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, 2015
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 |
25-1370721 |
(State or other jurisdiction of
Incorporation or organization)
1720 Sublette Avenue
St. Louis, Missouri
(Address of principal executive
offices) |
(I.R.S. employer identification
no.)
63110
(zip code)
|
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 |
Name of each exchange
on which registered
The NASDAQ Stock Market LLC |
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 ¨ |
Accelerated filer ¨ |
| Non-accelerated filer ¨
(Do not check if a smaller reporting company) |
Smaller reporting company x
|
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, 2014, 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 $6,740,364. All executive officers
and directors of the registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to
registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates”
of the registrant.
As of September
2, 2015, there were 8,027,147 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, 2015 (portion) (Part III)
ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
“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, impacts
of the U.S. Affordable Care Act and specific matters which relate directly to the Company’s operations and properties as
discussed in Items 1, 1A, 3 and 7 of 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’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
| · | respiratory care/anesthesia products |
| · | home respiratory care products |
Medical Gas Equipment
| · | medical gas system construction products |
| · | medical gas system regulation devices |
| · | disposable oxygen and specialty gas cylinders |
| · | portable suction equipment |
Emergency Medical Products
| · | respiratory/resuscitation products |
| · | trauma and patient handling products |
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 2015, respiratory
care products, medical gas equipment and emergency medical products represented approximately 26%, 53% and 21%, respectively,
of the Company’s net sales. In comparison, in fiscal 2014, respiratory care products, medical gas equipment and emergency
medical products represented approximately 27%, 53%, and 20%, 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 |
|
Description |
|
Principal
Brand Names |
|
Primary Users |
| |
|
|
|
|
|
|
| Respiratory Care Products |
|
|
|
|
|
|
| Respiratory Care/Anesthesia Products |
|
Large volume compressors; ventilator calibrators; humidifiers and mist tents; and carbon
dioxide absorbent |
|
Timeter; Carbolime®;
Litholyme® |
|
Hospitals and sub-acute facilities |
| |
|
|
|
|
|
|
| Home Respiratory Care Products |
|
O2 cylinders; pressure regulators; nebulizers; portable large volume compressors; portable
suction equipment and disposable respiratory products |
|
Timeter; B&F; Schuco |
|
Patients at home |
| |
|
|
|
|
|
|
| Medical Gas Equipment |
|
|
|
|
|
|
| Construction Products |
|
In-wall medical gas system components; central station pumps and compressors and headwalls |
|
Chemetron; Oxequip |
|
Hospitals and sub-acute facilities |
| |
|
|
|
|
|
|
| Regulation Devices |
|
Flowmeters; vacuum regulators; pressure regulators and related products |
|
Chemetron; Oxequip; Timeter |
|
Hospitals and sub-acute facilities |
| |
|
|
|
|
|
|
| Disposable Cylinders |
|
Disposable oxygen and gas cylinders |
|
Lif-O-Gen |
|
First aid providers and specialty gas distributors |
| |
|
|
|
|
|
|
| Suction Equipment |
|
Portable suction equipment and disposable suction canisters |
|
Gomco; Allied; Schuco |
|
Hospitals, sub-acute facilities and homecare products |
| |
|
|
|
|
|
|
| Emergency Medical Products |
|
|
|
|
|
|
| Respiratory/Resuscitation |
|
Demand resuscitation valves; bag mask resuscitators; emergency transport ventilators, oxygen
regulators, SurgeX - surge suppressing post valve, and mass casualty ventilation line |
|
LSP; Omni-Tech; Allied |
|
Emergency service providers |
| |
|
|
|
|
|
|
| Trauma and Patient Handling Products |
|
Spine immobilization products; pneumatic anti-shock garments, trauma burn kits and Xtra
backboards |
|
LSP |
|
Emergency service providers |
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. 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 significant 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.
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
transport and mass casualty ventilation line has been designed to meet the unique ventilation demands that affect everyday inter-hospital
and intra-hospital transport scenarios, and amplify exponentially during a mass casualty event or pandemic. Our ventilators
for transport and mass casualty are rugged, easy to operate, and capable of providing reliable ventilation even in unpredictable
environments and conditions. Additionally, they are affordable to purchase and require little periodic maintenance, minimizing
the cost of ownership over time. Our newest ventilator, the AHP300, is a broad featured transport ventilator that carries
the capabilities of critical care ventilators, but is offered at a fraction of the cost of ownership of other ventilators in its
field. This value, combined with its rugged build and ease of use, make it an attractive ventilator for pre-hospital and intra
hospital transport and an ideal ventilator for pandemic and mass casualty applications.
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 17 sales professionals, all of whom are full-time employees
of the Company.
The sales force includes
seven domestic hospital, homecare and emergency specialists, four domestic construction specialists, and three international sales
representatives. A total of three 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
23% of total net sales in fiscal 2015, 25% in 2014 and 24% in 2013. 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 Healthcare
Products’ research and development group is responsible for the development of new products. This group is staffed with
mechanical and electrical engineers.
During fiscal year
2015 the research and development group supported the launch of the AHP300 and AHP300P ventilators.
The group is actively
working on other products that were not released during the fiscal year 2015.
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, and ISO 13485 certification in 2002. The Company’s
St. Louis facility is ISO 9001:2008 certified and ISO13485:2003 certified. The Company’s Stuyvesant Falls facility is ISO13485:2003
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, CMDCAS, 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 provided the Company with
an advantage over its competitors. During fiscal 2015 the company received a US patent on the AHP300 ventilator and is pursuing
additional patents on the AHP300 ventilator. Several foreign patents were issued for the Litholyme® carbon dioxide absorbent
product. The company continues to seek foreign patents on the EPV200 and AHP300 ventilators.
Patents which will
expire in the period of 2015 to 2032 in the aggregate are believed to be of material importance in the operation of Allied’s
business. Allied believes 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 cleanup 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, 2015,
the Company had approximately 232 full-time employees. Approximately 135 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.
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 |
|
72 |
|
Director, President and Chief Executive Officer (1) |
| Andrew D. Riley |
|
39 |
|
Vice President of Operations (2) |
| Daniel C. Dunn |
|
55 |
|
Vice President of Finance, Chief Financial Officer, Secretary & Treasurer (3) |
| (1) | Mr. Refsland has been Director, President
and Chief Executive Officer of the Company since September, 1999. |
| (2) | Mr. Riley has been Vice President —
Operations since July, 2014. He previously held the position of Director of Operations
and Plant Manager from January 2012 to July 2014. Prior to that time, Mr. Riley held
multiple leadership positions at Owens Corning from 2005 to 2012. |
| (3) | 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.
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 federal healthcare legislation enacted in 2010.
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 did not take effect until 2014, including a requirement that most Americans carry health insurance. 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 must now pay a tax in an amount
equal to 2.3% of the price for which the manufacturer sells its medical devices, as discussed in “Item 7- Management’s
Discussion and Analysis of Financial Condition and Results of Operations” below. We manufacture and sell devices that are
subject to this tax. We also could be adversely affected by, among other things, changes in the delivery or pricing of or reimbursement
for medical devices.
Other provisions of
this law as currently enacted, including an independent payment advisory board and pilot programs to evaluate alternative payment
methodologies, could meaningfully change the way healthcare is developed and delivered, and may adversely affect our business
and results of operations. Further, we cannot predict what healthcare programs and regulations will be ultimately implemented
at the federal or state level, or the effect of any future legislation or regulation in the U.S. or internationally. However,
any changes that lower reimbursements for our products, reduce medical procedure volumes or increase cost containment pressures
on us or other participants in the healthcare industry could adversely affect our business and results of operations.
Regulations related to conflict minerals could adversely
impact our business.
The Dodd-Frank Wall
Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply
of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) and adjoining countries.
As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict
minerals mined from the DRC and adjoining countries in their products. These new requirements required due diligence efforts beginning
in fiscal 2014, with initial disclosure requirements which began in May 2014. There were and continue to be costs associated with
complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our
products and other potential changes to products, processes or sources of supply as a consequence of such verification activities.
The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. The
Company has determined that certain of the components it purchases during the most recent reporting year, less than 1.5% of all
components purchased during such reporting year, contain conflict minerals. While no supplier has indicated that any necessary
conflict minerals originated in any of the covered countries, the limited information provided by the suppliers in response to
the survey in most cases did not identify the facilities used to process or the country of origin of the necessary conflict minerals
in its products. As there may be only a limited number of suppliers offering ― “conflict free” conflict minerals,
we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at
competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not
determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products
through the procedures we may implement.
We have a history of net losses in fiscal 2013, 2014
and 2015 and we may not be able to return to profitability in the future, which may cause the market price of our common stock
to decline.
We have a history
of net losses. We reported net loss of $0.4 million in fiscal 2012, a net loss of $1.3 million in fiscal 2013, a net loss of $2.8
million in fiscal 2014 and a net loss of $1.8 million in fiscal 2015. We will need to generate and sustain increased sales levels
in the future to become consistently profitable, and, even if we do, we may not be able to maintain or increase our level of profitability.
