-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMYU8k3leyTT2TlIs3wblSfI/fmwiYqGt4ifERa9OfYf+kdS2nIomXfZ+XB0UrLK Xipu84uv2an+40n0HbspfQ== 0001047469-97-008894.txt : 19971230 0001047469-97-008894.hdr.sgml : 19971230 ACCESSION NUMBER: 0001047469-97-008894 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED DEVICES CORP CENTRAL INDEX KEY: 0000869495 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 133087510 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-24012 FILM NUMBER: 97744803 BUSINESS ADDRESS: STREET 1: 2365 MILBURN AVENUE CITY: BALDWIN STATE: NY ZIP: 11510 BUSINESS PHONE: 5162239100 FORMER COMPANY: FORMER CONFORMED NAME: ILLUSTRIOUS MERGERS INC DATE OF NAME CHANGE: 19600201 10KSB 1 10KSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number September 30, 1997 0-24012 --------------------------- ------------------------- ALLIED DEVICES CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Nevada 13-3087510 ----------------------- ----------------------- (State of incorporation) (IRS Employer Identification Number) 2365 Milburn Avenue, Baldwin, New York 11510 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 223-9100 Securities registered pursuant to Section 12 (b) of the Exchange Act: Securities registered pursuant to Section 12 (g) of the Exchange Act: Number of Shares Outstanding Title of Class as of December 5, 1997 - -------------- ---------------------------- Common Stock, $.001 par value 4,609,942 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days YES X NO --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB X --- Issuer's revenues for its most recent fiscal year: $16,215,931 The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price on December 5, 1997 is approximately $5,848,337. PART I ITEM 1--BUSINESS Allied Devices Corporation ("Allied Devices" or the "Company") is a broad-line manufacturer and distributor of high precision mechanical components used in the manufacture and maintenance of industrial and commercial instruments and equipment. The Company has the capability of producing close tolerance parts and intricate assemblies at competitive costs and with short lead times. The Company's business strategy is to provide prompt service and technical support in certain industrial and high technology markets where customers generally expect extended lead times, missed deadlines and otherwise poor customer service and support. The Company's major product groups include precision servo and drive-train assemblies, instrument related fasteners, gears and gear products, and other components and sub-assemblies built to customer specifications. Allied Devices' customers are primarily original equipment manufacturers ("OEMs"). Allied Devices' principal marketing tool is its highly effective technical manual of standardized instrument components available through the Company. This catalog is in the hands of buyers and engineers throughout the United States and generates sales nationwide. Management estimates that the Company has distributed more than 85,000 copies of its catalog over the last decade, of which approximately 35,000 copies were distributed during the last three fiscal years. The current edition, published in 1994, is over 650 pages in length. Management intends to update and re-issue the catalog during fiscal 1998. The breadth and standardized nature of the product line result in multiple applications in many industries, stimulating demand at the level of both OEMs and distributors. The Company sells to a wide range of industries, such as medical and operating room equipment; laser equipment; robotics; computer peripherals; aerospace instrumentation; factory automation equipment and controls; machine tool builders; research and development facilities; semiconductor equipment makers; nuclear control devices; scientific instrumentation; and optics. A typical customer is an OEM selling high ticket capital goods equipment. The components supplied by Allied Devices going into such equipment generally constitute a small percentage of the OEM's direct cost of manufacturing, typically $200 to $500 per unit. Failure to deliver reliable quality in a timely manner can have an impact far in excess of the modest direct cost of the parts. As a result, the majority of Allied Devices' customers deem it imperative that parts supplied be on time and of reliably high quality. While these performance criteria are not contractual requirements, they are critical determinants in the placement of repeat business. 1 ITEM 1--BUSINESS (continued) Allied Devices has structured itself as far as possible to provide the service of "one stop shopping" for mechanical instrument components. Furthermore, the Company's organization and inventory policies are designed to provide fast and timely response to customer orders, and to support "just in time" methods of purchasing being used by more and more companies. Because the Company's lead times in response to customer orders are generally short (four weeks or less), backlog is not a meaningful indicator of business trends; therefore, no effort is made to monitor backlog accurately. Based on new orders, the Company is projecting growth in revenues of approximately 12.5% and availability of related incremental cash flow in planning for fiscal 1998. Allied Devices' sales volume is not dependent on just a few large customers. The Company draws from a customer list of over 6,000, thereby minimizing its vulnerability to the fortunes of any one industry or group of customers. In each of the past three years, the Company's twenty largest customers have represented as many as ten different industries and account collectively for only about 30% of shipments. Geographic concentration is relatively low and fluctuates with conditions in each of the regions served. Allied Devices uses independent multi-line manufacturers' representatives to gain national coverage, thereby fielding some 70 salespeople in virtually all significant territories in the United States. As the market for the Company's products has evolved, the Company has met its customers' needs by dividing operations into two areas: Catalog Sales and Distribution ("Catalog Operations") and Manufacturing and Subcontracting ("Manufacturing Services"). These two areas of the Company have been defined solely for internal operating effectiveness. Both areas serve the same markets and customer base and do not represent separate business segments. CATALOG OPERATIONS The majority of product sold through Catalog Operations is either manufactured by Catalog Operations or procured from the Manufacturing Services operations of the Company. The product mix includes standard products (as listed in the Company's catalog) and customized or non-standard products manufactured to the specific requirements of a given customer. What is not manufactured internally is purchased from a broad variety of reliable sources under distributorship agreements or similar arrangements. This operation includes telephone sales, inventory and shipping, gear-making, assembly and light manufacturing operations. This part of the Company also sells certain of its standard catalog products to its major competitors on a wholesale basis. In the aggregate, revenues for the Catalog Operations were approximately as follows for the last five years ended September 30th. 2 ITEM 1--BUSINESS (continued) 1997............. $13,604,000 1996............. $15,145,000 1995............. $13,363,000 1994............. $10,509,000 1993............. $9,175,000 The decrease in revenues for 1997 was the result of a sharp downturn in one sector of the U.S. economy (semiconductor manufacturing equipment). While such severe downturns are abnormal for the industries served by Allied, they are not unprecedented. In this instance, it was caused by excess inventory accumulation and overcapacity, and the duration of the slowdown appears to have been one year. CATALOG INDUSTRY COMPETITION The Company competes directly with W.M. Berg Co., a subsidiary of BTR Ltd.; PIC Design, a subsidiary of Wells Benrus; Nordex Inc.; and Sterling Instrument, a division of Designatronics. Each of these companies publishes a catalog similar to that issued by the Company, offering a wide range of mechanical instrument components adhering to a single set of standards. In addition, there are many other companies offering a limited selection of materials or "single product" catalogs, most often not adhering to any widely accepted standards. This marketplace is highly competitive, yet management believes, based upon feedback from vendors and customers, that the Company's operating principles of immediate product availability, excellent quality control, competitive pricing and responsive customer service and technical support have permitted the Company to maintain and improve its market position. MANUFACTURING SERVICE OPERATIONS The Company's strategy has called for manufacturing the majority of the products that it sells. Management believes that such vertical integration ensures quality control, timely deliveries, control of priorities and cost efficiencies. As a result, the Company has several manufacturing divisions, each with specialized capabilities. In order to promote maximum utilization of productive equipment, each manufacturing operation markets its surplus machine time independently. The following operations comprise Manufacturing Services: Absolute Precision Co. A sophisticated computer numerically Ronkonkoma, New York controlled ("CNC") machine shop specializing in close tolerance, intricate machining of complex parts that are sold direct to end users and through Catalog Operations. 3 Adco Devices Co. A screw-machine house manufacturing Freeport, New York instrument quality shoulder screws, thumb screws, nuts, shafting, pins, knobs and washers. Standard stock and custom components are sold to numerous jobbers, distributors and wholesalers. Astro Instrument Co. A general machine shop with Joplin, Missouri diversified CNC and conventional capabilities, dealing principally with an established customer base in several industries. Each of the support operations in Manufacturing Services contributes to the Company's line of standard components and sells them to Catalog Operations and to other catalog houses at uniform list prices. In addition, each operation bids for specialized custom manufacturing work in the open market, taking on machining jobs on fixed price contracts. While long runs are periodically accepted, the structure of Manufacturing Services' organization and production facilities favors shorter runs with higher margins. Pricing is based on combined material cost and standard hourly shop rates for labor and overhead. Approximate revenues for Manufacturing Services were as follows for the last three years: YEAR ENDED SEPTEMBER 30, ---------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Sales to Catalog Operations *.. $ 2,360,000 $ 2,812,000 $ 2,319,000 Sales to Outside Customers..... 