<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 June 30, 2000.
-------------
/ / 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.)
325 Duffy Avenue, Hicksville, New York 11801
--------------------------------------------
(Address of principal executive offices - Zip code)
Issuer's telephone number, including area code: (516) 935-1300
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 4,847,592
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(CLASS) (Shares Outstanding at July 31, 2000)
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=========================================================================================
JUNE 30, September 30,
2000 1999
-----------------------------------------------------------------------------------------
(UNAUDITED) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 274,725 $ 443,039
Accounts receivable 3,962,224 3,050,884
Inventories 10,320,976 9,731,773
Prepaid and other 220,449 126,902
Deferred income taxes 165,000 165,000
-----------------------------------------------------------------------------------------
TOTAL CURRENT 14,943,374 13,517,598
PROPERTY, PLANT AND EQUIPMENT, NET 8,506,520 7,335,000
GOODWILL 3,374,982 3,584,512
OTHER 393,985 420,916
-----------------------------------------------------------------------------------------
TOTAL ASSETS $ 27,218,861 $ 24,858,026
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 2,021,500 $ 1,867,578
Taxes payable 661,090 280,778
Accrued expenses 839,602 392,772
Current portion of long term debt and capital lease 1,985,796 1,577,539
obligations
-----------------------------------------------------------------------------------------
TOTAL CURRENT 5,507,988 4,118,667
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 10,869,258 10,931,435
OTHER LIABILITIES 78,505 --
DEFERRED TAXES 326,000 326,000
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES 16,781,751 15,376,102
STOCKHOLDERS' EQUITY:
Capital stock 4,948 4,948
Paid-in capital 3,624,721 3,624,721
Retained earnings 6,936,612 5,981,426
-----------------------------------------------------------------------------------------
SUBTOTAL 10,566,281 9,611,095
LESS TREASURY STOCK, AT COST (129,171) (129,171)
-----------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 10,437,110 9,481,924
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,218,861 $ 24,858,026
=========================================================================================
</TABLE>
3
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
==========================================================================================
Quarter Ended Nine Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 8,257,086 $ 5,688,164 $22,685,556 $16,689,098
Cost of sales 5,361,383 3,795,103 14,758,053 11,222,657
Gross profit 2,895,703 1,893,061 7,927,503 5,466,441
Other operating expense 236,432 -- 236,432 --
Selling, general and
administrative expenses 1,900,163 1,414,583 5,258,334 4,120,901
Income from operations 759,108 478,478 2,432,737 1,345,540
Other expense 32,063 -- 69,503 --
Interest expense (net) 309,928 249,443 868,421 758,898
Income before provision
for taxes on income 417,117 229,035 1,494,813 586,642
Taxes on income 150,609 82,682 539,627 211,778
Net income $ 266,508 $ 146,353 $ 955,186 $ 374,864
==========================================================================================
Basic earnings per share $ 0.05 $ 0.03 $ 0.20 $ 0.08
==========================================================================================
Basic weighted average
number of shares of
common stock outstanding 4,847,592 4,903,532 4,847,592 4,903,532
==========================================================================================
Diluted earnings per share $ 0.05 $ 0.03 $ 0.18 $ 0.08
==========================================================================================
Diluted weighted average
number of shares of
common stock outstanding 5,615,040 4,995,471 5,452,205 4,995,471
==========================================================================================
</TABLE>
4
<PAGE>
ALLIED DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=========================================================================================
FOR THE NINE MONTHS ENDED JUNE 30, 2000 1999
----------------------------------------------------------------------------------
(UNAUDITED) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 955,186 $ 374,864
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,280,728 1,091,237
Loss on sale of equipment 78,012 (2,300)
Decrease (increase) in:
Accounts receivable (911,340) (138,860)
Inventories (589,203) (555,713)
Prepaid expenses and other current assets (93,547) 186,114
Other assets (41,220) (110,271)
Increase (decrease) in:
Accounts payable 153,922 (88,356)
Taxes payable 380,312 109,458
Accrued expenses 446,830 (115,577)
Other liabilities 78,505 --
----------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,738,185 750,596
----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (696,602) (170,906)
Proceeds from sale of equipment 275,450 2,500
----------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (421,152) (168,406)
----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank borrowings (200,000) 150,000
Deferred financing costs (25,000) (55,350)
Treasury stock acquired -- (115,357)
Payments of long-term debt and capital lease
obligations (1,260,347) (728,429)
----------------------------------------------------------------------------------
NET CASH (USED IN) FINANCING ACTIVITIES (1,485,347) (749,136)
----------------------------------------------------------------------------------
NET (DECREASE) IN CASH (168,314) (166,946)
CASH, AT BEGINNING OF PERIOD 443,039 275,238
----------------------------------------------------------------------------------
CASH, END OF PERIOD $ 274,725 $ 108,292
==================================================================================
</TABLE>
5
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 2000 AND 1999 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 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 June 30, 2000 and 1999, and
for the three and nine month periods then ended,
are unaudited and have been prepared on a basis
consistent with the Company's annual financial
statements. Such unaudited financial statements
include all adjustments (consisting of normal
recurring adjustments) that the Company considers
necessary for a fair presentation of such data.