We intend to improve our sales execution both domestically and internationally and also expand markets for our new ventilator
products and our new carbon dioxide absorbent, Litholyme®. However, there is no guarantee that we will be successful in our
efforts. We may also incur losses in the future for a number of reasons, including the other risks described in this Form 10-K,
and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain
profitability, the market price of our common stock may significantly decrease.
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, 2015.
| 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
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 2, 2015, there were 136 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 2015 and 2014, 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
| 2015 | |
High | |
Low | |
2014 | |
High | |
Low |
| September quarter | |
$ | 2.66 | | |
$ | 1.95 | | |
September quarter | |
$ | 2.93 | | |
$ | 2.19 | |
| December quarter | |
$ | 3.70 | | |
$ | 1.29 | | |
December quarter | |
$ | 2.60 | | |
$ | 2.21 | |
| March quarter | |
$ | 1.90 | | |
$ | 1.32 | | |
March quarter | |
$ | 3.90 | | |
$ | 2.10 | |
| June quarter | |
$ | 1.85 | | |
$ | 1.37 | | |
June quarter | |
$ | 2.72 | | |
$ | 2.02 | |
Information concerning
securities authorized for issuance under equity compensation plans is incorporated by reference to the Company’s proxy statement
for the 2015 annual meeting of stockholders, which will be filed within 120 days after June 30, 2015.
Item 6. Selected Financial Data
| (In thousands, except per share data) | |
| | |
| | |
| | |
| | |
| |
| Year ended June 30, | |
2015 | | |
2014 | | |
2013 | | |
2012 | | |
2011 | |
| Statement of Operations Data | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net sales | |
$ | 35,462 | | |
$ | 36,371 | | |
$ | 38,552 | | |
$ | 43,446 | | |
$ | 46,783 | |
| Cost of sales | |
| 28,392 | | |
| 29,057 | | |
| 30,310 | | |
| 33,485 | | |
| 35,781 | |
| Gross profit | |
| 7,070 | | |
| 7,314 | | |
| 8,242 | | |
| 9,961 | | |
| 11,002 | |
| Selling, general and administrative expenses | |
| 8,763 | | |
| 10,423 | | |
| 10,736 | | |
| 10,611 | | |
| 10,594 | |
| Income (loss) from operations | |
| (1,693 | ) | |
| (3,109 | ) | |
| (2,494 | ) | |
| (650 | ) | |
| 408 | |
| Interest expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Interest income | |
| (3 | ) | |
| (5 | ) | |
| (12 | ) | |
| (27 | ) | |
| (33 | ) |
| Other, net | |
| 70 | | |
| 42 | | |
| (485 | ) | |
| 48 | | |
| 78 | |
| Income (loss) before provision for (benefit from) income taxes | |
| (1,760 | ) | |
| (3,146 | ) | |
| (1,997 | ) | |
| (670 | ) | |
| 363 | |
| Provision for (benefit from) income taxes | |
| 17 | | |
| (340 | ) | |
| (740 | ) | |
| (246 | ) | |
| 159 | |
| Net income (loss) | |
$ | (1,777 | ) | |
$ | (2,806 | ) | |
$ | (1,257 | ) | |
$ | (424 | ) | |
$ | 204 | |
| Basic earnings (loss) per share | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) | |
$ | (0.05 | ) | |
$ | 0.03 | |
| Diluted earnings (loss) per share | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) | |
$ | (0.05 | ) | |
$ | 0.03 | |
| Basic weighted average common shares outstanding | |
| 8,027 | | |
| 8,027 | | |
| 8,071 | | |
| 8,124 | | |
| 8,107 | |
| Diluted weighted average common shares outstanding | |
| 8,027 | | |
| 8,027 | | |
| 8,071 | | |
| 8,124 | | |
| 8,125 | |
| (In thousands) | |
| | |
| | |
| | |
| | |
| |
| June 30, | |
2015 | | |
2014 | | |
2013 | | |
2012 | | |
2011 | |
| Balance Sheet Data | |
| | | |
| | | |
| | | |
| | | |
| | |
| Working capital | |
$ | 10,851 | | |
$ | 11,390 | | |
$ | 13,682 | | |
$ | 16,006 | | |
$ | 18,251 | |
| Total assets | |
| 24,989 | | |
| 26,032 | | |
| 29,339 | | |
| 31,477 | | |
| 31,845 | |
| Stockholders' equity | |
| 20,693 | | |
| 22,509 | | |
| 25,315 | | |
| 26,777 | | |
| 27,159 | |
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, 2015, 2014, and 2013.
| Year ended June 30, | |
Dollars in thousands | |
| | |
2015 | |
| | |
Net | | |
% of Total | |
| | |
Sales | | |
Net Sales | |
| Respiratory care products | |
$ | 9,222 | | |
| 26.0 | % |
| Medical gas equipment | |
| 18,772 | | |
| 52.9 | % |
| Emergency medical products | |
| 7,468 | | |
| 21.1 | % |
| Total | |
$ | 35,462 | | |
| 100.0 | % |
| | |
Dollars in thousands | |
| Year ended June 30, | |
2014 | |
| | |
Net | | |
% of Total | |
| | |
Sales | | |
Net Sales | |
| Respiratory care products | |
$ | 9,688 | | |
| 26.6 | % |
| Medical gas equipment | |
| 19,426 | | |
| 53.4 | % |
| Emergency medical products | |
| 7,257 | | |
| 20.0 | % |
| Total | |
$ | 36,371 | | |
| 100.0 | % |
| | |
Dollars in thousands | |
| Year ended June 30, | |
2013 | |
| | |
Net | | |
% of Total | |
| | |
Sales | | |
Net Sales | |
| Respiratory care products | |
$ | 8,944 | | |
| 23.2 | % |
| Medical gas equipment | |
| 21,871 | | |
| 56.7 | % |
| Emergency medical products | |
| 7,737 | | |
| 20.1 | % |
| Total | |
$ | 38,552 | | |
| 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, | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Net sales | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
| Cost of sales | |
| 80.1 | | |
| 79.9 | | |
| 78.6 | |
| Gross profit | |
| 19.9 | | |
| 20.1 | | |
| 21.4 | |
| | |
| | | |
| | | |
| | |
| Selling, general and administrative expenses | |
| 24.7 | | |
| 28.6 | | |
| 27.8 | |
| Loss from operations | |
| (4.8 | ) | |
| (8.5 | ) | |
| (6.4 | ) |
| Other, net | |
| 0.2 | | |
| 0.1 | | |
| (1.3 | ) |
| Loss before benefit from income taxes | |
| (5.0 | ) | |
| (8.6 | ) | |
| (5.1 | ) |
| Benefit from income taxes | |
| 0.0 | | |
| (0.9 | ) | |
| (1.9 | ) |
| Net loss | |
| (5.0 | )% | |
| (7.7 | )% | |
| (3.2 | )% |
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 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, 2015, June 30, 2014, and June 30, 2013 was $176,169, $113,209,
and $150,944, respectively. The related liability for warranty service amounted to $130,000 at June 30, 2015 and 2014, 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, 2015 and 2014, inventory is recorded net of a
reserve for obsolete and excess inventory of $1.5 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 only 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, 2015, 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.
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, 2015 and 2014, accounts receivable is recorded net of allowances
of $170,000.
Valuation of Long-Lived Assets:
The impairment of
long-lived 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, 2015. 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, 2015 and 2014,
the Company had approximately $195,000 and $150,000, 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, 2015, 2014, and 2013, Allied recorded approximately $5,000, $10,000 and $44,000, respectively, in share-based employee compensation.
This compensation cost is included in the general and administrative expenses 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
permitted 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 provided that, for a period of eight years, Allied would 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 were 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, 2015, 2014, and 2013, Allied recognized $0, $0 and $114,700, respectively into income as net sales
in each year.
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 $5,250,000 Allied received from Abbott was recognized into income over the eight-year term of the agreement.
The net cash flow realized by Allied under the agreement with Abbott was 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.
The agreement with Abbott expired in August 2012 and the Company has not recognized further income from the agreement since such
expiration.
Medical Device Tax:
Beginning January
1, 2013, the Healthcare Reform Act imposed a tax to be paid by medical device manufacturers equal to 2.3% of the sale price of
medical devices. Many of our products are subject to this tax. For the years ended June 30, 2015 and 2014, the Company recorded
an expense of approximately $300,000 and $292,000, respectively. For the six-month period that the law was in place during the
year ended June 30, 2013, the Company recorded an expense of approximately $153,000.
Fiscal 2015 Compared to Fiscal 2014
The Company had a
loss of $1.8 million before taxes for fiscal 2015, compared to a loss of $3.1 million before taxes for fiscal 2014. It recorded
an income tax provision of $16,596 in fiscal 2015, compared to an income tax benefit of $0.3 million in fiscal 2014.
