Overview

Total revenues for the nine and three month periods ended March 31, 2012, increased by 10.3% and 7.4%, respectively, from the same periods of fiscal 2011. Net earnings for the first nine months increased by 5.4% over the same period of last year, however net earnings declined by 19.8% during the third quarter of fiscal 2012 when compared to the same period last year. The decrease in earnings for the third quarter can be attributed to increased expenses needed to reorganize our license operations in Mexico. For the nine month period ended March 31, 2012 foreign shipments increased by 9.6% when compared to the same period of fiscal 2011.

Customer deposits continue to increase from the beginning of this fiscal year as new orders have been trending higher, increasing our backlog. Inventories have remained essentially flat but may increase during fiscal 2013 to keep pace with incoming orders.

The Company's cash position remains strong despite the recent dividend payment in December 2011.

Liquidity and Capital Resources

For the nine month period ended March 31, 2012, cash decreased by $78,422
compared to an increase of $1,341,271 during the same period of fiscal 2011. The
following summarizes the Company's Consolidated Statements of Cash Flows:



                                  Nine Months Ended March 31,
                                    2012                2011
                                (Unaudited)         (Unaudited)
Net cash provided (used) by:
Operating activities           $      279,379       $  1,343,197
Investing activities           $       (6,115 )     $     (1,926 )
Financing activities           $     (351,686 )     $          -

For the nine month period ended March 31, 2012, operating activities provided cash of $279,379 compared to $1,343,197 of cash provided during the same period of fiscal 2011. Cash provided by operating activities during the first nine months of fiscal 2012 was mainly attributable to an increase of $916,964 in accounts payable and accrued expenses and $539,202 provided by an increase in customer deposits as incoming orders trended higher. These increases in cash were mostly offset by an increase of $1,040,155 in accounts and trade notes receivable and a decrease in employee accrued expenses of $275,181, due to final 2011 year end bonuses and sales commissions paid out during the first quarter of fiscal 2012. Greater shipments during the month of March accounted for the increase in accounts receivables. Likewise, the purchases to support these shipments caused the increase in accounts payable as payments were not yet due. Additional cash was provided by the Company's net earnings of $322,578 and non-cash expenses for depreciation and amortization of $37,367. Inventories remained stable using cash of $20,005. Cash was also provided by a decrease of $10,556 in leasing and mortgage receivables, but this cash was offset by a $58,878 increase in other assets and a $107,971 increase in refundable income taxes as tax deposits outpaced tax liabilities. Cash also experienced a decrease in income taxes payable of $47,547 as fiscal 2011 taxes were paid. All other changes were due to the ordinary fluctuations in business activities.

For the nine month period ended March 31, 2011, operating activities provided cash of $1,343,197 compared to $273,013 of cash provided during the same period of fiscal 2010. The cash provided by operating activities for the nine month period of fiscal 2011 was primarily due to an increase of $1,498,702, in customer deposits. The increase in the fiscal 2011 period was the result of incoming orders increasing during this period. Cash was also provided in the nine month period of fiscal 2011 by the Company's net earnings of $305,907, supplemented by non-cash expenses for depreciation and amortization of $43,192, bad debt expense of $10,929 and a $12,414 provision for deferred taxes. Additional cash was generated by a decrease of $284,372 in accounts and trade notes receivable as some shipments were paid through the application of customer deposits which, therefore, did not generate a full account receivable. An increase in inventories reduced cash by $437,550 to support the increased level of business, and cash was further reduced by $45,015 due to a decline in inventory reserves. This reserve was placed against returned inventory in prior years which the Company resold during the first quarter of fiscal 2011. In addition, cash was reduced by $247,133 due to a decrease in employee accrued expenses resulting from the payment of accrued commissions and by a $60,481 decrease in accounts payable and accrued expenses. Cash was also reduced by $10,650 due to an increase in lease and mortgage receivables as the Company continues to finance some small leasing contracts.

Investing activities used cash of $6,115 and $1,926 during the nine month period ended March 31, 2012 and 2011, respectively, for capital expenditures.

Financing activities used cash of $351,686 to pay a dividend of $.05 per share on December 12, 2011. There were no financing activities during the first nine months of fiscal 2011.

