UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year June 30, 2012
OR
¨
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
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25-1370721
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. employer identification
no.)
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1720 Sublette Avenue
St. Louis, Missouri
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63110
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(Address of principal executive offices)
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(zip code)
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Registrant’s telephone number,
including area code (314) 771-2400
SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT:
Title of each class
Common Stock, $.01
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Name of each exchange
on which registered
The NASDAQ Stock Market LLC
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SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:
None
Indicate
by check mark if the registrant is a well –known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
¨
No
x
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 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 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 (
§229.405
of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes.
x
No.
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (
§229.405
of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
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 12 b-2 of the Exchange Act.
Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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Smaller reporting company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12 b-2). Yes
¨
No
x
As
of December 31, 2011, the last business day of the registrant’s most recently completed second fiscal quarter; the aggregate
market value of the voting stock held by non-affiliates of the Registrant was approximately $15,514,183.
As
of September 17, 2012, there were 8,124,386 shares of common stock, $0.01 par value (the “Common Stock"), outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
Proxy
Statement to be filed within 120 days after June 30, 2012 (portion) (Part III)
ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
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Page
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Part I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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9
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Item 1B.
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Unresolved Staff Comments
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13
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Item 2.
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Properties
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13
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Item 3.
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Legal Proceedings
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13
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Item 4.
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Mine Safety Disclosures
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13
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Part II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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14
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Item 6.
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Selected Financial Data
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14
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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15
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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26
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Item 8.
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Financial Statements and Supplementary Data
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26
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Item 9.
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Changes in and Disagreements with Accountants on
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Accounting and Financial Disclosure
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47
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Item 9A(T).
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Controls and Procedures
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47
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Item 9B.
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Other Information
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47
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Part III
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Item 10
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Directors, Executive Officers and Corporate Governance
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48
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Item 11.
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Executive Compensation
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48
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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48
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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48
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Item 14.
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Principal Accounting Fees and Services
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48
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Part IV
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Item 15.
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Exhibits and Financial Statement Schedules
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48
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“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 Items 1, 1A, 3 and 7 in this Report. The
Company cautions that any forward-looking statements contained in this report reflect only the belief of the Company or its management
at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions,
such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the statement was made.
PART I
Item 1.
Business
General
Allied Healthcare Products,
Inc. (“Allied”, the “Company”, “we”, or “us”) manufactures a variety of respiratory
products used in the health care industry in a wide range of hospital and alternate site settings, including sub-acute care facilities,
home health care and emergency medical care. The Company’s product lines include respiratory care products, medical gas equipment
and emergency medical products. The Company believes that it maintains significant market shares in selected product lines.
The Company’s
products are marketed under well-recognized and respected brand names to hospitals, hospital equipment dealers, hospital construction
contractors, home health care dealers, emergency medical products dealers and others. Allied’s product lines include:
Respiratory Care Products
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respiratory care/anesthesia products
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home respiratory care products
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Medical Gas Equipment
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medical gas system construction products
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medical gas system regulation devices
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disposable oxygen and specialty gas cylinders
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portable suction equipment
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Emergency Medical Products
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respiratory/resuscitation products
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trauma and patient handling products
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The Company’s
principal executive offices are located at 1720 Sublette Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400.
Markets and Products
In fiscal 2012, respiratory
care products, medical gas equipment and emergency medical products represented approximately 23%, 57% and 20%, respectively, of
the Company’s net sales. In comparison, in fiscal 2011, respiratory care products, medical gas equipment and emergency medical
products represented approximately 23%, 53%, and 24%, respectively, of the Company’s net sales. The Company operates in a
single industry segment and its principal products are described in the following table:
Product
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Description
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Principal
Brand Names
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Primary Users
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Respiratory Care Products
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Respiratory Care/Anesthesia Products
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Large volume compressors; ventilator calibrators; humidifiers and mist tents; and carbon dioxide absorbent
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Timeter
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Hospitals and sub-acute facilities
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Home Respiratory Care Products
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O2 cylinders; pressure regulators; nebulizers; portable large volume compressors; portable suction equipment and disposable respiratory products
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Timeter; B&F; Schuco
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Patients at home
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Medical Gas Equipment
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Construction Products
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In-wall medical gas system components; central station pumps and compressors and headwalls
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Chemetron; Oxequip
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Hospitals and sub-acute facilities
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Regulation Devices
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Flowmeters; vacuum regulators; pressure regulators and related products
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Chemetron; Oxequip; Timeter
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Hospitals and sub-acute facilities
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Disposable Cylinders
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Disposable oxygen and gas cylinders
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Lif-O-Gen
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First aid providers and specialty gas distributors
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Suction Equipment
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Portable suction equipment and disposable suction canisters
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Gomco; Allied; Schuco
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Hospitals, sub-acute facilities and homecare products
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Emergency Medical Products
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Respiratory/Resuscitation
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Demand resuscitation valves; bag mask resuscitators; emergency transport ventilators, oxygen regulators, SurgeX - surge suppressing post valve, and mass casualty ventilation line
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LSP; Omni-Tech
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Emergency service providers
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Trauma and Patient Handling Products
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Spine immobilization products; pneumatic anti-shock garments, trauma burn kits and Xtra backboards
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LSP
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Emergency service providers
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Respiratory
Care Products
Market.
Respiratory care products are used in the treatment of acute and chronic respiratory disorders such as asthma, emphysema, bronchitis
and pneumonia. Respiratory care products are used in both hospitals and alternate care settings. Sales of respiratory care products
are made through distribution channels focusing on hospitals and other sub-acute facilities. Sales of home respiratory care products
are made through durable medical equipment dealers through telemarketing, and by contract sales with national chains.
Respiratory Care/Anesthesia
Products.
The Company manufactures and sells a broad range of products for use in respiratory care and anesthesia delivery,
including carbon dioxide absorbents. These products include large volume air compressors, calibration equipment, humidifiers, croup
tents, equipment dryers and a complete line of respiratory disposable products such as oxygen tubing, facemasks, cannulas and ventilator
circuits.
Home Respiratory
Care Products.
Home respiratory care products represent one of Allied’s potential growth areas. Allied’s broad
line of home respiratory care products include aluminum oxygen cylinders, oxygen regulators, pneumatic nebulizers, portable suction
equipment and a full line of respiratory disposable products.
Medical Gas Equipment
Market
.
The market for medical gas equipment consists of hospitals, alternate care settings and surgery centers. The medical gas equipment
group is broken down into three separate categories: construction products, regulation devices and suction equipment, and disposable
cylinders.
Construction
Products.
Allied’s medical gas system construction products consist of in-wall medical system components, central
station pumps and compressors, and headwalls. These products are typically installed during construction or renovation of a health
care facility and are built in as an integral part of the facility’s physical plant. Typically, the contractor for the facility’s
construction or renovation purchases medical gas system components from manufacturers and ensures that the design specifications
of the health care facility are met.
Allied’s in-wall
components, including outlets, manifolds, alarms, ceiling columns and zone valves, serve a fundamental role in medical gas delivery
systems.
Central station pumps
and compressors are individually engineered systems consisting of compressors, reservoirs, valves and controls designed to drive
a hospital’s medical gas and suction systems. Each system is designed specifically for a given hospital or facility, which
purchases pumps and compressors from suppliers. The Company’s sales of pumps and compressors are driven, in large part, by
its share of the in-wall components market.
The Company’s
construction products are sold primarily to hospitals, alternate care settings and hospital construction contractors. The Company
believes that it holds a major share of the U.S. market for its construction products, that these products are installed in more
than three thousand hospitals in the United States and that its installed base of equipment in this market will continue to generate
follow-on sales. The Company believes that most hospitals and sub-acute care facility construction spending is for expansion or
renovation of existing facilities. Many hospital systems and individual hospitals undertake major renovations to upgrade their
operations to improve the quality of care they provide, reduce costs and attract patients and personnel.
Regulation Devices
and Suction Equipment.
The Company’s medical gas system regulation products include flowmeters, vacuum regulators
and pressure regulators, as well as related adapters, fittings and hoses which measure, regulate, monitor and help transfer medical
gases from walled piping or equipment to patients in hospital rooms, operating theaters or intensive care areas. The Company’s
leadership position in the in-wall components market provides a competitive advantage in marketing medical gas system regulation
devices that are compatible with those components.
Portable suction equipment
is typically used when in-wall suction is not available or when medical protocol specifically requires portable suction. The Company
also manufactures disposable suction canisters, which are clear containers used to collect the fluids suctioned by in-wall or portable
suction systems. The containers have volume calibrations, which allow the medical practitioner to measure the volume of fluids
suctioned.
The market for regulation
devices and suction equipment includes hospital and sub-acute care facilities. Sales of these products are made through the same
distribution channel as our respiratory care products. The Company believes that it holds a significant share of the U.S. market
in both regulation devices and suction equipment.
Disposable Cylinders.
Disposable oxygen cylinders are designed to provide oxygen for short periods of time in emergency situations. Since they
are not subjected to the same pressurization as standard containers, they are much lighter and less expensive than standard gas
cylinders. The Company markets filled disposable oxygen cylinders through industrial safety distributors and similar customers,
principally to first aid providers, restaurants, industrial plants and other customers that require oxygen for infrequent emergencies.
Emergency Medical
Products
Market
.
Emergency medical products are used in the treatment of trauma-induced injuries. The Company’s emergency medical
products provide patient resuscitation or ventilation during cardiopulmonary resuscitation or respiratory distress as well as immobilization
and treatment for burns. The Company expects that additional countries will develop trauma care systems in the future, although
no assurance can be given that such systems will develop or that they will have a favorable impact on the Company. Sales of emergency
medical products are made through specialized emergency medical products distributors to ambulance companies, fire departments
and emergency medical systems volunteer organizations.
The emergency medical
products are broken down into two categories: respiratory/resuscitator products and trauma patient handling products.
Respiratory/Resuscitation
Products.
The Company’s respiratory/resuscitation products include demand resuscitation valves, portable resuscitation
systems, bag masks and related products, emergency transport ventilators, precision oxygen regulators, minilators, multilators
and humidifiers.
Demand resuscitation
valves are designed to provide 100% oxygen to breathing or non-breathing patients. In an emergency situation, they can be used
with a mask or tracheotomy tubes and operate from a standard regulated oxygen system. The Company’s portable resuscitation
systems provide fast, simple and effective means of ventilating a non-breathing patient during cardiopulmonary resuscitation and
100% oxygen to breathing patients on demand with minimal inspiratory effort. The Company also markets a full line of disposable
and reusable bag mask resuscitators, which are available in a variety of adult and child-size configurations. Disposable mouth-to-mask
resuscitation systems have the added advantage of reducing the risk of transmission of communicable diseases.
The Company’s
autovent transport ventilator can meet a variety of needs in different applications ranging from typical emergency medical situations
to more sophisticated air and ground transport. Each autovent is accompanied by a patient valve, which provides effective ventilation
during cardiopulmonary resuscitation or respiratory distress. When administration of oxygen is required at the scene of a disaster,
in military field hospitals or in a multiple-victim incident, Allied’s minilators and multilators are capable of providing
oxygen to one or a large number of patients.
The Company’s
mass casualty ventilation line has been designed to meet the unique ventilation demands that can occur during a mass casualty event
or pandemic. The mass casualty products are lightweight, robust, and easy to operate. Designed for surge capacity, these products
are capable of providing reliable ventilation even in unpredictable environments and conditions, and require minimal periodic maintenance.
To complement the family
of respiratory/resuscitation products, the Company offers a full line of oxygen product accessories. This line of accessory products
includes reusable aspirators, tru-fit masks, disposable cuffed masks and related accessories.
Trauma and Patient
Handling Products.
The Company’s trauma and patient handling products include spine immobilization products, pneumatic
anti-shock garments and trauma burn kits. Spine immobilization products include a backboard that is designed for safe immobilization
of injury victims and provides a durable and cost effective means of emergency patient transportation and extrication. The infant/pediatric
immobilization board is durable and scaled for children. The half back extractor/rescue vest is useful for both suspected cervical/spinal
injuries and for mountain and air rescues. The Company’s pneumatic anti-shock garments are used to treat victims experiencing
hypovolemic shock. Allied’s trauma burn kits contain a comprehensive line of products for the treatment of trauma and burns.
Sales and Marketing
Allied sells its products
primarily to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers, emergency medical
products dealers and others. The Company maintains a sales force of 21 sales professionals, all of whom are full-time employees
of the Company.
The sales force includes
eight domestic hospital, homecare and emergency specialists, five domestic construction specialists, and four international sales
representatives. A total of four sales managers lead each of the sales groups. Two product managers are responsible for the marketing
activities of our product lines.
The domestic hospital
specialists are responsible for sales of all Allied products with the exception of construction products within their territory.
Sales of hospital products are accomplished through respiratory care/anesthesia distributors for the regulation devices, suction
equipment, respiratory care/anesthesia products and disposable cylinders. The domestic construction specialists are responsible
for sales of all Allied construction products within their territory. Emergency products are principally sold to ambulance companies,
fire departments and emergency medical systems volunteer organizations through specialized emergency medical products distributors.
Construction products
are sold direct to hospital construction contractors and through distributors.
The Company’s
international specialists sell all Allied products within their territory
. Allied’s
net sales to foreign markets totaled 22% of total net sales in fiscal 2012, 20% in 2011 and 19% in 2010. International sales are
made through a network of dealers,
agents and U.S. exporters who distribute the Company’s products throughout the
world. Allied has market presence in Canada, Mexico, Central and South America, Europe, the Middle East and the Far East.
Manufacturing
Allied’s manufacturing
processes include fabrication, electro-mechanical assembly operations, plastics manufacturing, and chemical processing with automated
packaging. A significant part of Allied’s manufacturing operations involves electro-mechanical assembly of proprietary products
and the Company is vertically integrated in most elements of metal machining and fabrication. Most of Allied’s hourly employees
are involved in machining, metal fabrication, plastics manufacturing and product assembly.
Allied manufactures
small metal components from bar stock in a machine shop, which includes automatic screw machines, horizontal lathes and drill presses
and computer controlled machining centers. The Company makes larger metal components from sheet metal using computerized punch
presses, brake presses and shears. In its plastics manufacturing processes, the Company utilizes both extrusion and injection molding.
In its chemical process, the Company utilizes mixing, drying, and sizing equipment. The Company believes that its production facilities
and equipment are in good condition and sufficient to meet planned increases in volume over the next few years and that the conditions
in local labor markets should permit the implementation of additional shifts and days operated.
Research and Development
Allied’s research
and development department is responsible for the development of new products. This group is staffed with mechanical and
electrical engineers.
During fiscal year
2012 the research and development group completed the design of machine specific cartridges for Allied’s Lytholyme product
line.
The group is actively working on other products
that were not released during fiscal year 2012.
As part of the agreement
relating to the withdrawal of the Baralyme® product in August 2004, Abbott Laboratories (“Abbott”) 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. Allied has pursued development of a new carbon dioxide absorption product,
resulting in its new Litholyme
®
product. As of June 30, 2012
the Company had been reimbursed $2,150,000 by Abbott. More detailed information concerning this agreement is included in Item 7
,
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Government
Regulation
The
Company’s products and its manufacturing activities are subject to extensive and rigorous government regulation by federal
and state authorities in the United States and other countries. In the United States, medical devices for human use are subject
to comprehensive review by the United States Food and Drug Administration (the “FDA”). The Federal Food, Drug, and
Cosmetic Act (“FDC Act”), and other federal statutes and regulations, govern or influence the research, testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion of such products. Noncompliance with applicable
requirements can result in warning letters, fines, recall or seizure of products, injunction, refusal to permit products to be
imported into or exported out of the United States, refusal of the government to clear or approve marketing applications or to
allow the Company to enter into government supply contracts, or withdrawal of previously approved marketing applications and criminal
prosecution.
