e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2008
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Action of 1934 |
For the transition period from to
Commission File Number 0-19266
ALLIED HEALTHCARE PRODUCTS, INC.
1720 Sublette Avenue
St. Louis, Missouri 63110
314/771-2400
IRS Employment ID 25-1370721
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 þ 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 the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer
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Accelerated filer
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Non-accelerated filer þ |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
The number of shares of common stock outstanding at May 2, 2008 is 7,883,577 shares.
INDEX
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, 2007. The Company cautions that any forward-looking
statements contained in this report reflects 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.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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Three months ended |
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Nine months ended |
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March 31, |
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March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
13,943,852 |
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$ |
13,703,784 |
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$ |
41,671,485 |
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$ |
42,455,176 |
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Cost of sales |
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10,779,631 |
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10,251,494 |
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32,428,408 |
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31,966,606 |
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Gross profit |
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3,164,221 |
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3,452,290 |
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9,243,077 |
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10,488,570 |
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Selling, general and
administrative expenses |
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3,013,413 |
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3,003,928 |
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8,988,810 |
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9,286,343 |
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Income from operations |
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150,808 |
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448,362 |
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254,267 |
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1,202,227 |
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Interest income |
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(13,928 |
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(25,844 |
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(92,874 |
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(82,071 |
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Other, net |
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9,241 |
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9,328 |
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35,504 |
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(34,551 |
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(4,687 |
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(16,516 |
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(57,370 |
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(116,622 |
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Income before provision
for income taxes |
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155,495 |
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464,878 |
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311,637 |
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1,318,849 |
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Provision for income taxes |
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55,824 |
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187,198 |
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118,421 |
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546,381 |
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Net income |
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$ |
99,671 |
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$ |
277,680 |
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$ |
193,216 |
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$ |
772,468 |
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Basic earnings per share |
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$ |
0.01 |
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$ |
0.04 |
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$ |
0.02 |
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$ |
0.10 |
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Diluted earnings per share |
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$ |
0.01 |
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$ |
0.03 |
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$ |
0.02 |
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$ |
0.10 |
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Weighted average shares
outstanding — basic |
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7,883,577 |
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7,883,577 |
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7,883,577 |
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7,873,460 |
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Weighted average shares
outstanding — diluted |
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8,122,888 |
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8,077,696 |
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8,117,684 |
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8,071,832 |
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See accompanying Notes to Consolidated Financial Statements.
3
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
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(Unaudited) |
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March 31, |
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June 30, |
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2008 |
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2007 |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,849,144 |
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$ |
3,638,870 |
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Accounts receivable, net of allowances
of $340,000 and $460,000, respectively |
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7,146,268 |
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7,251,767 |
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Inventories, net |
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11,587,283 |
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12,999,472 |
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Other current assets |
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451,250 |
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275,254 |
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Total current assets |
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23,033,945 |
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24,165,363 |
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Property, plant and equipment, net |
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10,223,948 |
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10,677,000 |
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Goodwill |
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15,979,830 |
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15,979,830 |
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Other assets, net |
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559,100 |
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496,127 |
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Total assets |
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$ |
49,796,823 |
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$ |
51,318,320 |
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See accompanying Notes to Consolidated Financial Statements.
4
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS’ EQUITY
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(Unaudited) |
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March 31, |
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June 30, |
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2008 |
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2007 |
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Current liabilities: |
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Accounts payable |
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$ |
2,231,057 |
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$ |
3,040,313 |
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Other accrued liabilities |
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2,254,815 |
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2,508,820 |
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Deferred income taxes |
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633,173 |
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882,001 |
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Deferred revenue |
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465,000 |
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465,000 |
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Total current liabilities |
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5,584,045 |
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6,896,134 |
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Deferred revenue |
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1,588,750 |
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1,937,500 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock; $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding |
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— |
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Series A preferred stock; $0.01 par value; 200,000 shares
authorized; no shares issued and outstanding |
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— |
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Common stock; $0.01 par value; 30,000,000 shares
authorized; 10,187,069 shares issued at March 31, 2008
and June 30, 2007; 7,883,577 shares outstanding at
March 31, 2008 and June 30, 2007 |
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101,871 |
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101,871 |
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Additional paid-in capital |
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47,498,432 |
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47,441,163 |
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Retained earnings |
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15,755,153 |
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15,673,080 |
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Less treasury stock, at cost; 2,303,492 shares at
March 31, 2008 and June 30, 2007 |
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(20,731,428 |
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(20,731,428 |
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Total stockholders’ equity |
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42,624,028 |
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42,484,686 |
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Total liabilities and stockholders’ equity |
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$ |
49,796,823 |
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$ |
51,318,320 |
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See accompanying Notes to Consolidated Financial Statements.