As previously disclosed
in the Company’s annual report on Form 10-K for the 2013 fiscal year, the realization of the Company’s deferred tax
assets have been based on the reversal of existing temporary deferred tax liabilities and tax planning strategies. For the year
ended June 30, 2014 the Company’s tax benefit of cumulative losses exceeded the supportable value of the deferred tax assets
and a valuation allowance of $800,203 had been established. For the year ended June 30, 2015 the Company recorded an additional
allowance of $618,709. To the extent that the Company’s losses continue, the tax benefit of those losses would be fully
offset by a valuation allowance.
Net
sales for fiscal 2015 of $35.5 million were $0.9 million or 2.5% less than net sales of $36.4 million in fiscal 2014. Domestically,
sales increased by $0.1 million dollars. Internationally, sales decreased by $1.0 million. International
business is dependent upon hospital construction projects, and the development of medical facilities in those regions in which
the Company operates.
Orders for the Company’s
products for the year ended June 30, 2015 of $36.4 million were $0.2 million or 0.6% higher than orders for the year ended June
30, 2014 of $36.2 million. Customer purchase order releases for the year ended June 30, 2015 of $34.9 million were $0.4 million
or 1.1% lower than customer purchase order releases of $35.3 million from the prior fiscal year. Customer purchase order releases
depend on the scheduling practices of individual customers. Lower customer releases, despite higher customer orders, led to lower
sales.
Respiratory care product
sales in fiscal 2015, which include homecare products, were $9.2 million, which is $0.5 million, or 5.2% lower than sales of $9.7
million in the prior year. Respiratory care products also include carbon dioxide absorbents.
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, 2015 the Company had carbon dioxide absorbent sales of Carbolime®
and Litholyme® of $3.4 million dollars, compared with $3.5 million for the year ended June 30, 2014.
Medical gas equipment
sales, which include construction products, of $18.8 million in fiscal 2015 were approximately $0.6 million, or 3.1% lower than
prior year levels of $19.4 million. Domestically, sales of medical gas equipment in fiscal 2015 were $0.4 million higher than
in the prior year. Internationally, sales of medical gas equipment in fiscal 2015 were approximately $1.0 million lower than in
the prior year, primarily as a result of lower international customer releases. The Company continues to implement improvements
to the sales management process which are intended to improve sales performance and increase market share of medical gas equipment
sales.
Emergency medical
product sales in fiscal 2015 of $7.5 million were $0.2 million or 2.7% higher than fiscal 2014 sales of $7.3 million. International
sales of emergency medical products increased by $0.2 million from the prior year while domestic sales were flat.
International sales,
which are included in the product lines discussed above, decreased $1.0 million, or 10.9%, to $8.2 million in fiscal 2015 compared
to sales of $9.2 million in fiscal 2014. In fiscal 2015, international sales of medical gas equipment, including construction
products, decreased by $1.1 million dollars, and sales of respiratory care products decreased by approximately $0.1 million. International
sales of emergency products increased by approximately $0.2 million. International orders of $9.0 million dollars were down $0.1
million from prior year orders of $9.1 million dollars. This difference between International orders and sales reflects the timing
of customer releases of orders for shipment, and an increase in backlog. As discussed above, the Company’s international
shipments are dependent on hospital construction projects and the expansion of medical care in those regions. The decrease in
international sales was concentrated in Latin America in 2015.
Gross profit in fiscal
2015 was $7.1 million, or 19.9% of sales, compared to a gross profit of $7.3 million, or 20.1% of sales in fiscal 2014. Gross
profit was negatively impacted by the decrease in sales and production during the period. Gross margins were favorably impacted
by approximately $0.2 million in cost improvements from lower commodity costs, purchasing improvements, and improvements in operating
efficiencies. The Company continues to review the cost of production and seek opportunities to lower those costs. Gross profit
for 2015 was negatively impacted by approximately $300,000, as a result of Medical Device Excise Tax (MDET) expense versus a negative
impact of $292,000 in 2014. Under the Patient Protection and Affordable Care Act, beginning on January 1, 2013, this tax is imposed
on all U.S. sales of certain medical devices at the rate of 2.3% of the sale price of covered products.
The Company invested
$0.1 million in capital expenditures in fiscal 2015 compared to $0.4 million in fiscal 2014 for manufacturing equipment, plant
maintenance, and computer systems.. 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 2015 were $8.8 million compared to SG&A expenses
of $10.4 million in fiscal 2014. Personnel cost, primarily salaries and fringe benefits, decreased by approximately $0.6 million,
as a result of staffing reductions in fiscal 2014. Legal expense decreased by approximately $0.7 million and travel expense decreased
by approximately $0.2 million.
Interest
income in fiscal 2015 was approximately $3,000 compared to interest income of $5,000 in fiscal 2014. Other expenses for the year
ended June 30, 2015 was approximately $70,000, compared to approximately $42,000 in fiscal 2014.
The Company’s
effective tax rate in 2015 was a provision of 1% caused by the recognition of certain state taxes, compared to a benefit of 11%
in 2014. The benefit of its net operating loss carryforward was fully reserved in 2015. In 2014 a portion of the net operating
loss benefit was recognized.
Net loss in fiscal
2015 was $1.8 million or $0.22 per basic and diluted earnings per share, a decrease from a net loss of $2.8 million, or $0.35
per basic and diluted earnings per share in fiscal 2014. In 2015 and 2014 the weighted number of shares used in the calculation
of basic and diluted earnings per share was 8,027,147.
Fiscal 2014 Compared to Fiscal 2013
The Company had a
loss of $3.1 million before taxes for fiscal 2014, compared to a loss of $2.0 million before taxes for fiscal 2013. It recorded
an income tax benefit of $0.3 million in fiscal 2014, compared to an income tax benefit of $0.7 million in fiscal 2013.
As previously disclosed
in the Company’s annual report on Form 10-K for the 2013 fiscal year, the realization of the Company’s deferred tax
assets have been based on the reversal of existing temporary deferred tax liabilities and tax planning strategies. For the year
ended June 30, 2014 the Company’s tax benefit of cumulative losses exceeded the supportable value of the deferred tax assets
and a valuation allowance of $800,203 had been established.
Net
sales for fiscal 2014 of $36.4 million were $2.2 million or 5.7% less than net sales of $38.6 million in fiscal 2013. Domestically,
sales decreased by $2.0 million dollars. For 2013, domestic sales included approximately $0.1 million for the recognition
into sales of payments resulting from the agreement with Abbott. Internationally,
sales decreased by $0.2 million. International business is dependent
upon hospital construction projects and the development of medical facilities in those regions in which the Company operates.
Orders for the Company’s
products for the year ended June 30, 2014 of $36.2 million were $1.3 million or 3.5% lower than orders for the year ended June
30, 2013 of $37.5 million. Customer purchase order releases for the year ended June 30, 2014 of $35.3 million were $2.1 million
or 5.6% lower than customer purchase order releases of $37.4 million from the prior fiscal year. Customer purchase order releases
depend on the scheduling practices of individual customers.
Respiratory care product
sales, which included homecare products in 2014, were $9.7 million, which was $0.8 million, or 9.0% higher than sales of $8.9
million in the prior year.
For the year ended
June 30, 2014 the Company had carbon dioxide absorbent sales of Carbolime® and Litholyme® of $3.5 million dollars, compared
with $2.4 million for the year ended June 30, 2013. Sales increased as a result of the continued market acceptance of Litholyme®
and additional product configurations for both Carbolime® and Litholyme®.
Medical gas equipment
sales, which include construction products, of $19.4 million in fiscal 2014 were approximately $2.5 million, or 11.4% lower than
prior year levels of $21.9 million. Internationally, sales of medical gas equipment in fiscal 2014 were approximately $0.2 million
lower than in the prior year. Domestically, sales of medical gas equipment in fiscal 2014 were $2.3 million lower than in the
prior year, primarily related to the sale of construction products. The Company believes the hospital construction market declined
significantly in 2014, leading to lower orders and sales.
Emergency medical
product sales in fiscal 2014 of $7.3 million were $0.4 million or 5.2% lower than fiscal 2013 sales of $7.7 million. International
sales of emergency medical products decreased by $0.2 million from the prior year while domestic sales decreased by $0.2 million.
The Company believes that domestic demand for these products, which are normally largely consumed by local agencies, was impacted
in 2014 by economic conditions.
International sales,
which are included in the product lines discussed above, decreased $0.2 million, or 2.1%, to $9.2 million in fiscal 2014 compared
to sales of $9.4 million in fiscal 2013. 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 2014, international sales of medical gas equipment,
including construction products, decreased by $0.2 million dollars, and sales of respiratory care products increased by approximately
$0.2 million. International sales of emergency products decreased by approximately $0.2 million. The decrease in international
sales was concentrated in Russia and Ukraine. The Company believes that Russian government spending on medical infrastructure
was cut during 2014.
