Item 1. Financial Statements
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
9,287,091
|
|
|
$
|
11,395,008
|
|
Cost of sales
|
|
|
7,308,116
|
|
|
|
8,988,991
|
|
Gross profit
|
|
|
1,978,975
|
|
|
|
2,406,017
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
|
|
|
|
|
|
|
|
|
administrative expenses
|
|
|
2,638,575
|
|
|
|
2,634,089
|
|
Loss from operations
|
|
|
(659,600
|
)
|
|
|
(228,072
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(4,226
|
)
|
|
|
(8,994
|
)
|
Interest expense
|
|
|
-
|
|
|
|
336
|
|
Other, net
|
|
|
7,581
|
|
|
|
14,405
|
|
|
|
|
3,355
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit from income taxes
|
|
|
(662,955
|
)
|
|
|
(233,819
|
)
|
Benefit from income taxes
|
|
|
(251,923
|
)
|
|
|
(88,851
|
)
|
Net loss
|
|
$
|
(411,032
|
)
|
|
$
|
(144,968
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
8,124,386
|
|
|
|
8,124,386
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
ASSETS
|
|
(Unaudited)
|
|
|
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,386,060
|
|
|
$
|
5,284,543
|
|
Accounts receivable, net of allowances of $300,000
|
|
|
3,703,348
|
|
|
|
4,843,593
|
|
Inventories, net
|
|
|
10,341,123
|
|
|
|
10,001,226
|
|
Income tax receivable
|
|
|
301,944
|
|
|
|
46,042
|
|
Other current assets
|
|
|
658,107
|
|
|
|
400,677
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,390,582
|
|
|
|
20,576,081
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
9,581,008
|
|
|
|
9,603,556
|
|
Other assets, net
|
|
|
1,151,795
|
|
|
|
1,167,432
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
31,123,385
|
|
|
$
|
31,347,069
|
|
See accompanying Notes to Financial Statements.
(CONTINUED)
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
(Unaudited)
|
|
|
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,834,952
|
|
|
$
|
1,797,144
|
|
Other accrued liabilities
|
|
|
2,112,964
|
|
|
|
1,855,579
|
|
Deferred income taxes
|
|
|
798,392
|
|
|
|
802,961
|
|
Deferred revenue
|
|
|
-
|
|
|
|
114,700
|
|
Total current liabilities
|
|
|
4,746,308
|
|
|
|
4,570,384
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Series A preferred stock; $0.01 par value; 200,000
shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock; $0.01 par value; 30,000,000 shares authorized; 10,427,878
shares issued at September 30, 2012 and June 30, 2012; 8,124,386 shares outstanding at September 30, 2012 and June 30, 2012
|
|
|
104,279
|
|
|
|
104,279
|
|
Additional paid-in capital
|
|
|
48,552,226
|
|
|
|
48,540,802
|
|
Accumulated deficit
|
|
|
(1,548,000
|
)
|
|
|
(1,136,968
|
)
|
Less treasury stock, at cost; 2,303,492 shares at
September 30, 2012 and June 30, 2012
|
|
|
(20,731,428
|
)
|
|
|
(20,731,428
|
)
|
Total stockholders' equity
|
|
|
26,377,077
|
|
|
|
26,776,685
|
|
Total liabilities and stockholders'
equity
|
|
$
|
31,123,385
|
|
|
$
|
31,347,069
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
($
|
411,032
|
)
|
|
($
|
144,968
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
307,346
|
|
|
|
306,848
|
|
Stock based compensation
|
|
|
11,424
|
|
|
|
10,287
|
|
Provision for doubtful accounts and sales
|
|
|
|
|
|
|
|
|
returns and allowances
|
|
|
1,474
|
|
|
|
1,901
|
|
Deferred taxes
|
|
|
(4,569
|
)
|
|
|
(4,116
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,138,771
|
|
|
|
218,032
|
|
Inventories
|
|
|
(339,897
|
)
|
|
|
(198,768
|
)
|
Income tax receivable
|
|
|
(255,902
|
)
|
|
|
(92,150
|
)
|
Other current assets
|
|
|
(257,430
|
)
|
|
|
(242,270
|
)
|
Accounts payable
|
|
|
37,808
|
|
|
|
151,825
|
|
Deferred revenue
|
|
|
(114,700
|
)
|
|
|
(172,050
|
)
|
Other accrued liabilities
|
|
|
257,385
|
|
|
|
315,578
|
|
Net cash provided by operating activities
|
|
|
370,678
|
|
|
|
150,149
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(269,161
|
)
|
|
|
(498,858
|
)
|
Net cash used in investing activities
|
|
|
(269,161
|
)
|
|
|
(498,858
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
101,517
|
|
|
|
(348,709
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
5,284,543
|
|
|
|
6,512,887
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,386,060
|
|
|
$
|
6,164,178
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation
The accompanying unaudited
financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the
instructions for Form 10-Q and do not include all of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read
in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2012.