2,612,000 2,648,000 2,158,000 ------------ ------------ ------------ Total Revenues................. $ 4,972,000 $ 5,460,000 $ 4,477,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------------------ * These revenue figures for Catalog Operations represent interdivisional sales that are eliminated in consolidation. The Company does not report results for Catalog Operations and Manufacturing Services separately, but management believes that both divisions make a positive contribution to operations. While the Company has stepped up efforts to market its Manufacturing Services, management believes that existing capacity will support a substantial increase in volume without significant additions to current production facilities. Operations are now primarily single shift, representing an estimated 70% of capacity, giving the Company the flexibility to respond to increases in sales volume. 4 MANUFACTURING SERVICES COMPETITION Each of the divisions in Manufacturing Services faces intense competition from the many thousands of machine shops and screw machine houses throughout the United States. Each division endeavors to differentiate itself from its competition on the basis of: i) accepting short-run work; ii) offering short lead times; iii) providing exceptional responsiveness to customer requirements; and iv) conforming consistently to unbending quality standards. QUALITY ASSURANCE Although not legally required to do so in order to conduct its current business, the Company has emphasized rigorous standards of high quality in its products and in its manufacturing methods. This has led to the development of an internal quality control manual that sets forth both policy and procedures used throughout the Company. This manual meets or exceeds the requirements of MIL-STD-45208A, which defines acceptable standards for small business suppliers to the U.S. Government. In management's opinion, loss of qualification under MIL-STD-45208A would not have a material impact on the Company's ability to do business; likewise, in management's opinion, such qualification provides an indication to customers and potential customers of the degree of diligence that the Company exercises in adhering to acceptable procedures in pursuit of consistent quality. The Company's measuring instruments are calibrated to standards traceable to the National Bureau of Standards. To ensure consistent awareness and application of quality procedures, management has established an on-going program of meetings, lessons and training sessions through its quality assurance manager, disseminating information on basic skills, policies, procedures and new developments. Under the auspices of the New York State Industrial Effectiveness Program, the Company has begun to develop and implement a program of continuous improvement in pursuit of qualification under "Total Quality Management" and ISO-9000 (a voluntary set of standards and guidelines provided by the International Standards Organization), which program is in its early stages. The Company intends to complete the program and apply for ISO certification during its fiscal year 1998. EXPANSION PLANS Management has developed a plan to expand the size of the Company. Basically, the plan has four elements: (1) expand the core business through more intensive marketing efforts; (2) add products within the existing line of business; (3) expand beyond the Company's core business into related lines of business through an acquisition program that will not only add volume but provide marketing, operating and administrative synergies; and (4) raise additional equity capital as required to reduce the Company's indebtedness, thereby lowering financial leverage while expansion plans were being implemented. Certain elements of management's marketing plans have commenced (principally an advertising campaign and publication of an expanded catalog), while others are in development. Management is pursuing its acquisition strategy but has not yet 5 entered into any binding agreements with any potential acquisition candidates. During fiscal 1994, the Company raised approximately $1,298,000 (net) of new equity capital through the private placement of Common Stock, applying virtually all of the funds raised to reduction of indebtedness. During fiscal 1995, the Company raised approximately $81,000 (net) of new equity capital from the exercise of 62,500 Class B Warrants, applying such funds to working capital. Likewise, in fiscal 1996 and fiscal 1997, the Company raised approximately $56,000 and $157,000, respectively, from the exercise of warrants and options, which funds were applied to working capital. Additional funds, if and when raised, will also be applied, at management's discretion, to working capital, thus being available for use in routine operations or for carrying out the Company's expansion plans. MARKETING PROGRAMS The Company has developed a program to stimulate substantial growth within its existing line of business. Feedback from customers and informal market research indicate that Allied Devices does not yet have a widespread customer awareness in the markets it serves. Thus the principal thrust of the Company's plan is to make its target markets more aware of the Company's range of capabilities and the usefulness of standardized components in general. The program is divided into modules and is being implemented as management deems appropriate. The plan includes expansion of the Company's advertising campaign, begun on a restricted budget in 1993. As part of the program, management has undertaken to improve, on a continuous basis, the standards of service and support provided to the Company's customers. Phasing in of expanded engineering support, assembly capabilities, new products, and electronic accessibility for customers are also important elements of the Company's program. Management believes that implementation of its plan will result in accelerated growth of sales and profits. ACQUISITION PROGRAM As part of its plans for growth, management intends to carry out an acquisition program. By its own assessment, management views the market in which it competes as large (over $1 billion), highly fragmented, and poised for consolidation. Strategically, management intends to focus on acquiring businesses with the following characteristics: (a) significant potential for sales growth; (b) high prospects for synergy and/or consolidation in marketing, manufacturing and administrative support functions; (c) relatively high gross margins (30% or more); (d) effective operating management in place; (e) a reputation for quality in its products; and (f) represents lateral or vertical integration. Management has begun the process of assessing prospective candidates. OTHER FACTORS Raw materials for the Company's operations are readily available from multiple sources, such as bar stock of stainless steel and aircraft grade aluminum from metal distributors. Management expects no change to this situation in the 6 foreseeable future. The technological maturity of the Company's product line has resulted in general stability of demand in its markets and of availability of raw materials at stable prices. No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of the United States government or its prime contractors. Procurement of patents is not material to the Company's present marketing program. REGULATION The Company is not subject to any particular form of regulatory control. The Company does not expect that continued compliance with existing federal, state or local environmental regulations will have a material effect on its capital expenditures, earnings or competitive position. EMPLOYEES The Company currently employs 50 salaried and 113 hourly personnel. Wage rates and benefits are competitive in the labor markets from which the Company draws. Thirty-two of its hourly employees are represented by two local unions (22 by the National Organization of Industrial Trade Unions ("NOITU") and 10 by Local 999 of the Teamsters). The contract with Local 999 was renewed for three years in August 1997, and the contract with NOITU was renewed in November 1997, also for three years. The Company has had no strikes, walkouts or other forms of business disruption attributable to poor labor relations. Relations with employees and the unions are open and constructive. CAPITAL EQUIPMENT The Company uses a wide variety of machinery and equipment in manufacturing and assembly of its product line. While most of the equipment is owned by the Company or its subsidiaries, certain key pieces of equipment are leased. Eight leases, covering eight CNC machines, have original lease terms ranging from three to five years, with purchase options at the end of each lease. Rates vary from 8.5% to 9.9%, and expiration dates range from 1998 to 2001. The aggregate value of these leases was $278,000 as of September 30, 1997. 7 ITEM 2--PROPERTIES Listed below are the principal plants and offices of the Company. All property occupied by the Company is leased except as otherwise noted. LOCATION SQUARE FEET LEASE EXPIRATION PRINCIPAL ACTIVITIES -------- ----------- ---------------- ------------------------ Baldwin, NY 16,000 December 1999 Catalog Manufacturing and Distribution Operations Freeport, NY 10,000 November 1996* Screw Machine Operations Freeport, NY 5,200 February 1998 Catalog Manufacturing Operations Ronkonkoma, NY 7,200 June 1998 CNC Machine Shop Joplin, MO 13,000 (Owned) CNC and Conventional Machine Shop ------------------------ * At the mutual convenience of landlord and the Company, this building facility is leased on a month-to-month basis. ITEM 3--LEGAL PROCEEDINGS The Company knows of no litigation pending, threatened, or contemplated, or unsatisfied judgements, or any proceedings in which it or any of its officers or directors in their capacity as such is a party. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 8 PART II ITEM 5--MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There was only sporadic trading in the Company's common stock until it was listed on National Association of Securities Dealers Automated SmallCap Market ("NASDAQ") as of November 17, 1994. Trading in the Company's stock has been active and regular since then. A total of 1,954 trades representing approximately 4,270,000 shares (as reported by NASDAQ in their monthly statistical summaries) were completed during fiscal 1997. As of September 30, 1997, the Company had 451 holders of record of its common stock. The Company has 12 listed market-makers, and the trading ranges by quarter for the year were as follows:
FISCAL 1997 FISCAL 1996 -------------------- -------------------- HIGH LOW HIGH LOW --------- --------- --------- --------- First Quarter......................................................... $ 3.0625 $ 1.9375 $ 4.00 $ 1.75 Second Quarter........................................................ $ 3.375 $ 2.125 $ 4.25 $ 2.812 Third Quarter......................................................... $ 3.0625 $ 2.375 $ 4.50 $ 2.75 Fourth Quarter........................................................ $ 2.875 $ 2.0625 $ 4.00 $ 2.75
ITEM 6--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following selected consolidated financial data have been derived from the audited financial statements of Allied Devices Corporation. The selected financial data should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-KSB.
