10QSB 1 a2037661z10qsb.txt 10QSB 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, 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, N.Y. 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 4,948,392 ----------------------------- --------------------------------------- (CLASS) (Shares Outstanding at January 31, 2001) PART I ------ ALLIED DEVICES CORPORATION AND SUBSIDIARIES ------------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- 2 ALLIED DEVICES CORPORATION CONSOLIDATED BALANCE SHEETS ================================================================================
DECEMBER 31, September 30, 2000 2000 -------------------------------------------------------------------------------- (UNAUDITED) (Audited) ASSETS CURRENT: Cash $ 82,047 $ 410,186 Accounts receivable 4,062,706 4,939,164 Inventories 10,500,853 10,298,923 Prepaid and other 382,268 119,961 Deferred income taxes 554,000 554,000 -------------------------------------------------------------------------------- TOTAL CURRENT 15,581,874 16,322,234 PROPERTY, PLANT AND EQUIPMENT, NET 13,400,359 9,750,586 GOODWILL 5,313,337 5,061,944 OTHER 382,208 429,009 -------------------------------------------------------------------------------- TOTAL ASSETS $ 34,677,778 $ 31,563,773 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT: Accounts payable $ 3,789,002 $ 3,539,960 Taxes payable 608,596 881,801 Accrued expenses 997,666 1,158,941 Current portion of long term debt and capital lease obligations 3,463,791 2,896,742 -------------------------------------------------------------------------------- TOTAL CURRENT 8,859,055 8,477,444 LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 13,199,151 11,257,491 OTHER LIABILITIES 103,932 91,218 DEFERRED TAXES 781,000 781,000 -------------------------------------------------------------------------------- TOTAL LIABILITIES 22,943,138 20,607,153 STOCKHOLDERS' EQUITY: Capital stock 5,049 4,948 Paid-in capital 3,958,470 3,624,721 Retained earnings 7,900,292 7,456,122 -------------------------------------------------------------------------------- SUBTOTAL 11,863,811 11,085,791 LESS TREASURY STOCK, AT COST (129,171) (129,171) -------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 11,734,640 10,956,620 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,677,778 $ 31,563,773 ================================================================================
3 ALLIED DEVICES CORPORATION CONSOLIDATED STATEMENTS OF INCOME ================================================================================
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 1999 -------------------------------------------------------------------------------- (UNAUDITED) (Unaudited) Net sales $9,597,119 $6,693,487 Cost of sales 6,466,521 4,378,398 -------------------------------------------------------------------------------- Gross profit 3,130,598 2,315,089 Selling, general and administrative expenses 2,081,080 1,596,002 -------------------------------------------------------------------------------- Income from operations 1,049,518 719,087 -------------------------------------------------------------------------------- Other expense - 47,099 Interest expense (net) 354,416 272,088 -------------------------------------------------------------------------------- Income before provision for taxes on income 695,102 399,900 Taxes on income 250,932 144,365 -------------------------------------------------------------------------------- Net income $ 444,170 $ 255,535 ================================================================================ Basic earnings per share $ 0.09 $ 0.05 ================================================================================ Basic weighted average number of shares of common stock outstanding 4,897,992 4,847,592 ================================================================================ Diluted earnings per share $ 0.08 $ 0.05 ================================================================================ Diluted weighted average number of shares of common stock outstanding 5,782,109 5,206,778 ================================================================================
4 ALLIED DEVICES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ================================================================================
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 1999 -------------------------------------------------------------------------------- (UNAUDITED) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 444,170 $ 255,535 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 607,480 399,973 Loss on sale of equipment - 47,099 Decrease (increase) in: Accounts receivable 876,458 (111,436) Inventories (192,930) (177,004) Prepaid expenses and other current assets (226,100) (341,493) Other assets 9,000 (50,242) Increase (decrease) in: Accounts payable 372,801 76,268 Taxes payable (273,205) 143,050 Accrued expenses (161,273) 51,386 Other liabilities 12,714 - -------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,469,115 293,136 -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (162,908) (154,896) Business acquisition (664,063) - Proceeds from sale of equipment - 55,000 -------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (826,971) (99,896) -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in bank borrowings (600,000) - Proceeds from sale of common stock 2,600 - Proceeds from equipment financing 224,111 - Deferred financing costs - (25,000) Payments of long-term debt and capital lease obligations (596,994) (323,279) -------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (970,283) (348,279) -------------------------------------------------------------------------------- NET DECREASE IN CASH (328,139) (155,039) CASH, AT BEGINNING OF PERIOD 410,186 443,039 -------------------------------------------------------------------------------- CASH, END OF PERIOD $ 82,047 $ 288,000 ================================================================================
