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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, 1999.
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24012
ALLIED DEVICES CORPORATION
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(Exact name of small business issuer as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
13-3087510
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(I.R.S. Employer Identification No.)
2365 MILBURN AVENUE, BALDWIN, N.Y. 11510
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(Address of principal executive offices - Zip code)
Issuer's telephone number, including area code: (516) 223 - 9100
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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<TABLE>
<S> <C>
Common Stock, Par Value $.001 4,847,592
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(CLASS) (Shares Outstanding at January 31, 2000)
</TABLE>
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PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
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ALLIED DEVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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DECEMBER 31, September 30,
1999 1999
(UNAUDITED) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 288,000 $ 443,039
Accounts receivable 3,162,320 3,050,884
Inventories 9,908,777 9,731,773
Prepaid and other 468,395 126,902
Deferred income taxes 165,000 165,000
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TOTAL CURRENT 13,992,492 13,517,598
PROPERTY, PLANT AND EQUIPMENT, NET 7,353,768 7,335,000
GOODWILL 3,514,669 3,584,512
OTHER 467,567 420,916
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TOTAL ASSETS $ 25,328,496 $ 24,858,026
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,943,846 $ 1,867,578
Taxes payable 423,828 280,778
Accrued expenses 444,158 392,772
Current portion of long term debt and capital lease
obligations 1,719,118 1,577,539
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TOTAL CURRENT 4,530,950 4,118,667
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 10,734,087 10,931,435
DEFERRED TAXES 326,000 326,000
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TOTAL LIABILITIES 15,591,037 15,376,102
STOCKHOLDERS' EQUITY:
Capital stock 4,948 4,948
Paid-in capital 3,624,721 3,624,721
Retained earnings 6,236,961 5,981,426
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SUBTOTAL 9,866,630 9,611,095
LESS TREASURY STOCK, AT COST (129,171) (129,171)
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TOTAL STOCKHOLDERS' EQUITY 9,737,459 9,481,924
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,328,496 $ 24,858,026
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</TABLE>
3
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ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 1998
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(UNAUDITED) (Unaudited)
<S> <C> <C>
Net sales $6,693,487 $5,370,454
Cost of sales 4,378,398 3,593,270
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Gross profit 2,315,089 1,777,184
Selling, general and administrative expenses 1,596,002 1,365,849
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Income from operations 719,087 411,335
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Other expense 47,099 --
Interest expense (net) 272,088 253,343
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Income before provision for taxes on income 399,900 157,992
Taxes on income 144,365 57,056
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Net income $ 255,535 $ 100,936
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Basic earnings per share $ 0.05 $ 0.02
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Basic weighted average number of shares of common stock
outstanding 4,847,592 4,947,942
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Diluted earnings per share $ 0.05 $ 0.02
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Diluted weighted average number of shares of common stock
outstanding 5,206,778 4,965,738
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</TABLE>
4
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ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 1998
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(UNAUDITED) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 255,535 $ 100,936
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 399,973 358,159
Loss on sale of equipment 47,099 --
Decrease (increase) in:
Accounts receivable (111,436) 235,077
Inventories (177,004) (267,695)
Prepaid expenses and other current assets (341,493) (12,731)
Other assets (50,242) (18,761)
Increase (decrease) in:
Accounts payable 76,268 (51,064)
Taxes payable 143,050 16,100
Accrued expenses 51,386 (41,865)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 293,136 318,156
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (154,896) (199,611)
Proceeds from sale of equipment 55,000 --
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NET CASH USED IN INVESTING ACTIVITIES (99,896) (199,611)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank borrowings -- 150,000
Deferred financing costs (25,000) --
Payments of long-term debt and capital lease obligations (323,279) (132,028)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (348,279) 17,972
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NET (DECREASE) INCREASE IN CASH (155,039) 136,517
CASH, AT BEGINNING OF PERIOD 443,039 275,238
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CASH, END OF PERIOD $ 288,000 $ 411,755
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</TABLE>
5
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ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1999 AND 1998 IS UNAUDITED)
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1. BUSINESS Allied Devices Corporation and subsidiaries (the "Company")
are engaged primarily in the manufacture and distribution of
standard and custom precision mechanical assemblies and
components and a line of screw machine products throughout
the United States.