The
Company is required to file a premarket notification in the form of a premarket approval (“PMA”) with the FDA before
it begins marketing a new medical device that offers new technology that is currently not on the market. The Company also must
file a premarket notification in the form of a 510(k) with the FDA before it begins marketing a new medical device that utilizes
existing technology for devices that are currently on the market. The 510(k) submission process is also required when the Company
makes a change or modifies an existing device in a manner that could significantly affect the device’s safety or effectiveness.
Compliance
with the regulatory approval process in order to market a new or modified medical device can be uncertain, lengthy and, in some
cases, expensive. There can be no assurance that necessary regulatory approvals will be obtained on a timely basis, or at all.
Delays in receipt or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing
or future regulatory requirements could have a material adverse effect on the Company’s business, financial condition and
results of operations.
The
Company manufactures and distributes a broad spectrum of respiratory therapy equipment, emergency medical equipment and medical
gas equipment. To date, all of the Company’s FDA clearances have been obtained through the 510(k) clearance process. These
determinations are very fact specific and the FDA has stated that, initially, the manufacturer is best qualified to make these
determinations, which should be based on adequate supporting data and documentation. The FDA however, may disagree with a manufacturer’s
determination not to file a 510(k) and require the submission of a new 510(k) notification for the changed or modified device.
Where the FDA believes that the change or modification raises significant new questions of safety or effectiveness, the agency
may require a manufacturer to cease distribution of the device pending clearance of a new 510(k) notification. Certain of the Company’s
medical devices have been changed or modified subsequent to 510(k) marketing clearance of the original device by the FDA. Certain
of the Company’s medical devices, which were first marketed prior to May 28, 1976, and therefore, grandfathered and exempt
from the 510(k) notification process, also have been subsequently changed or modified. The Company believes that these changes
or modifications do not significantly affect the devices’ safety or effectiveness, or make a major change or modification
in the devices’ intended uses and, accordingly, submission of new 510(k) notification to the FDA is not required. There can
be no assurance, however, that the FDA would agree with the Company’s determinations.
In
addition, commercial distribution in certain foreign countries is subject to additional regulatory requirements and receipt of
approvals that vary widely from country to country. The Company believes it is in compliance with regulatory requirements of the
countries in which it sells its products.
The
Medical Device Reporting regulation requires that the Company provide information to the FDA on deaths or serious injuries alleged
to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur. The Medical Device Tracking regulation requires the Company to adopt a method
of device tracking of certain devices, such as ventilators, which are life-supporting or life-sustaining devices used outside of
a device user facility, some of which are permanently implantable devices. The regulation requires that the method adopted by the
Company will ensure that the tracked device can be traced from the device manufacturer to the person for whom the device is indicated
(i.e., the patient). In addition, the FDA prohibits a company from promoting an approved device for unapproved applications and
reviews a company’s labeling for accuracy. Labeling and promotional activities also are in certain instances, subject to
scrutiny by the Federal Trade Commission.
The
Company’s medical device manufacturing facilities are registered with the FDA, and have received ISO 9001 certification under
the Medical Device Directive (MDD - European) for certain products in 1998. The Company’s St. Louis facility is ISO 9000
certified. The Company is subject to audit by the FDA, International Organization for Standardization (“ISO”), and
European auditors for compliance with the Good Manufacturing Practices (“GMP”), the ISO and MDD regulations for medical
devices. These regulations require the Company to manufacture its products and maintain its products and documentation in a prescribed
manner with respect to design, manufacturing, testing and control activities. The Company also is subject to the registration and
inspection requirements of state regulatory agencies.
There
can be no assurance that any required FDA or other governmental approval will be granted, or, if granted, will not be withdrawn.
Governmental regulation may prevent or substantially delay the marketing of the Company’s proposed products and cause the
Company to undertake costly procedures. In addition, the extent of potentially adverse government regulation that might arise from
future administrative action or legislation cannot be predicted. Any failure to obtain, and maintain, such approvals could adversely
affect the Company’s ability to market its products or proposed products.
Sales
of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country.
Medical products shipped to the
European Community generally require
CE
certification.
The letters “CE” are an abbreviation of Conformité Européenne, French for
European conformity.
Whether or not FDA approval has been obtained, approval of a device by
a comparable regulatory authority of a foreign country generally must be obtained prior to the commencement of marketing in those
countries. The time required to obtain such approvals may be longer or shorter than that required for FDA approval. In addition,
FDA approval may be required under certain circumstances to export certain medical devices.
The Company is also
subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices,
environmental protections, fire hazard control and disposal of hazardous or potentially hazardous substances.
Patents, Trademarks
and Proprietary Technology
The Company owns and
maintains domestic and foreign patents on several products it believes are useful to the business and provide the Company with
an advantage over its competitors. A United States patent for the Litholyme® carbon dioxide absorbent product was obtained
in July 2010 and will expire in 2027. In addition, in June 2012, pursuant to a settlement of outstanding litigation with Armstrong
Medical Limited (“Armstrong”) related to a patent held by Armstrong concerning carbon dioxide absorbents for use in
anesthesiology, Allied received broad, perpetual license rights under the Armstrong patent pursuant to a pre-paid license agreement.
Patents which expire during the period 2012 to 2028 in the aggregate are believed to be of material importance in the operation
of Allied’s business. Allied believes that no single patent, except that related to Litholyme®, is material in relation
to Allied’s future business as a whole. Although the expiration of an individual patent may lead to increased competition,
other factors such as a competitor’s need to obtain regulatory approvals prior to marketing a competitive product and the
nature of the market, may allow Allied to continue to have commercial advantages after the expiration of the patent.
The company owns and
maintains U.S. trademarks for Allied Healthcare Products, Inc., Chemetron, Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter,
Vacutron, and Schuco, its principal trademarks. Registrations for these trademarks are also owned and maintained in countries
where such products are sold and such registrations are considered necessary to preserve the Company’s proprietary rights
therein.
Environmental and Safety Regulation
The Company is subject
to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. The Company is also
subject to the Federal Occupational Safety and Health Act and similar state statutes. From time to time, the Company has been involved
in environmental proceedings involving clean up of hazardous waste. There are no such material proceedings currently pending. Costs
of compliance with environmental, health and safety requirements have not been material to the Company. The Company believes it
is in material compliance with all applicable environmental laws and regulations.
Competition
The Company has different
competitors within each of its product lines. Many of the Company’s principal competitors are larger than the Company and
have greater financial and other resources. The Company competes primarily on the basis of price, quality and service. The Company
believes that it is well positioned with respect to product cost, brand recognition, product reliability, and customer service
to compete effectively in each of its markets.
Employees
At June 30, 2012, the
Company had approximately 289 full-time employees. Approximately 179 employees in the Company’s principal manufacturing facility
located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2015.
Executive Officers of the Registrant
This section provides
information regarding the executive officers of the Company who are appointed by and serve at the pleasure of the Board of Directors:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Earl R. Refsland
|
|
69
|
|
Director, President and Chief Executive Officer (1)
|
Eldon P. Rosentrater
|
|
58
|
|
Vice President of Administration & Corporate Planning (2)
|
Robert B. Harris
|
|
55
|
|
Vice President of Operations (3)
|
Daniel C. Dunn
|
|
52
|
|
Vice President of Finance, Chief Financial Officer, Secretary & Treasurer (4)
|
|
(1)
|
Mr. Refsland has been Director, President and Chief Executive Officer of the Company since September,
1999.
|
|
(2)
|
Mr. Rosentrater has been Vice President-Administration/Corporate Planning of the Company since
March, 2003. He previously held the position of Vice President — Operations from October 1999 to 2003. Prior to that time,
Mr. Rosentrater held the positions of Assistant to the President from 1998 to 1999; Director of Information Technologies from 1995
to 1998; Director of Business Development from 1993 to 1995 and Group Product Manager from 1989 to 1993.
|
|
(3)
|
Mr. Harris has been Vice President — Operations since July, 2006. He previously held the
positions for Command Medical Products, Inc. of Vice President — Operations from January 2002 to January 2006 and Director
of Operations from October 1999 to December 2001. Prior to that time, Mr. Harris held the position of Plant Manager for Sherwood
Medical, a subsidiary of Tyco Healthcare from 1997 to 1999.
|
|
(4)
|
Mr. Dunn has been Vice President — Finance, Chief Financial Officer, Secretary and Treasurer
since July, 2001. He previously held the position of Director of Finance at MetalTek International from 1998 to 2001. Prior to
that time, Mr. Dunn held the position of Corporate Controller at Allied Healthcare Products, Inc. from 1994 to 1998.
|
Item 1A.
Risk Factors
The Company's business,
operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and
uncertainties described below, together with all of the other information in this annual report on Form 10-K and in the Company's
other filings with the Securities and Exchange Commission (“SEC”) before making any investment decision with respect
to the Company's securities. The risks and uncertainties described below may not be the only ones the Company faces. Additional
risks and uncertainties not presently known by the Company or that the Company currently deems immaterial may also affect the Company's
business. If any of these known or unknown risks or uncertainties actually occur or develop, the Company's business, financial
condition, and results of operations could change.
We participate in a
highly competitive environment.
The medical device
industry is characterized by rapid technological change, changing customer needs and frequent new product introductions. Our products
may be rendered obsolete as a result of future innovations. We face intense competition from other manufacturers. Some of our competitors
may be larger than we are and may have greater financial, technical, research, marketing, sales, distribution and other resources
than we do. We believe that price competition will continue among products developed in our markets. Our competitors may develop
or market technologies and products that are more effective or commercially attractive than any we are developing or marketing.
Our competitors may succeed in obtaining regulatory approval and introducing or commercializing products before we do. Such developments
could have a significant negative effect on our business, financial condition and results of operations. Even if we are able to
compete successfully, we may not be able to do so in a profitable manner.
Decreased availability or increased costs of raw materials
could increase our costs of producing our products.
We purchase raw materials,
fabricated components and services from a variety of suppliers. Raw materials such as brass, plastics, and calcium hydroxide are
considered key raw materials. We believe that our relationships with our suppliers are satisfactory and that alternative sources
of supply are readily available. From time to time, however, the prices and availability of these raw materials fluctuate due to
global market demands, which could impair the company's ability to procure necessary materials, or increase the cost of such materials.
Inflationary and other increases in costs of these raw materials have occurred in the past and may recur from time to time. In
addition, freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of oil
and gas. A reduction in the supply or increase in the cost of those raw materials could impact our ability to manufacture our products
and could increase the cost of production.
Changes in third party reimbursement
could negatively impact our revenues and profitability.
The cost of a majority
of medical care in the United States is funded by the U.S. Government through the Medicare and Medicaid programs and by private
insurance programs, such as corporate health insurance plans. Although we do not receive payments for our products directly from
these programs, home respiratory care providers and durable medical equipment suppliers, who are the primary customers for several
of our products, depend heavily on payments from Medicare, Medicaid and private insurers as a major source of revenues. In addition,
sales of certain of our products are affected by the extent of hospital and health care facility construction and renovation at
any given time. The federal government indirectly funds a significant percentage of such construction and renovation costs through
Medicare and Medicaid reimbursements. In recent years, governmentally imposed limits on reimbursement to hospitals and other health
care providers have impacted spending for services, consumables and capital goods. A material decrease from current reimbursement
levels or a material change in the method or basis of reimbursing health care providers is likely to adversely affect future sales
of our products.
Our success depends upon the development of new products
and product enhancements, which entails considerable time and expense.
We place a high priority
on the development of new products to add to our product portfolio and on the development of enhancements to our existing products.
Product development involves substantial expense and we cannot be certain that a completed product will generate sufficient revenue
for our business to justify the resources that we devote to research and development related to such product. The time and expense
required to develop new products and product enhancements is difficult to predict and we cannot assure you that we will succeed
in developing, introducing and marketing new products and product enhancements. Our inability to successfully develop and introduce
new or enhanced products on a timely basis or at all, or to achieve market acceptance of such products, could materially impair
our business.
We are dependent on adequate protection of our patent
and proprietary rights.
We rely on
patents, trade secrets, trademarks, copyrights, know-how, license agreements and contractual provisions to establish and
protect our intellectual property rights. However, these legal means afford us only limited protection and may not adequately
protect our rights or remedies to gain or keep any advantages we may have over our competitors. We cannot assure you that
others may not independently develop the same or similar technologies or otherwise obtain access to our technology and trade
secrets. Our competitors, many of which have substantial resources and may make substantial investments in competing
technologies, may apply for and obtain patents that will prevent, limit, or interfere with our ability to manufacture or
market our products. Further, while we do not believe that any of our products or processes interfere with the rights of
others, third parties may nonetheless assert patent infringement claims against us in the future.
Costly litigation may
be necessary to enforce patents issued to us, to protect trade secrets or know-how we own, to defend us against claimed infringement
of the rights of others or to determine the ownership, scope, or validity of our proprietary rights and the rights of others. Any
claims of infringement against us may involve significant liabilities to third parties, could require us to seek licenses from
third parties, and could prevent or delay us from manufacturing, selling, or using our products. The occurrence of such litigation
or the effect of an adverse determination in any of this type of litigation could have a material adverse effect on our business,
financial condition and results of operations.
Our business of manufacturing, marketing, and selling
of medical devices involves the risk of liability claims and such claims could seriously harm our business, particularly if our
insurance coverage is inadequate.
Our business exposes
us to potential product liability claims that are inherent in the testing, production, marketing and sale of medical devices. Like
other participants in the medical device market, we are from time to time involved in lawsuits, claims and proceedings alleging
product liability and related claims such as negligence. If any current or future product liability claims become substantial,
our reputation could be damaged significantly, thereby harming our business. We may be required to pay substantial damage awards
as a result of any successful product liability claims. Any product liability claim against us, whether with or without merit,
could result in costly litigation, and divert the time, attention, and resources of our management.
As a result of our
exposure to product liability claims, we currently carry product liability insurance covering our products with policy limits per
occurrence and in the aggregate that we have deemed to be sufficient. Our insurance may not cover certain product liability claims
or our liability for any claims may exceed our coverage limits. Therefore, we cannot predict whether this insurance is sufficient,
or if not, whether we will be able to obtain sufficient insurance to cover the risks associated with our business or whether such
insurance will be available at premiums that are commercially reasonable. In addition, these insurance policies must be renewed
annually. Although we have been able to obtain liability insurance, such insurance may not be available in the future on acceptable
terms, if at all. A successful claim against us or settlement by us with respect to uninsured liabilities or in excess of our insurance
coverage, or our inability to maintain insurance in the future, or any claim that results in significant costs to or adverse publicity
against us, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to substantial domestic
and international government regulation, including regulatory quality standards applicable to our manufacturing and quality processes.
Failure by us to comply with these standards could have an adverse effect on our business, financial condition or results of operations.
The FDA regulates the
approval, manufacturing, and sales and marketing of many of our products in the U.S. Significant government regulation also exists
in Canada, Japan, Europe, and other countries in which we conduct business. As a device manufacturer, we are required to register
with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”)
requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control
and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to
the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious
injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory
requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European
Community, we are required to maintain certain ISO certifications in order to sell our products and must undergo periodic inspections
by notified bodies to obtain and maintain these certifications. Failure to comply with current governmental regulations and quality
assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages
or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or
manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals,
and/or declining sales.
Our products may be subject to product recalls even after
receiving FDA clearance or approval, which would harm our reputation and our business.
The FDA and similar
governmental authorities in other countries in which our products are sold, have the authority to request and, in some cases, require
the recall of our products in the event of material deficiencies or defects in design or manufacture. A government-mandated or
voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects. Any recall of product
would divert managerial and financial resources, may harm our reputation with our customers and could damage our business.
We are exposed to certain credit risks, resulting primarily
from customer sales.
Substantially all of
our receivables are due from homecare providers, distributors, hospitals, and contractors. Our customers are located throughout
the U.S. and around the world. We record an estimated allowance for uncollectible amounts based primarily on our evaluation of
the payment pattern, financial condition, cash flows, and credit history of our customers, as well as current industry and economic
conditions. Our inability to collect on our trade accounts receivable could substantially reduce our income and have a material
adverse effect on our financial condition and results of operations.