Recently Issued Accounting Pronouncements
We have reviewed accounting
pronouncements and interpretations thereof issued by the FASB, AICPA and the SEC that have effective dates during the periods
reported and in future periods. Management does not believe that any of those pronouncements will have a material impact on the
Company’s present or future financial statements.
Fair Value of Financial Instruments
The Company’s financial instruments
consist of cash, accounts receivable and accounts payable. The carrying amounts for cash, accounts receivable and accounts payable
approximate their fair value due to the short maturity of these instruments.
2. Inventories
Inventories are comprised as follows:
|
|
September 30, 2012
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
Work-in progress
|
|
$
|
691,627
|
|
|
$
|
654,677
|
|
Component parts
|
|
|
7,748,422
|
|
|
|
7,495,333
|
|
Finished goods
|
|
|
3,220,677
|
|
|
|
3,178,507
|
|
Reserve for obsolete and excess
|
|
|
|
|
|
|
|
|
inventory
|
|
|
(1,319,603
|
)
|
|
|
(1,327,291
|
)
|
|
|
$
|
10,341,123
|
|
|
$
|
10,001,226
|
|
3. Earnings per share
Basic earnings per
share are based on the weighted average number of shares of all common stock outstanding during the period. Diluted earnings per
share are based on the sum of the weighted average number of shares of common stock and common stock equivalents outstanding during
the period. The weighted average number of basic and diluted shares outstanding for the three months ended September 30, 2012
and 2011 were 8,124,386.
4. Commitments and Contingencies
Legal Claims
The Company is subject
to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of
its business activities. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking
to interrupt or suspend manufacturing or require any recall or modification of products.
The
Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which,
in its view, it is probable that liabilities have been incurred and the related amounts are estimable. Based upon information
currently available, management believes that existing accrued liabilities are sufficient and that it is not reasonably possible
at this time that any additional liabilities will result from the resolution of these matters that would have a material adverse
effect on the Company’s results of operations, financial position, or cash flows.
Stuyvesant Falls Power Litigation
.
The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”)
and other parties, which provides electrical power to the Company’s facility in Stuyvesant Falls, New York. In fiscal year
2011, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. The Company
maintains in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running
with the land which have been honored for more than a century. Niagara’s attempts to collect such invoices were stopped
in December 2010 by a temporary restraining order, although a court has not yet ruled on the merits of all of Niagara’s
claims. Among other things, Niagara seeks approximately $469,000, which it alleges represents the value of electricity provided
prior to the commencement of litigation going back to 2003. The Company has posted a $250,000 bond which Niagara could draw against
for electricity provided and not collected since the December 2010 temporary restraining order in the event Niagara prevails in
its lawsuit. The amount of the bond exceeds the cumulative invoiced electricity charges generated by Niagara since the issuance
of the temporary restraining order. As of September 30, 2012, the Company has not recorded a provision for this matter as management
intends to vigorously defend this litigation and believes it is not probable that the Company will be required to pay for electricity
as Niagara claims. The Company believes, however, that any liability it may incur should it not prevail in the litigation would
not have a material adverse effect on its financial condition, its result of operations, or its cash flows.
Employment Contract
In March 2007, the
Company entered into a three year employment contract with its chief executive officer. The contract is subject to annual renewals
after the initial term. The contract was amended and restated in December 2009 without extending its term. The contract includes
termination without cause and change of control provisions, under which the chief executive officer is entitled to receive specified
severance payments generally equal to two times ending annual salary if the Company terminates his employment without cause or
he voluntarily terminates his employment with “good reason.” “Good Reason” generally includes changes
in the scope of his duties or location of employment but also includes (i) the Company’s written election not to renew the
Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following a “Change of Control”
as defined in the Agreement.
5. Financing
The Company is party
to a Loan and Security Agreement, dated November 17, 2009, with Enterprise Bank & Trust (the “Credit Agreement”)
pursuant to which the Company obtained a secured revolving credit facility with borrowing availability of up to $7,500,000 (the
“Credit Facility”). The Company’s obligations under the Credit Facility are secured by certain assets of the
Company pursuant to the terms and subject to the conditions set forth in the Credit Agreement.