2. SUMMARY OF (A) BASIS OF PRESENTATION/PRINCIPLES OF CONSOLIDATION
SIGNIFICANT
ACCOUNTING
POLICIES The accompanying consolidated financial statements
include the accounts of Allied Devices Corporation and
its wholly-owned subsidiaries, 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, 1999 and 1998, 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, 1999 are not
necessarily indicative of the results that may be
expected for the entire year ending September 30, 2000.
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, 1999.
6
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ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1999 AND 1998 IS UNAUDITED)
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(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, 1999 and 1998, inventory was
determined by applying a gross profit method, as opposed
to the year ended September 30, 1999, when inventory was
determined by a physical count.
(C) DEPRECIATION AND AMORTIZATION
Property, plant and equipment are 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>
<S> <C>
Buildings and improvements 30 years
Machinery and equipment 8-10 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
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ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1999 AND 1998 IS UNAUDITED)
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(E) 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 would have a dilutive effect, the dilution
that would occur upon the exercise of stock options and
warrants.
(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.
3. INVENTORIES Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, September 30,
1999 1999
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<S> <C> <C>
Raw materials $1,293,065 $1,312,565
Work-in-process 1,025,542 1,041,542
Finished goods 9,217,470 8,990,642
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11,536,077 11,344,749
Less: adjustment to LIFO (1,627,300) (1,612,976)
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$9,908,777 $9,731,773
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</TABLE>
8
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1999 AND 1998 IS UNAUDITED)
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4. NEW LEASE In November, 1999, the Company entered into a lease for a new
COMMITMENT manufacturing facility for the purpose of consolidating its
four locations on Long Island into one building and allowing
for growth of more than 50% in sales volume. Upon completion
of consolidation, the leases on all four current locations
will expire or terminate. The lease on the new facility
expires in April, 2010 and requires total minimum rental
payments of $ 4,999,000.
9
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ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1998
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
All statements contained herein that are not historical
facts, including, but not limited to, statements regarding
the Company's current business strategy, the Company's
projected sources and uses of cash, and the Company's plans
for future development and operations, are based upon current
expectations. These statements are forward-looking in nature
and involve a number of risks and uncertainties. Actual
results may differ materially. Among the factors that could
cause actual results to differ materially are the following:
the availability of sufficient capital to finance the
Company's business plans on terms satisfactory to the
Company; competitive factors; changes in labor, equipment and
capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships;
general business and economic conditions; and factors
described from time to time in the reports filed by the
Company with the Securities and Exchange Commission. The
Company cautions readers not to place undue reliance on any
such forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as
a result, are pertinent only as of the date made.
Net sales for the first quarter of fiscal 2000 were
$6,693,000 as compared to $5,370,000 in the first quarter of
fiscal 1999. This increase of 24.6% was principally the
result of improved conditions in the various sectors of the
US economy served by the Company. The semiconductor equipment
sector's severe slowdown in 1998 and 1999 had impacted the
Company's shipping volume, and its current recovery is having
a positive effect. Other sectors, most notably medical
equipment and robotics, had remained stable but exhibited low
growth, and they are now appearing to show attractive growth
potential. The Company remains dedicated to providing top
quality and superior service to its customers, particularly
those in the semiconductor equipment, aerospace instrument,
medical equipment, robotics and scientific
10
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1998
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instrumentation sectors. While it is not possible to forecast
with any accuracy how long the current recovery may last,
customers in these sectors are predicting two or three years
of strong activity.
Reported gross profit for the first quarter of fiscal 2000
was 34.59% of net sales, as compared to 33.09% for the
comparable period of fiscal 1999. Higher operating rates had,
in general, a positive effect on margins, with the following
factors accounting for the improvement: (1) net materials
expense increased as a percentage of sales, decreasing gross
margins by 4.01%, as purchasing efficiencies suffered in
favor of timeliness of deliveries; (2) higher throughput in
manufacturing resulted in solid gains in labor productivity,
improving margins by 3.69%; and (3) the Company shipped a
higher volume of product on relatively fixed costs of factory
operations, increasing gross margins by 1.82%. In the third
quarter of fiscal 2000, the Company expects to consolidate
four plants on Long Island into one new facility, allowing
for improved control and coordination of manufacturing
activities and for expansion of manufacturing capacity. This
will entail an increase in occupancy expense that, at current
operating rates, would reduce gross margin by approximately
0.50%. Management expects this cost increase to be more than
offset by additional increases in sales volume. The Company
did not increase prices in the first quarter of fiscal 2000.
