The following described
financial statements of Allied Healthcare Products, Inc. are included in response to this item:
NOTES TO FINANCIAL STATEMENTS
Allied Healthcare Products,
Inc. (the “Company” or “Allied”) is a manufacturer of respiratory products used in the health care industry
in a wide range of hospital and alternate site settings, including post-acute care facilities, home health care and trauma care.
The Company's product lines include respiratory care products, medical gas equipment and emergency medical products.
|
|
2.
|
Summary of Significant Accounting Policies
|
The significant accounting
policies followed by Allied are described below.
Use of estimates
The policies utilized
by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United
States of America, and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
Revenue recognition
Revenue is recognized
for all sales, including sales to agents and distributors, at the time products are shipped and title has transferred, provided
that a purchase order has been received or a contract executed, there are not uncertainties regarding customer acceptance, the
sales price is fixed and determinable and collectability is reasonably assured. Sales discounts, returns and allowances are included
in net sales, and the provision for doubtful accounts is included in selling, general and administrative expenses. Additionally,
it is the Company’s practice to include revenues generated from freight billed to customers in net sales with corresponding
freight expense included in cost of sales in the Statement of Operations. The Company reports sales taxes on sales transactions
on a net basis in the Statement of Operations, and therefore does not include sales taxes in revenues or costs.
The sales price is
fixed by Allied’s acceptance of the buyer’s firm purchase order. The sales price is not contingent, or subject to
additional discounts. Allied’s standard shipment terms are “F.O.B. shipping point” as stated in Allied’s
Terms and Conditions of Sale. The customer is responsible for obtaining insurance for and bears the risk of loss for product in-transit.
Additionally, sales to customers do not include the right to return merchandise without the prior consent of Allied. In those
cases where returns are accepted, product must be current and restocking fees must be paid by the respective customer. A provision
has been made for estimated sales returns and allowances. These estimates are based on historical analysis of credit memo data
and returns.
Allied does not provide
installation services for its products. Most products shipped are ready for immediate use by the customer. The Company’s
in-wall medical system components, central station pumps and compressors, and headwalls do require installation by the customer.
These products are typically purchased by a third-party contractor who is ultimately responsible for installation services. Accordingly,
the customer purchase order or contract does not require customer acceptance of the installation prior to completion of the sale
transaction and revenue recognition. Allied’s standard payment terms are net 30 days from the date of shipment, and payment
is specifically not subject to customer inspection or acceptance, as stated in Allied’s Terms and Conditions of Sale. The
buyer becomes obligated to pay Allied at the time of shipment. Allied requires credit applications from its customers and performs
credit reviews to determine the creditworthiness of new customers. Allied requires letters of credit, where warranted, for international
transactions. Allied also protects its legal rights under mechanics lien laws when selling to contractors.
Allied does offer limited
warranties on its products. The standard warranty period is one year. The Company’s cost of providing warranty
service for its products for the years ended June 30, 2012, June 30, 2011, and June 30, 2010 was $152,625, $125,369, and $135,032,
respectively. The related liability for warranty service amounted to $139,906 and $83,380 at June 30, 2012 and 2011, respectively.
Marketing and Advertising Costs
Promotional
and advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the Statement
of Operations.
Advertising expenses for the years ended June 30, 2012, 2011 and 2010 were $46,278, $42,119, and $55,504,
respectively.
Cash and cash equivalents
For purposes of the
statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when acquired
to be cash equivalents.
The Company maintains
funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation. The risk of loss
attributable to these uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The
Company has not experienced any losses in such accounts.
Foreign currency transactions
Allied has international
sales which are denominated in U.S. dollars, the functional currency for these transactions.
Accounts receivable and concentrations
of credit risk
Accounts receivable
are recorded at the invoiced amount. The Company performs ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses based on past experience and an analysis of current amounts
due, and historically such losses have been within management's expectations. The Company maintains an allowance for doubtful accounts
to reflect the uncollectibility of accounts receivable based on past collection history and specific risks indentified among uncollected
accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company determines that the receivable
will not be collected and/or when the account has been referred to a third party collection agency. The Company’s customers
can be grouped into three main categories: medical equipment distributors, construction contractors and health care institutions.
At June 30, 2012 the Company believes that it has no significant concentration of credit risk.
Inventories
Inventories are stated
at the lower of cost, determined using the last-in, first-out (“LIFO”) method, or market. If the first-in, first-out
method (which approximates replacement cost) had been used in determining cost, inventories would have been $2,515,706 and $2,608,503
higher at June 30, 2012 and 2011, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced
by $164,645, $55,475 and $0 in fiscal 2012, 2011, and 2010 respectively, as a result of LIFO liquidations. Costs in inventory include
raw materials, direct labor and manufacturing overhead.