5
ALLIED HEALTHCARE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
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Nine months ended |
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March 31, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
193,216 |
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$ |
772,468 |
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Adjustments to reconcile net income to net
cash provided by operating activities: |
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Depreciation and amortization |
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964,454 |
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922,901 |
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Stock based compensation |
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57,269 |
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55,243 |
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Provision for doubtful accounts and sales
returns and allowances |
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(110,894 |
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(31,882 |
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Deferred tax benefit |
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(22,908 |
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(19,237 |
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Loss on disposition of equipment |
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5,228 |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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216,393 |
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680,173 |
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Inventories |
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1,412,189 |
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(1,295,028 |
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Other current assets |
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(175,996 |
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(144,900 |
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Accounts payable |
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(809,256 |
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185,355 |
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Deferred revenue |
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(348,750 |
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(348,750 |
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Other accrued liabilities |
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(626,474 |
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(396,857 |
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Net cash provided by operating activities |
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754,471 |
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379,486 |
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Cash flows from investing activities: |
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Capital expenditures |
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(509,197 |
) |
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(471,049 |
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Purchase of intangible asset |
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(35,000 |
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— |
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Net cash used in investing activities |
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(544,197 |
) |
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(471,049 |
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Cash flows from financing activities: |
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Stock options exercised |
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— |
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81,090 |
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Excess tax benefit from exercise of stock options |
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— |
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28,424 |
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Net cash provided by financing activities |
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— |
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109,514 |
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Net increase in cash and cash equivalents |
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210,274 |
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|
17,951 |
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Cash and cash equivalents at beginning of period |
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3,638,870 |
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2,696,324 |
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Cash and cash equivalents at end of period |
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$ |
3,849,144 |
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$ |
2,714,275 |
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See accompanying Notes to Consolidated Financial Statements.
6
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements 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
Form 10-K for the year ended June 30, 2007.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48
(“FIN 48”) “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition.
The Company adopted FIN 48 as of July 1, 2007. The cumulative effect of adopting FIN 48 has
been recorded as a net decrease to retained earnings of $111,143. On the date of adoption of FIN
48, the Company had approximately $220,000 of unrecognized tax benefits.
The Internal Revenue Service (IRS) recently concluded an examination of the Company’s U.S.
income tax returns for the fiscal years ended June 30, 2005 and 2006. Management has agreed to
accept the adjustments proposed by the IRS and as a result there are minimal uncertain tax benefits
as of March 31, 2008 and the liability previously established for uncertain tax positions, interest
and penalties has been reclassified to income taxes payable. Additionally, approximately $86,000
of deferred tax liabilities have been reclassified to income taxes payable. No additional amounts
were recorded to income tax expense as a result of the IRS examination.
The Company’s federal income tax return for the tax fiscal year 2007 remains subject to
examination. The various states in which the Company is subject to income tax are generally open
for the tax fiscal years 2005 and after.
7
The Company classifies interest expenses on taxes payable as interest expense. The Company
classifies penalties as a component of other expenses. The total interest and penalty expense
related to tax uncertainties recognized for the three and nine months ended March 31, 2008 were
approximately $0 and $10,000, respectively. Accrued interest and penalties of $75,000 related to
previous uncertain tax positions is reflected as a component of other current liabilities at March
31, 2008.
2. Inventories
Inventories are comprised as follows:
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March 31, 2008 |
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June 30, 2007 |
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Work-in progress |
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$ |
1,075,502 |
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$ |
742,890 |
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Raw materials and component parts |
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7,373,523 |
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8,544,226 |
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Finished goods |
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4,165,125 |
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4,812,220 |
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Reserve for obsolete and excess
inventory |
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(1,026,867 |
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(1,099,864 |
) |
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$ |
11,587,283 |
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$ |
12,999,472 |
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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, 2008 and
2007 were 7,883,577. The number of diluted shares outstanding for the three months ended March 31,
2008 and 2007 was 8,122,888 and 8,077,696 respectively. The number of basic shares outstanding for
the nine months ended March 31, 2008 and 2007 was 7,883,577 and 7,873,460 respectively. The number
of diluted shares outstanding for the nine months ended March 31, 2008 and 2007 was 8,117,684 and
8,071,832 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
8
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
On September 1, 2005, the Bank and the Company agreed to an amendment of the credit facility.