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- STATEMENT OF OPERATIONS DATA: Net sales........................................................... $ 16,215,931 $ 17,793,072 $ 15,521,373 Net income.......................................................... $ 1,061,883 $ 1,001,029 $ 787,302 Earnings per share.............................................................. $ .21 $ .20 $ .15 Weighted average number of shares outstanding........................................................ 5,667,718 5,785,085 5,654,858 9 BALANCE SHEET DATA: Total assets........................................................ $ 10,976,983 $ 10,376,703 $ 9,403,535 Working capital..................................................... $ 7,307,751 $ 6,505,676 $ 3,428,117 Long-term debt...................................................... $ 2,084,239 $ 2,642,401 $ 497,541 Stockholders' equity................................................ $ 7,025,928 $ 5,807,364 $ 4,749,963
RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1997, COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996. 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 fiscal 1997 were $16,216,000 as compared to $17,793,000 in fiscal 1996. This decrease of 8.9% was principally the result of a sharp downturn in the semiconductor equipment sector of the U.S. economy. The impact of this was evident in the Company's shipments from July, 1996 through August, 1997, during which time the Company's customers in that industry virtually stopped all shipments of materials for production requirements. Collectively, all other sectors showed continued growth, materializing in both Catalog Operations and Manufacturing Services. Management continues to attribute such growth to a combination of factors: (1) a continuing series of advertisements in various industry/trade magazines, which appear to be gradually creating more wide-spread awareness of the Company and its products and services; (2) carrying out of a series of programs of continuous improvement, particularly in the areas of customer service and support; (3) a program to expand the range of support services provided to the Company's larger customers; and (4) continued strength in certain sectors of the U.S. 10 economy serviced by the Company. In particular, the aerospace instrumentation, medical equipment, robotics and scientific instrumentation sectors remained healthy throughout the year. The Company's gross margin was 36.49% of net sales in fiscal 1997, up from 33.60% in fiscal 1996. The lower level of sales activity permitted the Company to manufacture more and purchase less, resulting in the following changes from fiscal 1996: (1) net materials expense decreased as a percentage of sales, increasing gross margins by 4.75%; and (2) the Company shipped a lower volume of product on relatively stable costs of factory operations, decreasing gross margins by 1.86%. The Company did not increase prices materially in fiscal 1997. Selling, general and administrative expenses as a percentage of net sales were 24.8% in fiscal 1997, as compared to 23.2% in fiscal 1996. While actual expenditures in fiscal 1997 were $98,000 lower than in fiscal 1996, such costs did not decrease as much as sales volume. The following factors account for these changes: (1) selling and shipping expenses and commissions increased as a percentage of net sales by approximately 0.4% as shipping volume decreased more than spending on the Company's marketing strategy; (2) administrative payroll, benefits, and expenses increased by $133,000, resulting in an increase of such expenses of 1.8% as a percentage of net sales; and (3) other administrative expenses (collectively) decreased as a percentage of net sales by approximately 0.6%. Interest expense decreased by $60,000 in fiscal 1997, as the Company lowered its borrowings and enjoyed more favorable rates as a result of its new credit agreement. Provision for income taxes in fiscal 1997 was $629,000, or 37.2% of pre-tax income. See the notes to the consolidated financial statements for a reconciliation to the federal statutory rate. RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1996, COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995 Net sales for fiscal 1996 were $17,793,000 as compared to $15,521,000 in fiscal 1995, an increase of 14.6%, with continuing growth materializing in both Catalog Operations and Manufacturing Services. Management continues to attribute this strength to a combination of factors: (1) the cumulative effect of a continuing series of advertisements running regularly in various industry/trade magazines, helping to create more wide-spread awareness of the Company and its products and services; (2) the carrying out of various programs of continuous 11 improvement, particularly in the areas of customer service and support; (3) a program to expand the range of support services provided to the Company's larger customers; and (4) continued strength in certain sectors of the U.S. economy serviced by the Company. In particular, the aerospace instrumentation, medical equipment, robotics and scientific instrumentation sectors remained strong throughout the year. This was partially offset during the fourth quarter of fiscal 1996 by a downturn in the semiconductor equipment sector. The Company's gross margin was 33.60% of net sales in fiscal 1996, up from 32.87% in fiscal 1995. This improvement is accounted for by the following factors: (1) the Company shipped a higher volume of product on relatively stable costs of factory operations, increasing gross margins by 2.10%; and (2) net materials expense increased as a percentage of sales, reducing gross margins by 1.37%. The Company did not increase prices materially in fiscal 1996. Selling, general and administrative expenses as a percentage of net sales were 23.2% in fiscal 1996, as compared to 23.3% in fiscal 1995. This improvement is attributable to the following factors: (1) selling and shipping expenses and commissions decreased as a percentage of net sales by approximately 0.2% as shipping volume rose at a greater rate than spending on implementation of the Company's marketing strategy; (2) administrative payroll, benefits, and expenses rose, but not at the same rate as shipping volume, resulting in a decrease of such expenses of 0.2% as a percentage of net sales; and (3) other administrative expenses (collectively) increased as a percentage of net sales by approximately 0.3%. Interest expense decreased by $50,000 in fiscal 1996, as the Company lowered its borrowings and negotiated more favorable rates with its lending institutions. Provision for income taxes in fiscal 1996 was $593,000, or 37% of pre-tax income. See the notes to the consolidated financial statements for a reconciliation to the federal statutory rate. The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109) in the first quarter of fiscal 1994. The adoption of SFAS 109 did not have a material impact on the Company's financial statements. 12 LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition remained strong during fiscal 1997 as operations generated net cash of $818,000 over the course of the year. In addition, $157,000 of new equity capital was raised from the exercise of certain warrants and employee stock options issued by the Company. These funds were used for capital expenditures (net) of $309,000 and reduction of debt of $559,000, with the remainder being added to cash on hand. Net working capital increased by $802,000 to $7,308,000 during the year. The following are changes in current assets and current liabilities for the year ended September 30, 1997: - Accounts receivable (net of reserve for doubtful accounts) increased by $133,000 during the year. This increase was a function of higher shipping volume at year end ($82,000) and an increase in the average collection period from 45 days at the end of fiscal 1996 to 47 days at the end of fiscal 1997 ($51,000). - Inventories increased 8.8%, or $520,000, during the fiscal year, with the turnover rate decreasing from 2.0 times in fiscal 1996 to 1.6 times at the end of fiscal 1997. Of this increase, a portion ($250,000) was planned as part of a strategy to increase sales of the Company's line of screw machine products. The balance ($270,000) built up as an unplanned accumulation of inventory, the result of rescheduling orders from prominent customers in the semiconductor equipment industry. Management expects that most of such inventory will be shipped during fiscal 1998 as that industry continues to recover. As a general rule, prompt service, product availability and quick turnaround of production orders are key factors in gaining a strong competitive position in the Company's markets. Substantial inventories are, in management's judgment, a necessity in responding to demanding delivery requirements imposed by the Company's customers. As the Company's growth continues, management expects to see improvement in the inventory turnover rate. - Prepaid expenses and other current assets increased by $26,000, and deferred income taxes (asset) increased by $2,000. - Current liabilities, exclusive of current portions of long-term debt and capital lease obligations, decreased by $13,000 (net), as the Company's average payment period on accounts payable and accrued expenses remained at 36 days from fiscal 1996 through fiscal 1997 (decrease of $103,000) and the Company's income taxes payable increased by $90,000. - Current portions of long-term debt and capital lease obligations decreased by $1,000 (net). - Cash balances increased by $107,000. Management believes that the Company's working capital as now constituted will be adequate for the needs of the on-going core business. During fiscal 1995, management had concluded that its banking agreements would become a 13 financial constraint as growth in sales volume continued at or above the rates of fiscal 1995. Thus, in September, 1996, the Company closed on a new three-year committed revolving credit agreement, providing for a credit line of $4 million and an equipment line of $2.0 million, with rates 1/2 to 1-1/2 points lower and fewer and less restrictive covenants than in its prior asset-based line. The Company, at the end of fiscal 1997, was using approximately $1.9 million of the line. Management believes that, in light of the Company's expansion objectives, the Company's working capital will not be adequate to provide for all of the on-going cash needs of the business. In particular, management expects to require additional financing to carry out its acquisition objectives. Success in this part of the Company's growth program will rely, in large measure, upon success in completing such additional financing. The Company is not relying on receipt of such funds in its operating budgets or projections. It is important to note that, absent new capital, the Company will not be in a position to undertake some of the most promising elements of management's plans for expansion. In the event that new equity funds are raised, management intends to implement its plans and will do so in keeping with its judgment at that time as to how best to deploy any such capital. Outlay for capital expenditures in fiscal 1997 amounted to $309,000 ($328,000 in new equipment, net of $19,000 in equipment dispositions; no new equipment leases), as compared to $310,000 ($574,000 including capital lease) in fiscal 1996. These expenditures represent two facets of the Company's capital spending program: (1) a continuation of management's program of continuous improvement through modernization and automation of facilities ($185,000), and (2) support and installation of a comprehensive new computer system ($143,000). Capital spending plans for fiscal 1998 call for additional investment in software and hardware for the Company's computer system and a somewhat increased level of additions to high-efficiency production machinery. Management expects to fund such spending plans out of working capital. VULNERABILITY TO RECESSION The Company's cost structure is largely made up of "fixed costs", with "variable costs" accounting for less than 40% of net sales. The Company could, therefore, experience materially adverse effects on profitability from any marked downturn in sales volume until management was able to reduce fixed costs. Because the Company's delivery lead-times are relatively short, there is, as a result, little backlog at any given time, and the effect of a downturn in sales volume would be felt almost immediately. 