UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, DC  20549





FORM 10-Q


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


For the quarterly period ended March 31, 2011





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


For the transition period from________ to ________





Commission File Number:  0-19266





ALLIED HEALTHCARE PRODUCTS, INC.


(Exact name of registrant as specified in its charter)


Delaware

25-1370721(State or other jurisdiction of

(I.R.S. EmployerIncorporation or organization)

Identification No.)





1720 Sublette Avenue, St. Louis, Missouri 63110


(Address of principal executive offices, including zip code)





(314) 771-2400


(Registrant’s telephone number, including area code)





N/A


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





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





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





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


Large accelerated filer    ̈

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





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


Yes   ̈  No   x





The number of shares of common stock outstanding at April 29, 2011 is 8,124,386 shares.





INDEX





PageNumberPart I –
Financial InformationItem 1.
Financial StatementsConsolidated Statement of Operations - Three and nine months ended March 31, 2011 and 2010 (Unaudited)
3Consolidated Balance Sheet - March 31, 2011 (Unaudited) and June 30, 2010
4 - 5Consolidated Statement of Cash Flows - Nine months ended March 31, 2011 and 2010 (Unaudited)
6Notes to Consolidated Financial Statements
7 – 11Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11 – 15Item 3.
Quantitative and Qualitative Disclosure about Market Risk
15Item 4.
Controls and Procedures
15Part II -
Other InformationItem 6.
Exhibits
16Signature
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, 2010.  The Company cautions that any forward-looking statements contained in this report reflect only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made.


2


PART I.   FINANCIAL INFORMATION





Item 1.     Financial Statements





ALLIED HEALTHCARE PRODUCTS, INC.


CONSOLIDATED STATEMENT OF OPERATIONS


(UNAUDITED)




Three months ended


Nine months endedMarch 31,


March 31,2011


2010


2011


2010Net sales

$
11,338,196


$
11,627,418


$
34,681,610


$
34,366,002Cost of sales


8,729,823



8,781,739



26,712,541



26,172,709Gross profit


2,608,373



2,845,679



7,969,069



8,193,293Selling, general and administrative expenses


2,494,806



2,705,644



7,780,116



9,197,535Income (loss) from operations


113,567



140,035



188,953



(1,004,242
)Interest income


(8,150
)


(2,956
)


(23,692
)


(4,403
)Interest expense


-



190



66



2,764Other, net


24,421



80,791



67,931



103,58816,271



78,025



44,305



101,949Income (loss) before provision for (benefit from) income taxes


97,296



62,010



144,648



(1,106,191
)Provision for (benefit from) income taxes


36,972



24,480



54,966



(420,353
)Net income (loss)

$
60,324


$
37,530


$
89,682


$
(685,838
)Basic earnings (loss) per share

$
0.01


$
0.00


$
0.01


$
(0.09
)Diluted earnings (loss) per share

$
0.01


$
0.00


$
0.01


$
(0.09
)Weighted average shares outstanding - basic


8,113,434



8,093,386



8,101,643



8,057,890Weighted average shares outstanding - diluted


8,195,174



8,183,907



8,121,042



8,057,890





See accompanying Notes to Consolidated Financial Statements.


3


ALLIED HEALTHCARE PRODUCTS, INC.


CONSOLIDATED BALANCE SHEET


ASSETS





(Unaudited)March 31,


June 30,2011


2010Current assets:Cash and cash equivalents

$
5,802,586


$
5,263,324Accounts receivable, net of allowances of $300,000


5,289,283



5,418,253Inventories, net


11,215,012



11,155,456Income tax receivable


776,581



877,665Other current assets


256,765



221,840Total current assets


23,340,227



22,936,538Property, plant and equipment, net


8,725,413



9,661,395Other assets, net


323,899



333,084Total assets

$
32,389,539


$
32,931,017





See accompanying Notes to Consolidated Financial Statements.




(CONTINUED)


4


ALLIED HEALTHCARE PRODUCTS, INC.


