-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TBqg657vLo+W+4iQupPFxdkjkQu05FzXdaJdtqIUQjOR3p8Fi64cIvvqhY0CdSWg nwSEhRZXrD6QFDyArUGw7w== 0000950137-04-009561.txt : 20041108 0000950137-04-009561.hdr.sgml : 20041108 20041108110407 ACCESSION NUMBER: 0000950137-04-009561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED HEALTHCARE PRODUCTS INC CENTRAL INDEX KEY: 0000874710 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 231370721 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19266 FILM NUMBER: 041124547 BUSINESS ADDRESS: STREET 1: 1720 SUBLETTE AVE CITY: ST LOUIS STATE: MI ZIP: 63110 BUSINESS PHONE: 3147712400 MAIL ADDRESS: STREET 1: 1720 SUBLETTE AVENUE CITY: ST LOUIS STATE: MO ZIP: 63110 10-Q 1 c89457e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2004 [ ] 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 [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares of common stock outstanding at November 5, 2004 is 7,818,432 shares. INDEX
Page Number Part I - Financial Information Item 1. Financial Statements Consolidated Statement of Operations - three months ended September 30, 2004 and 2003 (Unaudited) 3 Consolidated Balance Sheet - September 30, 2004 (Unaudited) and June 30, 2004 (Audited) 4 - 5 Consolidated Statement of Cash Flows - Three months ended September 30, 2004 and 2003 (Unaudited) 6 Notes to Consolidated Financial Statements 7 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 Item 3. Quantitative and Qualitative Disclosure about Market Risk 15 Item 4. Controls and Procedures 16 Part II - Other Information Item 6. Exhibits 16 Signature 17
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, 2004. 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)
Three months ended September 30, ----------------------------------- 2004 2003 ----------- ----------- Net sales $13,939,720 $13,807,529 Cost of sales 10,533,018 10,410,955 ----------- ----------- Gross profit 3,406,702 3,396,574 Selling, general and administrative expenses 2,929,088 3,179,912 ----------- ----------- Income from operations 477,614 216,662 Other expenses: Interest 73,846 196,941 Other, net 7,362 5,359 ----------- ----------- 81,208 202,300 ----------- ----------- Income before provision for income taxes 396,406 14,362 Provision for income taxes 160,905 11,589 ----------- ----------- Net income $ 235,501 $ 2,773 =========== =========== Basic and diluted earnings per share $ 0.03 $ 0.00 =========== =========== Weighted average shares outstanding - basic 7,818,432 7,813,932 Weighted average shares outstanding - diluted 8,065,741 7,951,334
See accompanying Notes to Consolidated Financial Statements. 3 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET ASSETS (UNAUDITED)
September 30, June 30, 2004 2004 ----------- ----------- Current assets: Cash $ 93,768 $ 8,256 Accounts receivable, net of allowance for doubtful accounts of $475,000 and $475,000, respectively 7,160,225 7,708,969 Inventories, net 11,036,930 11,095,171 Income tax receivable - 130,548 Other current assets 291,492 127,127 ----------- ----------- Total current assets 18,582,415 19,070,071 ----------- ----------- Property, plant and equipment, net 11,739,786 11,999,927 Goodwill 15,979,830 15,979,830 Other assets, net 77,452 88,867 ----------- ----------- Total assets $46,379,483 $47,138,695 =========== ===========
See accompanying Notes to Consolidated Financial Statements. (CONTINUED) 4 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
September 30, June 30, 2004 2004 ------------- ------------ Current liabilities: Accounts payable $ 2,961,361 $ 3,125,593 Current portion of long-term debt 609,258 1,245,484 Deferred income taxes 389,644 389,644 Deferred revenue 465,000 - Other current liabilities 3,816,343 3,316,603 ------------ ------------ Total current liabilities 8,241,606 8,077,324 ------------ ------------ Deferred income taxes 242,478 242,478 ------------ ------------ Deferred revenue 426,250 - ------------ ------------ Long-term debt 780,831 2,366,076 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding; which includes 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; 7,818,432 shares issued and outstanding at September 30, 2004 and June 30, 2004 101,220 101,220 Additional paid-in capital 47,041,493 47,041,493 Common stock in treasury, at cost (20,731,428) (20,731,428) Retained earnings 10,277,033 10,041,532 ------------ ------------ Total stockholders' equity 36,688,318 36,452,817 ------------ ------------ Total liabilities and stockholders' equity $ 46,379,483 $ 47,138,695 ============ ============
