ALLIED HEALTHCARE PRODUCTS INC - Quarter Report: 2010 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2010

o	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from________ to ________

Commission File Number: 0-19266

ALLIED HEALTHCARE PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

Delaware		25-1370721
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

1720 Sublette Avenue, St. Louis, Missouri 63110

(Address of principal executive offices, including zip code)

(314) 771-2400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter periods that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past ninety days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o (Do not check if smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares of common stock outstanding at April 30, 2010 is 8,093,386 shares.

INDEX

			Page
			Number
Part I –	Financial Information
	Item 1.	Financial Statements
		Consolidated Statement of Operations -	3
		Three and nine months ended March 31,
		2010 and 2009 (Unaudited)

		Consolidated Balance Sheet -	4 - 5
		March 31, 2010 (Unaudited) and
		June 30, 2009

		Consolidated Statement of Cash Flows -	6
		Nine months ended March 31, 2010 and 2009
		(Unaudited)

		Notes to Consolidated Financial Statements	7 – 11

	Item 2.	Management’s Discussion and Analysis of	11 – 15
		Financial Condition and Results of Operations

	Item 3.	Quantitative and Qualitative Disclosure	16
		about Market Risk

	Item 4T.	Controls and Procedures	16

Part II -	Other Information

	Item 6.	Exhibits	16

		Signature	18

SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements contained in this Report, which are not historical facts or information, are "forward-looking statements." Words such as "believe," "expect," "intend," "will," "should," and other expressions that indicate future events and trends identify such forward-looking statements. These forward-looking statements involve risks and uncertainties, which could cause the outcome and future results of operations, and financial condition to be materially different than stated or anticipated based on the forward-looking statements. Such risks and uncertainties include both general economic risks and uncertainties, risks and uncertainties affecting the demand for and economic factors affecting the delivery of health care services, and specific matters which relate directly to the Company's operations and properties as discussed in the Company’s annual report on Form 10-K for the year ended June 30, 2009. The Company cautions that any forward-looking statements contained in this report reflect only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIED HEALTHCARE PRODUCTS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

	Three months ended						Nine months ended
	March 31,						March 31,
	2010			2009			2010			2009

Net sales	$	11,627,418		$	12,389,640		$	34,366,002		$	39,361,993
Cost of sales		8,781,739			9,915,884			26,172,709			30,677,586
Gross profit		2,845,679			2,473,756			8,193,293			8,684,407

Selling, general and administrative expenses		2,705,644			3,198,135			9,197,535			9,782,064
Income (loss) from operations		140,035			(724,379	)		(1,004,242	)		(1,097,657	)

Interest income		(2,956	)		(5,041	)		(4,403	)		(54,155	)
Interest expense		190			-			2,764			5,849
Other, net		80,791			13,403			103,588			36,583
		78,025			8,362			101,949			(11,723	)

Income (loss) before provision for (benefit from) income taxes		62,010			(732,741	)		(1,106,191	)		(1,085,934	)

Provision for (benefit from) income taxes		24,480			(282,469	)		(420,353	)		(407,925	)
Net income (loss)	$	37,530		$	(450,272	)	$	(685,838	)	$	(678,009	)

Basic earnings (loss) per share	$	0.00		$	(0.06	)	$	(0.09	)	$	(0.09	)

Diluted earnings (loss) per share	$	0.00		$	(0.06	)	$	(0.09	)	$	(0.09	)

Weighted average shares outstanding - basic		8,093,386			7,901,327			8,057,890			7,897,937

Weighted average shares outstanding - diluted		8,183,907			7,901,327			8,057,890			7,897,937

See accompanying Notes to Consolidated Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

	(Unaudited)
	March 31,		June 30,
	2010		2009

Current assets:
Cash and cash equivalents	$	3,273,496	$	1,943,364
Accounts receivable, net of allowances of $300,000		5,371,848		6,172,437
Inventories, net		11,968,396		12,663,938
Income tax receivable		1,634,370		937,273
Other current assets		270,340		327,203

Total current assets		22,518,450		22,044,215

Property, plant and equipment, net		10,040,867		10,799,089
Other assets, net		186,069		390,627

Total assets	$	32,745,386	$	33,233,931

See accompanying Notes to Consolidated Financial Statements.