14 EXPANSION PLANS Management has developed and is implementing a plan to expand the size of the Company. Basically, the plan has four elements: (1) expand the core business through more intensive marketing efforts; (2) add products within the existing line of business; (3) expand beyond the Company's core business into related lines of business through an acquisition program that will not only add volume but provide marketing, operating and administrative synergies; and (4) raise additional equity capital to reduce the Company's indebtedness, thereby lowering financial leverage while expansion plans are being implemented. Certain elements of management's marketing plans have been implemented (principally an advertising campaign and publication of a new and expanded catalog), while others are in development. Management is currently pursuing its acquisition strategy but has not yet entered into any binding agreements with any potential acquisition candidates. IMPACT OF INFLATION AND OTHER BUSINESS CONDITIONS Management believes that inflation has no material impact on the operations of the business. The Company has been able to react to increases in material and labor costs through a combination of greater productivity and selective price increases. The Company has no exposure to long-term fixed price contracts. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the computation of earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share, as defined. The statement requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. SFAS No. 128 is not expected to have a significant impact on the Company's financial statements. In June, 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", were issued. SFAS No. 130 addresses standards for reporting and display of comprehensive income and its components and SFAS N0. 131 requires disclosure of reportable operating segments. Both statements are effective for the Company's 1998 fiscal year. The Company will be reviewing these pronouncements to determine their applicability, if any. 15 ITEM 7--FINANCIAL STATEMENTS - ---------------------------- (1) Financial Statements See index to Financial Statements on Page F-2. ITEM 8--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - --------------------------------------------------------- NONE 16 PART III ITEM 9--DIRECTORS AND EXECUTIVE OFFICERS The Executive Officers and Directors of the Company are as follows: NAME AGE POSITION(S) HELD WITH COMPANY - ------------------------------- --- ----------------------------------- Mark Hopkinson 50 Chairman of the Board of Directors, Chief Executive Officer P.K. Bartow 49 President and Director Salvator Baldi 75 Executive Vice President and Director Andrew J. Beck 49 Assistant Secretary Gail F. Lieberman 54 Director Christopher T. Linen 50 Director Michael Michaelson 75 Director Robert J. Smallacombe 64 Director 17 ITEM 9--DIRECTORS AND EXECUTIVE OFFICERS (Continued) Brief biographies of the Executive Officers and Directors of the Company are set forth below. All Directors hold office until the next Annual Stockholders' Meeting or until their death, resignation, retirement, removal, disqualification or until their successors have been elected and qualified. Vacancies in the existing Board may be filled by majority vote of the remaining Directors. Officers of the Company serve at the will of the Board of Directors. There are no written employment contracts outstanding. Mark Hopkinson, age 50, has been Chairman of the Board since 1981, when he and Mr. Bartow organized the acquisition of the Company. He also served as President of the Company from 1981 until March 1994. He is a graduate of the University of Pennsylvania and of the Harvard Graduate School of Business Administration. Prior to acquiring Allied Devices, he was a management consultant, working originally with Theodore Barry & Associates from 1977 to 1978 and later as an independent and with the Nicholson Group from 1978 to 1981. The focus of his work in the period leading up to 1981 was development of emerging growth companies, both in the United States and in lesser developed countries. He served as an officer in the United States Navy from 1969 to 1972. P.K. Bartow, age 49, has been President of the Company since March 1994. He also served as Vice President of the Company from when he and Mr. Hopkinson organized its acquisition in 1981 until March 1994. Prior to acquiring Allied Devices, Mr. Bartow had joined the Nicholson Group in 1978, and performed facility and feasibility studies for emerging growth companies. While at Allied Devices, he has been the Director of Marketing from 1981 onwards, and in that capacity has set up a network of independent manufacturers' representatives across the United States and in the United Kingdom, Israel and selected regions in Canada. He has also organized and published Allied Devices' 650+ page catalog. Mr. Bartow received a B.A. degree from Williams College in 1970, and a M.Arch degree from the University of Pennsylvania in 1974. Salvator Baldi, age 75, was one of the original founders of the Company in 1947. He has been a Director of the Company since February 1994. The business was started as a general machine shop and developed through the years as a supplier to certain principal competitors of the Company in the market for standardized precision mechanical parts. By the late 1970's, the Company had become a competitor, offering its own catalog of components. He and his partners sold the Company to the investor group assembled by Mr. Hopkinson and Mr. Bartow in October 1981, with Mr. Baldi remaining with the Company under an employment contract. By the time his contract expired two years later, Mr. Baldi had negotiated to repurchase an interest in the Company. He currently works on an abbreviated work schedule. 18 ITEM 9--DIRECTORS AND EXECUTIVE OFFICERS (Continued) Andrew J. Beck, age 49, has been a partner with the law firm of Haythe & Curley since prior to 1989. He became Assistant Treasurer of the Company in March 1994. Mr. Beck holds a B.A. in economics from Carleton College and a J.D. from Stanford University Law School. Gail F. Lieberman, age 54, is currently Chief Financial Officer of The Thompson Corp. Financial & Professional Publishing Group. She became a director of the Company in February 1994. Prior to her current association, Ms. Lieberman was Vice President-Chief Financial Officer and Managing Director of Moody's Investors Service, where she was employed from January, 1994 to December, 1996. Prior to that, she was Executive Vice President and Chief Financial Officer at Scali, McCabe, Sloves, Inc. since 1982. She holds a B.A. in Mathematics and Physics and an M.B.A. in Finance from Temple University. Christopher T. Linen, age 50, became a Director of the Company during fiscal 1997. He is currently principal of Christopher Linen & Company, through which he has invested in a series of early stage, internet and technology-related enterprises. Prior to this, from 1975 until 1996, he was an executive with Time Inc. (later Time Warner Inc.) where he managed a series of six subsidiaries or divisions in Asia, Latin America, the United States, and worldwide. Prior to that, he was Assistant Financial Director of the Italhai Holding Company, Ltd. (Bangkok), during which tenure he was Publisher of the Bangkok World, an English language daily newspaper. He is a director of Starmedia Networks Inc., Chairman of NirvanaSoft Inc., and a Trustee of The Family Academy, an experimental public school. He holds a B.A. from Williams College and attended the Graduate School of Business Administration at New York University. Michael Michaelson, age 75, has been a Director of the Company since 1990. He has been President and sole stockholder of Rainwater Enterprises, Ltd. since 1979, providing management and marketing consultation services to clients principally in publishing and related industries. He is also on the boards of directors of the following companies: Metro Tel Corp., a publicly held company in the telecommunications field; and Starlog Franchise Corp., a public company. From 1986 to 1989, he was Chairman of the Council on Economic Priorities. From 1977 to 1979, he was co-founder and Chairman of the Board of Games Magazine, which was sold to Playboy magazine in 1979. From 1970 to 1978, Mr, Michaelson worked for Publishers Clearing House, where he was Senior Vice President. From 1968 to 1970, he was President and Founder of Campus Subscriptions, Inc. Mr. Michaelson served in the United States Army in the South Pacific during World War II, where he was a Company Commander in the 35th infantry, 25th division and received the Bronze Star and the Purple Heart. He received a B.S. degree from New York University in 1948. Robert J. Smallacombe, age 64, has been a Director of the Company since August, 1996. For more than ten years, he has been the principal of Executive Advisory Group, a management consulting firm. In the capacity of consultant, he 19 served as a Director of Northstar Health Services Inc. from May, 1996 through May, 1997. From 1994 until May, 1996, as consultant, he served as President of O'Brien Environmental Energy and O'Brien Energy Services. From February, 1993 until July, 1994, as consultant, he served as CEO of Cardinal Publishing Co. Prior to that, he was working as a management consultant and business broker. He has over 25 years' experience as a company president of public and private companies. He currently serves as a Director of Emons Transportation Company. ITEM 10--EXECUTIVE COMPENSATION The following table sets forth the salary and bonus compensation paid during the fiscal years ended September 30, 1997, 1996 and 1995 to the Chairman and Chief Executive Officer of the Company. No other Executive Officer of the Company received fiscal 1997 salary and bonus compensation which exceeded $100,000. The Company's Directors receive $1,250 per meeting for their services as such and reimbursement for any expenses they may incur in connection with their services as Directors.