See accompanying Notes to Consolidated Financial Statements. 5 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three months ended September 30, ------------------------------- 2004 2003 ------------ ------------ Cash flows from operating activities: Net income $ 235,501 $ 2,773 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 323,816 331,290 Changes in operating assets and liabilities: Accounts receivable, net 548,744 153,072 Inventories, net 58,241 528,832 Income tax receivable 130,548 - Other current assets (164,365) (282,716) Accounts payable (164,232) 760,689 Deferred Revenue 891,250 - Other current liabilities 499,740 33,249 ------------ ------------ Net cash provided by operating activities 2,359,243 1,527,189 ------------ ------------ Cash flows from investing activities: Capital expenditures (52,260) (188,044) ------------ ------------ Net cash used in investing activities (52,260) (188,044) ------------ ------------ Cash flows from financing activities: Payments of long-term debt (2,181,471) (242,129) Borrowings under revolving credit agreement 14,688,257 13,541,978 Payments under revolving credit agreement (14,728,257) (14,638,392) ------------ ------------ Net cash used in financing activities (2,221,471) (1,338,543) ------------ ------------ Net increase in cash 85,512 602 Cash at beginning of period 8,256 12,016 ------------ ------------ Cash at end of period $ 93,768 $ 12,618 ============ ============
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, 2004. 2. Significant Accounting Policies - Stock Options The Company accounts for employee stock options in accordance with Accounting Principles Board No. (APB) 25, "Accounting for Stock Issued to Employees". Under APB 25, the Company applies the intrinsic value method of accounting. The Company has not recognized compensation expense for options granted because the Company grants options at a price equal to market value at the time of grant. During 1996, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation." SFAS 123 prescribes the recognition of compensation expense based on the fair value of options determined on the grant date. However, SFAS 123 grants an exception that allows companies currently applying APB 25 to continue using that method. The Company elected to continue applying the intrinsic value method under APB 25. The fair value of options granted (which is amortized over the option vesting period in determining the pro forma impact) is estimated on the date of grant using the Black-Scholes multiple option-pricing model. No options were granted during the three months ended September 30, 2004 and 2003. The following table shows stock-based compensation expense included in net income, pro forma stock-based compensation expense, net income/(loss), and earnings per share had we elected to record compensation expense based on the fair value of options at the grant date for the three months ended September 30, 2004 and 2003. 7
Three Months Ended September 30, 2004 2003 ------------ ------------ Net income, as reported $ 235,501 $ 2,773 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects - - ------------ ------------ Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted since July 1, 1994, net of related tax effects ($ 12,055) ($ 30,540) ------------ ------------ Pro forma net (loss)income $ 223,446 ($ 27,767) ============ ============ Earnings per share: Basic-as reported $ 0.03 $ - ------------ ------------ Basic-pro forma $ 0.03 $ - ------------ ------------ Diluted -as reported $ 0.03 $ - ------------ ------------ Diluted -pro forma $ 0.03 $ - ------------ ------------
3. Inventories Inventories are comprised as follows (unaudited):
September 30, 2004 June 30, 2004 ------------------ ------------- Work-in progress $ 828,668 $ 722,894 Raw materials and component parts 9,041,335 9,170,682 Finished goods 2,904,116 2,944,085 Reserve for obsolete and excess inventory (1,737,189) (1,742,490) ------------ ----------- $ 11,036,930 $11,095,171 ============ ===========
8 4. 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 year. The number of basic shares outstanding for the three months ended September 30, 2004 and 2003 was 7,818,432 and 7,813,932 respectively. The number of diluted shares outstanding for the three months ended September 30, 2004 and 2003 was 8,065,741 and 7,951,334 shares, respectively. 5. 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. 6. Financing Agreement Amendment On April 24, 2002, the Company entered into a credit facility arrangement with LaSalle Bank National Association (the "Bank"), which was subsequently amended on September 26, 2002, and September 26, 2003. The credit facility provided for total borrowings up to $19.0 million; consisting of up to $15.0 million through a revolving credit facility and up to $4.0 million under a term loan. On August 27, 2004, the Bank and the Company agreed to a further amendment of the credit facility (the amended credit facility). In conjunction with these amendments to the Company's credit facility, the Bank extended the maturity on the Company's term loan on real estate, the Company's revolving credit facility, and term loan on capital expenditures from April 24, 2005 to April 24, 2007. The entire credit facility was amended to accrue interest at the Bank's prime rate. The Prime rate was 4.5% on August 27, 2004. 