Gross profit in fiscal
2014 was $7.3 million, or 20.1% of sales, compared to a gross profit of $8.2 million, or 21.2% of sales in fiscal 2013. Gross
profit was negatively impacted by the decrease in sales and production during the period. Gross margins were favorably impacted
by approximately $0.1 million in cost improvements from lower commodity costs, purchasing improvements, and improvements in operating
efficiencies.
The Company invested
$0.4 million in capital expenditures in fiscal 2014 compared to $1.4 million in fiscal 2013 for manufacturing equipment, plant
maintenance, and computer systems, which continue to decrease production costs and improve efficiencies for several product lines.
Selling,
General, and Administrative (“SG&A”) expenses for fiscal 2014 were $10.4 million compared to SG&A expenses
of $10.7 million in fiscal 2013. Personnel cost, primarily salaries and fringe benefits, decreased by approximately $0.6 million.
Outside consulting expense decreased by approximately $0.2 million and phone expense decreased by approximately $0.1 million.
These decreases were offset by an increase in legal expense of approximately $0.7 million.
Other
income and expenses for the year ended June 30, 2014 was approximately $42,000, compared to income of approximately $485,000 in
fiscal 2013. In fiscal 2013, the Company recorded approximately $516,000 of income realized as a result of the demutualization
of the Company’s product liability insurer. Interest income in fiscal 2014 was approximately $5,000 compared to interest
income of $12,000 in fiscal 2013.
The Company’s
effective tax rate in 2014 was a benefit of 11% down from a benefit of 37% in 2013. The decrease in the effective tax benefit
was due to the need to reflect a valuation allowance in the amount of $800,203 offsetting tax benefits recorded during 2014.
Net loss in fiscal
2014 was $2.8 million or $0.35 per basic and diluted earnings per share, an increase from a net loss of $1.3 million, or $0.16
per basic and diluted earnings per share in fiscal 2013. In 2014, the weighted number of shares used in the calculation of basic
and diluted earnings per share was 8,027,147. In 2013, the weighted number of shares used in the calculation of basic and diluted
earnings per share was 8,070,645.
Financial Condition, Liquidity
and Capital Resources
The following table
sets forth selected information concerning Allied's financial condition at June 30:
| Dollars in thousands | |
2015 | | |
2014 | | |
2013 | |
| Cash & cash equivalents | |
$ | 2,040 | | |
$ | 1,367 | | |
$ | 3,688 | |
| Working Capital | |
$ | 10,851 | | |
$ | 11,390 | | |
$ | 13,682 | |
| Total Debt | |
$ | - | | |
$ | - | | |
$ | - | |
| Current Ratio | |
| 3.53:1 | | |
| 4.23:1 | | |
| 4.40:1 | |
The Company’s
working capital was $10.8 million at June 30, 2015 compared to $11.4 million at June 30, 2014. Accounts Payable increased by approximately
$0.3 million, Accrued Liabilities increased by approximately $0.5 million and Inventory decreased by $0.2 million. During fiscal
2015, these decreases in working capital were offset by a $0.7 million increase in Cash. Accounts Receivable was $3.6 million
at June 30, 2015, a decrease from $3.7 million at June 30, 2014. Accounts Receivable as measured in days sales outstanding (“DSO”)
is 37 DSO at June 30, 2015, up from 36 DSO at June 30, 2014. The Company does adjust product forecast, order quantities, and safety
stock based on changes in demand patterns in order to manage inventory levels.
The net increase in
Cash for the fiscal year ended June 30, 2015 was $0.7 million. The net decrease in Cash for the fiscal year ended June 30, 2014
was $2.3 million. Cash flows provided by operating activities were approximately $0.8 million for fiscal 2015 compared to cash
flows used by operating activities of approximately $1.9 million for fiscal 2014. This increase in Cash provided by operating
activities includes a $1.0 million decrease in net loss, a decrease in Inventory of $0.2 million, an increase in Accounts Payable
of approximately $0.3 million, and an increase of Other Accrued Liabilities 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 used by
operating activities for the fiscal year ended June 30, 2014 consisted of a net loss of $2.8 million, supplemented by $1.3 million
in non-cash charges to operations for amortization and depreciation. Cash was used to make capital expenditures of $0.1 million
in fiscal 2015 and $0.4 million in 2014.
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 $5,000,000 (the
“Credit Facility”). At June 30, 2015, the Company had $5,000,000 available for borrowing on the line of credit. 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 10, 2014 extending the maturity date to November 9, 2015. The Credit Facility will be available on a revolving
basis until it expires on November 9, 2015, 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
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 30-day LIBOR rate
was 0.19% on June 30, 2015.
At June 30, 2015,
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, 2015.
The following table
summarizes the Company’s contractual obligations at June 30, 2015:
| | |
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 | |
$ | 165,477 | | |
$ | 59,567 | | |
$ | 105,910 | | |
| - | | |
| - | |
| Unconditional Purchase Obligations | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Other Long-Term Obligations | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Total Contractual Cash Obligations | |
$ | 165,477 | | |
$ | 59,567 | | |
$ | 105,910 | | |
$ | - | | |
$ | - | |
Capital expenditures
were $0.1 million, $0.4 million, and $1.4 million in fiscal 2015, 2014, and 2013, respectively. The Company made these capital
expenditures with an aim to improve efficiency, save costs, develop new products, and maintain plant capacity. 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 $0.1 million in 2016.
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 would 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 would provide sufficient financial flexibility. The Company would have options available to ensure liquidity
in addition to increased borrowing. At June 30, 2015, the Company had no bank debt. During fiscal 2015, 2014 and 2013 there were
no borrowings or repayments under the credit agreement.
The Company’s
credit facility will be available until it expires on November 9, 2015. 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.
Quarterly Results
The following table
sets forth selected operating results for the eight quarters ended June 30, 2015. 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, | |
2015 | | |
2015 | | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2013 | | |
2013 | |
| Net sales | |
$ | 9,114 | | |
$ | 8,503 | | |
$ | 9,000 | | |
$ | 8,845 | | |
$ | 9,798 | | |
$ | 9,116 | | |
$ | 8,749 | | |
$ | 8,708 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross profit | |
| 1,638 | | |
| 1,699 | | |
| 2,158 | | |
| 1,575 | | |
| 1,861 | | |
| 1,748 | | |
| 1,944 | | |
| 1,761 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (472 | ) | |
| (489 | ) | |
| (35 | ) | |
| (698 | ) | |
| (395 | ) | |
| (960 | ) | |
| (892 | ) | |
| (862 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| (521 | ) | |
| (503 | ) | |
| (45 | ) | |
| (708 | ) | |
| (347 | ) | |
| (969 | ) | |
| (899 | ) | |
| (591 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic loss per share | |
| (0.06 | ) | |
| (0.06 | ) | |
| (0.01 | ) | |
| (0.09 | ) | |
| (0.04 | ) | |
| (0.12 | ) | |
| (0.11 | ) | |
| (0.07 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Diluted loss per share | |
| (0.06 | ) | |
| (0.06 | ) | |
| (0.01 | ) | |
| (0.09 | ) | |
| (0.04 | ) | |
| (0.12 | ) | |
| (0.11 | ) | |
| (0.07 | ) |
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, 2015, 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, 2015. 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, 2015, 2014 and 2013.
Balance Sheet for the fiscal
years ended June 30, 2015 and 2014.
Statement of Changes in Stockholders’
Equity for the fiscal years ended June 30, 2015, 2014 and 2013.
Statement of Cash Flows for
the fiscal years ended June 30, 2015, 2014 and 2013.
Notes to Financial Statements.
Schedule of Valuation and Qualifying
Accounts and Reserves for the years ended June 30, 2015, 2014 and 2013.
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, 2015 and 2014, 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, 2015.