LIFO reserves increased by $14,000 during the period.
Selling, general and administrative expenses as a percentage
of net sales were 23.8% in the first quarter of fiscal 2000,
as compared to 25.4% in the comparable period of fiscal 1999.
The following factors account for this change: (1) selling
and shipping expenses and commissions increased as a
percentage of net sales by approximately 0.1% as management
increased spending on certain aspects of the Company's
marketing plan; (2) administrative payroll, benefits, and
related expenses decreased as a percentage of net sales by
1.6%; and (3) other administrative expenses (collectively)
decreased as a percentage of net sales by approximately 0.1%.
11
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1998
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Other expense is attributable to non-cash losses on the
trade-in of certain older machines for more highly productive
manufacturing equipment.
Interest expense of $272,000 in the first quarter of fiscal
2000 was $19,000 higher than in the comparable period of
fiscal 1999, a result of marginally higher debt taken on by
the Company to finance new equipment.
Provision for income taxes is estimated at 36.1% of pre-tax
income for the fiscal 2000 period, the same as in fiscal
1999, as a combination of federal and state taxes.
LIQUIDITY AND FINANCIAL RESOURCES
During the first quarter of fiscal 2000, the Company's
financial condition remained healthy. Operations generated
cash of $293,000. Capital expenditures (net) used $100,000,
and financing activities used $348,000, resulting in a
decrease in cash on hand of $155,000. Working capital
increased by $63,000 to $9,462,000 during the quarter,
principally as a result of the following changes in current
assets and current liabilities:
- Accounts receivable increased by $111,000 as a function
of offsetting factors: (a) the average collection period
decreased from about 45 days at the end of fiscal 1999
to about 43 days at the end of the first quarter of
fiscal 2000, reducing receivables by approximately
$139,000, and (2) sales volume increased by 24.6%,
increasing receivables by approximately $250,000.
- Inventories increased by 1.8%, or $177,000, during the
quarter. Turns on inventory improved to 1.7 times during
the quarter, as compared to 1.6 times at the end of
fiscal 2000. This change is attributable to the increase
in shipping volume experienced in the first quarter of
fiscal 2000.
12
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1998
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- Prepaid and other current assets increased by $341,000
as the Company recorded (and accrued for) certain annual
administrative expenses and made deposits on three new
pieces of equipment.
- Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations, increased
$270,000 as accounts payable and accrued expenses
increased $127,000, and taxes payable increased by
$143,000.
- Current portions of long-term debt and capital lease
obligations increased by $141,000.
- Cash balances decreased by $155,000.
Net capital expenditures in the quarter were $100,000
($422,000 including capital lease acquisitions) as management
continued to add to capacity and to streamline its
manufacturing processes. Management's capital spending plans
for the remaining three quarters of fiscal 2000 include
additional expenditures of approximately $1,700,000 for
productive equipment and approximately $500,000 for expansion
and consolidation of New York operations into a new facility
on Long Island. 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 significant acquisition during
fiscal 2000. Success in this part of the Company's growth
plan may 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
13
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ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1998
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stockholders. While this is management's intention, there is
no guarantee that they will be able to achieve this
objective. The Company is not relying on the receipt of any
new capital for its existing operations. It is important to
note that, absent new capital, the Company will not be in a
position to undertake some of the most promising elements of
management's plans for expansion. In the event that new
capital is raised, management intends to implement its plans
and will do so in keeping with its judgment at that time as
to how best to deploy such added capital.
14
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PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: JANUARY 31, 2000 ALLIED DEVICES CORPORATION
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(Registrant)
By: /s/ Mark Hopkinson
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M. Hopkinson
Chairman
15