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 1.5. The amended credit facility also provides the Company with a rate of LIBOR plus 2.25%, at the Company's option. The optional LIBOR rate may increase from LIBOR plus 2.25% to LIBOR plus 3.00% based on the Company's fixed charge coverage ratio. The 90-day LIBOR rate was 1.79% at August 27, 2004. Amortization on the real estate term loan 9 shall continue on a five-year schedule with equal monthly payments of $49,685. Amortization on the capital expenditure term loan shall continue on a five-year schedule with equal monthly payments of $50,772. At September 30, 2004, the Company was in compliance with its financial covenants under the amended credit facility. Although the Company was in compliance with its financial covenants under the amended credit facility at September 30, 2004, the ability of the Company to remain in compliance with these ratios for the remainder of the current fiscal year depends on the cumulative operating results and related fixed charges , and is subject to achieving satisfactory revenue and expense levels sufficient to enable the Company to meet heightened performance standards. At September 30, 2004, the Company realized a Fixed Charge Coverage Ratio, as defined, of approximately 2.40 to 1.0 based on the prior twelve months. During year ending June 30, 2005, the Company must realize a Fixed Charge Coverage Ratio of at least 1.0 to 1.0, as defined in the amended credit agreement. While the Company believes such performance results may be attainable, there can be no assurance that they will be achieved. The Company's credit facility requires a lockbox arrangement, which provides for all receipts to be swept daily to reduce borrowings outstanding under the credit facility. This arrangement, combined with the existence of a Material Adverse Effect (MAE) clause in the credit facility, cause the revolving credit facility to be classified as a current liability, per guidance in the FASB's EITF Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement." However, the Company does not expect to repay, or be required to repay, within one year, the balance of the revolving credit facility classified as a current liability. The MAE clause, which is a typical requirement in commercial credit agreements, allows the lender to require the loan to become due if it determines there has been a material adverse effect on the Company's operations, business, properties, assets, liabilities, condition or prospects. The classification of the revolving credit facility as a current liability is a result only of the combination of the two aforementioned factors: the lockbox arrangement and the MAE clause. However, the revolving credit facility does not expire or have a maturity date within one year, but rather has a final expiration date of April 25, 2007. Additionally, the Bank has not notified the Company of any indication of a MAE at September 30, 2004. 7. Agreement with Abbott Laboratories On August 27, 2004, Allied Healthcare Products, Inc. ("Allied") entered into an agreement with Abbott Laboratories ("Abbott") pursuant to which Allied will cease production of its product Baralyme(R), will, within sixty days, affect the withdrawal of Baralyme(R) product held by distributors and will pursue the development of a new carbon dioxide absorbent product. Baralyme(R), a carbon dioxide absorbent product, has been used safely and effectively in connection with inhalation anesthetics since its introduction in the 1920s. In recent years, the number of inhalation anesthetics has increased, giving rise to concerns regarding the use of Baralyme(R) in conjunction with these newer inhalation anesthetics when Baralyme(R) has been allowed, contrary to recommended 10 practice, to become desiccated. The agreement also provides that, for a period of eight years, Allied will not manufacture, distribute, promote, market, sell, commercialize or donate any Baralyme(R) product or similar product based upon potassium hydroxide and will not develop or license any new carbon dioxide absorbent product containing potassium hydroxide. In consideration of the foregoing, Abbott has agreed to pay Allied an aggregate of $5,250,000 of which $1,530,000 which was paid on September 30, 2004, and the remainder payable in 4 equal annual installments of $930,000 due on July 1, 2005 through July 1, 2008. Allied has agreed with Abbott that in the event that it receives approval from the U.S. Food & Drug Administration for the commercial sale of a new carbon dioxide absorbent product not based upon potassium hydroxide prior to January 1, 2008, that Abbott will be relieved of any obligation to fund the $930,000 installment due July 1, 2008. The majority of the $5,250,000 Allied is to receive from Abbott will be recognized into income, as net sales, over the eight-year term of the agreement. In addition to the provisions of the agreement relating to the withdrawal of the Baralyme(R) product, Abbott has agreed to pay to 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. The initial payment of $1,530,000 due from Abbott Laboratories was received on September 30, 2004. The agreement required Abbott Laboratories to pay Allied $600,000 for cost incurred in connection with withdrawal of Baralyme(R) from the market, the disposal of such product, and severance payments payable as a