The Company's original $2,250,000 revolving line of credit facility expired on October 31, 2011. Due to a change in ownership at the Company's former lender as a result of the acquisition of the former lender by a new lender, a new line of credit facility was entered into on November 16, 2011. The new credit facility provides a revolving line of credit that entitles the Company to borrow, from time to time, up to $2,250,000, including a $1,000,000 standby letter of credit sub-facility for the purchase of inventory and a $250,000 foreign exchange contract sub-facility. The Company's obligations under the new facility are guaranteed by the Company's subsidiaries and collateralized by substantially all of the Company's and its subsidiaries' assets. No amounts were outstanding under either facility at March 31, 2012 or June 30, 2011, nor were there any amounts outstanding at any time during fiscal 2011 or the first nine months of fiscal 2012. The new facility requires maintenance of certain debt service coverage and leverage ratios and contained other restrictive covenants, including limitations on the extent to which the Company and its subsidiaries could incur additional indebtedness, pay dividends, guarantee indebtedness of others, grant liens, sell assets and make investments. The Company was in compliance with these covenants at March 31, 2012, March 31, 2011 and June 30, 2011.

The Company believes that its existing cash, cash equivalents, net cash from operations will be sufficient to fund its operations and anticipated capital expenditures for at least the next twelve months and to meet its long term liquidity needs.

Off-Balance Sheet Financing

The Company has no off-balance sheet financing arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

Results of Operations

Revenues.



The following table sets forth certain information with respect to changes in
the Company's revenues for the periods presented:



                              Nine months ended                               Three months ended
                                  March 31,                                        March 31,
                            2012             2011              %             2012             2011              %
                        (Unaudited)      (Unaudited)         Change      (Unaudited)      (Unaudited)        Change
Net sales               $ 16,187,260     $ 14,606,488        10.8 %      $  5,039,940     $  4,714,447        6.9 %
Development fees,
franchise and license
fees, commissions and
other income                 222,349          276,341       -19.5 %            79,548           50,123       58.7 %
Total revenues          $ 16,409,609     $ 14,882,829        10.3 %      $  5,119,488     $  4,764,570        7.4 %

Revenues for the nine and three month periods ended March 31, 2012 increased by $1,526,780 (10.3%) and $354,918 (7.4%), respectively, from the same periods of fiscal 2011. During the first nine months of fiscal 2012, equipment and parts shipments increased by 14.0% and 7.3%, respectively. For the three month period equipment and parts sales increased by 12.1% and 2.1%, respectively when compared to the same periods of fiscal 2011. Although orders are trending higher, the economy remains a factor affecting the Company's sales. Revenues of development fees, franchise and license fees, commissions and other income decreased by $53,992 (19.5%), for the first nine months of fiscal 2012, but increased by $29,425 (58.7%) for the third quarter of fiscal 2012, when compared to the same periods of fiscal 2011. The decrease for the nine month period was primarily due to the absence in fiscal 2012 of a substantial commission that was paid to the Company in the first quarter of fiscal 2011 on a sale by another distributor for an installation made in the Company's territory.

Operating Expenses.



                                                       Nine months ended                    Three months ended
                                                           March 31,                             March 31,
                                                    2012               2011              2012                2011
                                                 (Unaudited)       (Unaudited)        (Unaudited)        (Unaudited)
As a percentage of net sales:
Cost of sales                                        76.6 %             76.8 %            76.6 %              76.4 %
As a percentage of total revenues:
Selling, general and administrative expenses         21.3 %             21.4 %            22.3 %              21.5 %
Total expenses                                       96.9 %             96.8 %            97.8 %              97.0 %

Costs of sales, expressed as a percentage of net sales, decreased to 76.6% from 76.8% in the first nine months of fiscal 2012 compared to the same period of fiscal 2011, but increased to 76.6% from 76.4% for the third quarter, of fiscal 2012 when compared to the same period of fiscal 2011. The variations are attributable to product mix.

Selling, general and administrative expenses increased by $318,874 (10.0%) and $120,711 (11.8%) for the nine and three month periods of fiscal 2012, respectively, from the same periods in fiscal 2011. The increase for both periods was mainly due to higher payroll expenses and sales commissions associated with an increase in staff and the Company's expanded activities to reorganize the license operations in Mexico. The variation, as a percentage of total revenues in both periods, was primarily due to the level of sales for the period which affects how fixed and semi-variable expenses are absorbed.

Interest income decreased by $4,201 (25.4%) for the nine month period of fiscal 2012 compared to the same period of fiscal 2011, due to lower interest rates. However, interest income increased $581 (12.9%) for the three month period of fiscal 2012 when compared to the third quarter of fiscal 2011, due to higher interest rates obtained through a change in investments.