"SUMMARY COMPENSATION TABLE" - ------------------------------------------------------------------------------------------------------------------------ NAME AND PRINCIPAL OTHER ANNUAL LONG TERM COMPENSATION POSITION FISCAL YEAR SALARY COMPENSATION AWARDS-OPTIONS SAR'S - -------------------------------------------------- ------------- --------- ----------------- ----------------------- Mark Hopkinson, Chairman and Chief Executive Officer 1997 $ 97,221 $ 0 27,400 1996 $ 98,098 $ 0 29,000 1995 $ 90,116 $ 0 4,600
Under the terms of the Company's 1993 Incentive Stock Option Plan, the following options were granted to the Chief Executive Officer of the Company during fiscal year 1997.
"OPTION/SAR GRANTS IN LAST FISCAL YEAR" - ----------------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR UNDERLYING OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED FISCAL YEAR ($/SH) DATE - ------------------------------------------- ------------------- ------------------------- ------------- ----------- Mark Hopkinson 10,250 9.8% $ 0.70 12/1/06 5,150 4.9% $ 0.67 2/15/07 12,000 11.5% $ 0.70 7/31/07
20 Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values.
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FY-END (#) FY-END ($) VALUE SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE - ---------------------------------------------- --------------- ------------- --------------- --------------- Mark Hopkinson................................ -- $ -- 257,000/0 $ 99,585/$0
- ------------------------ (1) In-the-money options are those for which the fair market value of the underlying Common Stock exceeds the exercise price of the option. The value of the in-the-money options is determined in accordance with regulations of the Securities and Exchange Commission by subtracting the aggregate exercise price of the option from the aggregate year-end value of the underlying Common Stock. No compensation to management has been waived or accrued to date. Under the terms of its employee stock option plan (adopted in October, 1993 and amended in December, 1995), the Board of Directors is empowered at its discretion to award options to purchase an aggregate of 1,250,000 shares of the Company's common stock to key employees. Prior to fiscal 1997, the Company had granted options to purchase an aggregate of 1,087,600 shares to key employees and Directors, with exercise prices ranging from $0.35 to $3.25 per share. During fiscal 1997, the Company granted options to purchase 104,400 shares of the Company's common stock, at exercise prices ranging from $0.35 to $2.44 to 11 individuals (one non-management member of the Board of Directors, one executive, and nine non-executive managers). 21 ITEM 11--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number and percentage of the Company's shares of Common Stock owned of record and beneficially by each person or entity owning more than 5% of such shares and by all executive officers and directors, as a group at September 30, 1997: NAME NUMBER OF SHARES OWNED CURRENT PERCENTAGE - --------------------- ----------------------- ------------------- Mark Hopkinson 1,012,571 20.78% (1) (3) (8) 2365 Milburn Avenue P.O. Box 502 Baldwin, NY 11510 P.K. Bartow 850,688 17.59% (1) (4) (8) 2365 Milburn Ave. P.O. Box 502 Baldwin, NY 11510 Salvator Baldi 767,807 15.88% (1) (5) (8) 2365 Milburn Ave. P.O. Box 502 Baldwin, NY 11510 Michael Michaelson 250,084 5.24% (2)(6)(8) 2365 Milburn Ave. P.O. Box 502 Baldwin, NY 11510 Gail F. Lieberman 120,000 2.54% (2) (7) 175 E. 79th Street New York, NY 10021 Robert J. Smallacombe 43,000 0.92% (2)(11) 8246 S.E. Sanctuary Drive Hobe Sound, FL 33455 Christopher T. Linen 25,000 0.54% (2)(12) 203 Poverty Hollow Road Redding, CT 06896 Andrew J. Beck 10,000 0.22% (9)(10) 71 Willow Street, Apt. 1 Brooklyn, NY 11201 All Executive Officers and 3,079,150 54.25% Directors as a Group (8 persons) 22 ITEM 11--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) (1) Officer and Director (2) Director only. (3) Mark Hopkinson is General Partner of the Hopkinson Family Partnership (in which he has exclusive management rights), which owns 700,000 of the shares included herein. Mr. Hopkinson owns 33,500 shares in his own name. Also included in Mr. Hopkinson's shareholdings are 5,660 shares represented by warrants exercisable by Mr. Hopkinson until December 31, 1999 and 257,000 shares represented by currently exercisable options. Mr. Hopkinson disclaims beneficial ownership of 15,700 shares owned by his wife. (4) Included in Mr. Bartow's shareholdings are 1,722 shares represented by warrants exercisable by Mr. Bartow until December 31, 1999 and 225,000 shares represented by currently exercisable options. Mr. Bartow disclaims ownership of 15,000 shares owned by members of his immediate family. (5) Included in Mr. Baldi's shareholdings are 898 shares represented by warrants exercisable by Mr. Baldi until December 31, 1999 and 225,000 shares represented by currently exercisable options. (6) Included in Mr. Michaelson's shareholdings are 52,584 shares represented by warrants exercisable by Mr. Michaelson until December 31, 1999 and 110,000 shares represented by currently exercisable options. Mr. Michaelson disclaims ownership of 97,500 shares owned by his wife. (7) Included in Ms. Lieberman's shareholdings are 110,000 shares represented by currently exercisable options. (8) As consideration for various services rendered to the Company in the period 1983 until 1990, the Company issued certain stockholders warrants to purchase up to 340,000 shares of common stock at prices ranging from $0.30 per share to $0.70 per share. Certain of those warrants were exercised in fiscal 1996 and fiscal 1997, prior to their expiration. 60,864 of those warrants remained exercisable at September 30, 1997. (9) Officer only. (10) Consists of 10,000 shares represented by currently exercisable options. 23 ITEM 11--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) (11) Consists of 43,000 shares represented by currently exercisable options. (12) Consists of 25,000 shares represented by currently exercisable options. ITEM 12--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In April 1990, Allied Devices granted Michael Michaelson, a Director, 50,000 warrants to purchase Allied Devices shares in return for uncompensated service to the Company. Each warrant is exercisable at a price of $.30 per warrant into one share of Common Stock until April 15, 1998. In August 1987, certain officers and stockholders purchased unsecured 10% promissory notes from Allied Devices in the aggregate amount of $157,680: Mark Hopkinson, $75,000; P.K. Bartow; $25,000; Salvator Baldi, $7,680; Michael Michaelson, $25,000; and Edward G. Lord, $25,000. In December 1994, all such notes were retired by paying 10% of the principal amount due in cash, the balance in the form of new 10% unsecured promissory notes due December 31, 1995, and granting warrants to purchase Common Stock at the rate of one warrant per $20 of principal on the notes being retired, as follows: PRINCIPAL VALUE OF NUMBER OF CASH PAID NEW NOTES WARRANTS ------------ ------------- ----------- Salvator Baldi......... $ 1,796.59 $ 16,169.32 898 P.K. Bartow............ $ 3,445.14 $ 31,006.25 1,722 Mark Hopkinson......... $ 11,319.74 $ 101,877.69 5,660 Michael Michaelson..... $ 5,167.71 $ 46,509.37 2,584 Each warrant is exercisable at a price of $2.00 per warrant into one share of Common Stock until December 31, 1999. The notes were retired during fiscal 1996. 24 ITEM 13--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits required to be filed as a part of the form are listed in the attached Index to Exhibits. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of fiscal 1997. 25 SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLIED DEVICES CORPORATION -------------------------- Mark Hopkinson Chairman of the Board In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE - --------- ----- ---- - ----------------------- Mark Hopkinson Chairman of the Board, Principal Executive Officer, and Director - ----------------------- Philip Key Bartow President and Director - ----------------------- Salvator Baldi Executive Vice President and Director - ----------------------- Michael Michaelson Director - ----------------------- Christopher T. Linen Director - ----------------------- Gail F. Lieberman Director - ----------------------- Robert J. Smallacombe Director - ----------------------- Paul M. Cervino Principal Financial Officer, Principal Accounting Officer, Treasurer
26 Allied Devices Corporation and Subsidiaries Consolidated Financial Statements Years Ended September 30, 1997 and 1996 F-1 Allied Devices Corporation and Subsidiaries INDEX Report of independent certified public accountants............ F-3 Consolidated financial statements Balance sheets.............................................. F-4 Statements of income........................................ F-5 Statements of stockholders' equity.......................... F-6 Statements of cash flows.................................... F-7 Notes to financial statements............................... F-8--F-20 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Allied Devices Corporation Baldwin, New York We have audited the accompanying consolidated balance sheets of Allied Devices Corporation and subsidiaries as of September 30, 1997 and 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Devices Corporation and subsidiaries at September 30, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Mitchel Field, New York December 18, 1997 F-3 Allied Devices Corporation and Subsidiaries Balance Sheets