result of such withdrawal. This payment by Abbott Laboratories of $600,000 has been included in Net sales during the three months ended September 30, 2004. The remaining $4,650,000 of the payments to be received from Abbott, including the remaining $930,000 received on September 30th, 2004, will be recognized into income, as net sales, over the eight-year term of the agreement. During the three months ended September 30, 2004, $38,750 was recognized as net sales. Allied has suspended manufacturing operations at its Stuyvesant Falls, New York, facility. Costs associated with the withdrawal and suspension of operations at that location, including severance and benefit payments due union employees, will be approximately $600,000. These costs have been recorded as Cost of Sales during the three months ended September 30th, 2004. On September 9th, 2004 Allied entered into a Closedown Agreement with the International Chemical Union representing the employees at the Stuyvesant Falls, New York facility. The Company had advised the Union that the plant will be closed and all bargaining unit employees related to such operation will be permanently laid off, no later than October 15, 2004. The collective bargaining agreement shall expire and be terminated as of the closing date. The Company will pay severance to those 12 11 bargaining unit employees on the active payroll as of August 27, 2004. Severance payments will total approximately $138,000. A reconciliation of deferred revenue resulting from the agreement with Abbott Laboratories, with the amounts received under the agreement, and amounts recognized as net sales is as follows:
Deferred Revenue Three Months ended September 30, ------------ --------- 2004 2003 ------------ --------- Beginning balance $ - $ - Payment Received from Abbott Laboratories 1,530,000 Revenue recognized as net sales (638,750) - ------------ --------- 891,250 - ------------ --------- Less - Current portion of deferred revenue (465,000) - ------------ --------- $ 426,250 $ - ============ =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2003. Allied had net sales of $13.9 million for the three months ended September 30, 2004, up $0.1 million, or 1.0%, from net sales of $13.8 million in the prior year same quarter. Sales for the three months ended September 30th, 2004 include $38,750 for the recognition into income of payments resulting from the agreement with Abbott Laboratories to cease the production and distribution of Baralyme(R). The Company ceased the sale of Baralyme(R) on August 27th, 2004 upon completion of the agreement with Abbott, and recognized one month of income during the three months ended September 30th, 2004. Income from the agreement will continue to be recognized over eight years, the term of the agreement, at $38,750 per month. Sales for the three months ended September 30th, 2004 also included recognition as sales of a one-time $600,000 payment from Abbott Laboratories for cost incurred in connection with the withdrawal of Baralyme(R) from the market, the disposal of such product, and severance payments payable of such withdrawal. Sales, exclusive of the $600,000 one-time payment from Abbott Laboratories, were down 3.4%. Domestic sales were even with the 12 prior year while international business, which represented 13.4% of first quarter sales, was down 17.7%. Gross profit for the three months ended September 30, 2004 was $3.4 million, or 24.4% of net sales, compared to $3.4 million, or 24.6% of net sales, for the three months ended September 30, 2003. Cost of sales for the three months ended September 30th, 2004 does include $0.6 million in cost incurred in connection with the withdrawal of Baralyme(R). Gross margins have continued to improve during the three months ended September 30th, 2004 as the result of reduced operations cost resulting from the Company's cost reduction efforts, including automation of certain manufacturing processes, in-house production, and material purchasing efforts. Gross profit for the three months ended September 30, 2003 was benefited by a $0.2 million one-time distribution representing the Company's membership interest in the liquidation of the General American Mutual Holding Company, the Company's health care benefit provider. Selling, general and administrative expenses for the three months ended September 30, 2004 were $2.9 million, a net decrease of $0.3 million, or 7.8%, from $3.2 million for the three months ended September 30, 2003. The decrease is the result of reduced insurance cost, lower staffing levels, and other expense reductions. On July 28th, 2003 the Company announced a workforce reduction of 14 positions from its managerial and administrative staff and 5 positions from its production group. This reduction resulted in severance pay of approximately $73,000, which was paid in the first quarter of fiscal 2004. These payments are reflected in selling, general, and administrative expenses for the three months ended September 30, 2003. Income from operations was $0.5 million for the three months ended September 30, 2004 compared to $0.2 