The following described
financial statements of Allied Healthcare Products, Inc. are included in response to this item:
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.
The Company offers 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, 2016, June 30, 2015, and June 30, 2014 was $89,895, $176,169, and $113,209, respectively.
The related liability for warranty service amounted to $100,000 and $130,000 at June 30, 2016 and 2015, 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, 2016, 2015 and 2014 were $15,699, $32,675, and $17,904,
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, 2016, 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 $2,286,022 and $2,383,104
higher at June 30, 2016 and 2015, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced
by $86,698, $0, and $0 in fiscal 2016, 2015, and 2014 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 $1,498,915 and $1,472,956 at June 30, 2016 and 2015, 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, 2016, 2015, and 2014.
Collective Bargaining Agreement
At June 30, 2016, the Company had approximately
236 full-time employees. Approximately 139 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, 2018.
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, 2016 and 2015,
the Company had $175,000 and $195,000 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
include 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.
In
light of its history of operating losses the Company does not rely on the existence of future taxable income as it currently cannot
conclude future taxable income is likely to occur.
The Company does rely on reversals of existing temporary deferred tax
liabilities and tax planning strategies to the extent available to support the value of its existing deferred tax assets. As of
June 30, 2014, the Company’s deferred tax assets exceeded the amount supportable through reversals of existing deferred
tax liabilities and tax planning strategies causing a valuation allowance to be recorded against the excess deferred tax assets.
Additions to the valuation allowance were recorded in 2015 and 2016 for the unrealizable value of deferred tax assets.
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 on the 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 files a federal and
multiple state income tax returns. With few exceptions the Company’s federal and state income tax returns are open for fiscal
years ending after June 30, 2013.
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, 2016, 2015 and 2014 were $463,902, $528,285, and $657,356, 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 average number of shares of common stock and common stock equivalents outstanding during
the year. The weighted average number of basic and diluted shares outstanding for the years ended June 30, 2016, 2015 and 2014
was 8,027,147 shares. The dilutive effect of the Company's employee and director stock option plans are determined by use of the
treasury stock method. There are no potential common shares excluded from the calculation of net loss per share, as their effect
would be anti-dilutive for the years ended June 30, 2016, 2015 and 2014 respectively.
The following information is necessary
to calculate earnings per share for the periods presented:
Year ended June 30,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(2,304,831
|
)
|
|
$
|
(1,777,310
|
)
|
|
$
|
(2,805,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
8,027,147
|
|
|
|
8,027,147
|
|
|
|
8,027,147
|
|
Effect of dilutive stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average diluted common shares outstanding
|
|
|
8,027,147
|
|
|
|
8,027,147
|
|
|
|
8,027,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.29
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.35
|
)
|
Diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options excluded from computation of diluted income per share amounts because their effect would be anti-dilutive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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, 2016, 2015 and 2014.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
0.39
|
|
|
$
|
0.70
|
|
|
$
|
1.04
|
|
Weighted-average volatility
|
|
|
30
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
Weighted-average expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Weighted-average risk-free interest rate
|
|
|
1.91
|
%
|
|
|
1.85
|
%
|
|
|
1.68
|
%
|
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, 2016, 2015 and 2014 was approximately $3,000,
$5,000 and $10,000, respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30,
2016 amounts to approximately $1,000. The cost is expected to be recognized over the next fiscal year.
The Company recognized
an income tax benefit for share-based compensation arrangements of approximately $4,000 for the year ended June 30, 2014. The
income tax benefit for the years ended June 30, 2016 and 2015 of approximately $1,000 and $2,000, respectively, were fully offset
by an increase in the deferred tax asset valuation allowance.
No stock options were
exercised during fiscal years 2016, 2015 and 2014.