SEPTEMBER 30, ---------------------------- 1997 1996 ------------- ------------- Assets (Note 4) Current: Cash............................................................................. $ 162,094 $ 54,919 Accounts receivable, net of allowance for doubtful accounts of $47,876 and $58,080, respectively (Notes 4 and 6)................................................... 2,326,179 2,193,606 Inventories (Notes 2, 4 and 6)................................................... 6,402,688 5,882,556 Prepaid expenses and other current assets........................................ 67,606 41,619 Deferred income taxes (Note 9)................................................... 41,000 38,863 ------------- ------------- Total current assets........................................................... 8,999,567 8,211,563 Property, plant and equipment, at cost, net of accumulated depreciation and amortization (Notes 3, 4 and 6).................................................. 1,837,225 1,965,746 Excess of cost over fair value of net assets acquired, net of accumulated amortization of $349,661 and $327,748............................................ 88,664 110,577 Other assets....................................................................... 51,527 88,817 ------------- ------------- $ 10,976,983 $ 10,376,703 ------------- ------------- ------------- ------------- Liabilities and Stockholders' Equity Current: Accounts payable................................................................. $ 1,186,291 $ 1,092,758 Income taxes payable (Note 9).................................................... 145,263 55,693 Accrued expenses and other (Note 5).............................................. 241,781 438,035 Current portion of long-term debt and capital lease obligations (Note 6)......... 118,481 119,401 ------------- ------------- Total current liabilities...................................................... 1,691,816 1,705,887 Long-term debt and capital lease obligations (Notes 4 and 6)....................... 2,084,239 2,642,401 Deferred income taxes (Note 9)..................................................... 175,000 221,051 ------------- ------------- Total liabilities.............................................................. 3,951,055 4,569,339 ------------- ------------- Commitments (Notes 7 and 8) Stockholders' equity (Note 8) Common stock, $.001 par value, authorized 25,000,000 shares, issued and outstanding 4,609,942 and 4,401,842........................................................ 4,610 4,402 Additional paid-in capital....................................................... 2,565,559 2,409,086 Retained earnings................................................................ 4,455,759 3,393,876 ------------- ------------- Total stockholders' equity..................................................... 7,025,928 5,807,364 ------------- ------------- $ 10,976,983 $ 10,376,703 ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. F-4 Allied Devices Corporation and Subsidiaries Statements of Income
YEAR ENDED SEPTEMBER 30, ---------------------------- 1997 1996 ------------- ------------- Net sales.......................................................................... $ 16,215,931 $ 17,793,072 Cost of sales...................................................................... 10,298,766 11,815,271 ------------- ------------- Gross profit..................................................................... 5,917,165 5,977,801 Selling, general and administrative expenses....................................... 4,022,326 4,120,136 ------------- ------------- Income from operations........................................................... 1,894,839 1,857,665 Interest expense, net.............................................................. 203,956 263,568 ------------- ------------- Income before provision for taxes on income........................................ 1,690,883 1,594,097 Taxes on income (Note 9)........................................................... 629,000 593,068 ------------- ------------- Net income......................................................................... $ 1,061,883 $ 1,001,029 ------------- ------------- ------------- ------------- Net income per share $ .21 $.20 ------------- ------------- ------------- ------------- Weighted average number of shares outstanding...................................... 5,667,718 5,785,085 ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. F-5 Allied Devices Corporation and Subsidiaries Statements of Stockholders' Equity
COMMON STOCK $0.001 PAR VALUE --------------------- ADDITIONAL TOTAL NUMBER OF PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ---------- --------- ------------ ------------ ------------ Balance, September 30, 1995...................... 4,296,842 $ 4,297 $ 2,352,819 $ 2,392,847 $4,749,963 Net income..................................... -- -- -- 1,001,029 1,001,029 Proceeds from the exercise of options and warrants to purchase common stock (Note 8)... 105,000 105 56,267 -- 56,372 ---------- --------- ------------ ------------ ----------- Balance, September 30, 1996...................... 4,401,842 4,402 2,409,086 3,393,876 5,807,364 Net income..................................... -- -- -- 1,061,883 1,061,883 Proceeds from the exercise of options and warrants to purchase common stock (Note 8)... 208,100 208 156,473 -- 156,681 ---------- --------- ------------ ------------ ----------- Balance,September 30, 1997....................... 4,609,942 $ 4,610 $ 2,565,559 $ 4,455,759 $7,025,928 ---------- --------- ------------ ------------ ----------- ---------- --------- ------------ ------------ -----------
See accompanying notes to consolidated financial statements. F-6 Allied Devices Corporation and Subsidiaries Statements of CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997 1996 - -------------------------------------------------------------------------------------- ------------ ------------ Cash flows from operating activities: Net income.......................................................................... $ 1,061,883 $ 1,001,029 ------------ ------------ Adjustments to reconcile net income to net cash provided by (used in) operating activities: Reserve on note receivable......................................................... (7,500) -- Provision for doubtful accounts.................................................... 1,899 8,458 Depreciation and amortization...................................................... 485,550 387,009 Deferred income taxes.............................................................. (48,188) -- Gain on sale of equipment.......................................................... (12,428) -- (Increase) decrease in: Accounts receivable................................................................ (134,472) (19,953) Inventories........................................................................ (520,132) (914,186) Prepaid expenses and other current assets.......................................... (25,987) 11,374 Other assets....................................................................... 30,820 23,869 Increase (decrease) in: Accounts payable and accrued expenses.............................................. (102,721) (228,735) Income taxes payable............................................................... 89,570 (230,812) ------------ ------------ Total adjustments.................................................................. (243,589) (962,976) ------------ ------------ Net cash provided by (used in) operating activities................................ 818,294 38,053 ------------ ------------ Cash flows from investing activities: Capital expenditures................................................................ (328,468) (309,806) Proceeds from sale of equipment..................................................... 19,750 -- ------------ ------------ Net cash used in investing activities.............................................. (308,718) (309,806) ------------ ------------ Cash flows from financing activities: Net proceeds from sale of common stock, options and warrants........................ 156,681 56,372 Repayment of revolving loan and term loan........................................... -- (2,275,500) Proceeds from long-term debt........................................................ -- 2,366,338 Principal payments on long-term debt and capital lease obligations.................. (559,082) (232,888) Proceeds from additional financing under old bank agreement and term loan........... -- 356,462 Payment on related party debt....................................................... -- (142,598) ------------ ------------ Net cash (used in) provided by financing activities................................ (402,401) 128,186 ------------ ------------ Net increase (decrease) in cash....................................................... 107,175 (143,567) Cash, beginning of period............................................................. 54,919 198,486 ------------ ------------ Cash, at end of period................................................................ $ 162,094 $ 54,919 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. F-7 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Accounting Policies (a) Business The Company is comprised of Allied Devices Corporation ("ADCO"), and its wholly-owned subsidiary, Empire Tyler Company ("Empire" and collectively the "Company"). The Company is engaged primarily in the manufacture and distribution of standard precision mechanical components and a line of screw machine products. The Company sells all its products to the same base of customers located throughout the United States. Because the Company's product line comprises a comparable group of precision manufactured parts sold to a similar customer base, it considers itself to be engaged in a single business segment. (b) Basis of Presentation The consolidated financial statements include the accounts of ADCO and its subsidiary. All significant intercompany balances and transactions have been eliminated. (c) Inventories Inventories are valued at the lower of cost (last-in, first-out (LIFO) method) or market. Management periodically analyzes inventories for obsolescence and records writeoffs as required. Such writeoffs have historically been immaterial. (d) Depreciation and Amortization Property, plant and equipment is stated at cost. Depreciation and amortization of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: Buildings and mprovements.................... 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