Our common stock is thinly traded and its market price
may fluctuate widely.
Our common stock is
listed on the NASDAQ Global Market but is thinly traded. As a result, stockholders may not be able to sell shares of common stock
on short notice. Additionally, the market price of our common stock could be subject to significant fluctuations in response to
quarter-to-quarter variation in our operating results, announcements of new products or services by us or our competitors, and
other events or factors. For example, a shortfall in net sales or net income, or an increase in losses could have an immediate
and significant adverse effect on the market price and volume fluctuations that have particularly affected the market prices of
many micro and small capitalization companies and that have often been unrelated or disproportionate to the operating performance
of these companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price
for our common stock.
If a natural or man-made disaster strikes our manufacturing
facilities, we may be unable to manufacture certain products for a substantial amount of time and our revenue could decline.
We have two manufacturing
operations. In the event that one of these facilities were severely damaged or destroyed as a result of a natural or man-made disaster
we would be forced to relocate production to other facilities and/or rely on third-party manufacturers. Such an event could have
a material adverse effect on our business, results of operations and financial condition. Although we have insurance for damage
to our property and the interruption of our business, this insurance may not be sufficient in scope or amount to cover all of our
potential losses and may not continue to be available to us on acceptable terms, or at all.
Requirements associated with the evaluation of internal
controls required by Section 404(a) of the Sarbanes-Oxley Act of 2002 have required and will require significant company resources
and management attention.
We are subject to the
reporting requirements of federal securities laws, including the Sarbanes-Oxley Act of 2002. Among other requirements, the Sarbanes-Oxley
Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We have,
and expect to continue to, expend significant management time and resources maintaining documentation and testing internal control
over financial reporting. While management's evaluation as of June 30, 2012 resulted in the conclusion that our internal control
over financial reporting was effective as of that date, we cannot predict the outcome of testing in future periods. If we are not
able to continue to comply with the requirements of Section 404(a) in a timely manner, we could be subject to scrutiny by regulatory
authorities, such as the SEC or the NASDAQ Global Market, and the trading price of our stock could decline. Moreover, effective
internal controls are necessary for us to produce reliable financial reports and are important in helping us to prevent financial
fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.
If we are unable to hire or retain
key employees, it could have a negative impact on our business.
Our failure to attract
and retain skilled personnel could hinder the management of our business, our research and development, our sales and marketing
efforts, and our manufacturing capabilities. However, there is no assurance that we will continue to be able to hire or retain
key employees. We compete to hire new employees, and then must train them and develop their skills and competencies. Our operating
results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or
increased employee benefit costs. Any unplanned turnover could deplete our institutional knowledge base and erode our competitive
advantage.
The U.S. healthcare environment is changing in many ways,
some of which may not be favorable to us, as a result of recent federal healthcare legislation.
Our products and services
are primarily intended to function within the current structure of the healthcare industry in the United States. In recent years,
the healthcare industry has undergone significant changes designed to control costs. The use of managed care has increased; Medicare
and Medicaid reimbursement levels have declined; distributors, manufacturers, healthcare providers have consolidated; and large,
sophisticated purchasing groups have become more prevalent.
In March 2010, Congress
approved, and the President signed into law, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act (collectively the "Healthcare Reform Acts"). Among other things, the Healthcare Reform Acts seek to expand health
insurance coverage to approximately 32 million uninsured Americans. Many of the significant changes in the Healthcare Reform
Acts do not take effect until 2014, including a requirement that most Americans carry health insurance. We expect expansion of
access to health insurance to increase the demand for our products and services, but other provisions of the Healthcare Reform
Acts could affect us adversely. The Healthcare Reform Acts contain many provisions designed to generate the revenues necessary
to fund the coverage expansions and to reduce costs of Medicare and Medicaid. Beginning in 2013, each medical device manufacturer
will have to pay a tax in an amount equal to 2.3% of the price for which the manufacturer sells its medical devices. We manufacture
and sell devices that will be subject to this tax. We could be adversely affected by, among other things, changes in the delivery
or pricing of or reimbursement for medical devices.
Item 1B.
Unresolved Staff
Comments
Not applicable.
Item 2.
Properties
The Company’s
headquarters are located in St. Louis, Missouri and the Company maintains manufacturing facilities in Missouri and New York. Set
forth below is certain information with respect to the Company’s manufacturing facilities at June 30, 2012.
Location
|
|
Square Footage
(Approximate)
|
|
|
Owned/
Leased
|
|
Activities/Products
|
St. Louis, Missouri
|
|
|
242,000
|
|
|
Owned
|
|
Headquarters; medical gas equipment; respiratory care products; emergency medical products
|
Stuyvesant Falls, New York
|
|
|
30,000
|
|
|
Owned
|
|
Carbon dioxide absorbent
|
In addition, the Company
owns a 16.8-acre parcel of undeveloped land in Stuyvesant Falls, New York.
Item 3.
Legal Proceedings
On June 8, 2012, the
Company settled outstanding litigation with Armstrong Medical Limited (“Armstrong”) related to a patent held by Armstrong
concerning carbon dioxide absorbents for use in anesthesiology. The Company and Armstrong agreed to mutually dismiss the litigation
regarding the Armstrong patent. In connection with the settlement agreement, Allied received broad, perpetual license rights under
the Armstrong patent pursuant to a pre-paid license agreement. In consideration for the settlement agreement, Allied paid an aggregate
of $275,000 to Armstrong.
Product liability lawsuits
are filed against the Company from time to time for various injuries alleged to have resulted from defects in the manufacture and/or
design of the Company’s products. Any such proceedings that are currently pending are not expected to have a material adverse
effect on the Company. The Company maintains comprehensive general liability insurance coverage which it believes to be adequate
for the continued operation of its business, including coverage of product liability claims.
In addition, from time
to time the Company’s products may be subject to product recalls in order to correct design or manufacturing flaws in such
products. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking to interrupt
or suspend manufacturing or require any recall or modification of products.
However, for these
matters, management does not believe, based on currently available information, that the outcomes of these proceedings will have
a material adverse effect on the Company’s financial condition as a whole, though the outcomes could be material to the Company’s
operating results for a particular period, depending, in part, upon the operating results for such period.
Item 4.
Mine Safety Disclosures
None
PART II
Item 5.
Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Allied Healthcare Products,
Inc. trades on the NASDAQ Global Market under the symbol AHPI.
As of September 13, 2012,
there were 160 record owners of the Company’s Common Stock. The following tables summarize information
with respect
to the high and low prices for the Company’s common stock as listed on the NASDAQ Global Market for each quarter of fiscal
2012 and 2011, respectively. The Company currently does not pay, and in the most recent fiscal years has not paid, any dividend
on its common stock.
Common Stock Information
2012
|
|
High
|
|
|
Low
|
|
|
2011
|
|
High
|
|
|
Low
|
|
September quarter
|
|
$
|
4.69
|
|
|
$
|
3.31
|
|
|
September quarter
|
|
$
|
4.45
|
|
|
$
|
3.19
|
|
December quarter
|
|
$
|
3.91
|
|
|
$
|
3.08
|
|
|
December quarter
|
|
$
|
4.79
|
|
|
$
|
3.44
|
|
March quarter
|
|
$
|
3.54
|
|
|
$
|
3.10
|
|
|
March quarter
|
|
$
|
5.81
|
|
|
$
|
4.00
|
|
June quarter
|
|
$
|
3.47
|
|
|
$
|
3.03
|
|
|
June quarter
|
|
$
|
4.60
|
|
|
$
|
3.85
|
|
Information concerning
securities authorized for issuance under equity compensation plans is incorporated by reference to the Company’s proxy statement
for the 2012 annual meeting of stockholders, which will be filed within 120 days after June 30, 2012.
Item 6.
Selected Financial Data
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
43,446
|
|
|
$
|
46,783
|
|
|
$
|
46,034
|
|
|
$
|
52,073
|
|
|
$
|
56,364
|
|
Cost of sales
|
|
|
33,485
|
|
|
|
35,781
|
|
|
|
34,945
|
|
|
|
40,273
|
|
|
|
43,006
|
|
Gross profit
|
|
|
9,961
|
|
|
|
11,002
|
|
|
|
11,089
|
|
|
|
11,800
|
|
|
|
13,358
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,980
|
|
|
|
-
|
|
Selling, general and administrative expenses
|
|
|
10,611
|
|
|
|
10,594
|
|
|
|
11,872
|
|
|
|
13,042
|
|
|
|
12,085
|
|
Income (loss) from operations
|
|
|
(650
|
)
|
|
|
408
|
|
|
|
(783
|
)
|
|
|
(17,222
|
)
|
|
|
1,273
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
20
|
|
Interest income
|
|
|
(27
|
)
|
|
|
(33
|
)
|
|
|
(10
|
)
|
|
|
(60
|
)
|
|
|
(138
|
)
|
Other, net
|
|
|
48
|
|
|
|
78
|
|
|
|
117
|
|
|
|
50
|
|
|
|
60
|
|
Income (loss) before provision for
(benefit from) income taxes
|
|
|
(670
|
)
|
|
|
363
|
|
|
|
(894
|
)
|
|
|
(17,212
|
)
|
|
|
1,331
|
|
Provision for (benefit from) income taxes (1)
|
|
|
(246
|
)
|
|
|
159
|
|
|
|
(294
|
)
|
|
|
(450
|
)
|
|
|
449
|
|
Net income (loss)
|
|
$
|
(424
|
)
|
|
$
|
204
|
|
|
$
|
(600
|
)
|
|
$
|
(16,762
|
)
|
|
$
|
882
|
|
Basic earnings (loss) per share
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
$
|
(2.12
|
)
|
|
$
|
0.11
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
$
|
(2.12
|
)
|
|
$
|
0.11
|
|
Basic weighted average common shares outstanding
|
|
|
8,124
|
|
|
|
8,107
|
|
|
|
8,067
|
|
|
|
7,899
|
|
|
|
7,884
|
|
Diluted weighted average common shares outstanding
|
|
|
8,124
|
|
|
|
8,125
|
|
|
|
8,067
|
|
|
|
7,899
|
|
|
|
8,120
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
16,006
|
|
|
$
|
18,251
|
|
|
$
|
17,627
|
|
|
$
|
16,987
|
|
|
$
|
18,291
|
|
Total assets
|
|
|
31,347
|
|
|
|
31,765
|
|
|
|
32,931
|
|
|
|
33,234
|
|
|
|
52,258
|
|
Stockholders' equity
|
|
|
26,777
|
|
|
|
27,159
|
|
|
|
26,819
|
|
|
|
26,685
|
|
|
|
43,339
|
|
|
(1)
|
See Note 5 to the June 30, 2012 Financial Statements for further discussion of the Company's effective tax rate.
|
Item 7.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
Results of Operations
The Company manufactures
and markets respiratory products, including respiratory care products, medical gas equipment and emergency medical products. Set
forth below is certain information with respect to amounts and percentages of net sales attributable to respiratory care products,
medical gas equipment and emergency medical products for the fiscal years ended June 30, 2012, 2011, and 2010.
|
|
Dollars in thousands
|
|
Year ended June 30,
|
|
2012
|
|
|
|
Net
|
|
|
% of Total
|
|
|
|
Sales
|
|
|
Net Sales
|
|
Respiratory care products
|
|
$
|
10,082
|
|
|
|
23.2
|
%
|
Medical gas equipment
|
|
|
24,804
|
|
|
|
57.1
|
%
|
Emergency medical products
|
|
|
8,560
|
|
|
|
19.7
|
%
|
Total
|
|
$
|
43,446
|
|
|
|
100.0
|
%
|
|
|
Dollars in thousands
|
|
Year ended June 30,
|
|
2011
|
|
|
|
Net
|
|
|
% of Total
|
|
|
|
Sales
|
|
|
Net Sales
|
|
Respiratory care products
|
|
$
|
10,797
|
|
|
|
23.1
|
%
|
Medical gas equipment
|
|
|
24,950
|
|
|
|
53.3
|
%
|
Emergency medical products
|
|
|
11,036
|
|
|
|
23.6
|
%
|
Total
|
|
$
|
46,783
|
|
|
|
100.0
|
%
|
|
|
Dollars in thousands
|
|
|
|
2010
|
|
Year ended June 30,
|
|
Net
|
|
|
% of Total
|
|
|
|
Sales
|
|
|
Net Sales
|
|
Respiratory care products
|
|
$
|
11,143
|
|
|
|
24.2
|
%
|
Medical gas equipment
|
|
|
24,623
|
|
|
|
53.5
|
%
|
Emergency medical products
|
|
|
10,268
|
|
|
|
22.3
|
%
|
Total
|
|
$
|
46,034
|
|
|
|
100.0
|
%
|
The following table sets forth, for the
fiscal periods indicated, the percentage of net sales represented by the various income and expense categories reflected in the
Company’s Statement of Operations.
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
77.1
|
|
|
|
76.5
|
|
|
|
75.9
|
|
Gross profit
|
|
|
22.9
|
|
|
|
23.5
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
24.4
|
|
|
|
22.6
|
|
|
|
25.8
|
|
Income (loss) from operations
|
|
|
(1.5
|
)
|
|
|
0.9
|
|
|
|
(1.7
|
)
|
Other, net
|
|
|
0.0
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Income (loss) before provision for (benefit from) income taxes
|
|
|
(1.5
|
)
|
|
|
0.7
|
|
|
|
(1.9
|
)
|
Provision for (benefit from) income taxes
|
|
|
(0.5
|
)
|
|
|
0.3
|
|
|
|
(0.6
|
)
|
Net income (loss)
|
|
|
(1.0
|
)%
|
|
|
0.4
|
%
|
|
|
(1.3
|
)%
|
Critical Accounting Policies
In preparing financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The Company evaluates estimates and judgments on an ongoing basis, including those related
to bad debts, inventory valuations, property, plant and equipment, intangible assets, income taxes, and contingencies and litigation.
Estimates and judgments are based on historical experience and on various other factors that may be reasonable under the circumstances.
Actual results may differ from these estimates. The following areas are considered to be the Company’s most significant accounting
policies:
Revenue recognition:
Revenue is recognized
for all sales, including sales to agents and distributors, at the time products are shipped and title has transferred, provided
that a purchase order has been received or a contract executed, there are not uncertainties regarding customer acceptance, the
sales price is fixed and determinable and collectability is reasonably assured. Sales discounts, returns and allowances are included
in net sales, and the provision for doubtful accounts is included in selling, general and administrative expenses. Additionally,
it is the Company’s practice to include revenues generated from freight billed to customers in net sales with corresponding
freight expense included in cost of sales in the Statement of Operations.
The Company reports
sales taxes on sales
transactions on a net basis in the Statement of Operations, and therefore
does not include sales taxes in revenues or costs.
The sales price is
fixed by the Company’s acceptance of the buyer’s firm purchase order. The sales price is not contingent, or subject
to additional discounts. The Company’s standard shipment terms are “F.O.B. shipping point” as stated in the Company’s
Terms and Conditions of Sale. The customer is responsible for obtaining insurance for and bears the risk of loss for product in-transit.
Additionally, sales to customers do not include the right to return merchandise without the prior consent of the Company. In those
cases where returns are accepted, product must be current and restocking fees must be paid by the respective customer. A provision
has been made for estimated sales returns and allowances. These estimates are based on historical analysis of credit memo data
and returns.
The Company does not
provide installation services for its products. Most products shipped are ready for immediate use by the customer. The Company’s
in-wall medical system components, central station pumps and compressors, and headwalls do require installation by the customer.