Results for the nine months ended June 30, 2000
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
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 2000 AND 1999 IS UNAUDITED)
================================================================================
(b) INVENTORIES
Inventories are valued at the lower of cost
(last-in, first-out (LIFO) method) or market. For
the three and nine months ended June 30, 2000 and
1999, 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:
Buildings and improvements 30 years
Machinery and equipment 5-10 years
Furniture, fixtures and office
equipment 5-7 years
Tools, molds and dies 8 years
Leasehold improvements Lease term
(d) INCOME TAXES
The Company and its subsidiaries file a
consolidated federal income tax return and
separate state income tax returns. The Company
follows the liability method of accounting for
income taxes.
7
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 2000 AND 1999 IS UNAUDITED)
================================================================================
(e) EARNINGS PER SHARE
Basic earnings per share are 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. A reconciliation of the
shares used in calculating basic and diluted
earnings per share follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding -
basic 4,847,592 4,903,532 4,847,592 4,903,532
Dilutive effect of
options and warrants 767,448 91,939 604,613 91,939
----------------------------------------------------------------------------
Weighted average
shares outstanding-
diluted 5,615,040 4,995,471 5,452,205 4,995,471
----------------------------------------------------------------------------
</TABLE>
(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.
8
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 2000 AND 1999 IS UNAUDITED)
================================================================================
(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:
June 30, September 30,
2000 1999
-------------------------------------------------------
Raw materials $ 1,466,565 $ 1,312,565
Work-in-process 1,074,542 1,041,542
Finished goods 9,490,257 8,990,642
-------------------------------------------------------
12,031,364 11,344,749
Less: adjustment to LIFO (1,710,388) (1,612,976)
-------------------------------------------------------
$10,320,976 $ 9,731,773
=======================================================
4. NEW During the month of May, 2000, the Company consolidated
MANUFACTURING its four locations on Long Island into a single
FACILITY facility, allowing for better production control,
improved productivity, and growth in throughput of
more than 50%. The lease on this new facility expires
in June, 2010, and requires total minimum rental
payments of $ 5,002,000. The leases on the four
locations that were vacated either expired or were
terminated in May, 2000.
9
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
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 quarter and nine months ended June 30,
2000 were $8,257,000 and $22,686,000, respectively, as
compared to $5,688,000 and $16,689,000 in the comparable
periods of the prior year, increases of approximately
45.16% and 35.93%, respectively. These increases were
principally the result of two factors: (1) improved
conditions in the various sectors of the US economy
served by the Company, and (2) success in developing
strong new or expanded customer relationships.
(a) Improved Conditions: The semiconductor
equipment sector's severe slowdown in 1998 and
1999 had negatively impacted the Company's
shipping volume, and that industry's current
growth rate of over 30% per annum is clearly
reflected in the Company's shipments.
10
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
In particular, fourteen (14) customers in this
sector have accounted for approximately 60% of
the growth in sales from fiscal 1999 to fiscal
2000. Other sectors, most notably medical
equipment and robotics, had remained stable,
experiencing flat or low growth through 1998
and 1999, and they are just now beginning to
show improved strength.
(b) Strong Customer Relationships: The Company has
experienced strong growth in certain
specialized capabilities offered by its
Atlantic Precision division to key players in
the semiconductor equipment industry. While
this has had the effect of increasing customer
and industry concentration, management
believes that such capabilities are highly
unusual and a competitive advantage for the
Company. The Company has committed more than
half of its capital spending in fiscal 2000 to
supporting the growth and development of these
capabilities.
The Company remains dedicated to providing top quality
and superior service to all of its customers,
particularly those in the semiconductor equipment,
aerospace instrument, medical equipment, robotics and
scientific 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 eighteen to thirty-six months of strong
activity.
Reported gross profit for the third quarter and first
nine months of fiscal 2000 was 35.07% and 34.95% of net
sales, respectively, as compared to 33.28% and 32.75%
for the comparable periods of fiscal 1999. Higher
operating rates had, in general, a positive effect on
margins, with the following factors accounting for the
improvement: (1) higher throughput in manufacturing
resulted in solid gains in labor productivity, improving
margins by 2.82%; (2) the Company shipped a higher
volume of product on relatively fixed costs of factory
operations, increasing gross margins by 1.61% and (3)
net materials expense increased as a percentage of
11
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
sales, decreasing gross margins by 2.23%, as relentless
demands for short lead-times coupled with rapid growth
prompted, temporarily, certain purchasing inefficiencies
and a higher level of outsourcing. Further, in the third
quarter of fiscal 2000, the Company consolidated the
four plants it was operating on Long Island into one new
facility, allowing not only for expansion of productive
capacity but also for improvements in production
control, resource utilization, and coordination of
manufacturing activities. Rental expense at the new
facility is higher than was the combined rent expense of
the four facilities. At current operating rates, the
higher rental expense reduces gross margins by
approximately 0.41%. Management expects this cost
increase to be more than offset by increases in sales
volume and gains in productivity. The Company did not
increase prices in the first nine months of fiscal 2000.