Inventory is recorded
net of a reserve for obsolete and excess inventory which is determined based on an analysis of inventory items with no usage in
the preceding year and for inventory items for which there is greater than two years’ usage on hand. The reserve for obsolete
and excess inventory was $1,327,291 and $1,419,420 at June 30, 2012 and 2011, respectively.
Property, plant and equipment
Property, plant and
equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets,
which range from 3 to 35 years. Expenditures for repairs, maintenance and renewals are charged to income as incurred. Expenditures,
which improve an asset or extend its estimated useful life, are capitalized. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Impairment of long-lived assets
The Company evaluates
impairment of long-lived assets under the provisions of ASC Topic 360: “Property, Plant and Equipment.” ASC 360 provides
a single accounting model for long-lived assets to be disposed of and reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Under ASC 360, if the sum of the expected future cash flows
(undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment
loss will be recognized. No impairment losses of long-lived assets or identifiable intangibles were recorded by the Company for
fiscal years ended June 30, 2012, 2011, and 2010.
Collective Bargaining Agreement
At June 30, 2012, the
Company had approximately 289 full-time employees. Approximately 179 employees in the Company’s principal manufacturing facility
located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2015.
Self-insurance
The Company maintains
a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred but not reported. As of June 30, 2012 and 2011, the
Company had approximately $190,000 and $229,000 respectively, of accrued liabilities related to health care claims. In order to
establish the self-insurance reserves, the Company utilized actuarial estimates of expected claims based on analyses of historical
data.
Fair value of financial instruments
The Company’s
financial instruments consist of cash, accounts receivable and accounts payable. The carrying amounts for cash, accounts receivable
and accounts payable approximate their fair value due to the short maturity of these instruments.
Income taxes
The Company accounts
for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined using
the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial
statement and income tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized
.
In assessing the need for a valuation allowance the Company first considers the reversals of existing temporary deferred tax liabilities
and available tax planning strategies. To the extent these items are not sufficient to cause the realization of deferred
tax assets, the Company considers the availability of future taxable income to the extent such income is considered likely to occur
based on the Company’s earnings history, current income trends and projections.
The Company recognizes
tax liabilities when, despite the Company’s belief that its tax return positions are supportable, the Company believes that
certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon settlement. To the extent the Company deems it
necessary to record a liability for its tax positions, the current portion of the liability is included in income taxes payable
and the noncurrent portion is included in other liabilities in balance sheet. If upon the final tax outcome of these matters the
ultimate liability is different than the amounts recorded, such differences are reflected in income tax expense in the period in
which such determination is made. The Company’s federal tax returns for the fiscal years after 2009 remain subject to examination.
The various states in which the Company is subject to income tax are generally open for the fiscal years 2009 and after.
The Company classifies interest expenses
on taxes payable as interest expense. Penalties are classified as a component of other expenses.
Research and development costs
Research and development
costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses
for the years ended June 30, 2012, 2011 and 2010 were $948,213, $822,978, and $858,509, respectively.
Earnings per share
Basic earnings per
share are based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share
are based on the sum of the weighted averaged number of shares of common stock and common stock equivalents outstanding during
the year. The weighted average number of basic shares outstanding for the years ended June 30, 2012, 2011 and 2010 was 8,124,386,
8,107,313 and 8,066,740 shares, respectively. The weighted average number of diluted shares outstanding for the years ended June
30, 2012, 2011 and 2010 was 8,124,386, 8,124,957 and 8,066,740 shares, respectively. The dilutive effect of the Company's employee
and director stock option plans are determined by use of the treasury stock method. Potential common shares not included in the
calculation of net loss per share, as their effect would be anti-dilutive, are 3,806, 0 and 57,193 for the years ended June 30,
2012, 2011 and 2010 respectively.
The following information is necessary
to calculate earnings per share for the periods presented:
|
Year ended June 30,
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
|
$
|
(424,426
|
)
|
|
$
|
204,408
|
|
|
$
|
(599,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
8,124,386
|
|
|
|
8,107,313
|
|
|
|
8,066,740
|
|
|
Effect of dilutive stock options
|
|
|
-
|
|
|
|
17,644
|
|
|
|
-
|
|
|
Weighted average diluted common shares outstanding
|
|
|
8,124,386
|
|
|
|
8,124,957
|
|
|
|
8,066,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options excluded from computation of diluted income per share amounts because their effect would be anti-dilutive
|
|
|
3,806
|
|
|
|
-
|
|
|
|
57,193
|
|
Employee stock-based compensation
The company follows
the provisions of ASC Topic 718: “Compensation – Stock Compensation”, which sets accounting requirements for
“share-based” compensation to employees, including employee stock purchase plans, and requires companies to recognize
in the statement of operations the grant-date fair value of the stock options and other equity-based compensation.
The fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes the weighted
average assumptions utilized in the Black-Scholes option pricing model for options granted during the fiscal years ended June 30,
2012, 2011 and 2010.
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
1.60
|
|
|
$
|
1.98
|
|
|
$
|
1.91
|
|
|
Weighted-average volatility
|
|
|
46
|
%
|
|
|
46
|
%
|
|
|
59
|
%
|
|
Weighted-average expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
3.0
|
|
|
Weighted-average risk-free interest rate
|
|
|
1.67
|
%
|
|
|
1.54
|
%
|
|
|
1.60
|
%
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
is based on the historical volatility of the Company’s common stock to estimate future volatility. The risk-free rates are
taken from rates as published by the Federal Reserve and represent the yields on actively traded treasury securities for terms
equal or approximately equal to the expected terms of the options. The expected term is calculated using the SEC Staff Accounting
Bulletin 107 (ASC 718-10-S99) simplified method. The dividend yield is zero based on the fact that the Company has no intention
of paying dividends in the near term.
Share-based compensation
expense included in the Statement of Operations for the fiscal years ended June 30, 2012, 2011 and 2010 was approximately $44,000,
$20,000 and $648,000 respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30,
2012 amounts to approximately $42,000. The cost is expected to be recognized over the next two fiscal years.
The Company recognized
income tax benefits for share-based compensation arrangements of approximately $18,000, $8,000 and $259,000 for the years ended
June 30, 2012, 2011 and 2010, respectively.
The following table
summarizes stock option exercises for the fiscal years ended June 30, 2012, 2011 and 2010.
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
-
|
|
|
|
31,000
|
|
|
|
543,500
|
|
|
Total intrinsic value of stock options exercised
|
|
$
|
-
|
|
|
$
|
32,450
|
|
|
$
|
1,218,771
|
|
|
Cash received from stock option exercises
|
|
$
|
-
|
|
|
$
|
103,250
|
|
|
$
|
3,469
|
|
|
Tax benefit from stock options exercised
|
|
$
|
-
|
|
|
$
|
12,980
|
|
|
$
|
487,509
|
|
Recently Adopted Accounting Pronouncements
In September 2011,
the FASB issued guidance titled “Disclosures about an Employers Participation in a Multiemployer Plan”. The guidance
requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures
to provide users with more detailed information about an employer’s involvement in multiemployer pension plans. The guidance
is effective for years ending after December 15, 2011. Adoption of this pronouncement did not have a material impact on the Company’s
financial statements.
Recently Issued
Accounting Pronouncements
We have reviewed accounting
pronouncements and interpretations thereof issued by the FASB, AICPA and the SEC that have effective dates during the periods reported
and in future periods. Management does not believe that any of those pronouncements will have a material impact on the Company’s
present or future financial statements.
The Company is party
to a Loan and Security Agreement, dated November 17, 2009, with Enterprise Bank & Trust (the “Credit Agreement”)
pursuant to which the Company obtained a secured revolving credit facility with borrowing availability of up to $7,500,000 (the
“Credit Facility”). The Company’s obligations under the Credit Facility are secured by certain assets of the
Company pursuant to the terms and subject to the conditions set forth in the Credit Agreement.
The Credit Facility
was amended on November 11, 2011 extending the maturity date to November 13, 2012. The Credit Facility will be available on a revolving
basis until it expires on November 13, 2012, at which time all amounts outstanding under the Credit Facility will be due and payable.
Advances under the Credit Facility will be made pursuant to a Revolving Credit Note executed by the Company in favor of Enterprise
Bank & Trust. Such advances will bear interest at a rate equal to 3.50% in excess of LIBOR. Advances may be prepaid in whole
or in part without premium or penalty.
Under the Credit
Agreement, advances are generally subject to customary borrowing conditions. The Credit Agreement also contains covenants with
which the Company must comply during the term of the Credit Facility. Among other things, such covenants restrict the Company’s
ability to incur certain additional debt; make specified restricted payments, dividends and capital expenditures; authorize or
issue capital stock; enter into certain transactions with affiliates; consolidate or merge with or acquire another business; sell
certain of its assets or dissolve or wind up the Company. The Credit Agreement also contains certain events of default that are
customary for financings of this type including, without limitation: the failure to pay principal, interest, fees or other amounts
when due; the breach of specified representations or warranties contained in the loan documents; cross-default with certain other
indebtedness of the Company; the entry of uninsured judgments that are not bonded or stayed; failure to comply with the observance
or performance of specified agreements contained in the loan documents; commencement of bankruptcy or other insolvency proceedings;
and the failure of any of the loan documents entered into in connection with the Credit Facility to be in full force and effect.