In conjunction with the amendment to the Company’s credit facility, the Bank extended the maturity
on the Company’s revolving credit facility from April 24, 2007 to September 1, 2008. Based on the
Company’s current level of debt, and performance, debt would bear interest at the Bank’s prime
rate. The prime rate was 5.25% on March 31, 2008. The interest rate on prime rate loans may
increase from prime to prime plus 0.75% if the ratio of the Company’s funded debt to EBITDA exceeds
2.5. The amended credit facility also provides the Company with a rate of LIBOR plus 1.75%, at the
Company’s option. The optional LIBOR rate may increase from LIBOR plus 1.75% to LIBOR plus 2.75%
based on the Company’s fixed charge coverage ratio. The 90-day LIBOR rate was 2.70% at March 31,
2008.
At March 31, 2008 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 its credit
facility at March 31, 2008.
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:
9
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Three Months ended |
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Nine Months ended |
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March 31, |
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March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
|
Beginning balance |
|
$ |
2,170,000 |
|
|
$ |
1,705,000 |
|
|
$ |
2,402,500 |
|
|
$ |
1,937,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Received from
Abbott Laboratories |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized
as net sales |
|
|
(116,250 |
) |
|
|
(116,250 |
) |
|
|
(348,750 |
) |
|
|
(348,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,053,750 |
|
|
|
1,588,750 |
|
|
|
2,053,750 |
|
|
|
1,588,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less — Current portion
of deferred revenue |
|
|
(465,000 |
) |
|
|
(465,000 |
) |
|
|
(465,000 |
) |
|
|
(465,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,588,750 |
|
|
$ |
1,123,750 |
|
|
$ |
1,588,750 |
|
|
$ |
1,123,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the provisions of the agreement relating to the withdrawal of the Baralyme®
product, Abbott has 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 March 31, 2008; $952,000 has been
received, and $573,000 is receivable, as a result of product development activities. For the three
and nine months ended March 31, 2008; $122,000 and $671,000, have been included in Net Sales,
respectively. For the three and nine months ended March 31, 2008; $122,000 and $671,000 have been
included in Cost of Sales, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Three Months ended March 31, 2008 compared to three months ended March 31, 2007.
Allied had net sales of $13.9 million for the three months ended March 31, 2008, up $0.2
million, or 1.5%, from net sales of $13.7 million in the prior year same quarter. Customer purchase
order releases were $0.9 million higher than in the prior year same quarter. Additionally,
customer orders were $0.1 million higher than the prior year same quarter. Purchase order release
times depend on the scheduling practices of individual customers, and do vary over time.
10
Domestic sales were up 1.2% from the prior year same quarter, while international business,
which represented 20.1% of third quarter sales, was up 4.0%. Orders for the Company’s products for
the three months ended March 31, 2008 of $13.4 million were $0.1 million or 0.8% higher than orders
for the prior year same quarter of $13.3 million.
Domestic orders are up 6.6% over the prior year same quarter while international orders which
represented 19.4% of third quarter orders, were down 17.1%. The Company believes that the
decrease in international orders is a result of order timing, and is not reflective of a loss of
market share.
Sales for the three months ended March 31, 2008 include $116,250 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to cease the production
and distribution of Baralyme®. Sales for the three months ended March 31, 2008 also include
$122,000 as a result of product development activities to pursue development of a new carbon
dioxide absorption product. The agreement with Abbott provides for Abbott to pay Allied up to
$2,150,000 in product development cost 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.
The Company ceased the sale of Baralyme® on August 27th, 2004. Sales for the three
months ended March 31, 2007 include $116,250 for the recognition into income of payments resulting
from the agreement with Abbott Laboratories to cease the production and distribution of Baralyme®.