In connection with our audits 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, 2015, 2014 and 2013. 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 audits 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period
ended June 30, 2015 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 25, 2015
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF OPERATIONS
| Year ended June 30, | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Net sales | |
$ | 35,461,769 | | |
$ | 36,370,616 | | |
$ | 38,551,774 | |
| Cost of sales | |
| 28,392,171 | | |
| 29,056,367 | | |
| 30,309,484 | |
| Gross profit | |
| 7,069,598 | | |
| 7,314,249 | | |
| 8,242,290 | |
| | |
| | | |
| | | |
| | |
| Selling, general and administrative expenses | |
| 8,763,335 | | |
| 10,423,133 | | |
| 10,735,806 | |
| Loss from operations | |
| (1,693,737 | ) | |
| (3,108,884 | ) | |
| (2,493,516 | ) |
| | |
| | | |
| | | |
| | |
| Other (income) expenses: | |
| | | |
| | | |
| | |
| Interest income | |
| (3,041 | ) | |
| (4,818 | ) | |
| (12,006 | ) |
| Interest expense | |
| - | | |
| - | | |
| - | |
| Other, net | |
| 70,018 | | |
| 41,660 | | |
| (484,699 | ) |
| | |
| 66,977 | | |
| 36,842 | | |
| (496,705 | ) |
| | |
| | | |
| | | |
| | |
| Loss before provision for (benefit from) income taxes | |
| (1,760,714 | ) | |
| (3,145,726 | ) | |
| (1,996,811 | ) |
| Provision for (benefit from) income taxes | |
| 16,596 | | |
| (339,813 | ) | |
| (740,038 | ) |
| Net loss | |
$ | (1,777,310 | ) | |
$ | (2,805,913 | ) | |
$ | (1,256,773 | ) |
| | |
| | | |
| | | |
| | |
| Basic loss per share: | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) |
| Diluted loss per share: | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) |
| Weighted average shares outstanding – Basic | |
| 8,027,147 | | |
| 8,027,147 | | |
| 8,070,645 | |
| Weighted average shares outstanding – Diluted | |
| 8,027,147 | | |
| 8,027,147 | | |
| 8,070,645 | |
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
| | |
June 30, 2015 | | |
June 30, 2014 | |
| | |
| | |
| |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 2,039,946 | | |
$ | 1,366,762 | |
| Accounts receivable, net of allowances of $170,000 | |
| 3,574,674 | | |
| 3,713,105 | |
| Inventories, net | |
| 9,190,911 | | |
| 9,406,098 | |
| Income tax receivable | |
| 12,487 | | |
| 17,166 | |
| Other current assets | |
| 328,756 | | |
| 410,098 | |
| Total current assets | |
| 15,146,774 | | |
| 14,913,229 | |
| | |
| | | |
| | |
| Property, plant and equipment, net | |
| 7,821,206 | | |
| 8,935,601 | |
| Deferred income taxes | |
| 1,889,872 | | |
| 1,996,434 | |
| Other assets, net | |
| 131,615 | | |
| 187,163 | |
| Total assets | |
$ | 24,989,467 | | |
$ | 26,032,427 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 1,368,797 | | |
$ | 1,068,222 | |
| Other accrued liabilities | |
| 2,159,566 | | |
| 1,624,186 | |
| Deferred income taxes | |
| 767,907 | | |
| 830,946 | |
| Total current liabilities | |
| 4,296,270 | | |
| 3,523,354 | |
| | |
| | | |
| | |
| Commitments and contingencies (Notes 4 and 10) | |
| | | |
| | |
| | |
| | | |
| | |
| 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, 2015 and June 30, 2014; 8,027,147 shares outstanding at June 30, 2015 and June 30, 2014 | |
| 104,279 | | |
| 104,279 | |
| Additional paid-in capital | |
| 48,546,670 | | |
| 48,585,236 | |
| Accumulated deficit | |
| (6,976,964 | ) | |
| (5,199,654 | ) |
| Less: treasury stock, at cost; 2,400,731 shares at | |
| | | |
| | |
| June 30, 2015 and 2014 | |
| (20,980,788 | ) | |
| (20,980,788 | ) |
| Total stockholders' equity | |
| 20,693,197 | | |
| 22,509,073 | |
| Total liabilities and stockholders' equity | |
$ | 24,989,467 | | |
$ | 26,032,427 | |
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, June 30, 2012 | |
$ | 104,279 | | |
$ | 48,540,802 | | |
$ | (1,136,968 | ) | |
$ | (20,731,428 | ) | |
$ | 26,776,685 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Purchases of treasury stock | |
| - | | |
| - | | |
| - | | |
| (249,360 | ) | |
| (249,360 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock based compensation | |
| - | | |
| 44,197 | | |
| - | | |
| - | | |
| 44,197 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the year ended | |
| | | |
| | | |
| | | |
| | | |
| | |
| June 30, 2013 | |
| - | | |
| - | | |
| (1,256,773 | ) | |
| - | | |
| (1,256,773 | ) |
| Balance, June 30, 2013 | |
| 104,279 | | |
| 48,584,999 | | |
| (2,393,741 | ) | |
| (20,980,788 | ) | |
| 25,314,749 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock based compensation | |
| - | | |
| 9,655 | | |
| - | | |
| - | | |
| 9,655 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reversal of deferred tax provision, stock options forfeited | |
| - | | |
| (9,418 | ) | |
| - | | |
| - | | |
| (9,418 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the year ended | |
| | | |
| | | |
| | | |
| | | |
| | |
| June 30, 2014 | |
| - | | |
| - | | |
| (2,805,913 | ) | |
| - | | |
| (2,805,913 | ) |
| Balance, June 30, 2014 | |
| 104,279 | | |
| 48,585,236 | | |
| (5,199,654 | ) | |
| (20,980,788 | ) | |
| 22,509,073 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock based compensation | |
| - | | |
| 4,956 | | |
| - | | |
| - | | |
| 4,956 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reversal of deferred tax provision, stock options forfeited | |
| - | | |
| (43,522 | ) | |
| - | | |
| - | | |
| (43,522 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the year ended | |
| | | |
| | | |
| | | |
| | | |
| | |
| June 30, 2015 | |
| - | | |
| - | | |
| (1,777,310 | ) | |
| - | | |
| (1,777,310 | ) |
| Balance, June 30, 2015 | |
$ | 104,279 | | |
$ | 48,546,670 | | |
$ | (6,976,964 | ) | |
$ | (20,980,788 | ) | |
$ | 20,693,197 | |
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CASH FLOWS
| Year ended June 30, | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Cash flows from operating activities: | |
| | | |
| | | |
| | |
| Net loss | |
$ | (1,777,310 | ) | |
$ | (2,805,913 | ) | |
$ | (1,256,773 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | | |
| | |
| Depreciation and amortization | |
| 1,311,111 | | |
| 1,280,796 | | |
| 1,306,044 | |
| Stock based compensation | |
| 4,956 | | |
| 9,655 | | |
| 44,197 | |
| Provision for doubtful accounts and sales returns and allowances | |
| 61,877 | | |
| 18,852 | | |
| 10,372 | |
| Deferred tax benefit | |
| - | | |
| (352,746 | ) | |
| (757,699 | ) |
| | |
| | | |
| | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Accounts receivable | |
| 76,554 | | |
| 490,013 | | |
| 741,251 | |
| Inventories | |
| 215,187 | | |
| (67,755 | ) | |
| 662,883 | |
| Income tax receivable | |
| 4,679 | | |
| 19,600 | | |
| 9,276 | |
| Other current assets | |
| 81,340 | | |
| 10,880 | | |
| (20,301 | ) |
| Accounts payable | |
| 300,575 | | |
| (248,980 | ) | |
| (479,942 | ) |
| Deferred revenue | |
| - | | |
| - | | |
| (114,700 | ) |
| Other accrued liabilities | |
| 535,381 | | |
| (237,055 | ) | |
| (124,338 | ) |
| Net cash provided by (used in) operating activities | |
| 814,350 | | |
| (1,882,653 | ) | |
| 20,270 | |
| | |
| | | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | | |
| | |
| Capital expenditures | |
| (141,166 | ) | |
| (438,504 | ) | |
| (1,367,534 | ) |
| Net cash used in investing activities | |
| (141,166 | ) | |
| (438,504 | ) | |
| (1,367,534 | ) |
| | |
| | | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | | |
| | |
| Purchases of treasury stock | |
| - | | |
| - | | |
| (249,360 | ) |
| Net cash used in financing activities | |
| - | | |
| - | | |
| (249,360 | ) |
| | |
| | | |
| | | |
| | |
| Net increase (decrease) in cash and cash equivalents | |
| 673,184 | | |
| (2,321,157 | ) | |
| (1,596,624 | ) |
| Cash and cash equivalents at beginning of year | |
| 1,366,762 | | |
| 3,687,919 | | |
| 5,284,543 | |
| Cash and cash equivalents at end of year | |
$ | 2,039,946 | | |
$ | 1,366,762 | | |
$ | 3,687,919 | |
| | |
| | | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | | |
| | |
| Cash paid during the year for: | |
| | | |
| | | |
| | |
| Interest | |
$ | - | | |
$ | - | | |
$ | - | |
| Income taxes | |
$ | 15,987 | | |
$ | 17,999 | | |
$ | 1,450 | |
| Non-cash investing and financing activity | |
| | | |
| | | |
| | |
| Deferred tax provision on stock options forfeited and reclassified to additional paid in capital | |
$ | 43,522 | | |
$ | 9,418 | | |
$ | - | |
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 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, 2015, 2014, and 2013 was $176,169, $113,209, and $150,944, respectively.
The related liability for warranty service amounted to $130,000 at June 30, 2015 and 2014.
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, 2015, 2014 and 2013 were $32,675, $17,904, and $46,691,
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, 2015, 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 $2,383,104 and $2,473,787
higher at June 30, 2015 and 2014, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced
by $0, $0, and $171,918 in fiscal 2015, 2014, and 2013 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 $1,472,956 and $1,433,718 at June 30, 2015 and 2014, 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, 2015, 2014, and 2013.