Recently Issued Accounting Pronouncements
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”)
No. 2014-09, “Revenue from Contracts with Customers.” This ASU is a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or services. This ASU is effective for annual reporting periods
beginning after December 15, 2016 and early adoption is not permitted. On July 9, 2015 the FASB voted to defer the effective date
of this standard by one year to December 15, 2017 for the interim and annual reporting periods beginning after that date and permitted
early adoption of the standard, but not before the original effective date of December 15, 2016. Companies may use either a full
retrospective or modified retrospective approach to adopt this ASU. We are currently evaluating which transition approach to use
and the full impact this ASU will have on our future financial statements.
In August 2014, the
FASB issued ASU No. 2014-15, to communicate amendments to FASB Account Standards Codification Subtopic 205-40, “Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The ASU requires management to evaluate
relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when
determining whether substantial doubt about an entity’s ability to continue as a going concern exists. Management will be
required to make this evaluation for both annual and interim reporting periods. Management will have to make certain disclosures
if it concludes that substantial doubt exists or when it plans to alleviate substantial doubt about the entity’s ability
to continue as a going concern. The standard is effective for annual periods ending after December 15, 2016 and for interim reporting
periods starting in 2017. Early adoption is permitted. We currently believe there will be no impact on our financial statement
disclosures.
In April 2015, the
FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of
Debt Issuance Costs”. This ASU requires companies to present debt issuance costs as a direct deduction from the carrying
value of that debt liability. ASU 2015-03 does not impact the recognition and measurement guidance for debt issuance costs. This
ASU is effective for annual reporting periods beginning after December 15, 2015 and early adoption is permitted. Accordingly,
we will adopt this ASU on July 1, 2016. Companies are required to use a retrospective approach and we currently believe there
will be no impact on our financial statement disclosures.
In July 2015, the
FASB issued ASU No. 2015-11 to simplify the subsequent measurement of inventory. Under this new standard, an entity should measure
inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course
of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments in this guidance should
be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The
Company is currently evaluating the impact to our future financial statements.
In November 2015,
the FASB issued Accounting Standards Update No. 2015-17 (“ASU 2015-17”),
Income Taxes (Topic 740):
Balance
Sheet Classification of Deferred Taxes
. The amendments in ASU 2015-17 seek to simplify the presentation of deferred income
taxes and require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial
position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods, with early application permitted for all entities as of the beginning of an interim or annual
reporting period. The Company is in the process of evaluating the impact of this update on its financial statements.
In February 2016,
the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to recognize
assets and liabilities for leases with lease terms of more than 12 months and disclose key information about leasing arrangements.
Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease
by a lessee primarily will depend on its classification as a finance or operating lease. The update is effective for reporting
periods beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of evaluating the impact
of this update on its financial statements.
In March 2016, the
FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)” (“ASU 2016-08”). ASU 2016-08 further clarifies principal and agent relationships
within ASU 2014-09. Similar to ASU 2014-09, the effective date will be the first quarter of fiscal year 2018 with early adoption
permitted in the first quarter of fiscal year 2017. The Company is evaluating the impact that adoption of this new standard will
have on its financial statements.
In March 2016, the
FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects of accounting for share-based payment awards.
The effective date will be the first quarter of fiscal year 2018, with early adoption permitted. The Company is evaluating the
impact that adoption of this new standard will have on its financial statements.
In April 2016,
the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and
Licensing” (“ASU 2016-10”). The amendments in ASU 2016-10 are expected to reduce the cost and complexity
of applying the guidance on identifying promised goods or services in contracts with customers and to improve the operability
and understandability of licensing implementation guidance related to the entity's intellectual property. Similar to ASU
2014-09, the effective date will be the first quarter of fiscal year 2018 with early adoption permitted in the first quarter of
fiscal year 2017. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.
As of June 30, 2016,
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. Currently, the agreement provides
for borrowing availability of up to $5,000,000 (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 Agreement
was amended on November 9, 2015 extending the maturity date to November 9, 2016. Subject to the conditions and limitations set
forth in the Credit Agreement, the Credit Facility will be available on a revolving basis until it expires on November 9, 2016,
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 (as defined in the Credit Agreement) 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 the 30-day LIBOR rate. Advances may be
prepaid in whole or in part without premium or penalty.