Sales for the three months ended March 31, 2007 also include $110,000 as a result of product
development activities to pursue development of a new carbon dioxide absorption product. Income
from the agreement will continue to be recognized over eight years, the term of the agreement, at
$38,750 per month. Allied continues to sell Carbolime®, a carbon dioxide absorbent with a
different formulation than Baralyme®.
Gross profit for the three months ended March 31, 2008 was $3.2 million, or 23.0% of net
sales, compared to $3.5 million, or 25.5% of net sales, for the three months ended March 31, 2007.
Increases in material cost negatively impacted gross margins during the third quarter of fiscal
2008. Material cost during the third quarter was approximately 1.5% higher than in the third
quarter of the prior year. Labor costs are approximately 3% higher than in the prior year due to
contractual increases with the bargaining unit. The decrease in gross profit as a percent of sales
is also partially due to lower production levels versus the prior year related to a decrease in
inventory levels for the quarter. Lower production levels result in less effective utilization of
the Company’s manufacturing capacity and the fixed expenses associated with that capacity. Cost of
sales for the three months ended March 31, 2008 also included $122,000 as a result of product
development of a new carbon dioxide absorption product.
Selling, general and administrative expenses for the three months ended March 31, 2008 were
$3.0 million, unchanged from the prior year same quarter. Legal expenses decreased by
approximately $223,000, as open product liability claims were settled in the
11
prior year. This
decrease has been offset by several factors, including a $67,000 increase in recruiting and
relocation expenses from the prior year same quarter, and a $74,000 increase in salaries and
benefits. In addition, auditing and accounting professional fees
increased by $81,000 from the prior year same quarter as a result of the IRS examination of
the Company’s U.S. income tax returns for the fiscal years ended June 30, 2005 and 2006, and the
increased cost of Sarbanes-Oxley compliance.
Income from operations was $0.2 million for the three months ended March 31, 2008 compared to
income from operations of $0.4 million for the three months ended March 31, 2007. Interest income
was $13,928 for the three months ended March 31, 2008 compared to interest income of $25,844 for
the three months ended March 31, 2007. Allied had income before provision for income taxes in the
third quarter of fiscal 2008 of $0.2 million, compared to income before provision for income taxes
in the third quarter of fiscal 2007 of $0.5 million. The Company recorded a tax provision of $0.1
million for the three-months ended March 31, 2008, compared to a tax provision of $0.2 million for
the three months ended March 31, 2007.
Net income for the third quarter of fiscal 2008 was $0.1 million or $0.01 per basic and
diluted share compared to net income of $0.3 million or $0.04 per basic and $0.03 per diluted share
for the third quarter of fiscal 2007. The weighted average number of common shares outstanding,
used in the calculation of basic earnings per share for the third quarters of fiscal 2008 and 2007
were 7,883,577. The weighted average number of common shares outstanding used in the calculation
of diluted earnings per share for the third quarters of fiscal 2008 and fiscal 2007 were 8,122,888
and 8,077,696 shares, respectively.
Nine Months ended March 31, 2008 compared to nine months ended March 31, 2007.
Allied had net sales of $41.7 million for the nine months ended March 31, 2008, down $0.8
million, or 1.9%, from net sales of $42.5 million in the prior year same period. The overall sales
decrease is primarily due to Company production and shipping performance. The Company believes
these production problems have been resolved. Customer orders were $0.1 million lower than in the
prior year same period, however, customer purchase order releases were unchanged compared to the
prior year same period.
Domestic sales were down 4.0% from the first nine months of the prior year, while
international business, which represented 19.9% of the first nine months of sales, was up 7.9%.
Orders for the Company’s products for the nine months ended March 31, 2008 of $40.3 million were
$0.1 million or 0.2% lower than orders for the prior year same period of $40.4 million.
International orders are down 11.6% from the prior year same period while domestic orders are up
2.6% over the prior year same period. The Company believes that the decrease in international
orders is a result of order timing, and is not reflective of a loss of market share.
12
Sales for the nine months ended March 31, 2008 include $348,750 for the recognition into
income of payments resulting from the agreement with Abbott Laboratories to cease the production
and distribution of Baralyme®. Sales for the nine months ended March 31, 2008 also include
$671,000 as a result of product development
activities to pursue development of a new carbon dioxide absorption product. The agreement
with Abbott provides for Abbott to pay Allied up to $2,150,000 in product development cost 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.