Collective Bargaining Agreement
At June 30, 2015,
the Company had approximately 232 full-time employees. Approximately 135 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, 2015 and 2014,
the Company had $195,000 and $150,000 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 for a valuation allowance to be recorded against the excess deferred tax assets.
The inability to utilize net operating losses continued as of June 30, 2015 and a full valuation allowance was recorded equal
to the net amount of deferred tax assets recognized in 2015.
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. The Company’s federal and state income tax returns are open for fiscal years ending after
June 30, 2012.
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, 2015, 2014 and 2013 were $528,285, $657,356, and $937,598, 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, 2015, 2014 and 2013
was 8,027,147, 8,027,147 and 8,070,645 shares, respectively. 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 not included in the calculation
of net loss per share, as their effect would be anti-dilutive for the years ended June 30, 2015, 2014 and 2013 respectively.
The following information is necessary
to calculate earnings per share for the periods presented:
| Year ended June 30, | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Net loss, as reported | |
$ | (1,777,310 | ) | |
$ | (2,805,913 | ) | |
$ | (1,256,773 | ) |
| | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| 8,027,147 | | |
| 8,027,147 | | |
| 8,070,645 | |
| Effect of dilutive stock options | |
| - | | |
| - | | |
| - | |
| Weighted average diluted common shares outstanding | |
| 8,027,147 | | |
| 8,027,147 | | |
| 8,070,645 | |
| | |
| | | |
| | | |
| | |
| Net loss per common share | |
| | | |
| | | |
| | |
| Basic | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) |
| Diluted | |
$ | (0.22 | ) | |
$ | (0.35 | ) | |
$ | (0.16 | ) |
| | |
| | | |
| | | |
| | |
| 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, 2015, 2014 and 2013.
| | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Weighted-average fair value | |
$ | 0.70 | | |
$ | 1.04 | | |
$ | 1.15 | |
| Weighted-average volatility | |
| 44 | % | |
| 45 | % | |
| 46 | % |
| Weighted-average expected life (in years) | |
| 6.0 | | |
| 6.0 | | |
| 6.0 | |
| Weighted-average risk-free interest rate | |
| 1.85 | % | |
| 1.68 | % | |
| 0.93 | % |
| 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, 2015, 2014 and 2013 was approximately $5,000,
$10,000 and $44,000, respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30,
2015 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 and $18,000 for the years ended June 30,
2014 and 2013, respectively. The income tax benefit for the year ended June 30, 2015 of approximately $2,000 was fully offset
by an increase in the deferred tax asset valuation allowance.
No stock options were
exercised during fiscal years 2015, 2014 and 2013.
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 are currently evaluating
the impact to our future financial statements.
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.
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”). At June 30, 2015, the Company had $5,000,000 available for borrowing
on the line of credit. 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 10, 2014 extending the maturity date to November 9, 2015. The Credit Facility will be available on a revolving
basis until it expires on November 9, 2015, 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 the 30-day LIBOR rate. 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 30-day LIBOR rate
was 0.19% on June 30, 2015.
At June 30, 2015 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, 2015.
The
Company leases certain of its equipment under non-cancelable operating lease agreements. Minimum lease payments under operating
leases at June 30, 2015 are as follows:
| | |
Operating | |
| Fiscal Year | |
Leases | |
| | |
| |
| 2016 | |
| 59,567 | |
| 2017 | |
| 52,238 | |
| 2018 | |
| 49,852 | |
| 2019 | |
| 3,820 | |
| Total minimum lease payments | |
$ | 165,477 | |
Rental
expense incurred on operating leases in fiscal 2015, 2014, and 2013 totaled $184,151, $236,826 and $255,517, respectively.
The provision for
(benefit from) income taxes consists of the following:
| | |
2015 | | |
2014 | | |
2013 | |
| Current: | |
| | | |
| | | |
| | |
| Federal | |
$ | - | | |
$ | - | | |
$ | - | |
| State | |
| 16,596 | | |
| 12,933 | | |
| 17,661 | |
| Total current | |
| 16,596 | | |
| 12,933 | | |
| 17,661 | |
| | |
| | | |
| | | |
| | |
| Deferred: | |
| | | |
| | | |
| | |
| Federal | |
| (552,167 | ) | |
| (1,050,750 | ) | |
| (698,712 | ) |
| State | |
| (66,542 | ) | |
| (102,199 | ) | |
| (58,987 | ) |
| Valuation Allowance | |
| 618,709 | | |
| 800,203 | | |
| - | |
| Total deferred | |
| - | | |
| (352,746 | ) | |
| (757,699 | ) |
| | |
$ | 16,596 | | |
$ | (339,813 | ) | |
$ | (740,038 | ) |
A reconciliation of
income taxes, with the amounts computed at the statutory federal rate is as follows:
| | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Computed tax at federal statutory rate | |
$ | (598,643 | ) | |
$ | (1,069,547 | ) | |
$ | (678,916 | ) |
| State income taxes, net of federal tax (benefit) provision | |
| (29,799 | ) | |
| (62,712 | ) | |
| (32,502 | ) |
| Non deductible expenses | |
| 14,683 | | |
| 18,141 | | |
| 20,162 | |
| Federal research credit | |
| (6,738 | ) | |
| (15,328 | ) | |
| (43,095 | ) |
| Other, net | |
| 18,384 | | |
| (10,570 | ) | |
| (5,687 | ) |
| Valuation Allowance | |
| 618,709 | | |
| 800,203 | | |
| - | |
| Total | |
$ | 16,596 | | |
$ | (339,813 | ) | |
$ | (740,038 | ) |
The deferred tax assets
and deferred tax liabilities recorded on the balance sheet as of June 30, 2015 and 2014 are as follows:
| | |
2015 | | |
2014 | |
| | |
Deferred Tax
Assets | | |
Deferred Tax
Liabilities | | |
Deferred Tax
Assets | | |
Deferred Tax
Liabilities | |
| | |
| | |
| | |
| | |
| |
| Current: | |
| | | |
| | | |
| | | |
| | |
| Bad debts | |
$ | 40,000 | | |
$ | — | | |
$ | 40,000 | | |
$ | — | |
| Prepaid expenses | |
| — | | |
| 20,093 | | |
| — | | |
| 22,971 | |
| Accrued liabilities | |
| 352,469 | | |
| — | | |
| 304,747 | | |
| — | |
| Inventory | |
| — | | |
| 1,140,283 | | |
| — | | |
| 1,152,722 | |
| | |
| 392,469 | | |
| 1,160,376 | | |
| 344,747 | | |
| 1,175,693 | |
| | |
| | | |
| | | |
| | | |
| | |
| Non Current: | |
| | | |
| | | |
| | | |
| | |
| Depreciation | |
| — | | |
| 470,768 | | |
| — | | |
| 535,510 | |
| Net operating loss and credit carryforwards | |
| 3,522,219 | | |
| — | | |
| 2,987,082 | | |
| — | |
| Intangible assets | |
| 2,471 | | |
| — | | |
| 1,306 | | |
| — | |
| Accrued pension liability | |
| 27,656 | | |
| — | | |
| 29,700 | | |
| — | |
| Stock options | |
| 321,845 | | |
| — | | |
| 363,385 | | |
| — | |
| Other | |
| — | | |
| 94,639 | | |
| — | | |
| 49,327 | |
| | |
| 3,874,191 | | |
| 565,407 | | |
| 3,381,473 | | |
| 584,837 | |
| Valuation Allowance | |
| (1,418,912 | ) | |
| — | | |
| (800,203 | ) | |
| — | |
| Total deferred taxes | |
$ | 2,847,748 | | |
$ | 1,725,783 | | |
$ | 2,926,017 | | |
$ | 1,760,530 | |
At June 30, 2015,
there were $9.1 million dollars of federal net operating loss carryforwards which will expire in 2031 through 2035. In addition,
the Company has state tax net operating losses of approximately $7.4 million that expire in varying years from 2029 through 2035.
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, 2012.