CONSOLIDATED BALANCE SHEET


(CONTINUED)


LIABILITIES AND STOCKHOLDERS' EQUITY





(Unaudited)March 31,


June 30,2011


2010Current liabilities:Accounts payable

$
1,981,314


$
1,950,446Other accrued liabilities


1,969,594



2,241,259Deferred income taxes


423,328



429,699Deferred revenue


688,200



688,200Total current liabilities


5,062,436



5,309,604Deferred revenue


286,750



802,900Commitments and contingenciesStockholders' equity:Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding


-



-Series A preferred stock; $0.01 par value; 200,000 shares authorized; no shares issued and outstanding


-



-Common stock; $0.01 par value; 30,000,000 shares authorized; 10,427,878 and 10,396,878 shares issued at March 31, 2011 and June 30, 2010, respectively; 8,124,386 and 8,093,386 shares outstanding at March 31, 2011 and June 30, 2010, respectively


104,279



103,969Additional paid-in capital


48,494,770



48,362,922Accumulated deficit


(827,268
)


(916,950
)Less treasury stock, at cost; 2,303,492 shares at March 31, 2011 and June 30, 2010


(20,731,428
)


(20,731,428
)Total stockholders' equity


27,040,353



26,818,513Total liabilities and stockholders' equity

$
32,389,539


$
32,931,017





See accompanying Notes to Consolidated Financial Statements.


5


ALLIED HEALTHCARE PRODUCTS, INC.


CONSOLIDATED STATEMENT OF CASH FLOWS


(UNAUDITED)





Nine months endedMarch 31,2011


2010Cash flows from operating activities:Net income (loss)

$
89,682


$
(685,838
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


1,070,981



948,607Stock based compensation


15,928



637,720Provision for doubtful accounts and salesreturns and allowances


19,722



(9,832
)Deferred taxes


(6,371
)


(59,713
)Loss on disposition of equipment


-



67,848Changes in operating assets and liabilities:Accounts receivable


109,248



810,421Inventories


(59,555
)


695,542Income tax receivable


101,084



(697,097
)Other current assets


(34,925
)


56,863Accounts payable


30,868



507,042Deferred revenue


(516,150
)


(516,150
)Other accrued liabilities


(271,665
)


(261,099
)Net cash provided by operating activities


548,847



1,494,314Cash flows from investing activities:Capital expenditures


(125,815
)


(303,680
)Proceeds from disposal of fixed assets


-



54,630Net cash used in investing activities


(125,815
)


(249,050
)Cash flows from financing activities:Stock options exercised


103,250



3,469Minimum tax withholdings on stock options exercised


-



(406,110
)Excess tax benefit from exercise of stock options


12,980



487,509Net cash provided by financing activities


116,230



84,868Net increase in cash and cash equivalents


539,262



1,330,132Cash and cash equivalents at beginning of period


5,263,324



1,943,364Cash and cash equivalents at end of period

$
5,802,586


$
3,273,496





See accompanying Notes to Consolidated Financial Statements.


6


ALLIED HEALTHCARE PRODUCTS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.  Summary of Significant Accounting and Reporting Policies





Basis of Presentation





The accompanying unaudited consolidated financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included.  Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year.  These statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010.





Recently Adopted Accounting Pronouncements




In June 2009, the FASB issued guidance titled “Consolidation” (ASC Topic 810), which amends previous guidance to require an analysis to determine whether a variable interest gives a company a controlling financial interest in a variable interest entity. An ongoing reassessment of financial responsibility is required, including interests in entities formed prior to the effective date of this guidance. This guidance also eliminates the quantitative approach previously required for determining whether a company is the primary beneficiary. It is effective for fiscal years beginning after November 15, 2009. This guidance became effective for the Company in the quarter ended September 30, 2010, and its adoption did not have a significant effect on its consolidated financial statements.




In October 2009, the FASB issued guidance titled “Revenue Recognition – Multiple Deliverable Revenue Arrangements” (Accounting Standards Update 2009-13), which requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The guidance eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. This guidance is applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. This guidance became effective for the Company in the quarter ended September 30, 2010, and its adoption did not have a significant effect on its consolidated financial statements.


7


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





Fair Value of Financial Instruments





The Company’s financial instruments consist of cash, accounts receivable and accounts payable.  The carrying amounts for cash, accounts receivable and accounts payable approximate their fair value due to the short maturity of these instruments.





2.  Inventories





Inventories are comprised as follows:





March 31, 2011


June 30, 2010Work-in progress

$
917,083


$
802,550Component parts


8,070,501



7,984,369Finished goods


3,568,986



3,845,027Reserve for obsolete and excess inventory


(1,341,558
)


(1,476,490
)$
11,215,012


$
11,155,456





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, 2011 and 2010 were 8,113,434 and 8,093,386, respectively.  The number of diluted shares outstanding for the three months ended March 31, 2011 and 2010 were 8,195,174 and 8,183,907, respectively.  The number of basic shares outstanding for the nine months ended March 31, 2011 and 2010 was 8,101,643 and 8,057,890, respectively.  The number of diluted shares outstanding for the nine months ended March 31, 2011 and 2010 was 8,121,042 and 8,057,890, respectively.