The Company's effective tax rate increased to 38.3% and 38.2% for the nine and three month periods of fiscal 2012, respectively from 38.0% and 37.7% for the same periods of fiscal 2011. The variation reflects changes in permanent and temporary adjustments to taxable income.

Inflation

Inflation has not had a significant effect on the Company's operations during any of the reported periods.

Transactions with Related Parties

The Company leases warehouse and office space under an operating lease from the Sheila Steiner Revocable Trust. The trustees of this trust are Sheila Steiner, her husband, William K. Steiner, and her son, Michael S. Steiner. Sheila Steiner, William K. Steiner, who is Chairman of the Board of Directors and a director of the Company, and Michael S. Steiner, who is President and a director of the Company, are trustees of another trust which is a principal shareholder of the Company. Michael Steiner, individually, is also a principal shareholder of the Company.

The lease was for an original three year term which commenced on November 1, 2005, with two three-year renewal options in favor of the Company. The Company has exercised the second renewal option, extending the lease until October 31, 2014. The lease provides for annual rent increases commencing November 1, 2006 of 3% over the rent in the prior year. The Company bears the cost of real estate taxes, utilities, maintenance, non-structural repairs and insurance. The Company believes that the terms of the lease are comparable to terms that would be obtained from an unaffiliated third party for similar property in a similar locale. Rental expense under this lease was approximately $89,400 and $86,800 in the first nine months of fiscal 2012 and 2011, respectively.

Critical Accounting Policies

The accounting policies that the Company has identified as critical to its business operations and to an understanding of the Company's results of operations remain unchanged from those described in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2011. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses during the reported period. Therefore, there can be no assurance that the actual results will not differ from those estimates.

Recently Adopted Accounting Guidance

In January 2010, the FASB issued ASU 2010-06, "Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"). ASU 2010-06 amends ASC Topic 820 and clarifies and provides additional disclosure requirements on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). ASU 2010-06 became effective for the Company beginning July 1, 2010, except for the gross presentation of the Level 3 roll forward, which is required for annual reporting periods beginning for the Company on July 1, 2011 and for interim reporting periods thereafter. Early application was permitted and comparative disclosures were not required in the period of initial adoption. The adoption of ASU 2010-06 did not have a material impact on the Company's consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, "Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Loss" ("ASU 2010-20"). ASU 2010-20 amends ASC Topic 310, "Receivables" to enhance disclosures about the credit quality of financing receivables and the allowance for credit losses by requiring an entity to provide a greater level of disaggregated information and to disclose credit quality indicators, past due information, and modifications of its financing receivables. ASU 2010-20 is effective for interim or annual fiscal years for the Company beginning January 1, 2011. The Company's adoption of ASU 2010-20 did not have a material impact on its consolidated financial statements

In April 2011, the FASB issued ASU 2011-02, "Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring" ("ASU 2011-02"). ASU 2011-02 provides additional guidance clarifying when the restructuring of a receivable should be considered a troubled debt restructuring. The additional guidance provided by ASU 2011-02 is for determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulty. ASU 2011-02 also ends the deferral of activity-based disclosures related to troubled debt restructurings. The Company adopted ASU 2011-02 in the third quarter of 2011. The adoption of ASU 2011-02 did not impact the Company's consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). ASU 2011-04 amends ASC Topic 820, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC Topic 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material effect on the consolidated financial statements.

Forward Looking Statements

Certain statements in this Report are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report, words such as "may," "should," "seek," "believe," "expect," anticipate," "estimate," "project," "intend," "strategy" and similar expressions are intended to identify forward looking statements regarding events, conditions and financial trends that may affect the Company's future plans, operations, business strategies, operating results and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results, trends, performance or achievements of the Company, or industry trends and results, to differ materially from the future results, trends, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, among others:
general economic and business conditions in the United States and other countries in which the Company's customers and suppliers are located; industry conditions and trends; technology changes; competition and other factors which may affect prices which the Company may charge for its products and its profit margins; the availability and cost of the inventory purchased by the Company; the relative value of the United States dollar to currencies in the countries in which the Company's customers, suppliers and competitors are located; changes in, or the failure to comply with, government regulation, principally environmental regulations; the Company's ability to implement changes in its business strategies and development plans; and the availability, terms and deployment of debt and equity capital if needed for expansion. These and certain other factors are discussed in this Report and from time to time in other Company reports filed with the Securities and Exchange Commission. The Company does not assume an obligation to update the factors discussed in this Report or such other reports.