These products are typically purchased by a third-party contractor who is ultimately responsible for installation services. Accordingly,
the customer purchase order or contract does not require customer acceptance of the installation prior to completion of the sale
transaction and revenue recognition. The Company’s standard payment terms are net 30 days from the date of shipment, and
payment is specifically not subject to customer inspection or acceptance, as stated in the Company’s Terms and Conditions
of Sale. The buyer becomes obligated to pay the Company at the time of shipment. The Company requires credit applications from
its customers and performs credit reviews to determine the creditworthiness of new customers. The Company requires letters of credit,
where warranted, for international transactions. The Company also protects its legal rights under mechanics lien laws when selling
to contractors.
The Company does offer
limited warranties on its products. The standard warranty period is one year. The Company’s cost of providing
warranty service for its products for the years ended June 30, 2012, June 30, 2011, and June 30, 2010 was $152,625, $125,369, and
$135,032, respectively. The related liability for warranty service amounted to $139,906 and $83,380 at June 30, 2012 and
2011, respectively.
Inventory reserve for obsolete and excess
inventory:
Inventory is recorded
net of a reserve for obsolete and excess inventory which is determined based on an analysis of inventory items with no usage in
the preceding year and for inventory items for which there is greater than two years’ usage on hand. This analysis considers
those identified inventory items to determine, in management’s best estimate, if parts can be used beyond one year, if there
are alternate uses or at what values such parts may be disposed for. At June 30, 2012 and 2011, inventory is recorded net of a
reserve for obsolete and excess inventory of $1.3 million and $1.4 million, respectively.
Income taxes:
The Company accounts
for income taxes under the FASB Accounting Standards Codification (“ASC”) Topic 740: “Income Taxes.” Under
ASC 740, the deferred tax provision is determined using the liability method, whereby deferred tax assets and liabilities are recognized
based upon temporary differences between the financial statement and income tax bases of assets and liabilities using presently
enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to
be realized. Management uses a more likely than not criterion in its assessment and
considers all available
evidence, both positive and negative, in determining whether, based on the weight of that evidence, a valuation allowance for deferred
tax assets is needed.
In assessing the need for a valuation allowance the Company first considers the reversals of existing
temporary deferred tax liabilities and available tax planning strategies. To the extent these items are not sufficient to
cause the realization of deferred tax assets, the Company would then consider the availability of future taxable income to the
extent such income is considered likely to occur based on the Company’s earnings history, current income trends and projections.
Accounts receivable net of allowances:
Accounts receivable
are recorded net of an allowance for doubtful accounts, which is determined based on an analysis of past due accounts including
accounts placed with collection agencies, and an allowance for returns and credits, which is based on historical analysis of credit
memo data and returns. The Company maintains an allowance for doubtful accounts to reflect the uncollectibility of accounts receivable
based on past collection history and specific risks indentified among uncollected accounts. Accounts receivable are charged to
the allowance for doubtful accounts when the Company determines that the receivable will not be collected and/or when the account
has been referred to a third party collection agency. At June 30, 2012 and 2011, accounts receivable is recorded net of allowances
of $300,000.
Valuation of Long-Lived Assets:
The impairment of tangible
and intangible assets is assessed when changes in circumstances (such as, but not limited to, a decrease in market value of an
asset, current and historical operating losses or a change in business strategy) indicate that their carrying value may not be
recoverable. This assessment is based on management’s expectations and judgments regarding future business and economic conditions,
future market values and disposal costs. Actual results and events could differ significantly from management’s estimates.
Based upon our most recent analysis, we believe that no impairment exists at June 30, 2012. There can be no assurance that future
impairment tests will not result in a charge to net earnings (loss).
Self-insurance:
The Company maintains
a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred but not reported. As of June 30, 2012 and 2011, the
Company had approximately $190,000 and $229,000, respectively, of accrued liabilities related to health care claims. In order to
establish the self-insurance reserves, the Company utilized actuarial estimates of expected claims based on analyses of historical
data.
Share Based Compensation:
Allied calculates share
based compensation using the Black-Sholes-Merton (“Black-Scholes”) option-pricing model, which requires the input of
highly subjective assumptions including the expected stock price volatility. For the twelve-month periods ended June 30, 2012,
2011, and 2010, Allied recorded approximately $44,000, $20,000 and $648,000, respectively, in share-based employee compensation.
This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying Statements
of Operations.
Significant Factors Affecting Past and
Future Operating Results
Agreement with Abbott Laboratories:
On August 27, 2004,
the Company entered into an agreement with Abbott Laboratories (“Abbott”) pursuant to which Allied agreed to cease
production of its product Baralyme®, and to effect the withdrawal of Baralyme® product held by distributors. The agreement
permits Allied to pursue the development of a new carbon dioxide absorbent product. Baralyme®, 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® in conjunction with
these newer inhalation anesthetics if Baralyme® has been allowed, contrary to recommended 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® 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 agreed to pay Allied an aggregate of $5,250,000 of which $1,530,000 was paid on September 30, 2004 and the
remainder payable in four equal annual installments of $930,000 due on July 1, 2005 through July 1, 2008. The last installment
due on July 1, 2008 was received by Allied on June 19, 2008.
The payments received
from Abbott are being recognized into income, as net sales, over the eight-year term of the agreement. Allied has no further obligations
under this agreement which would require the Company to repay these amounts or otherwise impact this accounting treatment. During
the fiscal years ended June 30, 2012, 2011, and 2010, $688,200 was recognized into income as net sales in each year.
A reconciliation of
deferred revenue resulting from the agreement with Abbott, with the amounts received under the agreement, and amounts recognized
as net sales for fiscal years 2012 and 2011 is as follows:
|
|
Twelve Months ended
|
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
802,900
|
|
|
$
|
1,491,100
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized as net sales
|
|
|
(688,200
|
)
|
|
|
(688,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
114,700
|
|
|
|
802,900
|
|
Less - Current portion of deferred revenue
|
|
|
(114,700
|
)
|
|
|
(688,200
|
)
|
|
|
$
|
0
|
|
|
$
|
114,700
|
|
In 2004, Allied’s
sales of Baralyme® were approximately $2.0 million and contributed approximately $0.6 million in pre-tax earnings and cash
flow from operations. The majority of the $5,250,000 Allied has received from Abbott will be recognized into income over the eight-year
term of the agreement. The net cash flow realized by Allied under the agreement with Abbott is substantially equivalent to the
net cash flow Allied would have expected to realize from continued manufacture and sales of Baralyme® during the initial five
years of the period. As discussed below, the agreement with Abbott expired in August 2012 and the Company will not recognize further
income from the agreement after such expiration. In 2013 there will be $573,500 less income recognized than in 2012 and in 2014
there will be $688,200 less income recognized than in 2012.
Medical Devices:
Beginning January 1,
2013, the Healthcare Reform Acts will impose a tax to be paid by medical device manufacturers equal to 2.3% of the sale price of
medical devices. We believe that many of our products will be subject to this tax based on proposed rules. At this time we cannot
predict what amount of this additional cost, if any, we will be able to pass on to our customers.
Fiscal 2012 Compared to Fiscal 2011
The Company had a loss
of $0.7 million before taxes for fiscal 2012, compared to income of $0.4 million before taxes for fiscal 2011. The Company recorded
an income tax benefit of $0.2 million in fiscal 2012, compared to an income tax provision of $0.2 million in fiscal 2011.
For further discussion
of the Company’s income tax calculation please refer to Note 5 of the “Notes to Financial Statements” included
in this Form 10-K.
Net
sales for fiscal 2012 of $43.4 million were $3.4 million or 7.3% less than net sales of $46.8 million in fiscal 2011. Domestically,
sales decreased by $3.8 million dollars. Internationally, sales increased by $0.4 million. International business is dependent
upon hospital construction projects, and the development of medical facilities in those regions in which the Company operates.
Domestic sales for fiscal 2012 include approximately $0.7 million for the recognition into sales of payments resulting
from the agreement with Abbott, as discussed below. For 2011, domestic sales included approximately $0.7 million for the recognition
into sales of payments resulting from the agreement with Abbott as well.
The Company continues
to believe that the purchase of equipment and durable goods and the purchase of equipment by hospitals and municipalities have
been cut to meet budgets and conserve cash. In addition, the Company believes that uncertainties surrounding the implementation
of comprehensive healthcare legislation has had some negative impact on sales. Orders for the Company’s products for the
year ended June 30, 2012 of $41.5 million were $3.3 million or 7.4% lower than orders for the year ended June 30, 2011 of $44.8
million. Customer purchase order releases for the year ended June 30, 2012 of $41.1 million were $3.9 million or 8.7% lower than
customer purchase order releases of $45.0 million from the prior fiscal year.
Respiratory care product
sales, which include homecare products in 2012 were $10.1 million, which is $0.7 million, or 6.5% lower than sales of $10.8 million
in the prior year As in 2011, sales for the year ended June 30, 2012 included $0.7 million for the recognition into sales of payments
resulting from the agreement with Abbott Laboratories to cease production and distribution of Baralyme®. The agreement with
Abbott Laboratories expired in August of 2012, therefore for fiscal year 2013 a total of only $0.1 million will be recognized
into sales as a result of the agreement with Abbott Laboratories.
Allied continues to
sell Carbolime®, a carbon dioxide absorbent with a different formulation than Baralyme®, as well as Litholyme®, a
new premium carbon dioxide absorbent. For the year ended June 30, 2012 the Company had carbon dioxide absorbent sales of Carbolime®
and Litholyme® of $1.7 million dollars, compared with $1.7 million for the year ended June 30, 2011.
Medical gas equipment
sales, which include construction products, of $24.8 million in fiscal 2012 were approximately $0.2 million, or 0.8% lower than
prior year levels of $25.0 million. Internationally, sales of medical gas equipment in fiscal 2012 were approximately $1.0 million
higher than in the prior year. Domestically, sales of medical gas equipment in fiscal 2012 were $1.2 million lower than in the
prior year. The Company believes that the timing of orders by distributors between years contributed to this decrease in sales.
In addition, prior year sales included significant sales from large hospital projects which did not repeat in 2012.
Emergency medical
product sales in fiscal 2012 of $8.6 million were $2.4 million or 21.8% lower than fiscal 2011 sales of $11.0 million. International
sales of emergency medical products decreased by $0.6 million from the prior year while domestic sales decreased by $1.9 million.
The Company believes that the decrease in domestic emergency sales is primarily the result of a drop in federal government demand
from prior year levels. Government demand fluctuates from year to year and the Company believes that drop is not indicative of
a decrease in market share. The Company also believes that domestic demand for these products, which are normally largely consumed
by local agencies, continues to be impacted by economic conditions as states and municipalities continued to struggle with decreased
tax revenues.
International sales,
which are included in the product lines discussed above, increased $0.5 million, or 5.5%, to $9.6 million in fiscal 2012 compared
to sales of $9.1 million in fiscal 2011. As discussed above, the Company’s international shipments are dependent on hospital
construction projects and the expansion of medical care in those regions. In fiscal 2012, international shipments of medical gas
equipment, including construction products, increased by $1.0 million dollars, and sales of respiratory care products increased
by approximately $0.1 million. These increases were partially offset by a $0.6 million decrease in the sale of emergency products.
The Company believes that international sales continue to be negatively impacted by worldwide business conditions. However, the
Company has reorganized its international sales force and now believes it has improved its ability to take advantage of international
opportunities.
Gross profit in fiscal
2012 was $10.0 million, or 22.9% of sales, compared to a gross profit of $11.0 million, or 23.5% of sales in fiscal 2011. Gross
profit was negatively impacted by the decrease in sales and production during the period. Lower sales and production result in
lower utilization of fixed overhead expenses. Gross profit during this period was favorably impacted compared to the prior year
by an approximately $0.3 million decrease in direct startup cost the Company incurred at its Stuyvesant Falls facility in 2012
and 2011. During 2011 gross profit was negatively impacted by approximately $0.7 million in shipping, additional product cost,
and other startup cost the Company incurred at its Stuyvesant Falls facility for the production of its carbon dioxide
absorbent
product lines. The Company believes that the production issues and the resulting cost at the Stuyvesant Falls facility to meet
current levels of demand for carbon dioxide
absorbent products are now complete. Higher commodity prices have led to
higher costs for certain raw materials including brass and plastic resins during 2012. These higher costs for raw materials have
been largely offset by cost reductions on other purchased components, and cost improvement programs in our principal manufacturing
facility in St. Louis. The Company continues to review the cost of production and seek opportunities to lower those costs.
The Company invested
$2.2 million in capital expenditures in fiscal 2012 compared to $0.3 million in fiscal 2011 for manufacturing equipment, plant
maintenance, and computer systems, which continue to decrease production costs and improve efficiencies for several product lines.
The Company continues to control cost and actively pursue methods to reduce its costs through automation and process changes.
Selling,
General, and Administrative (“SG&A”) expenses for fiscal 2012 were unchanged from fiscal 2011 at $10.6 million.
Sales commissions decreased by approximately $0.3 million as a result to changes in commission plans, lower sales levels, and
open positions due to attrition. This cost decreases were partially offset by a $0.2 million increase in legal expense due to
now completed legal proceedings with Armstrong Medical, and a $0.1 million increase in Research and Development direct charges.
Interest income in
fiscal 2012 was approximately $27,000 compared to interest income of $33,000 in fiscal 2011.
Net loss in fiscal
2012 was $0.4 million or $0.05 per basic and diluted earnings per share, down from a net income of $0.2 million, or $0.03 per
basic and diluted earnings per share in fiscal 2011. In 2012, the weighted number of shares used in the calculation of basic earnings
per share was 8,124,386, and the number of shares used in diluted earnings per share was 8,124,386. In 2011, the weighted number
of shares used in the calculation of basic earnings per share was 8,107,313, and the number of shares used in diluted earnings
per share was 8,124,957.
Fiscal 2011 Compared to Fiscal 2010
The Company had income
of $0.4 million before taxes for fiscal 2011, compared to a loss of $0.9 million before taxes for fiscal 2010. The Company recorded
an income tax provision of $0.2 million in fiscal 2011, compared to an income tax benefit of $0.3 million in fiscal 2010.
For further discussion
of the Company’s income tax calculation please refer to Note 5 of the “Notes to Financial Statements” included
in this Form 10-K.
Net
sales for fiscal 2011 of $46.8 million were $0.8 million or 1.7% more than net sales of $46.0 million in fiscal 2010. Domestically,
sales increased by $0.3 million dollars. Internationally, sales increased by $0.5 million. International business is dependent
upon hospital construction projects, and the development of medical facilities in those regions in which the Company operates.
Domestic sales for fiscal 2011 include approximately $0.7 million for the recognition into sales of payments resulting
from
the agreement with Abbott Laboratories, as discussed below. For 2010, domestic sales included approximately $0.7 million for the
recognition into sales of payments resulting from the agreement with Abbott Laboratories, as well.
The Company believes
that it saw only limited improvement in demand in 2011 following the decreases seen in net sales resulting from the worldwide recession
beginning in 2009. By and large, the Company’s products are considered durable goods. The Company continues to believe that
the purchase of equipment and durable goods and the purchase of equipment by hospitals and municipalities have been cut to meet
budgets and conserve cash. Orders for the Company’s products for the year ended June 30, 2011 of $44.8 million were $0.1
million or 0.2% lower than orders for the year ended June 30, 2010 of $44.9 million. Customer purchase order releases for the year
ended June 30, 2011 of $45.0 million were $1.0 million or 2.3% higher than customer purchase order releases of $44.0 million from
the prior fiscal year.
As in 2010, sales for
the year ended June 30, 2011 included $0.7 million for the recognition into sales of payments resulting from the agreement with
Abbott Laboratories to cease production and distribution of Baralyme®.
Allied continues to
sell Carbolime®, a carbon dioxide absorbent with a different formulation than Baralyme®. For the year ended June 30, 2011
the Company had carbon dioxide absorbent sales of Carbolime® of $1.6 million dollars, compared with $1.7 million for the year
ended June 30, 2010. Allied has introduced a new premium carbon dioxide absorbent, Litholyme®, with a new formulation. Sales
of Litholyme for 2011 were approximately $0.1 million. There were no sales of Litholyme® for the year ended June 30, 2010.