While the Credit Agreement
provides for stated availability of $5.0 million, in connection with renewal on November 9, 2015, a new covenant was added requiring
the Company to maintain minimum “liquidity” of $1.25 million. Liquidity is defined as the difference between cash
and cash equivalents and the aggregate principal balance of borrowings under the Credit Agreement and is measured at the last
day of each fiscal quarter, commencing on December 31, 2015. Based on the Company’s cash and cash equivalents as of June
30, 2016, the Company would only be permitted to borrow up to $.45 million as of such date. Decreases in the Company’s cash
position will effectively reduce the amount the Company is able to borrow and/or require accelerated repayments.
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. In addition, effective November 9, 2015, the Credit Agreement includes
the minimum liquidity requirement described above. 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 Bank has indicated
that it does not intend to renew the credit facility when it expires on November 9, 2016. The Company will consider alternative
sources of credit financing to replace the credit facility if necessary.
The 30-day LIBOR rate
was 0.45% on June 30, 2016.
At June 30, 2016, 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 covenants associated with the Credit Facility at June 30, 2016.
The
Company leases certain of its equipment under non-cancelable operating lease agreements. Minimum lease payments under operating
leases at June 30, 2016 are as follows:
Fiscal Year
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2017
|
|
|
67,373
|
|
2018
|
|
|
45,676
|
|
2019
|
|
|
2,487
|
|
Total minimum lease payments
|
|
$
|
115,536
|
|
Rental
expense incurred on operating leases in fiscal 2016, 2015, and 2014 totaled $143,683, $184,151 and $236,826, respectively.
The provision for (benefit
from) income taxes consists of the following:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
11,286
|
|
|
|
16,596
|
|
|
|
12,933
|
|
Total current
|
|
|
11,286
|
|
|
|
16,596
|
|
|
|
12,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(100,174
|
)
|
|
|
(552,167
|
)
|
|
|
(1,050,750
|
)
|
State
|
|
|
(3,495
|
)
|
|
|
(66,542
|
)
|
|
|
(102,199
|
)
|
Valuation Allowance
|
|
|
393,814
|
|
|
|
618,709
|
|
|
|
800,203
|
|
Total deferred
|
|
|
290,145
|
|
|
|
-
|
|
|
|
(352,746
|
)
|
|
|
$
|
301,431
|
|
|
$
|
16,596
|
|
|
$
|
(339,813
|
)
|
A reconciliation of income
taxes, with the amounts computed at the statutory federal rate is as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Computed tax at federal statutory rate
|
|
($
|
681,156
|
)
|
|
($
|
598,643
|
)
|
|
($
|
1,069,547
|
)
|
State income taxes, net of federal tax (benefit) provision
|
|
|
(38,971
|
)
|
|
|
(29,799
|
)
|
|
|
(62,712
|
)
|
Non deductible expenses
|
|
|
13,915
|
|
|
|
14,683
|
|
|
|
18,141
|
|
Federal research credit
|
|
|
(15,144
|
)
|
|
|
(6,738
|
)
|
|
|
(15,328
|
)
|
Book tax depreciation adjustment
|
|
|
517,736
|
|
|
|
-
|
|
|
|
-
|
|
Stock Options - Expired
|
|
|
122,508
|
|
|
|
-
|
|
|
|
-
|
|
Other, net
|
|
|
(11,271
|
)
|
|
|
18,384
|
|
|
|
(10,570
|
)
|
Valuation Allowance
|
|
|
393,814
|
|
|
|
618,709
|
|
|
|
800,203
|
|
Total
|
|
$
|
301,431
|
|
|
$
|
16,596
|
|
|
($
|
339,813
|
)
|
The deferred tax assets