The Company ceased the sale of Baralyme® on August 27th, 2004. Sales for the nine
months ended March 31, 2007 include $348,750 for the recognition into income of payments resulting
from the agreement with Abbott Laboratories to cease the production and distribution of Baralyme®.
Sales for the nine months ended March 31, 2007 also include $450,000 as a result of product
development activities to pursue development of a new carbon dioxide absorption product. Income
from the agreement will continue to be recognized over eight years, the term of the agreement, at
$38,750 per month. Allied continues to sell Carbolime®, a carbon dioxide absorbent with a
different formulation than Baralyme®.
Gross profit for the nine months ended March 31, 2008 was $9.2 million, or 22.1% of net sales,
compared to $10.5 million, or 24.7% of net sales, for the nine months ended March 31, 2007. The
decrease in gross profit as a percent of sales is primarily due to lower sales volume and decreases
in inventory. The lower level of sales combined with the $1.4 million decrease in inventory
results in less effective utilization of the Company’s manufacturing capacity and the fixed
expenses associated with that capacity. Cost of sales for the nine months ended March 31, 2008 also
included $671,000 as a result of product development of a new carbon dioxide absorption product.
Selling, general and administrative expenses for the nine months ended March 31, 2008 were
$9.0 million, a net decrease of $0.3 million, or 3.2%, from $9.3 million for the nine months ended
March 31, 2007. Legal fees decreased by $260,000 from the prior year; research and development
outside charges decreased $93,000; and relocation expenses decreased $67,000. These decreases in
expense have been partially offset by an increase of $148,000 in auditing and accounting
professional fees as a result of the IRS examination of the Company’s U.S. income tax returns for
the fiscal years ended June 30, 2005 and 2006, and the increased cost of Sarbanes-Oxley compliance.
Income from operations was $0.3 million for the nine months ended March 31, 2008 compared to
$1.2 million for the nine months ended March 31, 2007. Interest income was $92,874 for the nine
months ended March 31, 2008 compared to interest income of $82,071 for the nine months ended March
31, 2007. Allied had income before provision for income taxes for the nine months of fiscal 2008
of $0.3 million, compared to income before provision for income taxes for the nine months of fiscal
2007 of $1.3 million. The Company recorded a tax provision of $0.1 million for the nine-
13
month
period ended March 31, 2008, versus a tax provision of $0.5 million for the nine-month period ended
March 31, 2007.
In fiscal 2008, net income for the nine months ending was $0.2 million or $0.02 per basic and
diluted share compared to net income of $0.8 million or $0.10 per basic and
diluted share for the same period of the prior year. The weighted average number of common
shares outstanding, used in the calculation of basic earnings per share for the nine months ending
of fiscal 2008 and 2007 were 7,883,577 and 7,873,460 shares, respectively. The weighted average
number of common shares outstanding used in the calculation of diluted earnings per share for the
nine months ending of fiscal 2008 and fiscal 2007 were 8,117,684 and 8,071,832 shares,
respectively.
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 $17.4 million at March 31, 2008 compared to $17.3 million at
June 30, 2007. Cash and cash equivalents increased by $0.2 million. Other current assets
increased $0.2 million and accrued liabilities decreased $0.3 million. Accounts payable decreased
$0.8 million and deferred income taxes decreased $0.2 million. At March 31, 2008 these increases
in working capital were offset by a decrease in inventory of $1.4 million and $0.1 million decrease
in accounts receivable to $7.1 million at March 31, 2008. The Company does not believe there will
be further decreases in inventory levels, given current demand. Accounts receivable as measured in
days of sales outstanding (“DSO”) decreased to 41 DSO at March 31, 2008, down from 45 DSO at June
30, 2007.
On September 1, 2005, the Bank and the Company agreed to an amendment of the credit facility.
In conjunction with the amendment to the Company’s credit facility, the Bank extended the maturity
on the Company’s revolving credit facility from April 24, 2007 to September 1, 2008. Based on the
Company’s current level of debt, and performance, debt would bear interest at the Bank’s prime
rate. The prime rate was 5.25% on March 31, 2008. The interest rate on prime rate loans may
increase from prime to prime plus 0.75% if the ratio of the Company’s funded debt to EBITDA exceeds
2.5. The amended credit facility also provides the Company with a rate of LIBOR plus 1.75%, at the
Company’s option. The optional LIBOR rate may increase from LIBOR plus 1.75% to LIBOR plus 2.75%
based on the Company’s fixed charge coverage ratio. The 90-day LIBOR rate was 2.70% at March 31,
2008.