Respiratory care products
sales in fiscal 2011 of $10.8 million were $0.3 million, or 2.7% lower than sales of $11.1 million in the prior year. Included
in the sales for respiratory care products is approximately $0.7 million in sales revenue recognized resulting from the agreement
to cease the production and distribution of Baralyme®, the same amount as in the prior year.
Medical gas equipment
sales, which include construction products, of $25.0 million in fiscal 2011 were approximately $0.4 million, or 1.6% higher than
prior year levels of $24.6 million. Internationally, sales of medical gas equipment in fiscal 2011 were approximately $0.5 million
higher than in the prior year. Domestically, sales of medical gas equipment in fiscal 2011 were $0.2 million lower than in the
prior year.
Emergency medical product
sales in fiscal 2011 of $11.0 million were $0.7 million or 6.8% higher than fiscal 2010 sales of $10.3 million. International sales
of emergency medical products increased by $0.1 million from the prior year while domestic sales increased by $0.6 million. These
sales levels reflect higher orders for the Company’s Emergency Products. The Company believes that demand for these products,
which are largely consumed by local agencies, continues to be impacted by economic conditions as states and municipalities continued
to struggle with decreased tax revenues.
International sales,
which are included in the product lines discussed above, increased $0.5 million, or 5.8%, to $9.1 million in fiscal 2011 compared
to sales of $8.6 million in fiscal 2010. As discussed above, the Company’s international shipments are dependent on hospital
construction projects and the expansion of medical care in those regions. In fiscal 2011, international shipments of medical gas
equipment, including construction products, increased by $0.5 million dollars, and sales of emergency products increased by approximately
$0.1 million. These increases were partially offset by a $0.2 million decrease in the sale of respiratory care products. The Company
believes that international sales continue to be negatively impacted by worldwide business conditions. The Company has reorganized
its international sales force to better take advantage of opportunities going forward.
Gross profit in fiscal
2011 was $11.0 million, or 23.5% of sales, compared to a gross profit of $11.1 million, or 24.1% of sales in fiscal 2010. Gross
profit during this period was negatively impacted by approximately $0.7 million in shipping, additional product cost, and other
startup cost the Company incurred at its Stuyvesant Falls facility for the production of its carbon dioxide
absorbent
product lines, primarily in the first two quarters. Gross profit was favorably impacted by an approximately $0.4 million decrease
in fringe benefits including medical expenses for manufacturing department employees. 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. Higher commodity prices have
led to higher costs for certain raw materials including brass and plastic resins during 2011. These higher costs for raw materials
have been offset by cost reductions on other purchased components, and increased revenue for recycled materials, and cost improvement
programs in our principal manufacturing facility in St. Louis. The Company continues to review the cost of production and seek
opportunities to lower those costs.
The Company invested
$0.3 million in capital expenditures in fiscal 2011, $0.3 million in fiscal 2010, and $1.5 million in fiscal 2009 for manufacturing
equipment and computer systems, which continue to decrease production costs and improve efficiencies for several product lines.
The Company continues to control cost and actively pursue methods to reduce its costs through automation, and process changes.
Selling,
General, and Administrative (“SG&A”) expenses for fiscal 2011 were $10.6 million, compared to SG&A expenses
of $11.9 million in fiscal 2010. Stock option expense decreased from $0.6 million in 2010 to $20,000 in 2011. During 2010 stock
option expense included approximately $0.6 million due to the grant of immediately vested stock options to the Company’s
President and CEO. The Company reduced expenses in other areas of SG&A as well. Fringe benefits decreased by approximately
$0.2 million primarily as a result of lower medical claims. The Company has not made changes to its medical benefits for employees.
Sales commissions and salaries decreased by approximately $0.3 million as a result to changes in commission plans and open positions
due to attrition. In addition, the Company reduced spending for outside consultants and services by approximately $0.3 million
as several marketing initiatives were completed during 2010. These cost decreases were partially offset by a $0.2 million increase
in legal expense.
Interest income in
fiscal 2011 was $30,000 compared to interest income of $10,000 in fiscal 2010 due to higher average cash balances.
Net income in fiscal
2011 was $0.2 million or $0.03 per basic and diluted earnings per share, up from a net loss of $0.6 million, or $0.07 loss per
basic and diluted earnings per share in fiscal 2010. In 2011, the weighted number of shares used in the calculation of basic earnings
per share was 8,107,313, and the number of shares used in diluted earnings per share was 8,124,957. In 2010, the weighted number
of shares used in the calculation of basic and diluted earnings per share was 8,066,740.
Financial Condition, Liquidity and
Capital Resources
The following table
sets forth selected information concerning Allied's financial condition at June 30:
Dollars in thousands
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cash & cash equivalents
|
|
$
|
5,285
|
|
|
$
|
6,513
|
|
|
$
|
5,263
|
|
Working Capital
|
|
$
|
16,006
|
|
|
$
|
18,251
|
|
|
$
|
17,627
|
|
Total Debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current Ratio
|
|
|
4.50:1
|
|
|
|
5.06:1
|
|
|
|
4.32:1
|
|
The Company’s
working capital was $16.0 million at June 30, 2012 compared to $18.3 million at June 30, 2011. Deferred Revenue decreased approximately
$0.7 million as the result of recognition of income of amortization of Deferred Revenue from the Abbott agreement, and Other Current
Assets increased by approximately $0.2 million. During fiscal 2012, these increases in working capital were offset by a $1.2 million
decrease in Cash, $0.6 million decrease in Inventory, and a $0.5 million decrease in Accounts Receivable. Inventory and Accounts
Receivable declined primarily due to the decrease in Sales. The Company does adjust product forecast, order quantities and safety
stock based on changes in demand patterns. Accounts Receivable was $4.8 million at June 30, 2012, a decrease from $5.4 million
at June 30, 2011. Accounts Receivable as measured in days sales outstanding (“DSO”) is 44 DSO, up slightly from 43
DSO at June, 30, 2011. In addition, Accounts Payable increased by $0.2 million from the timing of payments between years, the current
portion of Deferred Income Tax liabilities increased by $0.3 million, and Accrued Liabilities increased by $0.2 million.
The net decrease in
Cash for the fiscal year ended June 30, 2012 was $1.2 million. The net increase in Cash for the fiscal year ended June 30, 2011
was $1.2 million. Cash flows provided by operating activities was $1.0 million for fiscal 2012 compared to cash flows provided
by operating activities of $1.5 million for fiscal 2011. This decrease in Cash provided by operating activities includes a $0.6
million decrease in net income, a decrease in income tax refunds of approximately $0.7 million, and a $0.3 million increase in
Other Assets due to the addition of a prepaid license. These decreases were offset by increases in cash provided by Accounts Receivable
of approximately $0.5 million due to lower sales, and a increase in cash provided by Accounts Payable of $0.5 million. The change
in Accounts Payable is primarily the result of the timing of payments between the two years as the Company did not change its payment
terms or policies.
Cash flows provided
by operating activities for the fiscal year ended June 30, 2011 consisted of net income of $0.2 million, supplemented by $1.4 million
in non-cash charges to operations for amortization and depreciation. The decrease in Cash from operations in fiscal 2011 from the
prior year is primarily the result of smaller decreases in Inventory than in fiscal 2010 and a decrease in Accounts Payable and
Accrued Liabilities in fiscal 2011. Cash was used to make capital expenditures of $2.2 million in fiscal 2012 and $0.3 million
in 2011. In 2012, the Company made capital expenditures of approximately $1.2 million to introduce new carbon dioxide products
and further develop capacity for the production of carbon dioxide absorbent products. In addition, the Company made capital expenditures
of approximately $0.3 million dollars for other new products. Additional capital expenditures were made to improve efficiency and
save costs.
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 11, 2011 extending the maturity date to November 13, 2012. The Credit Facility will be available on a revolving
basis until it expires on November 13, 2012, 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 3.50% in excess of LIBOR. Advances may be prepaid in whole
or in part without premium or penalty.
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 LIBOR rate was
0.46% on June 30, 2012.
At June 30, 2012 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 June 30, 2012.
The following table
summarizes the Company’s contractual obligations at June 30, 2012:
|
Payments due by period
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
5 years
|
|
Long-Term Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Capital Lease Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating Leases
|
|
$
|
320,043
|
|
|
$
|
154,563
|
|
|
$
|
164,890
|
|
|
$
|
590
|
|
|
|
-
|
|
Unconditional Purchase Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other Long-Term Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Contractual Cash Obligations
|
|
$
|
320,043
|
|
|
$
|
154,563
|
|
|
$
|
164,890
|
|
|
$
|
590
|
|
|
$
|
-
|
|
Capital expenditures
were $2.2 million, $0.3 million and $0.3 million in fiscal 2012, 2011, and 2010, respectively. In 2012, the Company made capital
expenditures of approximately $1.2 million to introduce new carbon dioxide absorbent products and further develop capacity for
the production of carbon dioxide absorbent products. In addition, the Company made capital expenditures of approximately $0.3 million
dollars for other new products. Additional capital expenditures were made to improve efficiency and save costs. The Company believes
that cash flows from operations and available borrowings under its credit facilities will be sufficient to finance fixed payments
and planned capital expenditures of $1.5 million in 2013.
Cash flows from operations
may be negatively impacted by decreases in sales, market conditions, and adverse changes in working capital. In the event that
economic conditions were to severely worsen for a protracted period of time, we believe that we will be able to negotiate an amendment
and waiver to our existing credit facility or procure a replacement credit facility, and our borrowing capacity under those arrangements
will provide sufficient financial flexibility. The Company would have options available to ensure liquidity in addition to increased
borrowing. Capital expenditures, which are budgeted at $1.5 million for the fiscal year ended June 30, 2013, could be postponed.
At June 30, 2012, the Company had no bank debt.
The Company’s
credit facility will be available until it expires on November 13, 2012. Based on discussions with the Bank, the Company believes
it will be able to negotiate an amendment with the Bank extending the term of the credit facility.
Inflation has not had
a material effect on the Company's business or results of operations. The Company makes its foreign sales in U.S. dollars and,
accordingly, sales proceeds are not affected by exchange rate fluctuations, although the effect on its customers does impact the
pace of incoming orders
.
Seasonality and Quarterly Results
In recent years the
Company has not been affected by seasonality, however, in past fiscal years, the Company has experienced moderate seasonal increases
in net sales during its second and third fiscal quarters (October 1 through March 31) which in turn have affected net income. Such
seasonal variations were likely attributable to an increase in hospital equipment purchases at the beginning of each calendar year
(which coincides with many hospitals’ fiscal years) and an increase in the severity of influenza during winter months.
The following table
sets forth selected operating results for the eight quarters ended June 30, 2012. The information for each of these quarters is
unaudited, but includes all normal recurring adjustments which the Company considers necessary for a fair presentation thereof.
These operating results, however, are not necessarily indicative of results for any future period. Further, operating results may
fluctuate as a result of the timing of orders, the Company’s product and customer mix, the introduction of new products by
the Company and its competitors, and overall trends in the health care industry and the economy. While these patterns have an impact
on the Company’s quarterly operations, the Company is unable to predict the extent of this impact in any particular period.
Dollars in thousands, except per share
data
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
Three months ended,
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
Net sales
|
|
$
|
10,667
|
|
|
$
|
10,702
|
|
|
$
|
10,681
|
|
|
$
|
11,395
|
|
|
$
|
12,102
|
|
|
$
|
11,338
|
|
|
$
|
11,403
|
|
|
$
|
11,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,495
|
|
|
|
2,325
|
|
|
|
2,735
|
|
|
|
2,406
|
|
|
|
3,034
|
|
|
|
2,608
|
|
|
|
2,810
|
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(232
|
)
|
|
|
(231
|
)
|
|
|
41
|
|
|
|
(228
|
)
|
|
|
220
|
|
|
|
114
|
|
|
|
209
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(156
|
)
|
|
|
(146
|
)
|
|
|
23
|
|
|
|
(145
|
)
|
|
|
115
|
|
|
|
60
|
|
|
|
117
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
Earnings per share
is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily
equal the total for the year.
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 such claims over its self-insured retention will be covered by the Company’s
product liability insurance.
Off Balance Sheet Arrangements
The
Company does not have any off balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Item 8, Note 2
“Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements and their impact
on the Company’s financial statements, if any.
Item
7A.
Quantitative and Qualitative Disclosures about Market Risk
At
June 30, 2012, 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 June 30, 2012. Allied has international sales; however
these sales are denominated in U.S. dollars, mitigating foreign exchange rate fluctuation risk.
Item 8.
Financial Statements and
Supplementary Data
The following described
financial statements of Allied Healthcare Products, Inc. are included in response to this item:
Report of Independent
Registered Public Accounting Firm.
Statement of Operations for the
fiscal years ended June 30, 2012, 2011 and 2010.
Balance Sheet for the fiscal
years ended June 30, 2012 and 2011.
Statement of Changes in Stockholders’
Equity for the fiscal years ended June 30, 2012, 2011 and 2010.
Statement of Cash Flows for the
fiscal years ended June 30, 2012, 2011 and 2010.
Notes to Financial Statements.
Schedule of Valuation and Qualifying
Accounts and Reserves for the years ended June 30, 2012, 2011 and 2010.
All other schedules are omitted
because they are not applicable or the required information is shown in the financial statements or notes thereto.
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Stockholders
Allied Healthcare Products, Inc.
We have audited the
accompanying balance sheet of Allied Healthcare Products, Inc. (the Company) as of June 30, 2012 and 2011, and the related
statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended
June 30, 2012. In connection with our audit of the financial statements, we also have audited the related financial statement schedule
of valuation and qualifying accounts and reserves for the years ended June 30, 2012, 2011 and 2010. These financial statements
and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of Allied Healthcare Products,
Inc. as of June 30, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the
period ended June 30, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the related financial statement schedule referred to above, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ RubinBrown LLP
St.