5 ALLIED DEVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR DECEMBER 31, 2000 AND 1999 IS UNAUDITED) ================================================================================ 1. BUSINESS Allied Devices Corporation and subsidiaries are engaged primarily in the manufacture and distribution of standard and custom precision mechanical assemblies and components throughout the United States. 2. SUMMARY OF (a) BASIS OF PRESENTATION/PRINCIPLES OF SIGNIFICANT CONSOLIDATION ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Allied Devices Corporation and its wholly-owned subsidiaries, Empire - Tyler Corporation and APPI, Inc. (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and related notes thereto as of December 31, 2000 and 1999, 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, 2000 are not necessarily indicative of the results that may be expected for the entire year ending September 30, 2001. 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, 2000. 6 ALLIED DEVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR DECEMBER 31, 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 months ended December 31, 2000 and 1999, inventory was determined by applying a gross profit method, as opposed to the year ended September 30, 2000, 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 ALLIED DEVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR DECEMBER 31, 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:
Quarters Ended December 31, 2000 1999 ----------------------- Weighted average shares outstanding - basic 4,897,992 4,847,592 Dilutive effect of options and warrants 884,117 359,186 ----------------------- Weighted average shares outstanding- diluted 5,782,109 5,206,778 =======================
(f) INTANGIBLE ASSETS The excess of cost over fair value of net assets acquired is being amortized over periods of 15 and 20 years. 8 ALLIED DEVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR DECEMBER 31, 2000 AND 1999 IS UNAUDITED) ================================================================================ (g) REVENUE RECOGNITION Sales are recognized upon shipment of products. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition in financial statements. There has been no effect to the Company's operating results as a result of adopting and applying SAB 101. (h) STATEMENT OF CASH FLOWS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents. 3. INVENTORIES Inventories are summarized as follows:
DECEMBER 31, September 30, 2000 2000 ------------------------------------------------------ Raw materials $ 987,531 $ 1,076,603 Work-in-process 1,121,275 1,112,276 Finished goods 8,543,484 8,261,481 ------------------------------------------------------ 10,652,290 10,450,360 Less: adjustment to LIFO (151,437) (151,437) ------------------------------------------------------ $10,500,853 $10,298,923 ======================================================
4. SUPPLEMENTAL During the quarter ended December 31, 2000, CASH FLOWS there were several non-cash transactions detailed as follows: (1) the Company entered into various capital leases amounting to $3,182,000 for the purchase of new machinery and equipment; (2) the Company issued a $300,000 note payable in connection with the acquisition of Martin Machine, Inc. (see note 5); and (3) the Company issued 100,000 shares of common stock valued at $331,250 in connection with the purchase of Martin Machine, Inc. (see note 5). 9 ALLIED DEVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR DECEMBER 31, 2000 AND 1999 IS UNAUDITED) ================================================================================ 5. BUSINESS On November 15, 2000, the Company acquired ACQUISITIONS Martin Machine, Inc. ("Martin"), located in Raymond, Maine. The acquisition was accounted for using the purchase method of accounting. Total purchase consideration amounted to $1,031,000, including the value of 100,000 shares of common stock (issued immediately following closing), a $300,000 note payable in twenty equal installments beginning March 31, 2001, and $400,000 in cash. The Company issued a guarantee to the seller that the common stock would be worth $4 per share at predetermined future dates. Prior to the acquisition, the Company was Martin's primary customer. The excess of cost over the fair value of assets acquired amounted to $360,712, which was recorded as goodwill and is being amortized over a (15) fifteen-year period. 10 ALLIED DEVICES CORPORATION RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 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 first quarter of fiscal 2001 were $9,597,000, as compared to $6,693,000 in the first quarter of fiscal 2000. This increase of 43.4% was principally the result of two factors: (1) customers in the various sectors of the US economy served by the Company continued to show strength similar to that evident throughout fiscal year 2000; and (2) the Company continued to apply its marketing strategy, consistently, intensifying its efforts to diversify and gain business outside the semiconductor equipment sector. Management believes this above-average rate of growth is indicative of the effectiveness of its strategies. 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, gas flow 11 ALLIED DEVICES CORPORATION RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1999 ================================================================================ metering and control, and scientific instrumentation sectors. While management believes it is not possible to forecast with any accuracy how long the current strength in the market place may last, it is management's expectation that, for much if not all of fiscal 2001, the Company will continue to show attractive rates of growth. Reported gross profit for the first quarter of fiscal 2001 was 32.62% of net sales, as compared to 34.59% for the comparable period of fiscal 2000. The following factors accounted for this decrease: (1) net materials expense increased as a percentage of sales, decreasing gross margins by 1.40%, as purchasing efficiencies suffered in favor of timeliness of deliveries; (2) higher throughput in manufacturing resulted in gains in labor productivity, improving margins by 0.68%; and (3) other manufacturing costs increased as a percentage of sales, principally one-time expenses attendant to commissioning of new equipment and related non-cash depreciation charges, decreasing gross margins by 1.25%. The Company did not increase prices in the first quarter of fiscal 