million for the three months ended September 30, 2003. Interest expense was $0.07 million for the three months ended September 30, 2004, down from $0.2 million for the three months ended September 30, 2003. Allied had income before provision for income taxes in the first quarter of fiscal 2005 of $396,406, compared to income before provision for income taxes in the first quarter of fiscal 2004 of $14,362. The Company recorded a tax provision of $160,905 for the three-month period ended September 30, 2004, versus a tax provision of $11,589 for the three-month period ended September 30, 2003. In fiscal 2005, the net income for the first quarter was $235,501 or $0.03 per basic and diluted share compared to net income of $2,773 or $0.00 per basic and diluted share for the first quarter of fiscal 2004. The weighted average number of common shares outstanding used in the calculation of basic earnings per share for the first quarters of fiscal 2005 and 2004 were 7,818,432 and 7,813,932 share respectively. The weighted average number of common shares outstanding used in the calculation of diluted earnings per share for the first quarters of fiscal 2005 and fiscal 2004 were 8,065,741 and 7,951,334 shares, respectively. 13 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. Working capital decreased to $10.3 million at September 30, 2004 compared to $11.0 million at June 30, 2004. This is primarily due to a $0.5 million reduction in accounts receivable, a $0.5 million increase in other current liabilities, and a $0.5 million dollar increase in deferred revenue as result of the agreement with Abbott Laboratories to cease production of Baralyme(R). These changes have been offset by a $0.6 million reduction in the current portion of long-term debt, and a $0.2 million decrease in accounts payable. On April 24, 2002, the Company entered into a credit facility arrangement with LaSalle Bank National Association (the "Bank"), which was subsequently amended on September 26, 2002, and September 26, 2003. The credit facility provided for total borrowings up to $19.0 million; consisting of up to $15.0 million through a revolving credit facility and up to $4.0 million under a term loan. On August 27, 2004, the Bank and the Company agreed to a further amendment of the credit facility (the amended credit facility). In conjunction with these amendments to the Company's credit facility, the Bank extended the maturity on the Company's term loan on real estate, the Company's revolving credit facility, and term loan on capital expenditures from April 24, 2005 to April 24, 2007. The entire credit facility was amended to accrue interest at the Bank's prime rate. The Prime rate was 4.5% on August 27, 2004. 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 1.5. The amended credit facility also provides the Company with a rate of LIBOR plus 2.25%, at the Company's option. The optional LIBOR rate may increase from LIBOR plus 2.25% to LIBOR plus 3.00% based on the Company's fixed charge coverage ratio. The 90-day LIBOR rate was 1.79% at August 27, 2004. Amortization on the real estate term loan shall continue on a five-year schedule with equal monthly payments of $49,685. Amortization on the capital expenditure term loan shall continue on a five-year schedule with equal monthly payments of $50,772. At September 30, 2004, the Company was in compliance with its financial covenants under the amended credit facility. Although the Company was in compliance with its financial covenants under the amended credit facility at September 30, 2004, the ability of the Company to remain in compliance with these ratios for the remainder of the current fiscal year depends on the cumulative operating results and related fixed charges , and is subject to achieving satisfactory revenue and expense levels sufficient to enable the Company to meet heightened performance standards. At September 30, 2004, the Company realized a Fixed Charge Coverage Ratio, as defined, of approximately 2.40 to 1.0 based on the prior twelve months. During year ending June 30, 2005, the Company must realize a Fixed Charge Coverage Ratio of 1.0 to 1.0, as defined in the amended 14 credit agreement. While the Company believes such performance results may be attainable, there can be no assurance that they will be achieved. The Company's credit facility requires a lockbox arrangement, which provides for all receipts to be swept daily to reduce borrowings outstanding under the credit facility. This arrangement, combined with the existence of a Material Adverse Effect (MAE) clause in the new credit facility, cause the revolving credit facility to be classified as a current liability, per guidance in the FASB's EITF Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement." However, the Company does not expect to repay, or be required to repay, within one year, the balance of the revolving credit facility classified as a current liability. The MAE clause, which is a typical requirement in commercial credit agreements, allows the lender to require the loan to become due if it determines there has been a material adverse effect on the Company's operations, business, properties, assets, liabilities, condition or prospects. The classification of the revolving credit facility as a current liability is a result only of the combination of the two aforementioned factors: the lockbox arrangement and the MAE clause. However, the revolving credit facility does not expire or have a maturity date within one year, but rather has a final expiration date of April 25, 2007. Additionally, the Bank has not notified the Company of any indication of a MAE at September 30, 2004. At September 30, 2004, the company had no balance outstanding against this facility and $10.0 million available to borrow from the line based on collateral requirements. 