and deferred tax liabilities recorded on the balance sheet as of June 30, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
$
|
40,000
|
|
|
$
|
—
|
|
|
$
|
40,000
|
|
|
$
|
—
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
16,173
|
|
|
|
—
|
|
|
|
20,093
|
|
Accrued liabilities
|
|
|
391,645
|
|
|
|
—
|
|
|
|
352,469
|
|
|
|
—
|
|
Inventory
|
|
|
—
|
|
|
|
1,134,160
|
|
|
|
—
|
|
|
|
1,140,283
|
|
|
|
|
431,645
|
|
|
|
1,150,333
|
|
|
|
392,469
|
|
|
|
1,160,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
841,040
|
|
|
|
—
|
|
|
|
470,768
|
|
Net operating loss and credit carryforwards
|
|
|
4,062,817
|
|
|
|
—
|
|
|
|
3,522,219
|
|
|
|
—
|
|
Intangible assets
|
|
|
3,635
|
|
|
|
—
|
|
|
|
2,471
|
|
|
|
—
|
|
Accrued pension liability
|
|
|
26,098
|
|
|
|
—
|
|
|
|
27,656
|
|
|
|
—
|
|
Stock options
|
|
|
68,688
|
|
|
|
—
|
|
|
|
321,845
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
75,819
|
|
|
|
—
|
|
|
|
94,639
|
|
|
|
|
4,161,238
|
|
|
|
916,859
|
|
|
|
3,874,191
|
|
|
|
565,407
|
|
Valuation Allowance
|
|
|
(1,812,726
|
)
|
|
|
—
|
|
|
|
(1,418,912
|
)
|
|
|
—
|
|
Total deferred taxes
|
|
$
|
2,780,157
|
|
|
$
|
2,067,192
|
|
|
$
|
2,847,748
|
|
|
$
|
1,725,783
|
|
At June 30,
2016, there were $10.1 million dollars of federal net operating loss carryforwards which will expire in 2031 through 2036. In
addition, the Company has state tax net operating losses of approximately $5.9 million on a post-apportioned basis that
expire in varying years from 2029 through 2036.
The Company files a federal and multiple
state income tax returns. With few exceptions the Company’s federal and state income tax returns are open for fiscal years
ending after June 30, 2013.
Management of the Company is not aware
of any additional uncertain tax positions taken on its federal or state income tax filings for open tax years.
|
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, 2016, 2015 and 2014, the Company made contributions of $228,854, $221,508, and $277,374, respectively, to the retirement
savings plan. The Company contributes 2% of eligible salaried employee’s annual income to the plan. In addition, the Company
provides a 25% match on the first 8% of employee deferrals for eligible employees.
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, 2016, 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 2015 and 2014 is for the plan year-ends as indicated below. The zone status is based on information that
the Company obtained from the annual funding notice for District No. 9 International Association of Machinists and Aerospace Workers
Pension Trust. 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
|
|
|
|
|
|
Pension Trust Fund
|
|
EIN/PN
|
|
2015
|
|
2014
|
|
FIP/RP
Status
Pending/
Implemented
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Surcharge
Imposed
|
|
Expiration
Date of CBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
District No. 9 International Association of Machinist and Aerospace
Workers Pension Plan
|
|
51-0138317/001
|
|
Green
12/31/2014
|
|
Green
12/31/2013
|
|
N/A
|
|
$
|
279,968
|
|
|
$
|
287,385
|
|
|
$
|
293,377
|
|
|
No
|
|
5/31/2018
|
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 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 1,600,000 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.