4.  Commitments and Contingencies





The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities.  The Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is probable that liabilities have been incurred and the related amounts are estimable.  Based upon information currently available, management believes that existing accrued liabilities are sufficient.


8


The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”) and other parties, which provides electrical power to the Company’s facility in Stuyvesant Falls, New York.  Within the past several months, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant.  The Company maintains in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running with the land which have been honored for more than a century.  Niagara’s attempts to collect such invoices were stopped in December 2010 by a temporary restraining order, although a court has not yet ruled on the merits of all of Niagara’s claims.  Among other things, Niagara seeks approximately $469,000, which it alleges represents the value of electricity provided prior to the commencement of litigation going back to 2003.  As of March 31, 2011, the Company has not recorded a provision for this matter as management intends to vigorously defend this allegation and believes the payment of this claim is not probable.  The Company believes, however, that any liability it may incur would not have a material adverse effect on its financial condition or its result of operations.





5.  Financing





Effective as of November 13, 2009, the Company terminated its revolving credit facility arrangement with Bank of America, N.A., as successor to LaSalle Bank National Association.





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





The Credit Facility was amended on November 2, 2010 extending the maturity date to November 14, 2011.  The Credit Facility will be available on a revolving basis until it expires on November 14, 2011, at which time all amounts outstanding under the Credit Facility will be due and payable. Advances under the Credit Facility will be made pursuant to a Revolving Credit Note executed by the Company in favor of Enterprise Bank & Trust. Such advances will bear interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s prime-rate based interest rate for commercial loans, subject to a minimum annual interest rate of 4.50%.  Advances may be prepaid in whole or in part without premium or penalty.


9


Under the Credit Agreement, advances are generally subject to customary borrowing conditions. The Credit Agreement also contains covenants with which the Company must comply during the term of the Credit Facility. Among other things, such covenants restrict the Company’s ability to incur certain additional debt; make specified restricted payments, dividends and capital expenditures; authorize or issue capital stock; enter into certain transactions with affiliates; consolidate or merge with or acquire another business; sell certain of its assets or dissolve or wind up the Company. The Credit Agreement also contains certain events of default that are customary for financings of this type including, without limitation: the failure to pay principal, interest, fees or other amounts when due; the breach of specified representations or warranties contained in the loan documents; cross-default with certain other indebtedness of the Company; the entry of uninsured judgments that are not bonded or stayed; failure to comply with the observance or performance of specified agreements contained in the loan documents; commencement of bankruptcy or other insolvency proceedings; and the failure of any of the loan documents entered into in connection with the Credit Facility to be in full force and effect. After an event of default, and upon the continuation thereof, the principal amount of all loans made under the Credit Facility would bear interest at a rate per annum equal to 4.00% above the otherwise applicable interest rate (provided, that the interest rate may not exceed the highest rate permissible under law), and the lender would have the option to accelerate maturity and payment of the Company’s obligations under the Credit Facility.





The prime rate was 3.25% on March 31, 2011.





At March 31, 2011 the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.





The Company was in compliance with all of the financial covenants associated with the Credit Facility at March 31, 2011.





6.  Baralyme® Agreement





A reconciliation of deferred revenue resulting from the agreement with Abbott Laboratories (“Abbott”), with the amounts received under the agreement, and amounts recognized as net sales is as follows:


Three Months ended


Nine Months endedMarch 31,


March 31,2011


2010


2011


2010Beginning balance

$
1,147,000


$
1,835,200


$
1,491,100


$
2,179,300Revenue recognized as net sales


(172,050
)


(172,050
)


(516,150
)


(516,150
)974,950



1,663,150



974,950



1,663,150Less - Current portion of deferred revenue


(688,200
)


(688,200
)


(688,200
)


(688,200
)$
286,750


$
974,950


$
286,750


$
974,950





10


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, 2011, $2,150,000 has been received as a result of product development activities.





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





Results of Operations





Three months ended March 31, 2011 compared to three months ended March 31, 2010





Allied had net sales of $11.3 million for the three months ended March 31, 2011, down $0.3 million from net sales of $11.6 million in the prior year same quarter. Domestic sales were down 1.9% while international sales, which represented 20.5% of third quarter sales, were down 4.6% from the prior year same quarter.





Sales for the three months ended March 31, 2011 include $172,050 for the recognition into income of payments resulting from the agreement with Abbott Laboratories to cease the production and distribution of Baralyme®.  Income from the agreement will continue to be recognized at $57,350 per month until the expiration of the agreement in August 2012.  Allied continues to sell Carbolime®, a carbon dioxide absorbent with a different formulation than Baralyme®.  The Company ceased the sale of Baralyme® on August 27, 2004.