The Credit Facility
was amended on November 11, 2011 extending the maturity date to November 13, 2012. The Credit Facility will be available on a
revolving basis until it expires on November 13, 2012, at which time all amounts outstanding under the Credit Facility will be
due and payable. Advances under the Credit Facility will be made pursuant to a Revolving Credit Note executed by the Company in
favor of Enterprise Bank & Trust. Such advances will bear interest at a rate equal to 3.50% in excess of the 30-day LIBOR
rate. Advances may be prepaid in whole or in part without premium or penalty.
Under the Credit
Agreement, advances are generally subject to customary borrowing conditions. The Credit Agreement also contains covenants with
which the Company must comply during the term of the Credit Facility. Among other things, such covenants restrict the Company’s
ability to incur certain additional debt; make specified restricted payments, dividends and capital expenditures; authorize or
issue capital stock; enter into certain transactions with affiliates; consolidate or merge with or acquire another business; sell
certain of its assets or dissolve or wind up the Company. The Credit Agreement also contains certain events of default that are
customary for financings of this type including, without limitation: the failure to pay principal, interest, fees or other amounts
when due; the breach of specified representations or warranties contained in the loan documents; cross-default with certain other
indebtedness of the Company; the entry of uninsured judgments that are not bonded or stayed; failure to comply with the observance
or performance of specified agreements contained in the loan documents; commencement of bankruptcy or other insolvency proceedings;
and the failure of any of the loan documents entered into in connection with the Credit Facility to be in full force and effect.
After an event of default, and upon the continuation thereof, the principal amount of all loans made under the Credit Facility
would bear interest at a rate per annum equal to 4.00% above the otherwise applicable interest rate (provided, that the interest
rate may not exceed the highest rate permissible under law), and the lender would have the option to accelerate maturity and payment
of the Company’s obligations under the Credit Facility.
The 30-day LIBOR
rate was 0.22% on September 30, 2012.
At September 30, 2012
the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.
The Company was in
compliance with all of the financial covenants associated with the Credit Facility at September 30, 2012.
6. Baralyme®
Agreement
A reconciliation of
deferred revenue resulting from the agreement with Abbott Laboratories (“Abbott”), with the amounts received under
the agreement, and amounts recognized as net sales is as follows:
|
|
Three Months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
114,700
|
|
|
$
|
802,900
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized as net sales
|
|
|
(114,700
|
)
|
|
|
(172,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
630,850
|
|
Less - Current portion of deferred revenue
|
|
|
0
|
|
|
|
(630,850
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
In addition to the
provisions of the agreement relating to the withdrawal of the Baralyme® product, Abbott agreed to pay Allied up to $2,150,000
in product development costs to pursue development of a new carbon dioxide absorption product for use in connection with inhalation
anesthetics that does not contain potassium hydroxide and does not produce a significant exothermic reaction with currently available
inhalation agents. As of September 30, 2012, $2,150,000 has been received as a result of product development activities.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three months ended September 30, 2012 compared to three
months ended September 30, 2011
Allied had net sales
of $9.3 million for the three months ended September 30, 2012, down $2.1 million from net sales of $11.4 million in the prior
year same quarter. Domestic sales were down 22.9% while international sales, which represented 22.8% of first quarter sales, were
up 1.3% from the prior year same quarter.
Sales for the three
months ended September 30, 2012 include $114,700 for the recognition into income of payments resulting from the agreement with
Abbott Laboratories to cease the production and distribution of Baralyme®. Income from the agreement was recognized at $57,350
per month until the expiration of the agreement in August 2012. Allied continues to sell Carbolime®, a carbon dioxide absorbent
with a different formulation than Baralyme®, as well as Litholyme®, a new premium carbon dioxide absorbent. The Company
ceased the sale of Baralyme® on August 27, 2004.
Orders for the Company’s
products for the three months ended September 30, 2012 of $9.6 million were $1.6 million or 14.3% lower than orders for the prior
year same quarter of $11.2 million. Domestic orders are down 21.6% over the prior year same quarter while international orders,
which represented 28.2% of first quarter orders, were 12.0% higher than orders for the prior year same quarter. The Company has
reorganized efforts to effectively reach international markets, and international sales and orders comprise a higher percentage
than in the prior year. Domestic orders during the first quarter were impacted negatively by several factors, including a decrease
in government orders from the prior year and continued market pressure in the domestic hospital and construction market. Government
orders do show variation between periods and the decrease is not believed to reflect a drop in market share. The Company also
continues to believe that the purchase of equipment and durable goods and the purchase of equipment by hospitals and municipalities
have been cut to meet budgets and conserve cash due to the slow recovery of the economy since the recession in 2008. Orders and
sales remain below pre-recession levels.
