. Management expects to curtail portions
of its capital spending plans until it sees evidence of
improvement in its markets. When and if such plans are carried
out, management expects to fund such spending out of its
working capital and lease lines.
Management believes that the Company's working capital as now
constituted will be adequate for the needs of the on-going
core business. Management further believes that, in light of
the Company's expansion objectives, the Company's current
financial resources will not be adequate to provide for all of
the on-going cash needs of the business. In particular,
management expects to require additional financing to carry
out its acquisition objectives. It is management's intention
to complete at least one additional acquisition during fiscal
1999. Success in this part of the Company's growth plan will
rely, in large measure, upon success in raising additional
debt and/or equity capital. Management believes that it has
several sources for such capital and expects that the
combination of capital raised and acquisitions completed will
produce anti-dilutive results for the Company's existing
stockholders. While this is management's intention, there is
no guarantee that they will be able to achieve this objective.
The Company is not relying on the receipt of any new capital
for its existing operations. It is important to note that,
absent
13
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS
ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
new capital, the Company will not be in a position to
undertake some of the most promising elements of management's
plans for expansion. In the event that new capital is raised,
management intends to implement its plans and will do so in
keeping with its judgment at that time as to how best to
deploy such added capital.
14
<PAGE>
PART II. OTHER INFORMATION
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DATE: FEBRUARY 5, 1999 ALLIED DEVICES CORPORATION
- ---------------------- --------------------------
(REGISTRANT)
BY: /s/ M. Hopkinson
-----------------------
M. HOPKINSON
CHAIRMAN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER
1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000869495
<NAME> ALLIED DEVICES CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 411,755
<SECURITIES> 0
<RECEIVABLES> 2,335,282
<ALLOWANCES> 44,291
<INVENTORY> 9,170,915
<CURRENT-ASSETS> 12,293,449
<PP&E> 13,450,682
<DEPRECIATION> 5,852,071
<TOTAL-ASSETS> 23,092,620
<CURRENT-LIABILITIES> 2,609,341
<BONDS> 0
0
0
<COMMON> 4,948
<OTHER-SE> 9,212,089
<TOTAL-LIABILITY-AND-EQUITY> 23,092,620
<SALES> 5,370,454
<TOTAL-REVENUES> 5,370,454
<CGS> 3,593,270
<TOTAL-COSTS> 3,593,270
<OTHER-EXPENSES> 1,365,849
<LOSS-PROVISION> 44,291
<INTEREST-EXPENSE> 253,343
<INCOME-PRETAX> 157,992
<INCOME-TAX> 57,056
<INCOME-CONTINUING> 100,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,936
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