Louis, Missouri
September 28, 2012
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF OPERATIONS
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
43,445,621
|
|
|
$
|
46,783,436
|
|
|
$
|
46,034,248
|
|
Cost of sales
|
|
|
33,484,512
|
|
|
|
35,780,657
|
|
|
|
34,944,714
|
|
Gross profit
|
|
|
9,961,109
|
|
|
|
11,002,779
|
|
|
|
11,089,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
10,610,858
|
|
|
|
10,593,869
|
|
|
|
11,871,758
|
|
Income (loss) from operations
|
|
|
(649,749
|
)
|
|
|
408,910
|
|
|
|
(782,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(27,368
|
)
|
|
|
(32,733
|
)
|
|
|
(10,168
|
)
|
Interest expense
|
|
|
336
|
|
|
|
66
|
|
|
|
4,269
|
|
Other, net
|
|
|
47,629
|
|
|
|
78,150
|
|
|
|
117,189
|
|
|
|
|
20,597
|
|
|
|
45,483
|
|
|
|
111,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for (benefit from) income taxes
|
|
|
(670,346
|
)
|
|
|
363,427
|
|
|
|
(893,514
|
)
|
Provision for (benefit from) income taxes
|
|
|
(245,920
|
)
|
|
|
159,019
|
|
|
|
(293,941
|
)
|
Net income (loss)
|
|
$
|
(424,426
|
)
|
|
$
|
204,408
|
|
|
$
|
(599,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
Diluted income (loss) per share:
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
Weighted average shares outstanding – Basic
|
|
|
8,124,386
|
|
|
|
8,107,313
|
|
|
|
8,066,740
|
|
Weighted average shares outstanding – Diluted
|
|
|
8,124,386
|
|
|
|
8,124,957
|
|
|
|
8,066,740
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,284,543
|
|
|
$
|
6,512,887
|
|
Accounts receivable, net of allowances of $300,000
|
|
|
4,843,593
|
|
|
|
5,366,860
|
|
Inventories, net
|
|
|
10,001,226
|
|
|
|
10,553,289
|
|
Income tax receivable
|
|
|
46,042
|
|
|
|
95,578
|
|
Other current assets
|
|
|
400,677
|
|
|
|
213,745
|
|
Total current assets
|
|
|
20,576,081
|
|
|
|
22,742,359
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
9,603,556
|
|
|
|
8,660,507
|
|
Other assets, net
|
|
|
1,167,432
|
|
|
|
362,480
|
|
Total assets
|
|
$
|
31,347,069
|
|
|
$
|
31,765,346
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,797,144
|
|
|
$
|
1,644,910
|
|
Other accrued liabilities
|
|
|
1,855,579
|
|
|
|
1,645,552
|
|
Deferred income taxes
|
|
|
802,961
|
|
|
|
512,572
|
|
Deferred revenue
|
|
|
114,700
|
|
|
|
688,200
|
|
Total current liabilities
|
|
|
4,570,384
|
|
|
|
4,491,234
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
-
|
|
|
|
114,700
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 4 and 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Series A preferred stock; $0.01 par value; 200,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock; $0.01 par value; 30,000,000 shares authorized; 10,427,878 shares issued at June 30, 2012 and June 30, 2011; 8,124,386 shares outstanding at June 30, 2012 and June 30, 2011
|
|
|
104,279
|
|
|
|
104,279
|
|
Additional paid-in capital
|
|
|
48,540,802
|
|
|
|
48,499,103
|
|
Accumulated deficit
|
|
|
(1,136,968
|
)
|
|
|
(712,542
|
)
|
Less: treasury stock, at cost; 2,303,492 shares at
|
|
|
|
|
|
|
|
|
June 30, 2012 and 2011
|
|
|
(20,731,428
|
)
|
|
|
(20,731,428
|
)
|
Total stockholders' equity
|
|
|
26,776,685
|
|
|
|
27,159,412
|
|
Total liabilities and stockholders' equity
|
|
$
|
31,347,069
|
|
|
$
|
31,765,346
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
Balance, July 1, 2009
|
|
$
|
102,048
|
|
|
$
|
47,632,049
|
|
|
$
|
(317,377
|
)
|
|
$
|
(20,731,428
|
)
|
|
$
|
26,685,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
1,921
|
|
|
|
82,947
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
647,926
|
|
|
|
-
|
|
|
|
-
|
|
|
|
647,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended June 30, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
(599,573
|
)
|
|
|
-
|
|
|
|
(599,573
|
)
|
Balance, June 30, 2010
|
|
|
103,969
|
|
|
|
48,362,922
|
|
|
|
(916,950
|
)
|
|
|
(20,731,428
|
)
|
|
|
26,818,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
310
|
|
|
|
115,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
20,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year ended
June 30, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
204,408
|
|
|
|
-
|
|
|
|
204,408
|
|
Balance, June 30, 2011
|
|
|
104,279
|
|
|
|
48,499,103
|
|
|
|
(712,542
|
)
|
|
|
(20,731,428
|
)
|
|
|
27,159,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
41,699
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended June
30, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
(424,426
|
)
|
|
|
-
|
|
|
|
(424,426
|
)
|
Balance, June 30, 2012
|
|
$
|
104,279
|
|
|
$
|
48,540,802
|
|
|
$
|
(1,136,968
|
)
|
|
$
|
(20,731,428
|
)
|
|
$
|
26,776,685
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CASH FLOWS
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(424,426
|
)
|
|
$
|
204,408
|
|
|
$
|
(599,573
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,283,349
|
|
|
|
1,361,684
|
|
|
|
1,364,923
|
|
Stock based compensation
|
|
|
44,179
|
|
|
|
20,261
|
|
|
|
647,926
|
|
Provision for doubtful accounts and sales returns and allowances
|
|
|
27,025
|
|
|
|
20,863
|
|
|
|
1,655
|
|
Deferred tax provision (benefit)
|
|
|
(257,501
|
)
|
|
|
41,232
|
|
|
|
55,788
|
|
Loss (gain) on disposition of equipment
|
|
|
-
|
|
|
|
(4,000
|
)
|
|
|
67,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
496,242
|
|
|
|
30,531
|
|
|
|
752,529
|
|
Inventories
|
|
|
552,063
|
|
|
|
602,167
|
|
|
|
1,508,482
|
|
Income tax receivable
|
|
|
49,536
|
|
|
|
782,087
|
|
|
|
59,608
|
|
Other current assets
|
|
|
(186,932
|
)
|
|
|
8,095
|
|
|
|
105,363
|
|
Other assets, net
|
|
|
(275,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Accounts payable
|
|
|
152,234
|
|
|
|
(305,536
|
)
|
|
|
316,878
|
|
Deferred revenue
|
|
|
(688,200
|
)
|
|
|
(688,200
|
)
|
|
|
(688,200
|
)
|
Other accrued liabilities
|
|
|
210,027
|
|
|
|
(595,708
|
)
|
|
|
(75,302
|
)
|
Net cash provided by operating activities
|
|
|
982,596
|
|
|
|
1,477,884
|
|
|
|
3,517,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,210,940
|
)
|
|
|
(348,551
|
)
|
|
|
(337,463
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
-
|
|
|
|
4,000
|
|
|
|
54,630
|
|
Net cash used in investing activities
|
|
|
(2,210,940
|
)
|
|
|
(344,551
|
)
|
|
|
(282,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
-
|
|
|
|
103,250
|
|
|
|
3,469
|
|
Minimum tax withholdings on stock options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(406,110
|
)
|
Excess tax benefit from exercise of stock options
|
|
|
-
|
|
|
|
12,980
|
|
|
|
487,509
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
116,230
|
|
|
|
84,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,228,344
|
)
|
|
|
1,249,563
|
|
|
|
3,319,960
|
|
Cash and cash equivalents at beginning of year
|
|
|
6,512,887
|
|
|
|
5,263,324
|
|
|
|
1,943,364
|
|
Cash and cash equivalents at end of year
|
|
$
|
5,284,543
|
|
|
$
|
6,512,887
|
|
|
$
|
5,263,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
336
|
|
|
$
|
66
|
|
|
$
|
4,269
|
|
Income taxes
|
|
$
|
25,266
|
|
|
$
|
25,356
|
|
|
$
|
31,039
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
Allied Healthcare Products,
Inc. (the “Company” or “Allied”) is a manufacturer of respiratory products used in the health care industry
in a wide range of hospital and alternate site settings, including post-acute care facilities, home health care and trauma care.
The Company's product lines include respiratory care products, medical gas equipment and emergency medical products.
|
2.
|
Summary of Significant Accounting Policies
|
The significant accounting
policies followed by Allied are described below.
Use of estimates
The policies utilized
by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United
States of America, and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
Revenue recognition
Revenue is recognized
for all sales, including sales to agents and distributors, at the time products are shipped and title has transferred, provided
that a purchase order has been received or a contract executed, there are not uncertainties regarding customer acceptance, the
sales price is fixed and determinable and collectability is reasonably assured. Sales discounts, returns and allowances are included
in net sales, and the provision for doubtful accounts is included in selling, general and administrative expenses. Additionally,
it is the Company’s practice to include revenues generated from freight billed to customers in net sales with corresponding
freight expense included in cost of sales in the Statement of Operations. The Company reports sales taxes on sales transactions
on a net basis in the Statement of Operations, and therefore does not include sales taxes in revenues or costs.
The sales price is
fixed by Allied’s acceptance of the buyer’s firm purchase order. The sales price is not contingent, or subject to
additional discounts. Allied’s standard shipment terms are “F.O.B. shipping point” as stated in Allied’s
Terms and Conditions of Sale. The customer is responsible for obtaining insurance for and bears the risk of loss for product in-transit.
Additionally, sales to customers do not include the right to return merchandise without the prior consent of Allied. In those
cases where returns are accepted, product must be current and restocking fees must be paid by the respective customer. A provision
has been made for estimated sales returns and allowances. These estimates are based on historical analysis of credit memo data
and returns.
Allied does not provide
installation services for its products. Most products shipped are ready for immediate use by the customer. The Company’s
in-wall medical system components, central station pumps and compressors, and headwalls do require installation by the customer.
These products are typically purchased by a third-party contractor who is ultimately responsible for installation services. Accordingly,
the customer purchase order or contract does not require customer acceptance of the installation prior to completion of the sale
transaction and revenue recognition. Allied’s standard payment terms are net 30 days from the date of shipment, and payment
is specifically not subject to customer inspection or acceptance, as stated in Allied’s Terms and Conditions of Sale. The
buyer becomes obligated to pay Allied at the time of shipment. Allied requires credit applications from its customers and performs
credit reviews to determine the creditworthiness of new customers. Allied requires letters of credit, where warranted, for international
transactions. Allied also protects its legal rights under mechanics lien laws when selling to contractors.
Allied does offer limited
warranties on its products. The standard warranty period is one year. The Company’s cost of providing warranty
service for its products for the years ended June 30, 2012, June 30, 2011, and June 30, 2010 was $152,625, $125,369, and $135,032,
respectively. The related liability for warranty service amounted to $139,906 and $83,380 at June 30, 2012 and 2011, respectively.
Marketing and Advertising Costs
Promotional
and advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the Statement
of Operations.
Advertising expenses for the years ended June 30, 2012, 2011 and 2010 were $46,278, $42,119, and $55,504,
respectively.
Cash and cash equivalents
For purposes of the
statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when acquired
to be cash equivalents.
The Company maintains
funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation. The risk of loss
attributable to these uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The
Company has not experienced any losses in such accounts.
Foreign currency transactions
Allied has international
sales which are denominated in U.S. dollars, the functional currency for these transactions.
Accounts receivable and concentrations
of credit risk
Accounts receivable
are recorded at the invoiced amount. The Company performs ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses based on past experience and an analysis of current amounts
due, and historically such losses have been within management's expectations. The Company maintains an allowance for doubtful accounts
to reflect the uncollectibility of accounts receivable based on past collection history and specific risks indentified among uncollected
accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company determines that the receivable
will not be collected and/or when the account has been referred to a third party collection agency. The Company’s customers
can be grouped into three main categories: medical equipment distributors, construction contractors and health care institutions.
At June 30, 2012 the Company believes that it has no significant concentration of credit risk.
Inventories
Inventories are stated
at the lower of cost, determined using the last-in, first-out (“LIFO”) method, or market. If the first-in, first-out
method (which approximates replacement cost) had been used in determining cost, inventories would have been $2,515,706 and $2,608,503
higher at June 30, 2012 and 2011, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced
by $164,645, $55,475 and $0 in fiscal 2012, 2011, and 2010 respectively, as a result of LIFO liquidations. Costs in inventory include
raw materials, direct labor and manufacturing overhead.
Inventory is recorded
net of a reserve for obsolete and excess inventory which is determined based on an analysis of inventory items with no usage in
the preceding year and for inventory items for which there is greater than two years’ usage on hand. The reserve for obsolete
and excess inventory was $1,327,291 and $1,419,420 at June 30, 2012 and 2011, respectively.
Property, plant and equipment
Property, plant and
equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets,
which range from 3 to 35 years. Expenditures for repairs, maintenance and renewals are charged to income as incurred. Expenditures,
which improve an asset or extend its estimated useful life, are capitalized. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Impairment of long-lived assets
The Company evaluates
impairment of long-lived assets under the provisions of ASC Topic 360: “Property, Plant and Equipment.” ASC 360 provides
a single accounting model for long-lived assets to be disposed of and reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Under ASC 360, if the sum of the expected future cash flows
(undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment
loss will be recognized. No impairment losses of long-lived assets or identifiable intangibles were recorded by the Company for
fiscal years ended June 30, 2012, 2011, and 2010.
Collective Bargaining Agreement
At June 30, 2012, the
Company had approximately 289 full-time employees. Approximately 179 employees in the Company’s principal manufacturing facility
located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2015.
Self-insurance
The Company maintains
a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred but not reported. As of June 30, 2012 and 2011, the
Company had approximately $190,000 and $229,000 respectively, of accrued liabilities related to health care claims. In order to
establish the self-insurance reserves, the Company utilized actuarial estimates of expected claims based on analyses of historical
data.
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.
Income taxes
The Company accounts
for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined using
the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial
statement and income tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized
.
In assessing the need for a valuation allowance the Company first considers the reversals of existing temporary deferred tax liabilities
and available tax planning strategies. To the extent these items are not sufficient to cause the realization of deferred
tax assets, the Company considers the availability of future taxable income to the extent such income is considered likely to occur
based on the Company’s earnings history, current income trends and projections.
The Company recognizes
tax liabilities when, despite the Company’s belief that its tax return positions are supportable, the Company believes that
certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon settlement. To the extent the Company deems it
necessary to record a liability for its tax positions, the current portion of the liability is included in income taxes payable
and the noncurrent portion is included in other liabilities in balance sheet. If upon the final tax outcome of these matters the
ultimate liability is different than the amounts recorded, such differences are reflected in income tax expense in the period in
which such determination is made. The Company’s federal tax returns for the fiscal years after 2009 remain subject to examination.
The various states in which the Company is subject to income tax are generally open for the fiscal years 2009 and after.
The Company classifies interest expenses
on taxes payable as interest expense. Penalties are classified as a component of other expenses.
Research and development costs
Research and development
costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses
for the years ended June 30, 2012, 2011 and 2010 were $948,213, $822,978, and $858,509, respectively.
Earnings per share
Basic earnings per
share are based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share
are based on the sum of the weighted averaged number of shares of common stock and common stock equivalents outstanding during
the year. The weighted average number of basic shares outstanding for the years ended June 30, 2012, 2011 and 2010 was 8,124,386,
8,107,313 and 8,066,740 shares, respectively. The weighted average number of diluted shares outstanding for the years ended June
30, 2012, 2011 and 2010 was 8,124,386, 8,124,957 and 8,066,740 shares, respectively. The dilutive effect of the Company's employee
and director stock option plans are determined by use of the treasury stock method. Potential common shares not included in the
calculation of net loss per share, as their effect would be anti-dilutive, are 3,806, 0 and 57,193 for the years ended June 30,
2012, 2011 and 2010 respectively.
The following information is necessary
to calculate earnings per share for the periods presented:
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
|
$
|
(424,426
|
)
|
|
$
|
204,408
|
|
|
$
|
(599,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
8,124,386
|
|
|
|
8,107,313
|
|
|
|
8,066,740
|
|
Effect of dilutive stock options
|
|
|
-
|
|
|
|
17,644
|
|
|
|
-
|
|
Weighted average diluted common shares outstanding
|
|
|
8,124,386
|
|
|
|
8,124,957
|
|
|
|
8,066,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options excluded from computation of diluted income per share amounts because their effect would be anti-dilutive
|
|
|
3,806
|
|
|
|
-
|
|
|
|
57,193
|
|
Employee stock-based compensation
The company follows
the provisions of ASC Topic 718: “Compensation – Stock Compensation”, which sets accounting requirements for
“share-based” compensation to employees, including employee stock purchase plans, and requires companies to recognize
in the statement of operations the grant-date fair value of the stock options and other equity-based compensation.
The fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes the weighted
average assumptions utilized in the Black-Scholes option pricing model for options granted during the fiscal years ended June 30,
2012, 2011 and 2010.
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
1.60
|
|
|
$
|
1.98
|
|
|
$
|
1.91
|
|
Weighted-average volatility
|
|
|
46
|
%
|
|
|
46
|
%
|
|
|
59
|
%
|
Weighted-average expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
3.0
|
|
Weighted-average risk-free interest rate
|
|
|
1.67
|
%
|
|
|
1.54
|
%
|
|
|
1.60
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
is based on the historical volatility of the Company’s common stock to estimate future volatility. The risk-free rates are
taken from rates as published by the Federal Reserve and represent the yields on actively traded treasury securities for terms
equal or approximately equal to the expected terms of the options. The expected term is calculated using the SEC Staff Accounting
Bulletin 107 (ASC 718-10-S99) simplified method. The dividend yield is zero based on the fact that the Company has no intention
of paying dividends in the near term.