After an event of default, and upon the continuation thereof, the principal amount of all loans made under the Credit Facility
would bear interest at a rate per annum equal to 4.00% above the otherwise applicable interest rate (provided, that the interest
rate may not exceed the highest rate permissible under law), and the lender would have the option to accelerate maturity and payment
of the Company’s obligations under the Credit Facility.
The LIBOR rate was
0.46% on June 30, 2012.
At June 30, 2012
the Company had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt.
The Company was in
compliance with all of the financial covenants associated with the Credit Facility at June 30, 2012.
The
Company leases certain of its equipment under non-cancelable operating lease agreements. Minimum lease payments under operating
leases at June 30, 2012 are as follows:
|
|
|
Operating
|
|
|
Fiscal Year
|
|
Leases
|
|
|
|
|
|
|
|
|
2013
|
|
$
|
154,563
|
|
|
2014
|
|
|
137,460
|
|
|
2015
|
|
|
19,812
|
|
|
2016
|
|
|
7,618
|
|
|
2017
|
|
|
590
|
|
|
Total minimum lease payments
|
|
$
|
320,043
|
|
Rental
expense incurred on operating leases in fiscal 2012, 2011, and 2010 totaled $238,486, $303,079 and $275,446 respectively.
The provision for (benefit
from) income taxes consists of the following:
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(38,368
|
)
|
|
$
|
(324,691
|
)
|
|
State
|
|
|
11,581
|
|
|
|
156,155
|
|
|
|
(25,038
|
)
|
|
Total current
|
|
|
11,581
|
|
|
|
117,787
|
|
|
|
(349,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(252,778
|
)
|
|
|
96,079
|
|
|
|
108,702
|
|
|
State
|
|
|
(4,723
|
)
|
|
|
(54,847
|
)
|
|
|
(52,914
|
)
|
|
Total deferred
|
|
|
(257,501
|
)
|
|
|
41,232
|
|
|
|
55,788
|
|
|
|
|
$
|
(245,920
|
)
|
|
$
|
159,019
|
|
|
$
|
(293,941
|
)
|
A reconciliation of
income taxes, with the amounts computed at the statutory federal rate is as follows:
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed tax at federal statutory rate
|
|
$
|
(227,917
|
)
|
|
$
|
123,565
|
|
|
$
|
(303,795
|
)
|
|
State income taxes, net of federal tax benefit
|
|
|
(4,982
|
)
|
|
|
42,610
|
|
|
|
(26,860
|
)
|
|
Tax exempt income
|
|
|
-
|
|
|
|
-
|
|
|
|
(492
|
)
|
|
Non deductible expenses
|
|
|
17,572
|
|
|
|
25,821
|
|
|
|
26,544
|
|
|
Federal research credit
|
|
|
(31,507
|
)
|
|
|
(30,000
|
)
|
|
|
-
|
|
|
Other, net
|
|
|
914
|
|
|
|
(2,977
|
)
|
|
|
10,662
|
|
|
Total
|
|
$
|
(245,920
|
)
|
|
$
|
159,019
|
|
|
$
|
(293,941
|
)
|
The deferred tax assets
and deferred tax liabilities recorded on the balance sheet as of June 30, 2012 and 2011 are as follows:
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
Deferred Tax Assets
|
|
|
Deferred Tax
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
$
|
40,000
|
|
|
$
|
—
|
|
|
$
|
40,000
|
|
|
$
|
—
|
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
26,159
|
|
|
|
—
|
|
|
|
17,594
|
|
|
Deferred revenue
|
|
|
45,880
|
|
|
|
—
|
|
|
|
275,280
|
|
|
|
—
|
|
|
Accrued liabilities
|
|
|
326,170
|
|
|
|
—
|
|
|
|
332,122
|
|
|
|
—
|
|
|
Inventory
|
|
|
—
|
|
|
|
1,188,853
|
|
|
|
—
|
|
|
|
1,142,379
|
|
|
|
|
|
412,050
|
|
|
|
1,215,012
|
|
|
|
647,402
|
|
|
|
1,159,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
419,006
|
|
|
|
—
|
|
|
|
434,968
|
|
|
Net operating loss and credit carryforwards
|
|
|
882,440
|
|
|
|
—
|
|
|
|
348,796
|
|
|
|
—
|
|
|
Intangible assets
|
|
|
—
|
|
|
|
1,048
|
|
|
|
—
|
|
|
|
5,687
|
|
|
Deferred revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
45,880
|
|
|
|
—
|
|
|
Accrued pension liability
|
|
|
69,880
|
|
|
|
—
|
|
|
|
56,062
|
|
|
|
—
|
|
|
Stock options
|
|
|
351,262
|
|
|
|
—
|
|
|
|
336,272
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
16,106
|
|
|
|
—
|
|
|
|
24,343
|
|
|
|
|
|
1,303,582
|
|
|
|
436,160
|
|
|
|
787,010
|
|
|
|
464,998
|
|
|
Valuation Allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total deferred taxes
|
|
$
|
1,715,632
|
|
|
$
|
1,651,172
|
|
|
$
|
1,434,412
|
|
|
$
|
1,624,971
|
|
The net long term
deferred tax asset of $867,422 and $322,013 is included in other assets in the June 30, 2012 and 2011 balance sheet, respectively.