LIFO reserves increased by $97,000 during the period.
Other operating expense of $236,000 consists of one-time
expenses incurred in connection with the Company's
consolidation into its new manufacturing facility during
the third quarter of fiscal 2000.
Selling, general and administrative expenses as a
percentage of net sales were 23.01% and 23.18% in the
third quarter and first nine months of fiscal 2000,
respectively, as compared to 24.86% and 24.69% in the
comparable periods 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 1.2%;
and (3) other administrative expenses (collectively)
decreased as a percentage of net sales by approximately
0.41%.
Other expense of $70,000 includes losses on the trade-in
of certain machines for more highly productive
manufacturing equipment.
12
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
Interest expense of $310,000 and $868,000 in the third
quarter and first nine months of fiscal 2000,
respectively, was $60,000 and $110,000 higher than in
the comparable periods of fiscal 1999. These increases
were the combined result of additional borrowings (used
to finance new equipment) and higher interest rates on
the variable rate portion of the Company's debt.
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 nine months of fiscal 2000, the
Company's financial condition remained healthy.
Operations generated cash of $1,738,000. Capital
expenditures (net) used $421,000, and financing
activities used $1,485,000, resulting in a decrease in
cash on hand of $168,000. Working capital increased by
$36,000 to $9,435,000 during the nine month period,
principally as a result of the following changes in
current assets and current liabilities:
o Accounts receivable increased by $911,000 as a
function of increased sales volume. The average
collection period was about 44 days at the end of the
third quarter of fiscal 2000.
o Inventories increased by 6.0%, or $589,000, during
the nine month period, as compared to an increase of
34.94% in sales volume. Turns on inventory for the
nine month period were 1.9 times (with the rate
during the third quarter reaching 2.1 times) as
compared to 1.6 times at the end of fiscal 1999. This
change is attributable to larger growth in shipping
volume than in underlying inventories during the
first nine months of fiscal 2000.
o Prepaid and other current assets increased by $93,000
as the Company recorded and accrued for certain
annual administrative expenses.
13
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
o Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations,
increased $981,000 as accounts payable and accrued
expenses increased $601,000, and taxes payable
increased $380,000.
o Current portions of long-term debt and capital lease
obligations increased by $408,000.
o Cash balances decreased by $168,000.
Net capital expenditures over the nine month period were
$421,000 ($2,228,000 including capital lease
acquisitions) as management responded to higher demands
on capacity and updated manufacturing processes.
Management's capital spending plans for the remaining
quarter of fiscal 2000 include additional expenditures
of approximately $2,200,000 for productive equipment.
Management expects to fund such spending out of its
working capital and lease lines.
Management believes that the Company's working capital
as now constituted will be adequate for the needs of the
on-going core business. Management further believes
that, in light of the Company's expansion objectives,
the Company's current financial resources will not be
adequate to provide for all of the on-going cash needs
of the business. In particular, management expects to
require additional financing to carry out its
acquisition objectives. It is management's intention to
complete at least one significant acquisition during
calendar year 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
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
14
<PAGE>
ALLIED DEVICES CORPORATION
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
================================================================================
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.
To date, the Company has not experienced any Year 2000
related issues or problems.
15
<PAGE>
ALLIED DEVICES CORPORATION
OTHER INFORMATION: NINE MONTHS ENDED JUNE 30, 2000
================================================================================
PART II. OTHER INFORMATION
ITEM 3- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 11, 2000, the Company held its 2000 Annual
Meeting of Stockholders. At the Annual Meeting, the
following matters were submitted to a vote of
stockholders.
1. The following five individuals, constituting the
full Board of Directors of the Company, were
nominated and elected to serve as directors of
the Company.
Mark Hopkinson FOR: 3,701,408
WITHHOLD
AUTHORITY: 17,690
P. K. Bartow FOR: 3,701,408
WITHHOLD
AUTHORITY: 17,690
Salvator Baldi FOR: 3,701,408
WITHHOLD
AUTHORITY: 17,690
Christopher T. Linen FOR: 3,701,408
WITHHOLD
AUTHORITY: 17,690
Michael Michaelson FOR: 3,701,408
WITHHOLD
AUTHORITY: 17,690
2. The holders of 3,701,408 shares of common stock
voted in favor with respect to the ratification of
the selection of BDO Seidman, LLP,
16
<PAGE>
ALLIED DEVICES CORPORATION
OTHER INFORMATION: NINE MONTHS ENDED JUNE 30, 2000
================================================================================
independent certified public accountants, to serve
as independent accountants of the Company for the
fiscal year ending September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: JULY 31, 2000 ALLIED DEVICES CORPORATION
(Registrant)
By: /s/ M. Hopkinson
----------------
M. Hopkinson
Chairman
17