F-8 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (e) Income taxes The Company and its subsidiary file a consolidated federal income tax return and separate state income tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. (f) Earnings per share Earnings per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Earnings per share is computed using the treasury stock method, modified for options and warrants outstanding in excess of 20% of the outstanding shares of the Company's common stock. Under the treasury stock method the number of shares outstanding reflects the use of the proceeds from the assumed exercise of stock options and warrants to repurchase shares of the Company's common stock at the average market value during the period. The proceeds generated from the assumed exercise of options and warrants in excess of 20% of the outstanding shares of common stock are applied to the assumed repayment of company debt with the assumed related interest expense savings being included in the Company's results of operations for earnings per share computations. (g) Intangible assets The excess of cost over the fair value of net assets acquired is being amortized over a period of 20 years. F-9 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (h) Revenue Recognition Sales are recognized upon shipment of products. All sales are shipped F.O.B. shipping point and are not sold subject to a right of return unless the products are defective. The Company's level of returns arising from defective products has historically been immaterial. The Company provides an allowance for estimated returns when sales are recorded. Such allowances are not material. (i) Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. (j) Fair Value Financial Instruments The carrying amounts of financial instruments, including cash and short-term debt, approximated fair value as of September 30, 1997 and 1996. The carrying value of long-term debt and obligations under capital leases, including the current portion, approximates fair value as of September 30, 1997 and 1996 based upon the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. (k) Concentrations of credit risk The Company extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. No individual customer is considered to be significant. F-10 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (l) Recent Accounting Pronouncements In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 established a fair value method for accounting for stock-based compensation plans either through recognition or disclosure. Effective October 1, 1996, the Company adopted the employee stock-based compensation provisions of SFAS No. 123 by disclosing the pro forma net income and pro forma net income per share amounts, assuming the fair value method was adopted October 1, 1995. In March, 1995, the FASB issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires, among other things, an impairment loss on assets to be held and gains or losses from assets that are expected to be disposed of to be included as a component of income from continuing operations before taxes on income. The Company has adopted SFAS No. 121 in fiscal 1997, and its implementation did not have a material effect on the consolidated financial statements. The FASB has issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the computation of earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share, as defined. The statement requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. SFAS No. 128 is not expected to have a significant impact on the Company's financial statements. F-11 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In June, 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," were issued. SFAS No. 130 addresses standards for reporting and display of comprehensive income and its components and SFAS No. 131 requires disclosure of reportable operating segments. Both statements are effective for the Company's 1999 fiscal year. The Company will be reviewing these pronouncements to determine their applicability, if any. (m) Reclassifications Certain 1996 balances were reclassified to conform with the 1997 presentation. 2. Inventories Inventories are summarized as follows:
SEPTEMBER 30, 1997 1996 - -------------------------------------------------------------------------------------- ------------ ------------ Raw materials......................................................................... $ 310,260 $ 238,325 Work-in-process....................................................................... 514,437 512,527 Finished goods........................................................................ 6,888,412 6,404,976 ------------ ------------ 7,713,109 7,155,828 Less: adjustment to LIFO.............................................................. 1,310,421 1,273,272 ------------ ------------ $ 6,402,688 $ 5,882,556 ------------ ------------ ------------ ------------
The adjustment to LIFO represents the excess of current cost (valued at first-in, first-out FIFO) over the LIFO value of the inventories. F-12 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Property, Plant and Equipment Property, plant and equipment consists of the following:
SEPTEMBER 30, 1997 1996 - -------------------------------------------------------------------------------------- ------------ ------------ Machinery and equipment............................................................... $ 4,656,948 $ 4,552,650 Tools, molds and dies................................................................. 1,553,884 1,502,276 Furniture, fixtures and office equipment.............................................. 453,205 402,730 Leasehold improvements................................................................ 169,749 167,180 Building and improvements............................................................. 94,520 93,530 Land.................................................................................. 5,000 5,000 ------------ ------------ 6,933,306 6,723,366 Less: accumulated depreciation and amortization....................................... 5,096,081 4,757,620 ------------ ------------ $ 1,837,225 $ 1,965,746 ------------ ------------ ------------ ------------
Included in machinery and equipment and office equipment at September 30, 1997 and 1996 is approximately $560,000 of equipment under capital lease agreements (see Note 6) with related accumulated amortization amounts of approximately $165,000 and $93,000, respectively. Depreciation expense for the years ended September 30, 1997 and 1996 was approximately $447,000 and $365,000, respectively. 4. Revolving Credit Agreement In September, 1996, the Company entered into a credit agreement with a bank and repaid all amounts outstanding under agreements with its prior lender. Under the terms of its new three-year committed revolving credit agreement, the Company may borrow up to the lesser of $4,000,000 or 85% of eligible receivables and 30% of eligible inventory up to a maximum of $2,000,000, and interest is computed at the bank's prime lending rate (8.50% at September 30, 1997) or at 1.25% to 1.75% over the London InterBank Over-night Rate ("LIBOR"), at the Company's option, as defined in the agreement. As part of the same credit package, the Company may borrow additional funds, secured by the Company's machinery and equipment, with up to $1,000,000 available against existing assets and up to $1,000,000 available for new acquisitions of machinery and equipment. The credit facility is secured by a first priority security interest in the Company's assets. In addition, the Company must meet certain financial covenants. As of the end of September 30, 1997, borrowings under this credit agreement were $1,925,000. F-13 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. ACCRUED EXPENSES AND OTHER Accrued expenses consist of the following:
SEPTEMBER 30, 1997 1996 - ---------------------------------------------------------------------- ---------- ---------- Commissions........................................................... $ 93,285 $ 232,712 Payroll and related................................................... 83,548 45,000 Other................................................................. 64,948 160,323 ---------- ---------- $ 241,781 $ 438,035 ---------- ---------- ---------- ----------
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long term debt consists of the following:
SEPTEMBER 30, 1997 1996 - ------------------------------------------------------------------ ------------ ------------ Revolving credit facility, due September, 1999 (Note 4).......................................................... $ 1,925,000 $ 2,366,338 Capital lease obligations with varying monthly payments and interest rates ranging from 8.5% to 9.9% per annum maturing 1998 through 2001; secured by an interest in machinery and equipment (Note 3)................................ 277,720 395,464 ------------ ------------ Subtotal...................................................... 2,202,720 2,761,802 Less: current maturities......................................... 118,481 119,401 ------------ ------------ Long-term debt and capital lease obligations...................... $ 2,084,239 $ 2,642,401 ------------ ------------ ------------ ------------
F-14 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a schedule by years of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of September 30, 1997: 1998 $ 138,991 1999 104,988 2000 64,916 2001 3,451 --------- Total minimum lease payments....................... 312,346 Less: amount representing interest................. 34,626 --------- Present value of net minimum lease payments........ $ 277,720 --------- ---------
The following is a schedule of long term debt maturities (including capital lease obligations) as of September 30, 1997: 1998............................................ $ 118,481 1999............................................ 2,018,909 2000............................................ 61,911 2001............................................ 3,419 --------- $2,202,720 --------- ---------