2001. LIFO reserves remained unchanged during the period. Selling, general, administrative and other expenses as a percentage of net sales were 21.68% in the first quarter of fiscal 2001, as compared to 24.55% in the comparable period of fiscal 2000. The following factors accounted for this decrease: (1) selling and shipping expenses and commissions decreased as a percentage of net sales by approximately 0.09%; (2) administrative payroll, benefits, and related expenses decreased as a percentage of net sales by 2.15%; and (3) other general administrative and other expenses (collectively) decreased as a percentage of net sales by approximately 0.63%. Interest expense of $354,000 in the first quarter of fiscal 2001 was $82,000 higher than in the comparable period of fiscal 2000, a result of the combined effect of higher interest rates, the "Martin" 12 ALLIED DEVICES CORPORATION RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1999 ================================================================================ acquisition and higher indebtedness 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 2001 period, the same as in fiscal 2000, as a combination of federal and state taxes. LIQUIDITY AND FINANCIAL RESOURCES During the first quarter of fiscal 2001, the Company's financial condition remained healthy. Operations generated cash of $1,469,000. Capital expenditures (net) used $163,000, acquisition activities used $664,000 and financing activities used $970,000, resulting in a decrease in cash on hand of $328,000. Working capital decreased by $1,122,000 to $6,723,000 during the quarter, principally as a result of the following changes in current assets and current liabilities: o Accounts receivable decreased by $876,000 as the average collection period decreased from about 45 days at the end of fiscal 2000 to about 38 days at the end of the first quarter of fiscal 2001, reducing receivables by approximately $896,000, and sales volume increased somewhat from levels of the fourth quarter of fiscal year 2000, increasing receivables by approximately $20,000. o Inventories increased by 2.0%, or $202,000, during the quarter. Turns on inventory improved to 2.5 times during the quarter, as compared to 2.0 times at the end of fiscal 2000. The increase in turns on inventory in the first quarter of fiscal 2001 is attributable to increased shipping volume. o Prepaid and other current assets increased by $262,000 as the Company paid certain annual administrative expenses that will be expensed over the course of the year. o Current liabilities, exclusive of current portions of long-term debt and capital lease obligations, decreased $185,000 as 13 ALLIED DEVICES CORPORATION RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1999 ================================================================================ accounts payable and accrued expenses increased $88,000, and taxes payable decreased by $273,000. o Current portions of long-term debt and capital lease obligations increased by $567,000. This is a reflection of the higher level of indebtedness the Company has incurred in its capital spending program over the last year, including the financing of over $5 million in new capital equipment. o Cash balances decreased by $328,000. Net capital expenditures in the quarter were $163,000 ($3,345,000 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 2001 include additional expenditures of approximately $2,000,000 for productive equipment. Management expects to fund such spending out of its working capital and lease lines. In November 2000, the Company acquired Martin Machine, Inc. ("Martin"), located in Raymond, Maine. Total consideration amounted to $1,031,000, including the value of 100,000 shares of common stock issued and $300,000 delivered in the form of a 7% note payable in twenty equal quarterly installments beginning March 31, 2001. The Company issued a guarantee to the seller that the common stock would be worth $4 per share at predetermined future dates. Prior to the acquisition, the Company was Martin's primary customer. Management believes that the Company's working capital as now constituted will be adequate for the needs of the on-going core business, and cash generated from operations appears to be more than adequate to service existing obligations. The unused portion of the Company's credit facility is, in management's opinion, a reserve to protect against unforeseen downturns and requirements for cash. The Company is not relying on the receipt of any new capital for its existing operations. 14 ALLIED DEVICES CORPORATION RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1999 ================================================================================ Management further believes that, in light of the Company's objective of expanding by acquisition, the Company's current financial resources may not be adequate to provide for all of the on-going cash needs of the business. In particular, management intends to complete a series of acquisitions during the next several fiscal years, and to do so will require, in all probability, that management raise additional capital. 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 without materially heightening the Company's risk profile. While this is management's intention, there is no guarantee that they will be able to achieve this objective. It is important to note that, absent new capital, the Company may 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. 15 PART II. OTHER INFORMATION -------------------------- ITEM 2 - CHANGES IN SECURITIES In November 2000, the Company issued 100,000 shares of Common Stock as partial consideration for the acquisition of Martin Machine, Inc. See Note 5 to the Financial Statements for additional information. These shares were issued pursuant to the exemption from registration contained in Rule 506 under the Securities Act of 1933, as amended (the "Act"), in that the seller was an "accredited investor" as defined in Rule 501(a) under the Act. 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 9, 2001 ALLIED DEVICES CORPORATION ---------------------- -------------------------- (Registrant) By: /s/ Mark Hopkinson ------------------ Mark Hopkinson Chairman of the Board 16