At June 30, 2012 there were $2.0 million dollars of federal net operating loss carryforwards which will expire in 2031 through
2032. In addition, the Company has state tax net operating losses of approximately $3.4 million that expire in varying years from
2029 through 2032.
The
Company files a federal and multiple state income tax returns. The Company’s federal and state income tax returns are open
for fiscal years ending after June 30, 2009.
Management
of the Company is not aware of any additional needed liability for unrecognized tax benefits at June 30, 2012 and June 30, 2011.
|
|
6.
|
Employee Retirement Benefits
|
The Company offers
a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee
may elect to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed
to the plan.
During the fiscal years
ended June 30, 2012, 2011 and 2010, the Company made contributions of $247,576, $245,628, and $252,858, respectively.
The risk of participating
in multi-employer pension plan is different from single-employer plans. Assets contributed to a multi-employer plan by one employer
may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to
the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
The Company’s
participation in a multi-employer pension plan for the year ended June 30, 2012, is outlined in the table below. The “EIN/PN”
column provides the Employee Identification Number (EIN) and the three-digit plan number (PN). The most recent Pension Protection
Act (PPA) zone status for 2011 and 2010 is for the plan year-ends as indicated below. The zone status is based on information that
the Company obtained from the Notes to the Financial Statements included with the plan’s Form 5500. Among other factors,
plans in the red zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded.
The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation
plan (RP) is either pending or has been implemented. In addition to regular plan contributions, the Company may be subject to a
surcharge if the plan is in the red zone. The “Surcharge Imposed” column indicates whether a surcharge has been imposed
on contributions to the plan. The last column lists the expiration date(s) of the collective-bargaining agreement (CBA) to which
the plan is subject.
|
|
|
PPA Zone Status
|
|
|
|
|
|
Contributions
by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIP/RP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending/
|
|
|
|
|
|
|
|
|
|
|
|
Surcharge
|
|
|
Expiration
|
|
|
Pension Trust Fund
|
|
EIN/PN
|
|
|
2011
|
|
|
2010
|
|
|
Implemented
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Imposed
|
|
|
Date of CBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
District No. 9
|
|
|
51-0138317/001
|
|
|
Green
|
|
|
Red
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
12/31/2010
|
|
|
12/31/2009
|
|
|
Implemented
|
|
|
$
|
331,154
|
|
|
$
|
369,195
|
|
|
$
|
367,581
|
|
|
|
No
|
|
|
|
5/31/2015
|
|
|
Association of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinist and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Workers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company was not listed in the Form
5500 for the above plan as of the plan year ends as providing more than 5 percent of total contributions
.
|
|
7.
|
Stock Based Compensation
|
The Company has established
a 1994 Employee Stock Option Plan, a 1999 Incentive Stock Plan, and a 2009 Incentive Stock Plan (collectively the “Employee
Plans”). The Employee Plans provide for the granting of options to the Company's executive officers and key employees to
purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase
up to 2,150,000 shares of common stock may be granted under the Employee Plans. Options generally become exercisable ratably over
a four year period or one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the first
or second anniversary of the date granted. The right to exercise the options generally expires in ten years from the date of grant,
or earlier if an option holder ceases to be employed by the Company. On August 27, 2009, the Company granted a non-qualified stock
option to acquire 320,000 shares of the Company’s Common Stock, at an exercise price of $4.25, to Mr. Refsland. Mr. Refsland’s
option was fully vested at the time of the grant and is exercisable over a period of six (6) years following the grant date.