In addition, the Company
has established a 2005 Directors Non-Qualified Stock Option Plan and a 2013 Incentive Plan for Non-Employee Directors (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 150,000 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 2014, 2015 and 2016, 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, 2013
|
|
|
472,500
|
|
|
$
|
4.34
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
6,000
|
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(12,500
|
)
|
|
$
|
4.74
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
466,000
|
|
|
$
|
4.30
|
|
|
|
2.3
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
6,000
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(49,000
|
)
|
|
$
|
4.80
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
423,000
|
|
|
$
|
4.20
|
|
|
|
1.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
6,000
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(329,000
|
)
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
100,000
|
|
|
$
|
3.78
|
|
|
|
4.5
|
|
|
$
|
-
|
|
Exercisable at June 30, 2016
|
|
|
94,000
|
|
|
$
|
3.95
|
|
|
|
4.2
|
|
|
$
|
-
|
|
The
following table provides additional information for options outstanding and exercisable at June 30, 2016:
Options Outstanding
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average
Remaining Life
|
|
Weighted Average
Exercise Price
|
|
|
1.17 - 3.49
|
|
|
|
24,000
|
|
|
7.9 years
|
|
$
|
1.91
|
|
|
3.50 - 3.50
|
|
|
|
30,000
|
|
|
5.2 years
|
|
$
|
3.50
|
|
|
3.51 - 6.73
|
|
|
|
46,000
|
|
|
2.3 years
|
|
$
|
4.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.17
- 6.73
|
|
|
|
100,000
|
|
|
4.5 years
|
|
$
|
3.78
|
|
Options Exercisable
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
1.17 - 3.49
|
|
|
|
18,000
|
|
|
$
|
2.16
|
|
|
3.50 - 3.50
|
|
|
|
30,000
|
|
|
$
|
3.50
|
|
|
3.51 - 6.73
|
|
|
|
46,000
|
|
|
$
|
4.93
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.17 - 6.73
|
|
|
|
94,000
|
|
|
$
|
3.95
|
|
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
|
8.
|
Supplemental Balance Sheet Information
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Inventories
|
|
|
|
|
|
|
|
|
Work in progress
|
|
$
|
431,802
|
|
|
$
|
545,410
|
|
Component parts
|
|
|
7,374,776
|
|
|
|
7,721,413
|
|
Finished goods
|
|
|
2,567,607
|
|
|
|
2,397,044
|
|
Reserve for obsolete and excess inventory
|
|
|
(1,498,915
|
)
|
|
|
(1,472,956
|
)
|
|
|
$
|
8,875,270
|
|
|
$
|
9,190,911
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
3-10
|
|
$
|
14,399,008
|
|
|
$
|
14,693,789
|
|
Buildings
|
|
28-35
|
|
|
13,055,628
|
|
|
|
13,052,328
|
|
Land and land improvements
|
|
5-7
|
|
|
662,402
|
|
|
|
934,216
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment at cost
|
|
|
|
|
28,117,038
|
|
|
|
28,680,333
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(21,369,468
|
)
|
|
|
(20,859,127
|
)
|
|
|
|
|
$
|
6,747,570
|
|
|
$
|
7,821,206
|
|
Depreciation expense was approximately $1.2 million, $1.3 million,
and $1.2 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Other accrued liabilities
|
|
|
|
|
|
|
|
|
Accrued compensation expense
|
|
$
|
1,099,935
|
|
|
$
|
1,201,099
|
|
Customer deposits
|
|
|
859,307
|
|
|
|
589,276
|
|
Other
|
|
|
381,961
|
|
|
|
369,191
|
|
|
|
$
|
2,341,203
|
|
|
$
|
2,159,566
|
|
|
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.
Stuyvesant Falls Power
Litigation
. The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”),
which provides electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. 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. After the commencement of the litigation, Niagara began sending
invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. Niagara’s attempts to collect
such invoices were stopped in December 2010 by a temporary restraining order. Among other things, Niagara seeks as damages the
value of electricity received by the Company without charge. The total value of electricity at issue in the litigation is not
known with certainty and Niagara has alleged different amounts of damages. Niagara alleged in its Second Amended Verified Complaint,
dated February 6, 2012, damages of approximately $469,000 in free electricity from May 2003 through May 2010. Niagara also alleged
in its Motion For Summary Judgment, filed on March 14, 2014, damages of approximately $492,000 in free electricity from May 2010
through the date of the filing. In April 2015, Allied received an invoice for electrical power at the Stuyvesant Falls plan with
an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the period of time covered
by the invoice.