At March 31, 2008 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 its credit
facility at March 31, 2008.
14
In the event that economic conditions were to severely worsen for a protracted period of time,
we believe that our borrowing capacity under our credit facilities 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, 2008, could be postponed. At
March 31, 2008, the Company had no bank debt. Based on the Company’s current level of debt, and
performance, debt would bear interest at the Bank’s prime rate. The Company’s agreement with the
Bank does include provisions for higher interest rates at higher debt levels and different levels
of Company performance.
Inflation has not had a material effect on the Company’s business or results of operations.
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.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48
(“FIN 48”) “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition.
The Company adopted FIN 48 as of July 1, 2007. The cumulative effect of adopting FIN 48 has
been recorded as a net decrease to retained earnings of $111,143. On the date of adoption of FIN
48, the Company had approximately $220,000 of unrecognized tax benefits.
The Internal Revenue Service (IRS) recently concluded an examination of the Company’s U.S.
income tax returns for the fiscal years ended June 30, 2005 and 2006. Management has agreed to
accept the adjustments proposed by the IRS and as a result there are minimal uncertain tax benefits
as of March 31, 2008 and the liability previously established for uncertain tax positions, interest
and penalties has been reclassified to income taxes payable. Additionally, approximately $86,000
of deferred tax liabilities have been reclassified to income taxes payable. No additional amounts
were recorded to income tax expense as a result of the IRS examination.
15
The Company’s federal income tax return for the tax fiscal year 2007 remains subject to
examination. The various states in which the Company is subject to income tax are generally open
for the tax fiscal years 2005 and after.
The Company classifies interest expenses on taxes payable as interest expense. The Company
classifies penalties as a component of other expenses. The total interest and penalty expense
related to tax uncertainties recognized for the three and nine months ended March 31, 2008 were
approximately $0 and $10,000, respectively. Accrued interest and penalties of $75,000 related to
previous uncertain tax positions is reflected as a component of other current liabilities at March
31, 2008.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
At March 31, 2008, the Company did not have any debt outstanding. The revolving credit
facility bears an interest rate using the commercial bank’s “floating reference rate” or LIBOR as
the basis, as defined in the loan agreement, and therefore is subject to additional expense should
there be an increase in market interest rates.
The Company had no holdings of derivative financial or commodity instruments at March 31,
2008. Allied Healthcare Products has international sales; however these sales are denominated in
U.S. dollars, mitigating foreign exchange rate fluctuation risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
(a) As of March 31, 2008, the Company, under the supervision, and with the participation, of
its management, including its principal executive officer and principal financial officer,
performed an evaluation of the Company’s disclosure controls and procedures, as contemplated by
Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s principal executive
officer and principal financial officer concluded that such disclosure controls and procedures were
effective as of March 31, 2008.
(b) There has been no change in our internal controls over financial reporting during the
quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
16
Part II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits:
| |
31.1 |
|
Certification of Chief Executive Officer (filed herewith) |
| |
| |
31.2 |
|
Certification of Chief Financial Officer (filed herewith) |
| |
| |
32.1 |
|
Sarbanes-Oxley Certification of Chief Executive Officer (furnished herewith)* |
| |
| |
32.2 |
|
Sarbanes-Oxley Certification of Chief Financial Officer (furnished herewith)* |
| |
| |
99.1 |
|
Press Release dated May 12, 2008 announcing third quarter earnings* |
|
|
|
| * |
|
Notwithstanding any incorporation of this Quarterly Report on Form 10-Q in any other filing by the
Registrant, Exhibits furnished herewith and designated with an asterisk (*) shall not be deemed
incorporated by reference to any other filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934 unless specifically otherwise set forth therein. |
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
| |
|
|
|
|
ALLIED HEALTHCARE PRODUCTS, INC. |
|
|
|
|
|
/s/ Daniel C. Dunn |
|
|
|
|
|
Daniel C. Dunn |
|
|
Chief Financial Officer |
|
|
|
|
|
Date: May 12, 2008 |
18