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 judgements resulting from these claims over its self-insured retention will be covered by the Company's product liability insurance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK At September 30, 2004, the Company had $1.4 million in debt outstanding. This balance represents an amount outstanding under the Company's capital expenditure loan for $1.4 million. The revolving credit facility, and the capital expenditure loan bear an interest rate using the commercial bank's "floating reference rate" 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. 15 The Company had no holdings of derivative financial or commodity instruments at September 30, 2004. 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 As of September 30, 2004, 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 September 30, 2004. Changes in Internal Controls There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2004. Part II. OTHER INFORMATION ITEM 6. EXHIBITS (a) Exhibits: 31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a). 31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a). 32.1 Certification by Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 32.2 Certification by Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 99.1 Press Release dated November 5, 2004 announcing first quarter earnings. 16 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: November 5, 2004 17 EX-31.1 2 c89457exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) CHIEF EXECUTIVE OFFICER I, Earl R. Refsland, President and Chief Executive Officer of Allied Healthcare Products, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allied Healthcare Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [not applicable to this reporting period since registrant is not an accelerated filer]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 5, 2004 /s/ Earl R. Refsland ---------------------- Earl R. Refsland, President and Chief Executive Officer EX-31.2 3 c89457exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) CHIEF FINANCIAL OFFICER I, Daniel C. Dunn, Vice President-Finance and Chief Financial Officer of Allied Healthcare Products, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allied Healthcare Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [not applicable to this reporting period since registrant is not an accelerated filer]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 5, 2004 /s/ Daniel C. Dunn ------------------------- Daniel C. Dunn, Vice President and Chief Financial Officer EX-32.1 4 c89457exv32w1.txt 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Chief Executive Officer The undersigned, as the chief executive officer of Allied Healthcare Products, Inc. (the "Company") does hereby certify for purposes of 18 U.S.C. Section 1350 that (i) the Company's Quarterly Report on Form 10-Q for the Company's fiscal quarter ending September 30, 2004 (the "Report"), as filed with the Securities and Exchange Commission on April 30th, 2004, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report. /s/ Earl R. Refsland ------------------------- Earl R. Refsland, Chief Executive Officer November 5, 2004 EX-32.2 5 c89457exv32w2.txt 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Chief Financial Officer The undersigned, as the chief financial officer of Allied Healthcare Products, Inc. (the "Company") does hereby certify for purposes of 18 U.S.C. Section 1350 that (i) the Company's Quarterly Report on Form 10-Q for the Company's fiscal quarter ending September 30, 2004 (the "Report"), as filed with the Securities and Exchange Commission on April 30th, 2004, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report. /s/ Daniel C. Dunn ------------------------- Daniel C. Dunn, Chief Financial Officer November 5, 2004 EX-99.1 6 c89457exv99w1.txt PRESS RELEASE EXHIBIT 99.1 CONTACT: DANIEL C. DUNN CHIEF FINANCIAL OFFICER (314) 771-2400 ALLIED HEALTHCARE PRODUCTS HAS PROFITABLE FIRST QUARTER - CONTROLS ON PRODUCTION COSTS, EXPENSES CONTINUE TO YIELD POSITIVE RESULTS. - DEBT IS REDUCED FROM $3.6 TO $1.4 MILLION. ST. LOUIS, November 5, 2004 ---- Allied Healthcare Products, Inc. (NASDAQ: AHPI) reported today that it earned net income of $235,500, or 3 cents per share, during its first quarter ended September 30, 2004, compared to $3,000, or zero cents per