In addition, the Company
has established a 1995 Directors Non-Qualified Stock Option Plan and a 2005 Directors Non-Qualified Stock Option Plan (collectively
the “Directors Plans”). The Directors Plans provide for the granting of options to the Company's directors who are
not employees of the Company to purchase shares of common stock at prices equal to the fair market value of the stock on the date
of grant. Options to purchase up to 225,000 shares of common stock may be granted under the Directors Plans. Options shall become
exercisable with respect to one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the
second anniversary of the date granted, except for certain options which become exercisable with respect to all of the shares covered
thereby one year after the grant date. The right to exercise the options expires in ten years from the date of grant, or earlier
if an option holder ceases to be a director of the Company.
Upon stock-settled
compensation exercises and awards, the Company issues new shares of common stock.
A summary of stock
option transactions in fiscal 2010, 2011 and 2012, respectively, pursuant to the Employee Plans and the Directors Plans is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
690,500
|
|
|
$
|
2.52
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
326,000
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
(543,500
|
)
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
473,000
|
|
|
$
|
4.32
|
|
|
|
4.8
|
|
|
$
|
18,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
473,000
|
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
6,000
|
|
|
$
|
4.34
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
(31,000
|
)
|
|
$
|
3.33
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
448,000
|
|
|
$
|
4.38
|
|
|
|
4.2
|
|
|
$
|
21,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
448,000
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
51,000
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(31,000
|
)
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
468,000
|
|
|
$
|
4.35
|
|
|
|
4.1
|
|
|
$
|
330
|
|
|
Exercisable at June 30, 2012
|
|
|
432,000
|
|
|
$
|
4.42
|
|
|
|
3.6
|
|
|
$
|
330
|
|
The
following table provides additional information for options outstanding and exercisable at June 30, 2012:
Options Outstanding
|
Range of Exercise Prices
|
|
|
Number
|
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
2.90 - 4.24
|
|
|
61,000
|
|
|
|
8.4 years
|
|
|
$
|
3.56
|
|
|
4.25 - 4.25
|
|
|
320,000
|
|
|
|
3.2 years
|
|
|
$
|
4.25
|
|
|
4.26 - 6.99
|
|
|
87,000
|
|
|
|
4.3 years
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.90 - 6.99
|
|
|
468,000
|
|
|
|
4.1 years
|
|
|
$
|
4.35
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
2.90 - 4.24
|
|
|
25,000
|
|
|
$
|
3.64
|
|
|
4.25 - 4.25
|
|
|
320,000
|
|
|
$
|
4.25
|
|
|
4.26 - 6.99
|
|
|
87,000
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.90 - 6.99
|
|
|
432,000
|
|
|
$
|
4.42
|
|
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
|
|
8.
|
Supplemental Balance Sheet Information
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
|
|
|
$
|
654,677
|
|
|
$
|
820,586
|
|
|
Component parts
|
|
|
|
|
|
|
7,495,333
|
|
|
|
7,858,862
|
|
|
Finished goods
|
|
|
|
|
|
|
3,178,507
|
|
|
|
3,293,261
|
|
|
Reserve for obsolete and excess inventory
|
|
|
|
|
|
|
(1,327,291
|
)
|
|
|
(1,419,420
|
)
|
|
|
|
|
|
|
|
$
|
10,001,226
|
|
|
$
|
10,553,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
3-10
|
|
|
$
|
13,231,044
|
|
|
$
|
11,528,855
|
|
|
Buildings
|
|
|
28-35
|
|
|
|
12,620,447
|
|
|
|
12,222,170
|
|
|
Land and land improvements
|
|
|
5-7
|
|
|
|
934,216
|
|
|
|
934,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment at cost
|
|
|
|
|
|
|
26,785,707
|
|
|
|
24,685,241
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(17,182,151
|
)
|
|
|
(16,024,734
|
)
|
|
|
|
|
|
|
|
$
|
9,603,556
|
|
|
$
|
8,660,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.3 million, $1.3 million, and $1.4 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation expense
|
|
|
|
|
|
$
|
1,246,145
|
|
|
$
|
1,162,392
|
|
|
Customer deposits
|
|
|
|
|
|
|
406,471
|
|
|
|
253,199
|
|
|
Other
|
|
|
|
|
|
|
202,963
|
|
|
|
229,961
|
|
|
|
|
|
|
|
|
$
|
1,855,579
|
|
|
$
|
1,645,552
|
|
|
|
9.
|
Commitments and Contingencies
|
Legal Claims
The Company is subject
to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of
its business activities. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking
to interrupt or suspend manufacturing or require any recall or modification of products.
The
Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which,
in its view, it is probable that liabilities have been incurred and the related amounts are estimable. Based upon information currently
available, management believes that existing accrued liabilities are sufficient and that it is not reasonably possible at this
time that any additional liabilities will result from the resolution of these matters that would have a material adverse effect
on the Company’s results of operations, financial position, or cash flows.