Management of the
Company is not aware of any additional needed liability for unrecognized tax benefits at June 30, 2015 and 2014.
| 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, 2015, 2014 and 2013, the Company made contributions of $221,508, $277,374, and $278,212, 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, 2015, 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 2014 and 2013 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 | | |
| |
|
| | |
| |
| |
| |
FIP/RP | |
| | |
| | |
| | |
| |
|
| | |
| |
| |
| |
Status | |
| | |
| | |
| | |
| |
|
| | |
| |
| |
| |
Pending/ | |
| | |
| | |
| | |
Surcharge | |
Expiration |
| Pension Trust Fund | |
EIN/PN | |
2014 | |
2013 | |
Implemented | |
2015 | | |
2014 | | |
2013 | | |
Imposed | |
Date of CBA |
| | |
| |
| |
| |
| |
| | |
| | |
| | |
| |
|
| District No. 9 | |
51-0138317/001 | |
Green | |
Green | |
| |
| | | |
| | | |
| | | |
| |
|
| International Association of Machinist and
Aerospace Workers Pension Plan | |
| |
12/31/2013 | |
12/31/2012 | |
N/A | |
$ | 287,385 | | |
$ | 293,377 | | |
$ | 309,373 | | |
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 2013, 2014 and 2015, 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, 2012 | |
| 468,000 | | |
$ | 4.35 | | |
| | | |
| | |
| Options Granted | |
| 6,000 | | |
$ | 2.59 | | |
| | | |
| | |
| Options Exercised | |
| 0 | | |
$ | 0.00 | | |
| | | |
| | |
| Options Forfeited or Expired | |
| (1,500 | ) | |
$ | 2.90 | | |
| | | |
| | |
| June 30, 2013 | |
| 472,500 | | |
$ | 4.34 | | |
| 3.2 | | |
$ | 960 | |
| | |
| | | |
| | | |
| | | |
| | |
| 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 | | |
$ | - | |
| Exercisable at June 30, 2015 | |
| 417,000 | | |
$ | 4.24 | | |
| 1.2 | | |
$ | - | |
The
following table provides additional information for options outstanding and exercisable at June 30, 2015:
| Options Outstanding | |
| | |
| |
| |
| | |
| | |
| |
| |
| Range of Exercise Prices | |
Number | | |
Weighted Average
Remaining Life | |
Weighted Average
Exercise Price | |
| 1.58 - 4.24 | |
| 60,000 | | |
6.6 years | |
$ | 3.16 | |
| 4.25 - 4.25 | |
| 320,000 | | |
0.2 years | |
$ | 4.25 | |
| 4.26 - 6.84 | |
| 43,000 | | |
2.3 years | |
$ | 5.30 | |
| | |
| | | |
| |
| | |
| $1.58 - 6.84 | |
| 423,000 | | |
1.3 years | |
$ | 4.20 | |
| Options Exercisable | |
| | |
| |
| | |
| | |
| |
| Range of Exercise Prices | |
Number | | |
Weighted Average
Exercise Price | |
| | |
| | | |
| | |
| 1.58 - 4.24 | |
| 54,000 | | |
$ | 3.33 | |
| 4.25 - 4.25 | |
| 320,000 | | |
$ | 4.25 | |
| 4.26 - 6.84 | |
| 43,000 | | |
$ | 5.30 | |
| | |
| | | |
| | |
| $1.58 - 6.84 | |
| 417,000 | | |
$ | 4.24 | |
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
| 8. | Supplemental Balance Sheet Information |
| | |
| |
June 30, | |
| | |
| |
2015 | | |
2014 | |
| Inventories | |
| |
| | | |
| | |
| Work in progress | |
| |
$ | 545,410 | | |
$ | 616,474 | |
| Component parts | |
| |
| 7,721,413 | | |
| 7,605,543 | |
| Finished goods | |
| |
| 2,397,044 | | |
| 2,617,799 | |
| Reserve for obsolete and excess inventory | |
| |
| (1,472,956 | ) | |
| (1,433,718 | ) |
| | |
| |
$ | 9,190,911 | | |
$ | 9,406,098 | |
| | |
| |
| | | |
| | |
| | |
Estimated | |
| | | |
| | |
| | |
Useful Life | |
| | | |
| | |
| | |
(years) | |
| | | |
| | |
| Property, plant and equipment | |
| |
| | | |
| | |
| Machinery and equipment | |
3-10 | |
$ | 14,693,789 | | |
$ | 14,609,438 | |
| Buildings | |
28-35 | |
| 13,052,328 | | |
| 13,048,090 | |
| Land and land improvements | |
5-7 | |
| 934,216 | | |
| 934,216 | |
| | |
| |
| | | |
| | |
| Total property, plant and equipment at cost | |
| |
| 28,680,333 | | |
| 28,591,744 | |
| Less accumulated depreciation and amortization | |
| |
| (20,859,127 | ) | |
| (19,656,143 | ) |
| | |
| |
$ | 7,821,206 | | |
$ | 8,935,601 | |
Depreciation expense was approximatley
$1.3 million, $1.2 million, and $1.2 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively.
| Other accrued liabilities | |
| | | |
| | |
| Accrued compensation expense | |
$ | 1,201,099 | | |
$ | 1,064,354 | |
| Customer deposits | |
| 589,276 | | |
| 252,496 | |
| Other | |
| 369,191 | | |
| 307,336 | |
| | |
$ | 2,159,566 | | |
$ | 1,624,186 | |
| 9. | Demutualization of Product Liability Insurer |
The Company’s
product liability insurer, Medmarc Insurance Group, demutualized and was acquired by ProAssurance Corporation on January 1, 2013.
As a policyholder of a mutual insurance company, Allied was entitled to receive a portion of the proceeds received by Medmarc.
In January 2013, the Company received a cash payment of approximately $516,000 as its share of these proceeds. These proceeds
are included in Other Income and Expenses. The Company does not anticipate receiving future proceeds of a material amount.
| 10. | 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”)
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 as damages the value of electricity received by the Company without charge. While the
total value of electricity at issue in the litigation is not known with certainty, Niagara alleges in its Motion For Summary Judgment,
filed on March 14, 2014, damages of approximately $492,000 in free electricity since May 2010. Alternatively, Niagara asserts
that, in the event that the free power covenant is still enforceable, the Company is still responsible for delivery fees relating
to any free power to which it is entitled. The Company filed its own 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 other parties filed separate notices of appeal of the
Court’s decision. A settlement hearing occurred on March 19, 2015, but no settlement has been reached. The appellants’
briefs have been filed and the Company intends to file its response. As of June 30, 2015, the Company has not recorded a provision
for this matter given management’s assessment of the probability of a loss.
Dräger
Patent Litigation. On or about October 4, 2013, Dräger Medical GmbH and certain affiliates (the “Dräger Plaintiffs”)
filed a patent infringement lawsuit against the Company in the District of Delaware, asserting that the Company infringes United
States Patent Nos. 7,487,776 and 8,286,633, both protecting particular combinations of carbon dioxide absorption cartridges and
adapters which fit on anesthesia machines. The Dräger Plaintiffs assert that the Company’s sales of certain models
of its Litholyme and Carbolime single-use carbon dioxide absorption cartridges infringe both patents. The Company answered the
Complaint, asserting invalidity of the patents, non-infringement, and implied license under the doctrine of permissive repair.
On October 25,
2013, the Dräger Plaintiffs filed a motion for preliminary injunction requesting that the Company be enjoined from selling
certain models of its Litholyme and Carbolime cartridges during the pendency of the litigation. A hearing on the motion for preliminary
injunction was held on February 7, 2014. On March 24, 2014, the Court ruled in Allied’s favor and denied Dräger’s
motion for a preliminary injunction, stating among other things that Dräger had not carried its burden of showing that Allied
had infringed Dräger’s patents. On June 20, 2014, the Company filed a motion seeking summary judgment based on the
repair doctrine, which was the basis for the Court’s denial of Dräger’s motion for preliminary injunction. On
March 27, 2015, the Court granted the Company’s motion for summary judgment of non-infringement. The Dräger Plaintiffs
appealed the Court’s Order granting the motion for summary judgment on April 21, 2015 and, as of August 31, 2015, briefs
have been filed by both sides.
As of June 30, 2015, the Company has not recorded a provision
for this matter given management’s assessment of the probability of a loss and because the Dräger Plaintiffs have not
specified damages. The Company will defend the Dräger Plaintiff’s appeal and pursue counterclaims for invalidity, non-infringement,
and implied license.
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 |
| | |
| | |
| | |
| |
| | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Domestic United States | |
$ | 27,304,353 | | |
$ | 27,214,060 | | |
$ | 29,180,042 | |
| Europe | |
| 639,641 | | |
| 858,735 | | |
| 1,421,347 | |
| Canada | |
| 769,749 | | |
| 758,392 | | |
| 673,011 | |
| Latin America | |
| 3,343,361 | | |
| 4,291,530 | | |
| 4,113,201 | |
| Middle East | |
| 911,241 | | |
| 1,214,389 | | |
| 1,228,318 | |
| Far East | |
| 2,466,614 | | |
| 2,011,714 | | |
| 1,841,771 | |
| Other International | |
| 26,810 | | |
| 21,796 | | |
| 94,084 | |
| | |
$ | 35,461,769 | | |
$ | 36,370,616 | | |
$ | 38,551,774 | |
| Sales by Product |
| | |
| | |
| | |
| |
| | |
2015 | | |
2014 | | |
2013 | |
| | |
| | |
| | |
| |
| Respiratory care products | |
$ | 9,221,764 | | |
$ | 9,688,486 | | |
$ | 8,944,319 | |
| Medical gas equipment | |
| 18,772,376 | | |
| 19,425,522 | | |
| 21,870,840 | |
| Emergency medical products | |
| 7,467,629 | | |
| 7,256,608 | | |
| 7,736,615 | |
| | |
$ | 35,461,769 | | |
$ | 36,370,616 | | |
$ | 38,551,774 | |
| 12. | Quarterly Financial Data (unaudited) |
Summarized
quarterly financial data for fiscal 2015 and 2014 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, | |
2015 | | |
2015 | | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2013 | | |
2013 | |
| Net sales | |
$ | 9,114 | | |
$ | 8,503 | | |
$ | 9,000 | | |
$ | 8,845 | | |
$ | 9,798 | | |
$ | 9,116 | | |
$ | 8,749 | | |
$ | 8,708 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross profit | |
| 1,638 | | |
| 1,699 | | |
| 2,158 | | |
| 1,575 | | |
| 1,861 | | |
| 1,748 | | |
| 1,944 | | |
| 1,761 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (472 | ) | |
| (489 | ) | |
| (35 | ) | |
| (698 | ) | |
| (395 | ) | |
| (960 | ) | |
| (892 | ) | |
| (862 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| (521 | ) | |
| (503 | ) | |
| (45 | ) | |
| (708 | ) | |
| (347 | ) | |
| (969 | ) | |
| (899 | ) | |
| (591 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic loss per share | |
| (0.06 | ) | |
| (0.06 | ) | |
| (0.01 | ) | |
| (0.09 | ) | |
| (0.04 | ) | |
| (0.12 | ) | |
| (0.11 | ) | |
| (0.07 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Diluted loss per share | |
| (0.06 | ) | |
| (0.06 | ) | |
| (0.01 | ) | |
| (0.09 | ) | |
| (0.04 | ) | |
| (0.12 | ) | |
| (0.11 | ) | |
| (0.07 | ) |
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.