share, for the first quarter of 2003. Revenues for the first quarter of fiscal 2005, historically the weakest quarter of the year for Allied, totaled $13.9 million compared with $13.8 million for the prior year period. Revenues reflect a one-time payment of $600,000 by Abbott Laboratories to Allied for the cost of suspending production of Baralyme(R) in Allied's New York facility. Additionally, cost of sales includes approximately $600,000 for the cost of suspending operations at that facility. Allied continued to demonstrate its ability to lower manufacturing costs from automation and increased in-house production of parts during the quarter. Allied also continued to realize reductions in expenses from staff cuts and lower insurance premiums. For the quarter, Allied reduced manufacturing costs by about $350,000 and cut selling, general, and administrative expenses by about $250,000 versus the prior year. Allied also continued to reduce debt. Debt decreased during the first quarter by $2.2 million, from $3.6 to $1.4 million. About $1.5 million of that reduction is attributable to Abbott Laboratories' first payment of $1,530,000 for Allied's agreement to cease production of Baralyme(R). Under terms of the agreement, reached August 27, 2004, Abbott will pay Allied $930,000 annually for up to four more years. The net cash flow for Allied under the agreement is expected to equal the net cash flow Allied would have realized from continued manufacture and sale of Baralyme(R) during the five year period. Allied's debt reduction cut interest expense by about $123,000 for the quarter. Sales, exclusive of the $600,000 one-time payment from Abbott Laboratories, were down 3.4%. Domestic sales were even with the prior year while international business, which represented 13.4% of first quarter sales, was down 17.7%. Allied Healthcare Products, Inc. is a leading manufacturer of respiratory care products, medical gas equipment and emergency medical products used in a wide range of hospital and alternate care settings. ## "SAFE HARBOR" STATEMENT: Statements contained in this release that 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 that 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 its periodic filings with the Securities and Exchange Commission. The Company cautions that any forward-looking statement 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. ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three months ended September 30, 2004 2003 Net sales $ 13,939,720 $ 13,807,529 Cost of sales 10,533,018 10,410,955 ------------ ------------ Gross profit 3,406,702 3,396,574 Selling, general and administrative expenses 2,929,088 3,179,912 ------------ ------------ Income from operations 477,614 216,662 Other expense: Interest expense 73,846 196,941 Other, net 7,362 5,359 ------------ ------------ 81,208 202,300 ------------ ------------ Income before provision for income taxes 396,406 14,362 Provision for income taxes 160,905 11,589 ------------ ------------ Net income $ 235,501 $ 2,773 ============ ============ Net income per share - Basic $ 0.03 $ - ============ ============ Net income per share - Diluted $ 0.03 $ - ============ ============ Weighted average common shares Outstanding - Basic 7,818,432 7,813,932 ============ ============ Weighted average common shares Outstanding - Diluted 8,065,741 7,951,334 ============ ============
ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2004 June 30, 2004 ------------------ ------------- ASSETS Current assets: Cash $ 93,768 $ 8,256 Accounts receivable, net of allowance for doubtful accounts of $475,000 and $475,000, respectively 7,160,225 7,708,969 Inventories, net 11,036,930 11,095,171 Income tax receivable - 130,548 Other current assets 291,492 127,127 ------------ ------------ Total current assets 18,582,415 19,070,071 ------------ ------------ Property, plant and equipment, net 11,739,786 11,999,927 Goodwill 15,979,830 15,979,830 Other assets, net 77,452 88,867 ------------ ------------ Total assets $ 46,379,483 $ 47,138,695 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,961,361 $ 3,125,593 Current portion of long-term debt 609,258 1,245,484 Deferred income taxes 389,644 389,644 Deferred revenue 465,000 - Other current liabilities 3,816,343 3,316,603 ------------ ------------ Total current liabilities 8,241,606 8,077,324 ------------ ------------ Deferred income taxes 242,478 242,478 ------------ ------------ Deferred revenue 426,250 - ------------ ------------ Long-term debt 780,831 2,366,076 ------------ ------------ 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; 7,818,432 shares issued and outstanding at September 30, 2004 and June 30, 2004 101,220 101,220 Additional paid-in capital 47,041,493 47,041,493 Common stock in treasury, at cost (20,731,428) (20,731,428) Retained earnings 10,277,033 10,041,532 ------------ ------------ Total stockholders' equity 36,688,318 36,452,817 ------------ ------------ Total liabilities and stockholders' equity $ 46,379,483 $ 47,138,695 ============ ============
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