(CONTINUED)

ALLIED HEALTHCARE PRODUCTS, INC.

CONSOLIDATED BALANCE SHEET

(CONTINUED)

LIABILITIES AND STOCKHOLDERS' EQUITY

	(Unaudited)
	March 31,			June 30,
	2010			2009

Current liabilities:
Accounts payable	$	2,140,610		$	1,633,568
Other accrued liabilities		2,055,459			2,316,558
Deferred income taxes		164,125			419,213
Deferred revenue		688,200			688,200
Total current liabilities		5,048,394			5,057,539

Deferred revenue		974,950			1,491,100

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; 10,396,878 and 10,204,819 shares issued
at March 31, 2010 and June 30, 2009, respectively;
8,093,386 and 7,901,327 shares outstanding at
March 31, 2009 and June 30, 2009, respectively		103,969			102,048
Additional paid-in capital		48,352,716			47,632,049
Accumulated deficit		(1,003,215	)		(317,377	)
Less treasury stock, at cost; 2,303,492 shares at
March 31, 2010 and June 30, 2009		(20,731,428	)		(20,731,428	)
Total stockholders' equity		26,722,042			26,685,292
Total liabilities and stockholders' equity	$	32,745,386		$	33,233,931

See accompanying Notes to Consolidated Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Nine months ended
	March 31,
	2010			2009

Cash flows from operating activities:
Net loss	$	(685,838	)	$	(678,009	)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:

Depreciation and amortization		948,607			1,074,119
Stock based compensation		637,720			17,392
Provision for doubtful accounts and sales
returns and allowances		(9,832	)		2,886
Deferred taxes		(59,713	)		14,223
Loss on disposition of equipment		67,848			3,056

Changes in operating assets and liabilities:
Accounts receivable		810,421			680,519
Inventories		695,542			(1,611,991	)
Income tax receivable		(697,097	)		-
Other current assets		56,863			(59,655	)
Accounts payable		507,042			(287,444	)
Deferred revenue		(516,150	)		(516,150	)
Other accrued liabilities		(261,099	)		(1,429,952	)
Net cash provided by (used in) operating activities		1,494,314			(2,791,006	)

Cash flows from investing activities:
Capital expenditures		(303,680	)		(1,403,665	)
Proceeds from disposal of fixed assets		54,630			-
Net cash used in investing activities		(249,050	)		(1,403,665	)

Cash flows from financing activities:
Stock options exercised		3,469			81,094
Minimum tax withholdings on stock options exercised		(406,110	)		-
Excess tax benefit from exercise of stock options		487,509			619
Net cash provided by financing activities		84,868			81,713

Net increase (decrease) in cash and cash equivalents		1,330,132			(4,112,958	)
Cash and cash equivalents at beginning of period		1,943,364			6,149,015
Cash and cash equivalents at end of period	$	3,273,496		$	2,036,057

See accompanying Notes to Consolidated Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Summary of Significant Accounting and Reporting Policies

Basis of Presentation

The accompanying unaudited consolidated 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 consolidated financial statements and notes to the consolidated financial statements thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.

Codification of Accounting Standards

On September 30, 2009, the Company adopted SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the Codification). The Codification combines the previous U.S. GAAP hierarchy which included four levels of authoritative accounting literature distributed among a number of different sources. The Codification does not by itself create new accounting standards but instead reorganizes thousands of pages of existing U.S. GAAP accounting rules into approximately 90 accounting topics. All existing accounting standards documents are superseded by the Codification and all other accounting literature not included in the Codification is now considered non-authoritative. The Codification explicitly recognizes the rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. The Codification is now the single source of authoritative nongovernmental accounting standards in the U.S.

As a result of the Codification, the references to authoritative accounting pronouncements included herein in this Quarterly Report on Form 10-Q now refer to the Codification topic section rather than a specific accounting rule as was past practice.