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 provided 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 have been 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, 2015, 2014, and 2013, Allied recognized $0, $0 and $114,700, respectively into income as net sales
in each year. The agreement expired in August 2012 and no further income has been recognized from the agreement since such expiration.
On November 21, 2012
the Company’s Board of Directors approved the purchase of up to 100,000 shares of the Company’s common stock. This
authority terminated on February 19th, 2013. Pursuant to this authorization, the Company repurchased 94,139 shares
of stock at an average price of $2.54 for an aggregate total purchase price of $240,952.
On February 25, 2013
the Company’s Board of Directors authorized the repurchase of up to 100,000 shares of the Company’s common stock for
a period of 90 days. Repurchases may be made in the open market or in privately negotiated transactions, with the timing and
terms of such transaction in the discretion of the Chairman of the Board unless terminated by the Board, the repurchase authority
renews for successive 90 day periods. The repurchase authority may be terminated by the Board at any time and without notice.
Pursuant to this authorization, the Company repurchased a total of 3,100 shares on February 26, 2013 at an average price of $2.69
per share for an aggregate total purchase price of $8,408.
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 information 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,
2015, 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, 2015. 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 (2013). Based on this assessment, our management concluded that, as of June 30, 2015, 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 affected,
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, 2015. 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 2015 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, 2015,
2014, and 2013 |
| |
|
| |
Balance Sheet at June 30, 2015 and 2014 |
| |
|
| |
Statement of Changes in Stockholders’ Equity for the years ended
June 30, 2015, 2014 and 2013 |
| |
|
| |
Statement of Cash Flows for the years ended June 30, 2015, 2014 and 2013 |
| |
|
| |
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, 2015, 2014 and 2013 |
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
25, 2015
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 25th, 2015.
| 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 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, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accounts Receivable Allowances | |
$ | (170,000 | ) | |
$ | (61,877 | ) | |
| - | | |
$ | 61,877 | (1) | |
$ | (170,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Inventory Allowance For Obsolescence And Excess Quantities | |
$ | (1,433,718 | ) | |
$ | (98,316 | ) | |
$ | (23,382 | )(3) | |
$ | 82,460 | (2) | |
$ | (1,472,956 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Deferred Tax Asset Valuation Allowance | |
$ | (800,203 | ) | |
$ | (618,709 | ) | |
| - | | |
| - | | |
$ | (1,418,912 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| For the Year Ended June 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accounts Receivable Allowances | |
$ | (170,000 | ) | |
$ | (18,852 | ) | |
| - | | |
$ | 18,852 | (1) | |
$ | (170,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Inventory Allowance For Obsolescence And Excess Quantities | |
$ | (1,312,600 | ) | |
$ | (128,189 | ) | |
$ | (29,128 | )(3) | |
$ | 36,199 | (2) | |
$ | (1,433,718 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Deferred Tax Asset Valuation Allowance | |
$ | 0 | | |
$ | (800,203 | ) | |
| - | | |
| - | | |
$ | (800,203 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| For the Year Ended June 30, 2013 | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accounts Receivable Allowances | |
$ | (170,000 | ) | |
$ | (10,372 | ) | |
| - | | |
$ | 10,372 | (1) | |
$ | (170,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Inventory Allowance For Obsolescence And Excess Quantities | |
$ | (1,327,291 | ) | |
$ | (121,970 | ) | |
$ | (37,265 | )(3) | |
$ | 173,926 | (2) | |
$ | (1,312,600 | ) |
| (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
| Exhibit |
|
|
| No. |
|
Description |
| |
|
|
| 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 |
|
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). |
| |
|
|
| 10.4 |
|
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) |
| |
|
|
| 10.4.1 |
|
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) |
| |
|
|
| 10.5 |
|
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) |
| |
|
|
| 10.6 |
|
Allied Healthcare Products, Inc. 2009 Incentive Stock Plan (filed with Commission as Appendix
A to the 2009 Proxy Statement on Schedule 14A) |
| 10.7 |
|
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) |
| |
|
|
| 10.8 |
|
Patent License Agreement, dated June 8, 2012, by and between Allied Healthcare Products, Inc.
and Armstrong Medical Limited (filed with the Commission as Exhibit 10.12 to the 2012 Form 10-K and incorporated herein by
reference). |
| |
|
|
| 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)* |
| |
|
|
| 101 |
|
Pursuant to Rule 405 of Regulation
S-T, the following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended June
30, 2015, is formatted in XBRL interactive data files: (i) Statement of Operations for the fiscal years ended June 30, 2015,
2014 and 2013; (ii) Balance Sheet at June 30, 2015 and June 30, 2014; (iii) Statement of Changes in Stockholders’ Equity
for the fiscal years ended June 30, 2015, 2014 and 2013; (iiii) Statement of Cash Flows for the fiscal years ended June 30,
2015, 2014 and 2013; and (v) Notes to Financial Statements. |
*Notwithstanding any incorporation of
this Quarterly Report on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with an asterisk
(*) shall not be deemed incorporated by reference to any other filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934 unless specifically otherwise set forth therein.
Exhibit 23.1
Consent of Independent Registered Public
Accounting Firm
We hereby consent to the incorporation
by reference in the Registration Statements on Form S-8 (Nos. 33-45146, 333-16489, 333-132223 and 333-177837) of Allied Healthcare
Products, Inc. of our report dated September 25, 2015, relating to the financial statements and financial statement schedule, which
appears in this Form 10-K.
/s/ RubinBrown LLP
St. Louis, Missouri
September 25, 2015
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY
THESE PRESENTS, that the person whose signature appears below constitutes and appoints Earl R. Refsland as his true and lawful
attorney-in fact and agent, each with full power of substitution, for him and in his name, place and stead, in any and all capacities,
to sign the 2015 Annual Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and thing requisite as fully to all intents and purposes
as he might or could do in person, and ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Exhibit 31.1
CERTIFICATION
I, EARL R. REFSLAND, certify that:
1.
I have reviewed this Form 10-K of ALLIED HEALTHCARE PRODUCTS, INC.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 25, 2015
| |
/s/ EARL R. REFSLAND |
| |
|
| |
Earl. R. Refsland |
| |
President & Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, DANIEL C. DUNN, certify that:
1.
I have reviewed this Form 10-K of ALLIED HEALTHCARE PRODUCTS, INC.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 25, 2015
| |
/s/ DANIEL C. DUNN |
| |
|
| |
Daniel C. Dunn |
| |
Vice President, Chief Financial Officer & Secretary |
Exhibit 32.1
CERTIFICATION Pursuant to 18 U.S.C. §
1350
The undersigned officer of ALLIED HEALTHCARE
PRODUCTS, INC. (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2015 (the "Report") fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
| |
/s/ Earl R. Refsland |
| |
Earl R. Refsland |
| |
President & Chief Executive Officer |
September 25, 2015
Exhibit 32.2
CERTIFICATION Pursuant to 18 U.S.C. §
1350
The undersigned officer of ALLIED HEALTHCARE
PRODUCTS, INC. (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2015 (the "Report") fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
| |
/s/ Daniel C. Dunn |
| |
Daniel C. Dunn |
| |
Vice President, Chief Financial Officer & Secretary |
September 25, 2015
Allied Healthcare Products (NASDAQ:AHPI)
Historical Stock Chart
From Oct 2024 to Nov 2024
Allied Healthcare Products (NASDAQ:AHPI)
Historical Stock Chart
From Nov 2023 to Nov 2024