Gross profit for the
three months ended September 30, 2012 was $2.0 million, or 21.5% of net sales, compared to $2.4 million, or 21.1% of net sales,
for the three months ended September 30, 2011. Gross profit, as a percentage of sales, was favorably impacted by purchasing and
manufacturing improvements in the Company’s St. Louis and New York facilities.
Selling, general and
administrative expenses for the three months ended September 30, 2012 were $2.6 million unchanged from selling, general and administrative
expenses of $2.6 million for the three months ended September 30, 2011. Salaries and benefits are approximately $56,000 higher
than in the prior year. This increase has been offset by decreases in other expense accounts including a $43,000 decrease in legal
expenses and a $24,000 decrease in research and development cost.
Loss from operations
was $659,600 for the three months ended September 30, 2012 compared to loss from operations of $228,072 for the three months ended
September 30, 2011. Allied had loss before benefit from income taxes in the first quarter of fiscal 2013 of $662,955 compared
to loss before benefit from income taxes in the first quarter of fiscal 2012 of $233,819.
Net loss for the first
quarter of fiscal 2013 was $411,032 or $0.05 per basic and diluted share compared to net loss of $144,968 or $0.02 per basic and
diluted share for the first quarter of fiscal 2012. The weighted average number of basic and diluted shares outstanding for the
three months ended September 30, 2012 and 2011 were 8,124,386.
Liquidity and Capital Resources
The Company believes
that available resources and anticipated cash flows from operations are sufficient to meet operating requirements in the coming
year.
The Company’s
working capital was $15.6 million at September 30, 2012 compared to $16.0 million at June 30, 2012. The decrease in working capital
was primarily a result of accounts receivable which decreased by $1.1 million largely due to a decrease in sales. Accounts receivable
as measured in days of sales outstanding (“DSO”) was 39 DSO at September 30, 2012; down from 44 DSO at June 30, 2012.
In addition other accrued liabilities increased by $0.3 million. At September 30, 2012 these decreases in working capital were
offset by an increase in other current assets of $0.3 million, an increase in income tax receivable of $0.3 million and an increase
in inventory of $0.3 million due to the decrease in sales. The increase in other current assets is a result of prepayment of the
Company’s insurance premiums for the fiscal year.
The Company is party
to a Loan and Security Agreement, dated November 17, 2009, with Enterprise Bank & Trust (the “Credit Agreement”)
pursuant to which the Company has a secured revolving credit facility with borrowing availability of up to $7,500,000 (the “Credit
Facility”). The Company’s obligations under the Credit Facility are secured by certain assets of the Company pursuant
to the terms and subject to the conditions set forth in the Credit Agreement. See Note 5 – Financing to the Company’s
consolidated unaudited financial statements for more information concerning the Credit Facility.
Advances under the
Credit Facility will be made pursuant to a Revolving Credit Note executed by the Company in favor of Enterprise Bank & Trust.
Such advances will bear interest at a rate equal to the 30-day LIBOR rate plus 3.50%. Advances may be prepaid in whole or in part
without premium or penalty. The 30-day LIBOR rate was 0.22% on September 30, 2012.
At September 30, 2012
the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.
In
the event that economic conditions were to severely worsen for a protracted period of time, we believe that we will have borrowing
capacity under credit facilities that will provide sufficient financial flexibility. The Company would have options available
to ensure liquidity in addition to increased borrowing. Capital expenditures, which are budgeted at $1.5 million for the fiscal
year ended June 30, 2013, could be postponed.
Inflation
has not had a material effect on the Company’s business or results of operations during the first quarter of fiscal 2013.
Litigation and Contingencies
The Company becomes,
from time to time, a party to personal injury litigation arising out of incidents involving the use of its products. The Company
believes that any potential judgments resulting from these claims over its self-insured retention will be covered by the Company’s
product liability insurance.
Recently Issued Accounting Guidance
The impact and any
associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect the Company’s
reported and expected financial results. For a detailed discussion on the application of these and other accounting policies,
see the Company’s Annual Report on Form 10-K for the year ended June 30, 2012.
See Note 1 –
Summary of Significant Accounting and Reporting Policies for more information on recent accounting pronouncements and their impact,
if any, on the Company’s financial statements. Management believes there have been no material changes to our critical accounting
policies.