Share-based compensation
expense included in the Statement of Operations for the fiscal years ended June 30, 2012, 2011 and 2010 was approximately $44,000,
$20,000 and $648,000 respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30,
2012 amounts to approximately $42,000. The cost is expected to be recognized over the next two fiscal years.
The Company recognized
income tax benefits for share-based compensation arrangements of approximately $18,000, $8,000 and $259,000 for the years ended
June 30, 2012, 2011 and 2010, respectively.
The following table
summarizes stock option exercises for the fiscal years ended June 30, 2012, 2011 and 2010.
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
-
|
|
|
|
31,000
|
|
|
|
543,500
|
|
Total intrinsic value of stock options exercised
|
|
$
|
-
|
|
|
$
|
32,450
|
|
|
$
|
1,218,771
|
|
Cash received from stock option exercises
|
|
$
|
-
|
|
|
$
|
103,250
|
|
|
$
|
3,469
|
|
Tax benefit from stock options exercised
|
|
$
|
-
|
|
|
$
|
12,980
|
|
|
$
|
487,509
|
|
Recently Adopted Accounting Pronouncements
In September 2011,
the FASB issued guidance titled “Disclosures about an Employers Participation in a Multiemployer Plan”. The guidance
requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures
to provide users with more detailed information about an employer’s involvement in multiemployer pension plans. The guidance
is effective for years ending after December 15, 2011. Adoption of this pronouncement did not have a material impact on the Company’s
financial statements.
Recently Issued
Accounting Pronouncements
We have reviewed accounting
pronouncements and interpretations thereof issued by the FASB, AICPA and the SEC that have effective dates during the periods reported
and in future periods. Management does not believe that any of those pronouncements will have a material impact on the Company’s
present or future financial statements.
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 11, 2011 extending the maturity date to November 13, 2012. The Credit Facility will be available on a revolving
basis until it expires on November 13, 2012, 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 3.50% in excess of LIBOR. Advances may be prepaid in whole
or in part without premium or penalty.
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 LIBOR rate was
0.46% on June 30, 2012.
At June 30, 2012
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 June 30, 2012.
The
Company leases certain of its equipment under non-cancelable operating lease agreements. Minimum lease payments under operating
leases at June 30, 2012 are as follows:
|
|
Operating
|
|
Fiscal Year
|
|
Leases
|
|
|
|
|
|
|
2013
|
|
$
|
154,563
|
|
2014
|
|
|
137,460
|
|
2015
|
|
|
19,812
|
|
2016
|
|
|
7,618
|
|
2017
|
|
|
590
|
|
Total minimum lease payments
|
|
$
|
320,043
|
|
Rental
expense incurred on operating leases in fiscal 2012, 2011, and 2010 totaled $238,486, $303,079 and $275,446 respectively.
The provision for (benefit
from) income taxes consists of the following:
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(38,368
|
)
|
|
$
|
(324,691
|
)
|
State
|
|
|
11,581
|
|
|
|
156,155
|
|
|
|
(25,038
|
)
|
Total current
|
|
|
11,581
|
|
|
|
117,787
|
|
|
|
(349,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(252,778
|
)
|
|
|
96,079
|
|
|
|
108,702
|
|
State
|
|
|
(4,723
|
)
|
|
|
(54,847
|
)
|
|
|
(52,914
|
)
|
Total deferred
|
|
|
(257,501
|
)
|
|
|
41,232
|
|
|
|
55,788
|
|
|
|
$
|
(245,920
|
)
|
|
$
|
159,019
|
|
|
$
|
(293,941
|
)
|
A reconciliation of
income taxes, with the amounts computed at the statutory federal rate is as follows:
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Computed tax at federal statutory rate
|
|
$
|
(227,917
|
)
|
|
$
|
123,565
|
|
|
$
|
(303,795
|
)
|
State income taxes, net of federal tax benefit
|
|
|
(4,982
|
)
|
|
|
42,610
|
|
|
|
(26,860
|
)
|
Tax exempt income
|
|
|
-
|
|
|
|
-
|
|
|
|
(492
|
)
|
Non deductible expenses
|
|
|
17,572
|
|
|
|
25,821
|
|
|
|
26,544
|
|
Federal research credit
|
|
|
(31,507
|
)
|
|
|
(30,000
|
)
|
|
|
-
|
|
Other, net
|
|
|
914
|
|
|
|
(2,977
|
)
|
|
|
10,662
|
|
Total
|
|
$
|
(245,920
|
)
|
|
$
|
159,019
|
|
|
$
|
(293,941
|
)
|
The deferred tax assets
and deferred tax liabilities recorded on the balance sheet as of June 30, 2012 and 2011 are as follows:
|
|
2012
|
|
|
2011
|
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
$
|
40,000
|
|
|
$
|
—
|
|
|
$
|
40,000
|
|
|
$
|
—
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
26,159
|
|
|
|
—
|
|
|
|
17,594
|
|
Deferred revenue
|
|
|
45,880
|
|
|
|
—
|
|
|
|
275,280
|
|
|
|
—
|
|
Accrued liabilities
|
|
|
326,170
|
|
|
|
—
|
|
|
|
332,122
|
|
|
|
—
|
|
Inventory
|
|
|
—
|
|
|
|
1,188,853
|
|
|
|
—
|
|
|
|
1,142,379
|
|
|
|
|
412,050
|
|
|
|
1,215,012
|
|
|
|
647,402
|
|
|
|
1,159,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
419,006
|
|
|
|
—
|
|
|
|
434,968
|
|
Net operating loss and credit carryforwards
|
|
|
882,440
|
|
|
|
—
|
|
|
|
348,796
|
|
|
|
—
|
|
Intangible assets
|
|
|
—
|
|
|
|
1,048
|
|
|
|
—
|
|
|
|
5,687
|
|
Deferred revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
45,880
|
|
|
|
—
|
|
Accrued pension liability
|
|
|
69,880
|
|
|
|
—
|
|
|
|
56,062
|
|
|
|
—
|
|
Stock options
|
|
|
351,262
|
|
|
|
—
|
|
|
|
336,272
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
16,106
|
|
|
|
—
|
|
|
|
24,343
|
|
|
|
|
1,303,582
|
|
|
|
436,160
|
|
|
|
787,010
|
|
|
|
464,998
|
|
Valuation Allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total deferred taxes
|
|
$
|
1,715,632
|
|
|
$
|
1,651,172
|
|
|
$
|
1,434,412
|
|
|
$
|
1,624,971
|
|
The net long term
deferred tax asset of $867,422 and $322,013 is included in other assets in the June 30, 2012 and 2011 balance sheet, respectively.
At June 30, 2012 there were $2.0 million dollars of federal net operating loss carryforwards which will expire in 2031 through
2032. In addition, the Company has state tax net operating losses of approximately $3.4 million that expire in varying years from
2029 through 2032.
The
Company files a federal and multiple state income tax returns. The Company’s federal and state income tax returns are open
for fiscal years ending after June 30, 2009.
Management
of the Company is not aware of any additional needed liability for unrecognized tax benefits at June 30, 2012 and June 30, 2011.
|
6.
|
Employee Retirement Benefits
|
The Company offers
a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee
may elect to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed
to the plan.
During the fiscal years
ended June 30, 2012, 2011 and 2010, the Company made contributions of $247,576, $245,628, and $252,858, respectively.
The risk of participating
in multi-employer pension plan is different from single-employer plans. Assets contributed to a multi-employer plan by one employer
may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to
the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
The Company’s
participation in a multi-employer pension plan for the year ended June 30, 2012, is outlined in the table below. The “EIN/PN”
column provides the Employee Identification Number (EIN) and the three-digit plan number (PN). The most recent Pension Protection
Act (PPA) zone status for 2011 and 2010 is for the plan year-ends as indicated below. The zone status is based on information that
the Company obtained from the Notes to the Financial Statements included with the plan’s Form 5500. Among other factors,
plans in the red zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded.
The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation
plan (RP) is either pending or has been implemented. In addition to regular plan contributions, the Company may be subject to a
surcharge if the plan is in the red zone. The “Surcharge Imposed” column indicates whether a surcharge has been imposed
on contributions to the plan. The last column lists the expiration date(s) of the collective-bargaining agreement (CBA) to which
the plan is subject.
|
|
PPA Zone Status
|
|
|
|
|
|
Contributions
by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIP/RP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending/
|
|
|
|
|
|
|
|
|
|
|
|
Surcharge
|
|
|
Expiration
|
|
Pension Trust Fund
|
|
EIN/PN
|
|
|
2011
|
|
|
2010
|
|
|
Implemented
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Imposed
|
|
|
Date of CBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
District No. 9
|
|
|
51-0138317/001
|
|
|
Green
|
|
|
Red
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
12/31/2010
|
|
|
12/31/2009
|
|
|
Implemented
|
|
|
$
|
331,154
|
|
|
$
|
369,195
|
|
|
$
|
367,581
|
|
|
|
No
|
|
|
|
5/31/2015
|
|
Association of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinist and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Workers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company was not listed in the Form
5500 for the above plan as of the plan year ends as providing more than 5 percent of total contributions
.
|
7.
|
Stock Based Compensation
|
The Company has established
a 1994 Employee Stock Option Plan, a 1999 Incentive Stock Plan, and a 2009 Incentive Stock Plan (collectively the “Employee
Plans”). The Employee Plans provide for the granting of options to the Company's executive officers and key employees to
purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase
up to 2,150,000 shares of common stock may be granted under the Employee Plans. Options generally become exercisable ratably over
a four year period or one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the first
or second anniversary of the date granted. The right to exercise the options generally expires in ten years from the date of grant,
or earlier if an option holder ceases to be employed by the Company. On August 27, 2009, the Company granted a non-qualified stock
option to acquire 320,000 shares of the Company’s Common Stock, at an exercise price of $4.25, to Mr. Refsland. Mr. Refsland’s
option was fully vested at the time of the grant and is exercisable over a period of six (6) years following the grant date.
In addition, the Company
has established a 1995 Directors Non-Qualified Stock Option Plan and a 2005 Directors Non-Qualified Stock Option Plan (collectively
the “Directors Plans”). The Directors Plans provide for the granting of options to the Company's directors who are
not employees of the Company to purchase shares of common stock at prices equal to the fair market value of the stock on the date
of grant. Options to purchase up to 225,000 shares of common stock may be granted under the Directors Plans. Options shall become
exercisable with respect to one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the
second anniversary of the date granted, except for certain options which become exercisable with respect to all of the shares covered
thereby one year after the grant date. The right to exercise the options expires in ten years from the date of grant, or earlier
if an option holder ceases to be a director of the Company.
Upon stock-settled
compensation exercises and awards, the Company issues new shares of common stock.
A summary of stock
option transactions in fiscal 2010, 2011 and 2012, respectively, pursuant to the Employee Plans and the Directors Plans is as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
690,500
|
|
|
$
|
2.52
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
326,000
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
(543,500
|
)
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
473,000
|
|
|
$
|
4.32
|
|
|
|
4.8
|
|
|
$
|
18,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
473,000
|
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
6,000
|
|
|
$
|
4.34
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
(31,000
|
)
|
|
$
|
3.33
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
448,000
|
|
|
$
|
4.38
|
|
|
|
4.2
|
|
|
$
|
21,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
448,000
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
51,000
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(31,000
|
)
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
468,000
|
|
|
$
|
4.35
|
|
|
|
4.1
|
|
|
$
|
330
|
|
Exercisable at June 30, 2012
|
|
|
432,000
|
|
|
$
|
4.42
|
|
|
|
3.6
|
|
|
$
|
330
|
|
The
following table provides additional information for options outstanding and exercisable at June 30, 2012:
Options Outstanding
Range of Exercise Prices
|
|
|
Number
|
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
Weighted
Average
Exercise
Price
|
|
2.90 - 4.24
|
|
|
61,000
|
|
|
|
8.4 years
|
|
|
$
|
3.56
|
|
4.25 - 4.25
|
|
|
320,000
|
|
|
|
3.2 years
|
|
|
$
|
4.25
|
|
4.26 - 6.99
|
|
|
87,000
|
|
|
|
4.3 years
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.90 - 6.99
|
|
|
468,000
|
|
|
|
4.1 years
|
|
|
$
|
4.35
|
|
Options Exercisable
Range of Exercise Prices
|
|
Number
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
2.90 - 4.24
|
|
|
25,000
|
|
|
$
|
3.64
|
|
4.25 - 4.25
|
|
|
320,000
|
|
|
$
|
4.25
|
|
4.26 - 6.99
|
|
|
87,000
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
$2.90 - 6.99
|
|
|
432,000
|
|
|
$
|
4.42
|
|
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
|
8.
|
Supplemental Balance Sheet Information
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
|
|
|
$
|
654,677
|
|
|
$
|
820,586
|
|
Component parts
|
|
|
|
|
|
|
7,495,333
|
|
|
|
7,858,862
|
|
Finished goods
|
|
|
|
|
|
|
3,178,507
|
|
|
|
3,293,261
|
|
Reserve for obsolete and excess inventory
|
|
|
|
|
|
|
(1,327,291
|
)
|
|
|
(1,419,420
|
)
|
|
|
|
|
|
|
$
|
10,001,226
|
|
|
$
|
10,553,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
3-10
|
|
|
$
|
13,231,044
|
|
|
$
|
11,528,855
|
|
Buildings
|
|
|
28-35
|
|
|
|
12,620,447
|
|
|
|
12,222,170
|
|
Land and land improvements
|
|
|
5-7
|
|
|
|
934,216
|
|
|
|
934,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment at cost
|
|
|
|
|
|
|
26,785,707
|
|
|
|
24,685,241
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(17,182,151
|
)
|
|
|
(16,024,734
|
)
|
|
|
|
|
|
|
$
|
9,603,556
|
|
|
$
|
8,660,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.3 million, $1.3 million, and $1.4 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation expense
|
|
|
|
|
|
$
|
1,246,145
|
|
|
$
|
1,162,392
|
|
Customer deposits
|
|
|
|
|
|
|
406,471
|
|
|
|
253,199
|
|
Other
|
|
|
|
|
|
|
202,963
|
|
|
|
229,961
|
|
|
|
|
|
|
|
$
|
1,855,579
|
|
|
$
|
1,645,552
|
|
|
9.
|
Commitments and Contingencies
|
Legal Claims
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 intends to continue to conduct business in such a manner as to avert any FDA action seeking
to interrupt or suspend manufacturing or require any recall or modification of products.
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 that any additional liabilities will result from the resolution of these matters that would have a material adverse effect
on the Company’s results of operations, financial position, or cash flows.
Stuyvesant Falls Power Litigation
.
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. In fiscal year
2011, 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. The Company has posted a $250,000 bond which Niagara could draw against
for electricity provided and not collected since the December 2010 temporary restraining order in the event Niagara prevails in
its lawsuit. The amount of the bond exceeds the cumulative invoiced electricity charges generated by Niagara since the issuance
of the temporary restraining order. As of June 30, 2012, the Company has not recorded a provision for this matter as management
intends to vigorously defend this litigation and believes it is not probable that the Company will be required to pay for electricity
as Niagara claims. The Company believes, however, that any liability it may incur should it not prevail in the litigation would
not have a material adverse effect on its financial condition, its result of operations, or its cash flows.
Armstrong Medical Litigation
. On
June 8, 2012, the Company settled outstanding litigation with Armstrong Medical Limited (“Armstrong”) related to a
patent held by Armstrong concerning carbon dioxide absorbents for use in anesthesiology. The Company and Armstrong agreed to mutually
dismiss the litigation regarding the Armstrong patent. In connection with the settlement agreement, Allied received broad, perpetual
license rights under the Armstrong patent pursuant to a pre-paid license agreement. In consideration for the settlement agreement,
Allied paid an aggregate of $275,000 to Armstrong.