Stuyvesant Falls Power Litigation
.
The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”)
and other parties, which provides electrical power to the Company’s facility in Stuyvesant Falls, New York. In fiscal year
2011, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. The Company
maintains in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running
with the land which have been honored for more than a century. Niagara’s attempts to collect such invoices were stopped
in December 2010 by a temporary restraining order, although a court has not yet ruled on the merits of all of Niagara’s
claims. Among other things, Niagara seeks approximately $469,000, which it alleges represents the value of electricity provided
prior to the commencement of litigation going back to 2003. The Company has posted a $250,000 bond which Niagara could draw against
for electricity provided and not collected since the December 2010 temporary restraining order in the event Niagara prevails in
its lawsuit. The amount of the bond exceeds the cumulative invoiced electricity charges generated by Niagara since the issuance
of the temporary restraining order. As of June 30, 2012, the Company has not recorded a provision for this matter as management
intends to vigorously defend this litigation and believes it is not probable that the Company will be required to pay for electricity
as Niagara claims. The Company believes, however, that any liability it may incur should it not prevail in the litigation would
not have a material adverse effect on its financial condition, its result of operations, or its cash flows.
Armstrong Medical Litigation
. On
June 8, 2012, the Company settled outstanding litigation with Armstrong Medical Limited (“Armstrong”) related to a
patent held by Armstrong concerning carbon dioxide absorbents for use in anesthesiology. The Company and Armstrong agreed to mutually
dismiss the litigation regarding the Armstrong patent. In connection with the settlement agreement, Allied received broad, perpetual
license rights under the Armstrong patent pursuant to a pre-paid license agreement. In consideration for the settlement agreement,
Allied paid an aggregate of $275,000 to Armstrong.
Employment Contract
In March 2007, the
Company entered into a three year employment contract with its chief executive officer. The contract is subject to annual renewals
after the initial term. The contract was amended and restated in December 2009 without extending its term. The contract includes
termination without cause and change of control provisions, under which the chief executive officer is entitled to receive specified
severance payments generally equal to two times ending annual salary if the Company terminates his employment without cause or
he voluntarily terminates his employment with “good reason.” “Good Reason” generally includes changes
in the scope of his duties or location of employment but also includes (i) the Company’s written election not to renew the
Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following a “Change of Control”
as defined in the Agreement.
10. Segment
Information
The
Company operates in one segment consisting of the
manufacturing, marketing and distribution of a variety of respiratory
products used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health
care dealers and emergency medical product dealers. The Company’s product lines include respiratory care products, medical
gas equipment and emergency medical products.
The Company does not have
any one single customer that represents more than 10 percent of total sales. Sales by region, and by product, are as follows:
|
Sales by Region
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic United States
|
|
$
|
33,816,317
|
|
|
$
|
37,634,627
|
|
|
$
|
37,337,662
|
|
|
Europe
|
|
|
1,510,197
|
|
|
|
1,721,779
|
|
|
|
1,390,631
|
|
|
Canada
|
|
|
603,530
|
|
|
|
668,430
|
|
|
|
676,428
|
|
|
Latin America
|
|
|
4,883,288
|
|
|
|
3,427,960
|
|
|
|
3,326,792
|
|
|
Middle East
|
|
|
925,658
|
|
|
|
911,401
|
|
|
|
512,744
|
|
|
Far East
|
|
|
1,594,172
|
|
|
|
2,296,635
|
|
|
|
2,545,353
|
|
|
Other International
|
|
|
112,459
|
|
|
|
122,604
|
|
|
|
244,638
|
|
|
|
|
$
|
43,445,621
|
|
|
$
|
46,783,436
|
|
|
$
|
46,034,248
|
|
|
Sales by Product
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respiratory care products
|
|
$
|
10,082,450
|
|
|
$
|
10,796,923
|
|
|
$
|
11,142,890
|
|
|
Medical gas equipment
|
|
|
24,803,614
|
|
|
|
24,949,906
|
|
|
|
24,623,684
|
|
|
Emergency medical products
|
|
|
8,559,557
|
|
|
|
11,036,607
|
|
|
|
10,267,674
|
|
|
|
|
$
|
43,445,621
|
|
|
$
|
46,783,436
|
|
|
$
|
46,034,248
|
|
11. Quarterly
Financial Data (unaudited)
Summarized
quarterly financial data for fiscal 2012 and 2011 appears below (all amounts in thousands except per share amounts):
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Three months ended,
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
Net sales
|
|
$
|
10,667
|
|
|
$
|
10,702
|
|
|
$
|
10,681
|
|
|
$
|
11,395
|
|
|
$
|
12,102
|
|
|
$
|
11,338
|
|
|
$
|
11,403
|
|
|
$
|
11,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,495
|
|
|
|
2,325
|
|
|
|
2,735
|
|
|
|
2,406
|
|
|
|
3,034
|
|
|
|
2,608
|
|
|
|
2,810
|
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(232
|
)
|
|
|
(231
|
)
|
|
|
41
|
|
|
|
(228
|
)
|
|
|
220
|
|
|
|
114
|
|
|
|
209
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(156
|
)
|
|
|
(146
|
)
|
|
|
23
|
|
|
|
(145
|
)
|
|
|
115
|
|
|
|
60
|
|
|
|
117
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
Earnings
per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily
equal the total for the year.
