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AHPI > SEC Filings for AHPI > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for ALLIED HEALTHCARE PRODUCTS INC | Request a Trial to NEW EDGAR Online Pro



Quarterly Report

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 BaralymeŽ. Income from the agreement was recognized at $57,350 per month until the expiration of the agreement in August 2012. Allied continues to sell CarbolimeŽ, a carbon dioxide absorbent with a different formulation than BaralymeŽ, as well as LitholymeŽ, a new premium carbon dioxide absorbent. The Company ceased the sale of BaralymeŽ 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.

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