Employment Contract
In March 2007, the
Company entered into a three year employment contract with its chief executive officer. The contract is subject to annual renewals
after the initial term. The contract was amended and restated in December 2009 without extending its term. The contract includes
termination without cause and change of control provisions, under which the chief executive officer is entitled to receive specified
severance payments generally equal to two times ending annual salary if the Company terminates his employment without cause or
he voluntarily terminates his employment with “good reason.” “Good Reason” generally includes changes
in the scope of his duties or location of employment but also includes (i) the Company’s written election not to renew the
Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following a “Change of Control”
as defined in the Agreement.
10. Segment
Information
The
Company operates in one segment consisting of the
manufacturing, marketing and distribution of a variety of respiratory
products used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health
care dealers and emergency medical product dealers. The Company’s product lines include respiratory care products, medical
gas equipment and emergency medical products.
The Company does not have
any one single customer that represents more than 10 percent of total sales. Sales by region, and by product, are as follows:
Sales by Region
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Domestic United States
|
|
$
|
33,816,317
|
|
|
$
|
37,634,627
|
|
|
$
|
37,337,662
|
|
Europe
|
|
|
1,510,197
|
|
|
|
1,721,779
|
|
|
|
1,390,631
|
|
Canada
|
|
|
603,530
|
|
|
|
668,430
|
|
|
|
676,428
|
|
Latin America
|
|
|
4,883,288
|
|
|
|
3,427,960
|
|
|
|
3,326,792
|
|
Middle East
|
|
|
925,658
|
|
|
|
911,401
|
|
|
|
512,744
|
|
Far East
|
|
|
1,594,172
|
|
|
|
2,296,635
|
|
|
|
2,545,353
|
|
Other International
|
|
|
112,459
|
|
|
|
122,604
|
|
|
|
244,638
|
|
|
|
$
|
43,445,621
|
|
|
$
|
46,783,436
|
|
|
$
|
46,034,248
|
|
Sales by Product
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Respiratory care products
|
|
$
|
10,082,450
|
|
|
$
|
10,796,923
|
|
|
$
|
11,142,890
|
|
Medical gas equipment
|
|
|
24,803,614
|
|
|
|
24,949,906
|
|
|
|
24,623,684
|
|
Emergency medical products
|
|
|
8,559,557
|
|
|
|
11,036,607
|
|
|
|
10,267,674
|
|
|
|
$
|
43,445,621
|
|
|
$
|
46,783,436
|
|
|
$
|
46,034,248
|
|
11. Quarterly
Financial Data (unaudited)
Summarized
quarterly financial data for fiscal 2012 and 2011 appears below (all amounts in thousands except per share amounts):
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
Three months ended,
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
Net sales
|
|
$
|
10,667
|
|
|
$
|
10,702
|
|
|
$
|
10,681
|
|
|
$
|
11,395
|
|
|
$
|
12,102
|
|
|
$
|
11,338
|
|
|
$
|
11,403
|
|
|
$
|
11,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,495
|
|
|
|
2,325
|
|
|
|
2,735
|
|
|
|
2,406
|
|
|
|
3,034
|
|
|
|
2,608
|
|
|
|
2,810
|
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(232
|
)
|
|
|
(231
|
)
|
|
|
41
|
|
|
|
(228
|
)
|
|
|
220
|
|
|
|
114
|
|
|
|
209
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(156
|
)
|
|
|
(146
|
)
|
|
|
23
|
|
|
|
(145
|
)
|
|
|
115
|
|
|
|
60
|
|
|
|
117
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
Earnings
per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily
equal the total for the year.
12. Baralyme®
Agreement
On August 27, 2004,
Allied entered into an agreement with Abbott Laboratories (“Abbott”) pursuant to which Allied agreed to cease production
of its product Baralyme®, and to effect the withdrawal of Baralyme® product held by distributors. The agreement permits
Allied to pursue the development of a new carbon dioxide absorbent product. Baralyme®, 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® in conjunction
with these newer inhalation anesthetics if Baralyme® has been allowed, contrary to recommended 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® 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 agreed to pay Allied an aggregate of $5,250,000 of which $1,530,000 was paid on September 30, 2004 and the
remainder payable in four equal annual installments of $930,000 due on July 1, 2005 through July 1, 2008.
The initial payment
of $1,530,000 from Abbott was received on September 30, 2004. The agreement required Abbott to pay Allied $600,000 for reimbursement
of Allied’s cost incurred in connection with withdrawal of Baralyme® from the market, the disposal of such product,
and severance payments payable as a result of such withdrawal. The payments by Abbott have been included in net sales, in accordance
with
ASC Topic 605: “Revenue Recognition.”
The Company is the primary obligor in the arrangement. It has sole authority to determine the method of withdrawal of Baralyme®
and discretion in such matters as employee layoffs, disposal methods, and customer communications regarding the sale of replacement
products. The costs of executing the withdrawal are the sole responsibility of the Company.
The payments received
from Abbott are being recognized into income, as net sales, over the eight-year term of the agreement. Allied has no further obligations
under this agreement which would require the Company to repay these amounts or otherwise impact this accounting treatment. During
the fiscal years ended June 30, 2012, 2011, and 2010, $688,200 was recognized into income as net sales in each year. The agreement
expired in August 2012 and no further income will be recognized from the agreement after such expiration.
A reconciliation of
deferred revenue resulting from the agreement with Abbott, with the amounts received under the agreement, and amounts recognized
as net sales is as follows:
|
|
Twelve Months ended
|
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
802,900
|
|
|
$
|
1,491,100
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized as net sales
|
|
|
(688,200
|
)
|
|
|
(688,200
|
)
|
|
|
|
114,700
|
|
|
|
802,900
|
|
Less - Current portion of deferred revenue
|
|
|
(114,700
|
)
|
|
|
(688,200
|
)
|
|
|
$
|
0
|
|
|
$
|
114,700
|
|
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 June 30, 2012, $2,150,000 has been received as a result of product development activities
.
In 2004, Allied’s
sales of Baralyme® were approximately $2.0 million and contributed approximately $0.6 million in pre-tax earnings and cash
flow from operations. The majority of the $5,250,000 Allied has received from Abbott will be recognized into income over the eight-year
term of the agreement. The net cash flow realized by Allied under the agreement with Abbott is substantially equivalent to the
net cash flow Allied would have expected to realize from continued manufacture and sales of Baralyme® during the initial five
years of the period.
Item 9.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
|
(a)
|
Evaluation of Disclosure Controls and Procedures
|
We maintain
disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or
submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized
and reported within the time period specified in the rules and forms of the SEC, and that such in formation is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In connection with our Annual Report on Form 10-K for the fiscal year ended June 30,
2012, as required under Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of the date of such evaluation to provide reasonable assurance that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC’s rules and forms.
(b) Internal
control over financial reporting
Our management
is responsible for establishing and maintaining adequate internal control over financial reporting, which is defined as a process
designed by, or under supervision of, our principal executive and principle financial officer and effected by our Board of Directors,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However these inherent limitations
are known features of the financial reporting process. It is possible to design into the process safeguards to reduce, though
not eliminate, the risk that misstatements are not prevented or detected on a timely basis.
Management
assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on this assessment, our management concluded that, as of June 30, 2012, our internal control over financial reporting
was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation and presentation
of financial statements for external purposes in accordance with generally accepted accounting principles.
There were
no changes to the Company’s internal controls over financial reporting during the fourth quarter that have materially effected,
or are reasonably likely to materially affect the Company’s internal controls over financial reporting.
Item 9B.
Other
Information
None.
PART III
Item 10.
Directors,
Executive Officers and Corporate Governance
A
list of our executive officers and biographical information appears at the end of Item 1, in Part I of this report. A definitive
proxy statement is expected to be filed with the Securities and Exchange Commission within 120 days after June 30, 2012. The information
required by this item is set forth under the caption “Election of Directors”, under the caption “Executive Officers”,
and under the caption Section 16(a) Beneficial Ownership Reporting Compliance in the definitive proxy statement, which information
is incorporated herein by reference thereto.
Item 11.
Executive
Compensation
The
information required by this item is set forth under the caption "Executive Compensation" in the definitive proxy statement,
which information is incorporated herein by reference thereto.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
information required by this item is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management"
in the definitive proxy statement, which information is incorporated herein by reference thereto.
Item 13.
Certain
Relationships and Related Transactions, and Director Independence
None
Item
14.
Principal Accounting Fees and Services
The
information required by this item will appear in the section entitled “Audit Fees” included in the definitive proxy
statement relating to the 2012 Annual Meeting of stockholders and such information is incorporated herein by reference.
PART IV
Item 15.
Exhibits and Financial
Statement Schedules
1. Financial Statements
The following financial
statements of the Company are included in response to Item 8:
|
Statement of Operations for the years ended
|
|
June 30, 2012, 2011, and 2010
|
|
|
|
Balance Sheet at June 30, 2012 and 2011
|
|
|
|
Statement of Changes in Stockholders’ Equity
|
|
for the years ended June 30, 2012, 2011 and 2010
|
|
|
|
Statement of Cash Flows for the years ended June 30, 2012,
|
|
2011 and 2010
|
|
|
|
Notes to Financial Statements
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
2. Financial Statement Schedule
|
Valuation and Qualifying Accounts and Reserves for the Years
|
|
Ended June 30, 2012, 2011 and 2010
|
All other schedules
are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits
The exhibits listed
on the accompanying Index to Exhibits are filed as part of this Report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|
By:
|
|
|
|
/s/ Earl R. Refsland
|
|
Earl R. Refsland
|
|
President and Chief Executive Officer
|
|
|
|
/S/ Daniel C. Dunn
|
|
Daniel C. Dunn
|
|
Vice President, Chief Financial Officer, and Secretary
|
Dated: September
28, 2012
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on September 28th, 2012.
Signatures
|
|
Title
|
|
|
|
*
|
|
Chairman of the Board
|
John D. Weil
|
|
|
|
|
|
*
|
|
President, Chief Executive Officer and Director (principal Executive Officer)
|
Earl R. Refsland
|
|
|
|
|
|
*
|
|
Director
|
William A. Peck
|
|
|
|
|
|
*
|
|
|
Joseph Root
|
|
Director
|
|
|
|
*
|
|
|
Judy Graves.
|
|
Director
|
* By:
|
/s/ Earl R. Refsland
|
|
Earl R. Refsland
|
|
Attorney-in-Fact
|
* Such signature has been affixed pursuant
to the following Power of Attorney.
ALLIED HEALTHCARE PRODUCTS, INC.
RULE 12-09 VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
COLUMN A
|
|
COLUMN B
|
|
|
COLUMN C
|
|
|
COLUMN D
|
|
|
COLUMN E
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
beginning of
|
|
|
costs
|
|
|
other accounts -
|
|
|
Deductions -
|
|
|
Balance at end
|
|
Description
|
|
period
|
|
|
and expenses
|
|
|
describe
|
|
|
describe
|
|
|
of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances
|
|
$
|
(300,000
|
)
|
|
$
|
(27,025
|
)
|
|
|
|
|
|
$
|
27,025
|
(1)
|
|
$
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Allowance For Obsolescence And Excess Quantities
|
|
$
|
(1,419,420
|
)
|
|
$
|
(33,061
|
)
|
|
$
|
(27,018
|
)(3)
|
|
$
|
152,208
|
(2)
|
|
$
|
(1,327,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances
|
|
$
|
(300,000
|
)
|
|
$
|
(20,863
|
)
|
|
|
|
|
|
$
|
20,863
|
(1)
|
|
$
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Allowance For Obsolescence And Excess Quantities
|
|
$
|
(1,476,490
|
)
|
|
$
|
(120,000
|
)
|
|
$
|
(28,291
|
)(3)
|
|
$
|
205,361
|
(2)
|
|
$
|
(1,419,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances
|
|
$
|
(300,000
|
)
|
|
$
|
(1,655
|
)
|
|
|
|
|
|
$
|
1,655
|
(1)
|
|
$
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Allowance For Obsolescence And Excess Quantities
|
|
$
|
(1,347,648
|
)
|
|
$
|
(120,000
|
)
|
|
$
|
(97,138
|
)(3)
|
|
$
|
88,296
|
(2)
|
|
$
|
(1,476,490
|
)
|
|
(1)
|
Decrease due to bad debt write-offs
and recoveries.
|
|
(2)
|
Decrease due to disposal of obsolete
inventory.
|
|
(3)
|
Increase due to inventory revaluation.
The other account charged as a result of this revaluation was inventory
before reserves. This did not result in a change to our net inventory
or net income(loss).
|
INDEX TO EXHIBITS
3.1 Amended
and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3(1) to the Company’s Registration Statement
on Form S-1, as amended, Registration No. 33-40128, filed with the Commission on May 8, 1991 (the “Registration Statement”)
and incorporated herein by reference)
3.2 By-Laws
of the Registrant (filed as Exhibit 3(2) to the Registration Statement and incorporated herein by reference)
10.1 NCG
Trademark License Agreement, dated April 16, 1982, between Liquid Air Corporation and Allied Healthcare Products, Inc. (filed
as Exhibit 10(24) to the Registration Statement and incorporated herein by reference)
10.2 Employee
Stock Purchase Plan (filed as Exhibit 10(3) to the Company’s Annual Report on Form 10-K for the year ended June 30, 1998
and incorporated by reference)
10.3 Allied
Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with the Commission as Exhibit 10(39) to the Company’s
Annual Report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference)
10.4 Allied
Healthcare Products, Inc. 1995 Directors Non-Qualified Stock Option Plan (filed with the Commission as Exhibit 10(25) to the Company’s
Annual Report on Form 10-K for the fiscal year ended June 30, 1995 and incorporated herein by reference)
10.5 Allied
Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan (filed with the Commission as Exhibit 10(28) to the Company’s
Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by reference)
10.6 Form
of Indemnification Agreement with officers and directors (filed with the Commission as Exhibit 10.22 to the 2002 Form 10-K and
incorporated herein by reference).
10.7 Amended
and restated Employment Agreement dated December 21, 2009 by and between Allied Healthcare Products, Inc. and Earl Refsland (incorporated
by reference to 10-Q filed May 7, 2010)
10.7.1 Change of Control Agreement Employment Agreement dated
March 16, 2007 by and between Allied Healthcare Products, Inc. and certain executive officers (incorporated by reference to 8-K
filed March 16, 2007 with event date of March 16, 2007)
10.8 Allied
Healthcare Products, Inc. 1999 Incentive Stock Plan (filed with the Commission as Exhibit 10(26) to the 1999 Form 10-K and incorporated
herein by reference)
10.9 Allied
Healthcare Products, Inc. 2009 Incentive Stock Plan (filed with Commission as Appendix A to the 2009 Proxy Statement on Schedule
14A)
10.10 Loan
and Security Agreement dated November 17, 2009 by and between the Company and Enterprise Bank & Trust, including Revolving
Credit Note (incorporated by reference to 8-K filed November 18, 2009 with event date of November 13, 2009)
10.11 Agreement
dated August 27, 2004 between Allied Healthcare Products, Inc and Abbott Laboratories, Inc. (incorporated by reference to 8-K
filed August 30, 2004 with event date of August 27, 2004)
10.12 Patent
License Agreement, dated June 8, 2012, by and between Allied Healthcare Products, Inc. and Armstrong Medical Limited (filed herewith).
23.1 Consent
of RubinBrown LLP (filed herewith)
24 Form
of Power of Attorney – (filed herewith)
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 (provided herewith)*
32.2 Sarbanes-Oxley
Certification of Chief Financial Officer (provided herewith)*
99.1 Press Release dated September 28, 2012 announcing fourth
quarter and fiscal 2012 earnings*
Pursuant to Rule 405 Regulation S-T, the following financial
information from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 is formatted in XBRL interactive
data files; (i) Statement of Operation, (ii) Balance Sheet, (iii) Statement of Cash Flows and (iv) Notes to Financial Statements.
* Notwithstanding any incorporation of this Annual Report on
Form 10-K in any other filing by the Registrant, Exhibits 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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