12. Baralyme®
Agreement
On August 27, 2004,
Allied entered into an agreement with Abbott Laboratories (“Abbott”) pursuant to which Allied agreed to cease production
of its product Baralyme®, and to effect the withdrawal of Baralyme® product held by distributors. The agreement permits
Allied to pursue the development of a new carbon dioxide absorbent product. Baralyme®, a carbon dioxide absorbent product,
has been used safely and effectively in connection with inhalation anesthetics since its introduction in the 1920s. In recent
years, the number of inhalation anesthetics has increased, giving rise to concerns regarding the use of Baralyme® in conjunction
with these newer inhalation anesthetics if Baralyme® has been allowed, contrary to recommended practice, to become desiccated.
The agreement also provides that, for a period of eight years, Allied will not manufacture, distribute, promote, market, sell,
commercialize or donate any Baralyme® product or similar product based upon potassium hydroxide and will not develop or license
any new carbon dioxide absorbent product containing potassium hydroxide.
In consideration of
the foregoing, Abbott agreed to pay Allied an aggregate of $5,250,000 of which $1,530,000 was paid on September 30, 2004 and the
remainder payable in four equal annual installments of $930,000 due on July 1, 2005 through July 1, 2008.
The initial payment
of $1,530,000 from Abbott was received on September 30, 2004. The agreement required Abbott to pay Allied $600,000 for reimbursement
of Allied’s cost incurred in connection with withdrawal of Baralyme® from the market, the disposal of such product,
and severance payments payable as a result of such withdrawal. The payments by Abbott have been included in net sales, in accordance
with
ASC Topic 605: “Revenue Recognition.”
The Company is the primary obligor in the arrangement. It has sole authority to determine the method of withdrawal of Baralyme®
and discretion in such matters as employee layoffs, disposal methods, and customer communications regarding the sale of replacement
products. The costs of executing the withdrawal are the sole responsibility of the Company.
The payments received
from Abbott are being recognized into income, as net sales, over the eight-year term of the agreement. Allied has no further obligations
under this agreement which would require the Company to repay these amounts or otherwise impact this accounting treatment. During
the fiscal years ended June 30, 2012, 2011, and 2010, $688,200 was recognized into income as net sales in each year. The agreement
expired in August 2012 and no further income will be recognized from the agreement after such expiration.
A reconciliation of
deferred revenue resulting from the agreement with Abbott, with the amounts received under the agreement, and amounts recognized
as net sales is as follows:
|
|
|
Twelve Months ended
|
|
|
|
|
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
802,900
|
|
|
$
|
1,491,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized as net sales
|
|
|
(688,200
|
)
|
|
|
(688,200
|
)
|
|
|
|
|
114,700
|
|
|
|
802,900
|
|
|
Less - Current portion of deferred revenue
|
|
|
(114,700
|
)
|
|
|
(688,200
|
)
|
|
|
|
$
|
0
|
|
|
$
|
114,700
|
|
In addition to the
provisions of the agreement relating to the withdrawal of the Baralyme® product, Abbott has agreed to pay Allied up to $2,150,000
in product development costs to pursue development of a new carbon dioxide absorption product for use in connection with inhalation
anesthetics that does not contain potassium hydroxide and does not produce a significant exothermic reaction with currently available
inhalation agents. As of June 30, 2012, $2,150,000 has been received as a result of product development activities
.
In 2004, Allied’s
sales of Baralyme® were approximately $2.0 million and contributed approximately $0.6 million in pre-tax earnings and cash
flow from operations. The majority of the $5,250,000 Allied has received from Abbott will be recognized into income over the eight-year
term of the agreement. The net cash flow realized by Allied under the agreement with Abbott is substantially equivalent to the
net cash flow Allied would have expected to realize from continued manufacture and sales of Baralyme® during the initial five
years of the period.