7. LEASES The Company rents facilities in Baldwin, Ronkonkoma and Freeport, New York under various operating lease agreements expiring through December 1999.In addition, the Company also leases certain machinery and equipment and office equipment under various capital lease agreements expiring through 2001 (see Note 6). F-15 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Most of the Company's operating leases are on a month to month basis. Rent expense amounted to approximately $277,000 and $256,000 for the fiscal years ended September 30, 1997 and 1996, respectively. 8. STOCKHOLDERS' EQUITY (a) Warrants At September 30, 1997 and 1996, the Company had 120,864 and 1,275,414 stock warrants outstanding, respectively.The warrants to purchase the Company's common stock were held by the following parties: Officers/stockholders/consultants (1).............................................. 60,864 Public (1)......................................................................... 60,000 --------- 120,864 --------- ---------
- ------------------------ (1) Each warrant held by members of management and certain stockholders grant them the right to purchase one share of common stock at various prices between $.30 and $2.00 per share.These warrants have a weighted average exercise price of $.60 per share and a weighted average remaining contractual life of approximately 10 months. During fiscal 1996 the Company issued warrants to purchase 60,000 shares of common stock, at prices ranging from $3.00 to $4.25 per share to financial consultants to the Company.The Company did not issue warrants during fiscal 1997.The weighted average exercise price of these warrants is $3.75 per share, with a term that expires in October, 1998. F-16 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (b) Incentive Stock Option Plan In October 1993, the Board of Directors adopted an incentive stock option plan.The Plan, as amended on December 11, 1995, allows the Board of Directors to issue options to purchase an aggregate of 1,250,000 shares of the Company's common stock to key employees. As of September 30, 1997, the Company had issued options to purchase an aggregate of 1,176,400 shares of the Company's common stock to members of the Company's Board of Directors and employees.The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996 and 1997; no dividend yield, expected volatility of 46.5%, risk free interest rates of 5.68% to 6.89%, with an expected life of 7.5 years.If compensation cost for the Company's stock option plan had been determined in accordance with SFAS No. 123, net income would have been reduced in 1996 and 1997 by approximately $133,000 and $54,000, respectively, and earnings per share would have been $.15 and $.18, respectively. 8. STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding at September 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ----------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE ----------- --------------- ----------- ---------- ----------- Exercise Prices: $1.00--2.35.......................................... 895,000 5.4 $ 2.32 895,000 $ 2.32 .35--3.00.......................................... 34,600 7.1 2.65 34,600 2.65 2.00--3.00.......................................... 127,400 8.6 2.61 114,900 2.62 .35--2.44.......................................... 119,400 9.4 1.92 86,400 1.74 ----------- --- ----- ---------- ----- 1,176,400 6.2 $ 2.32 1,130,900 $ 2.32 ----------- --- ----- ---------- ----- ----------- --- ----- ---------- -----
F-17 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in qualified and non-qualified options and warrants outstanding are summarized as follows:
WARRANTS OPTIONS ------------------------ --------------------------------------- WEIGHTED AVERAGE EXERCISE OPTION PRICE EXERCISE SHARES PRICE SHARES PER SHARE PRICE ---------- ------------ ------------ ------------ ----------- Outstanding September 30, 1995.................. 1,313,764 $.30--$2.50 939,600 $ .35--$3.00 $2.32 Granted....................................... 60,000 3.25--4.25 183,000 2.00-- 3.25 2.74 Cancelled..................................... (3,350) .35 -- -- Exercised..................................... (80,000) .35--2.50 (10,000) 1.00 1.00 Warrants converted to options................. (15,000) .70 15,000 .70 .70 Expired....................................... -- -- (50,000) 2.00-- 3.25 3.13 ---------- ------------ ------------ ------------ ---- ---------- ------------ ------------ ------------ ---- Outstanding September 30, 1996.................. 1,275,414 $.30--$4.25 1,077,600 $ .35--$3.00 2.34 Granted....................................... -- 92,000 2.25-- 2.44 2.28 Cancelled..................................... -- -- Exercised..................................... (414,150) .35 -- .70 (5,600) 2.25 2.25 Warrants converted to options................. (12,400) .35 -- .70 12,400 .35-- .70 .69 Expired....................................... (728,000) 2.50 -- ---------- ------------ ------------ ------------ ---- Outstanding September 30, 1997.................. 120,864 1,176,400 2.32 ---------- ------------ ------------ ------------ ---- ---------- ------------ ------------ ------------ ----
At September 30, 1997, there were 1,130,900 options exercisable at a weighted average exercise price of $2.32.The weighted average fair value of options granted during fiscal 1996 and 1997 was $1.61 and $1.40, respectively. F-18 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. TAXES ON INCOME Provisions for income taxes (benefit) on income in the consolidated statement of operations consist of the following:
YEAR ENDED SEPTEMBER 30, 1997 1996 - ---------------------------------------------------------------------- ---------- ---------- Current: Federal............................................................. $ 570,192 $ 546,143 State............................................................... 106,996 46,925 ---------- ---------- Total current......................................................... 677,188 593,068 ---------- ---------- Deferred: Federal............................................................. (40,574) -- State............................................................... (7,614) -- ---------- ---------- (48,188) -- ---------- ---------- Total taxes on income................................................. $ 629,000 $ 593,068 ---------- ---------- ---------- ----------
Deferred tax (assets) liabilities consist of the following:
YEAR ENDED SEPTEMBER 30, 1997 1996 - ---------------------------------------------------------------------- ---------- ---------- Tax depreciation in excess of book.................................... $ 385,000 $ 254,463 Provision for bad debts............................................... (18,000) (19,863) Inventory capitalization.............................................. (23,000) (19,000) Provision on note receivable (included in other assets)............... (38,000) (34,000) Investment tax credit carryforward.................................... (187,000) (15,000) ---------- ---------- Deferred tax liabilities.............................................. 119,000 166,600 Valuation allowance................................................... 15,000 15,588 ---------- ---------- Net deferred tax liabilities.......................................... $ 134,000 $ 182,188 ---------- ---------- ---------- ----------
F-19 ALLIED DEVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for income taxes on income before taxes differs from the amounts computed applying the applicable Federal statutory rates due to the following:
YEAR ENDED SEPTEMBER 30, 1997 1996 - ---------------------------------------------------------------------- ---------- ---------- Provision for Federal income taxes at the statutory rate.............. $ 574,900 $ 541,993 Increase (decrease): State taxes, net of Federal tax benefit............................. 65,600 30,970 Other............................................................... (11,500) 20,105 ---------- ---------- Provision for taxes on income......................................... $ 629,000 $ 593,068 ---------- ---------- ---------- ----------
10. CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997 1996 - ------------------------------------------------------------------------------------------ ---------- ---------- Supplemental disclosure of cash flow information Cash paid during the year: Interest.............................................................................. $ 221,265 $ 249,168 ---------- ---------- ---------- ---------- Income taxes.......................................................................... $ 637,521 $ 551,408 ---------- ---------- ---------- ---------- Supplemental schedule of non-cash investing and financing: Equipment acquired under capital lease.................................................. $ -- $ 264,637 ---------- ---------- ---------- ----------
F-20 EX-23.1 2 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF BDO SEIDMAN, LLP Allied Devices Corporation Baldwin, New York We hereby consent to the incorporation by reference and inclusion in the Prospectuses constituting part of the Registration Statements filed on Form S-8 on April 6, 1994 and April 8, 1996 of our report dated December 18, 1997 relating to the consolidated financial statements of Allied Devices Corporation and subsidiaries appearing in the Company's Annual Report on Form 10-KSB for the year ended September 30, 1997. BDO SEIDMAN, LLP December 18, 1997 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 1997 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000869495 ALLIED DEVICES CORP 12-MOS SEP-30-1997 OCT-01-1996 SEP-30-1997 162,094 0 2,374,055 47,876 6,402,688 8,999,567 6,933,306 5,096,081 10,976,983 1,691,816 0 0 0 4,610 7,021,318 10,976,983 16,215,931 16,215,931 10,298,766 10,298,766 4,022,326 47,876 203,956 1,690,883 629,000 1,061,883 0 0 0 1,061,883 .21 .21
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