The Company filed a Motion
for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions were held
on June 13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled that
the Company is entitled to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara
and the other party filed separate notices of appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New
York, Appellate Division, Third Department reversed the trial court decision and held that the free power covenants are no longer
enforceable. The Company intends to appeal this ruling and exercise all available options to enforce the free power covenants
which have been in place for over 100 years.
The appellate decision
terminated the enforceability of the free power covenants as of March 31, 2016. The appellate decision did not order the Company
to pay any amounts for power consumed prior to such date and the Company believes that it is not liable for any such damages as
a result of the appellate decision. As of June 30, 2016, the Company has not recorded a provision for this matter. The Company
commenced paying for power at the Stuyvesant Falls facility in April 2016.
Employment Contract
In March 2007, the Company
entered into a three year employment contract with its chief executive officer. The contract is subject to automatic annual renewals
after the initial term unless notification is given. 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.
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
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Domestic United States
|
|
$
|
27,437,238
|
|
|
$
|
27,304,353
|
|
|
$
|
27,214,060
|
|
Europe
|
|
|
773,129
|
|
|
|
639,641
|
|
|
|
858,735
|
|
Canada
|
|
|
916,528
|
|
|
|
769,749
|
|
|
|
758,392
|
|
Latin America
|
|
|
3,168,891
|
|
|
|
3,343,361
|
|
|
|
4,291,530
|
|
Middle East
|
|
|
843,092
|
|
|
|
911,241
|
|
|
|
1,214,389
|
|
Far East
|
|
|
2,803,451
|
|
|
|
2,466,614
|
|
|
|
2,011,714
|
|
Other International
|
|
|
10,158
|
|
|
|
26,810
|
|
|
|
21,796
|
|
|
|
$
|
35,952,487
|
|
|
$
|
35,461,769
|
|
|
$
|
36,370,616
|
|
Sales by Product
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Respiratory care products
|
|
$
|
9,077,370
|
|
|
$
|
9,221,764
|
|
|
$
|
9,688,486
|
|
Medical gas equipment
|
|
|
19,712,286
|
|
|
|
18,772,376
|
|
|
|
19,425,522
|
|
Emergency medical products
|
|
|
7,162,831
|
|
|
|
7,467,629
|
|
|
|
7,256,608
|
|
|
|
$
|
35,952,487
|
|
|
$
|
35,461,769
|
|
|
$
|
36,370,616
|
|
|
11.
|
Quarterly Financial Data (unaudited)
|
Summarized
quarterly financial data for fiscal 2016 and 2015 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,
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2014
|
|
|
2014
|
|
Net sales
|
|
$
|
9,803
|
|
|
$
|
8,840
|
|
|
$
|
8,846
|
|
|
$
|
8,463
|
|
|
$
|
9,114
|
|
|
$
|
8,503
|
|
|
$
|
9,000
|
|
|
$
|
8,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,257
|
|
|
|
1,626
|
|
|
|
1,779
|
|
|
|
1,698
|
|
|
|
1,638
|
|
|
|
1,699
|
|
|
|
2,158
|
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
166
|
|
|
|
(762
|
)
|
|
|
(688
|
)
|
|
|
(635
|
)
|
|
|
(472
|
)
|
|
|
(489
|
)
|
|
|
(35
|
)
|
|
|
(698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(282
|
)
|
|
|
(784
|
)
|
|
|
(709
|
)
|
|
|
(530
|
)
|
|
|
(521
|
)
|
|
|
(503
|
)
|
|
|
(45
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
|
(0.03
|
)
|
|
|
(0.10
|
)
|
|
|
(0.09
|
)
|
|
|
(0.07
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
|
(0.03
|
)
|
|
|
(0.10
|
)
|
|
|
(0.09
|
)
|
|
|
(0.07
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.09
|
)
|
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.