Orders for the Company’s products for the three months ended March 31, 2011 of $10.5 million were $0.1 million or 0.9% lower than orders for the prior year same quarter of $10.6 million.  Domestic orders are down 2.4% over the prior year same quarter while international orders, which represented 21.3% of third quarter orders, were 2.3% higher than orders for the prior year same quarter.  While orders are comparable to the prior year, the Company continues to believe that orders have been negatively impacted by the recession, and subsequent slow recovery.  Orders remain below pre-recession levels.




Gross profit for the three months ended March 31, 2011 was $2.6 million, or 23.0% of net sales, compared to $2.8 million, or 24.1% of net sales, for the three months ended March 31, 2010.  As a result of lower sales than in the prior year same quarter, gross profit as a percent of sales fell as plant utilization was not sufficient to offset higher overhead plant cost.





Selling, general and administrative expenses for the three months ended March 31, 2011 were $2.5 million compared to selling, general and administrative expenses of $2.7 million for the three months ended March 31, 2010.  This decrease is due to, among other things, decreases in compensation expense and sales commissions compared to the same quarter of the prior year.  The Company also experienced a decrease in health insurance costs. The Company is self-insured for health care costs and has not changed its fringe benefit plans or providers from the prior year.  The Company believes that the reduction in health insurance expenses is primarily due to a reduction in medical claims by employees and their dependents from the prior year level.


11


Income from operations was $113,567 for the three months ended March 31, 2011 compared to income from operations of $140,035 for the three months ended March 31, 2010.  Allied had income before provision for income taxes in the third quarter of fiscal 2011 of $97,296 compared to income before provision for income taxes in the third quarter of fiscal 2010 of $62,010.





Net income for the third quarter of fiscal 2011 was $60,324 or $0.01 per basic and diluted share compared to net income of $37,530 or $0.00 per basic and diluted share for the third quarter of fiscal 2010.  The weighted average number of common shares outstanding, used in the calculation of basic earnings per share for the third quarters of fiscal 2011 and 2010 were 8,113,434 and 8,093,386, respectively.  The number of diluted shares outstanding for the three months ended March 31, 2011 and 2010 were 8,195,174 and 8,183,907, respectively.





Nine months ended March 31, 2011 compared to nine months ended March 31, 2010





Allied had net sales of $34.7 million for the nine months ended March 31, 2011, up $0.3 million, or 0.9% from net sales of $34.4 million in the prior year same period resulting from higher order levels.   Domestic sales were down 0.4% from the prior year same period while international sales were up 7.1% from the prior year same period.  International business represented 19.2% of sales for the first nine months of fiscal 2011.





Sales for the nine months ended March 31, 2011 include $516,150 for the recognition into income of payments resulting from the agreement with Abbott Laboratories to cease the production and distribution of Baralyme®.  Income from the agreement will continue to be recognized at $57,350 per month until the expiration of the agreement in August 2012.  Allied continues to sell Carbolime®, a carbon dioxide absorbent with a different formulation than Baralyme®.  The Company ceased the sale of Baralyme® on August 27, 2004.





Orders for the Company’s products for the nine months ended March 31, 2011 of $33.3 million were $0.2 million or 0.6% higher than orders for the prior year same period of $33.1 million.  Domestic orders are up 1.1% over the prior year same period while international orders, which represented 19.4% of orders for the first nine months of fiscal 2011, were 1.7% lower than orders for the prior year same period.  While orders are comparable to the prior year, the Company continues to believe that orders have been negatively impacted by the recession, and subsequent slow recovery.  Orders remain below pre-recession levels.


12


Gross profit for the nine months ended March 31, 2011 was $8.0 million, or 23.1% of net sales, compared to $8.2 million, or 23.8% of net sales, for the nine months ended March 31, 2010.  Gross profit during the first nine months of fiscal 2011 was favorably impacted by cost savings initiatives which reduced the cost of manufactured finished goods, combined with lower spending levels for some fixed overhead categories including fringe benefits, salaries, and real estate taxes.  The Company is self-insured for health care costs and has not changed its fringe benefit plans or providers from the prior year.  The Company believes that the reduction in fringe benefits is primarily due to a reduction in medical claims by employees and their dependents.  Gross profit during this period was negatively impacted by approximately $711,000 in shipping, additional product cost, and other startup cost at its Stuyvesant Falls facility for the production of its carbon dioxideabsorbent product lines.  The additional shipping costs and the majority of startup cost were completed during the first and second quarters.  Higher commodity prices have led to higher costs for certain raw materials including brass and plastic resins.  Through the first nine months these higher costs for raw materials have been offset by cost reductions on other purchased components, and increased revenue for recycled materials.