Recently Issued Accounting Guidance

In April 2009, the FASB issued guidance (“Fair Value Determination Guidance”) in the Fair Value Measurements and Disclosures Topic of the ASC regarding the determination of fair value in instances where market conditions result in either inactive markets for assets and liabilities or disorderly transactions within markets. The Fair Value Determination Guidance affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. The Fair Value Determination Guidance requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence and expands certain disclosure requirements. The Fair Value Determination Guidance became effective for Allied Healthcare Products, Inc. in the quarter ended September 30, 2009, and its adoption did not have a significant effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued the Business Combinations Topic of the ASC. The Business Combinations Topic replaces previously issued guidance regarding business combinations, and applies to all transactions and other events in which one entity obtains control over one or more other businesses. Departing from the cost-allocation process of previous guidance, the Business Combinations Topic requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity at the acquisition date, measured at their fair values as of that date. Contingent consideration is recognized and measured at fair value at the acquisition date, and acquisition related costs are expensed as incurred. The Business Combinations Topic also distinguishes between assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date and assets or liabilities arising from all other contingencies, requiring different treatment for each type of contingency. The Business Combinations Topic is effective for Allied Healthcare Products, Inc. on July 1, 2009. To the extent business combinations occur on or after the effective date, the Company’s accounting for those transactions will be significantly affected by the provisions of the Business Combinations Topic.

The Company has determined that all other recently issued accounting guidance will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.

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:

	March 31, 2010			June 30, 2009

Work-in progress	$	744,409		$	718,711
Raw materials and component parts		8,591,912			8,981,435
Finished goods		3,929,250			4,311,440
Reserve for obsolete and excess inventory		(1,297,175	)		(1,347,648	)
	$	11,968,396		$	12,663,938

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 number of basic shares outstanding for the three months ended March 31, 2010 and 2009 were 8,093,386 and 7,901,327 respectively. The number of diluted shares outstanding for the three months ended March 31, 2010 and 2009 were 8,183,907 and 7,901,327 respectively. The number of basic and diluted shares outstanding for the nine months ended March 31, 2010 and 2009 were 8,057,890 and 7,897,937 respectively.

4. Commitments and Contingencies

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 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 to believe that any additional liabilities will result from the resolution of these matters that would have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

5. Financing

Effective as of November 13, 2009, Allied Healthcare Products, Inc. (the “Company”) terminated its revolving credit facility arrangement with Bank of America, N.A., as successor to LaSalle Bank National Association (the “Old Credit Agreement”). The Old Credit Agreement provided for borrowings of up to $10,000,000 and was available through September 1, 2010. No loans were outstanding under the Old Credit Agreement as of November 13, 2009.

On November 17, 2009, in order to obtain replacement financing, the Company entered into a Loan and Security Agreement by and between Enterprise Bank & Trust and the Company (the “New Credit Agreement”) pursuant to which the Company obtained a secured revolving credit facility with borrowing availability of up to $7,500,000 (the “New Credit Facility”). The Company’s obligations under the New Credit Facility are secured by certain assets of the Company pursuant to the terms and subject to the conditions set forth in the New Credit Agreement.

The New Credit Facility will be available on a revolving basis until it expires on November 15, 2010, at which time all amounts outstanding under the New Credit Facility will be due and payable. Advances under the New Credit Facility will be made pursuant to a Revolving Credit Note (the “Promissory Note”) executed by the Company in favor of Enterprise Bank & Trust. Such advances will bear interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s prime-rate based interest rate for commercial loans, subject to a minimum annual interest rate of 4.50%. Advances may be prepaid in whole or in part without premium or penalty.

Under the New Credit Agreement, advances are generally subject to customary borrowing conditions. The New Credit Agreement also contains covenants with which the Company must comply during the term of the New 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 transaction with affiliates; consolidate or merge with or acquire another business; sell certain of its assets or dissolve or wind up the Company. The New 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 New 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 New 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 New Credit Facility.

The prime rate was 3.25% on March 31, 2010.

At March 31, 2010 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 New Credit Facility at March 31, 2010.

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						Nine Months ended
	March 31,						March 31,
	2010			2009			2010			2009

Beginning balance	$	1,835,200		$	2,522,950		$	2,179,300		$	2,867,500

Revenue recognized
as net sales		(172,050	)		(171,600	)		(516,150	)		(516,150	)

		1,663,150			2,351,350			1,663,150			2,351,350
Less - Current portion
of deferred revenue		(688,200	)		(688,200	)		(688,200	)		(688,200	)
	$	974,950		$	1,663,150		$	974,950		$	1,663,150