Selling, general and administrative expenses for the nine months ended March 31, 2011 were $7.8 million compared to selling, general and administrative expenses of $9.2 million for the nine months ended March 31, 2010.  The decrease in selling, general and administrative expenses is due to, among other things, a decrease of approximately $0.6 million in compensation expense related to option grants.  Other decreases included a decrease of approximately $0.2 million for compensation expense and $0.1 million for sales commissions compared to the same period of the prior year.  The Company also experienced a decrease in expenses for outside consultants of approximately $0.2 million, and a decrease in health insurance costs of approximately $0.2 million, primarily due to lower claims.





Income from operations was $0.2 million for the nine months ended March 31, 2011 compared to a loss from operations of $1.0 million for the nine months ended March 31, 2010.  Allied had income before provision for income taxes in the first nine months of fiscal 2011 of $144,648, compared to a loss before benefit from income taxes in the first nine months of fiscal 2010 of $1.1 million.  The Company recorded a tax provision of $54,966 for the nine months ended March 31, 2011 compared to a tax benefit of $0.4 million for the nine months ended March 31, 2010.





Net income for the nine months ended March 31, 2011 was $89,682 or $0.01 per basic and diluted share compared to a net loss of $0.7 million or $0.09 per basic and diluted share for the first nine months of fiscal 2010.  The weighted average number of common shares outstanding, used in the calculation of basic earnings per share for the first nine months of fiscal 2011 and 2010 were 8,101,643 and 8,057,890, respectively.  The weighted average number of common shares outstanding, used in the calculation of diluted earnings per share for the first nine months of fiscal 2011 and 2010 were 8,121,042 and 8,057,890, 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.


13


The Company’s working capital was $18.3 million at March 31, 2011 compared to $17.6 million at June 30, 2010.  Cash increased $0.5 million, inventory increased $0.1 million and accrued liabilities decreased $0.3 million.  At March 31, 2011 these increases in working capital were offset by a decrease in income tax receivable of $0.1 million, and accounts receivable decreased $0.1 million.  Accounts receivable as measured in days of sales outstanding (“DSO”) increased to 41 DSO at March 31, 2011; up from 40 DSO at June 30, 2010.





The Company is party to a Loan and Security Agreement, dated November 17, 2009, with Enterprise Bank & Trust (the “Credit Agreement”) pursuant to which the Company has a secured revolving credit facility with borrowing availability of up to $7,500,000 (the “Credit Facility”). The Company’s obligations under the Credit Facility are secured by certain assets of the Company pursuant to the terms and subject to the conditions set forth in the Credit Agreement.  See Note 5 – Financing to the Company’s consolidated unaudited financial statements for more information concerning the Credit Facility.





Advances under the Credit Facility will be made pursuant to a Revolving Credit Note executed by the Company in favor of Enterprise Bank & Trust. Such advances will bear interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s prime-rate based interest rate for commercial loans, subject to a minimum annual interest rate of 4.50%.  Advances may be prepaid in whole or in part without premium or penalty.  The prime rate was 3.25% on March 31, 2011.





At March 31, 2011 the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.





In the event that economic conditions were to severely worsen for a protracted period of time, we believe that we will have borrowing capacity under credit facilities that will provide sufficient financial flexibility.  The Company would have options available to ensure liquidity in addition to increased borrowing.  Capital expenditures, which are budgeted at $0.8 million for the fiscal year ended June 30, 2011, could be postponed.


During the first nine months of fiscal 2011 the Company has experienced higher prices for raw materials due to increased commodity prices for brass and plastic resins.  Brass cost is driven by higher copper prices, the main component.   These increases have been offset by higher revenues for recycled metals and purchasing initiatives for other components and finished goods.





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.


14


Recently Issued Accounting Guidance




The impact and any associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended June 30, 2010.




See Note 1 – Summary of Significant Accounting and Reporting Policies for more information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements. Management believes there have been no material changes to our critical accounting policies.





Item 3.    Quantitative and Qualitative Disclosure about Market Risk





At March 31, 2011, the Company did not have any debt outstanding.  The revolving credit facility bears an interest rate using the commercial bank’s prime-rate based interest rate for commercial loans 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, 2011.  The Company 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




The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed as of March 31, 2011, the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective.




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Changes in internal control over financial reporting





There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.





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 6, 2011 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.


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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. DunnDaniel C. Dunn

Chief Financial OfficerDate: May 6, 2011


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