UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year June 30, 2020
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
(State or other jurisdiction of
Incorporation or organization)
1720 Sublette Avenue
St. Louis, Missouri
(Address of principal executive offices)
25-1370721
(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
Trading Symbol
AHPI
Name of each exchange
on which registered
The NASDAQ Capital 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 ☒
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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒
As of December 31, 2019, 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 $3,112,660. 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 16, 2020, there were 4,013,537 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, 2020 (portion) (Part III)
ALLIED HEALTHCARE PRODUCTS, INC.
INDEX TO FORM 10-K
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Page
1
8
12
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13
14
15
25
25
47
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48
48
48
48
“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, our recent history of net losses and negative cash flow, the COVID-19 pandemic, and other 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.
Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission which are available on our website
at www.alliedhpi.com under "Financial/SEC Filings."
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.
1
Markets and Products
In fiscal 2020, respiratory care products, medical gas equipment and emergency medical products represented approximately 27%, 48% and 25%,
respectively, of the Company’s net sales. In comparison, in fiscal 2019, respiratory care products, medical gas equipment and emergency medical products
represented approximately 29%, 51%, 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
Home Respiratory Care Products
Medical Gas Equipment
Construction Products
Regulation Devices
Disposable Cylinders
Suction Equipment
Emergency Medical Products
Respiratory/Resuscitation
Large volume compressors;
ventilator calibrators;
humidifiers and mist tents; and
carbon dioxide absorbent
O2 cylinders; pressure
regulators; nebulizers; portable
large volume compressors;
portable suction equipment
and disposable respiratory
products
In-wall medical gas system
components; central station
pumps and compressors and
headwalls
Flowmeters; vacuum
regulators; pressure regulators
and related products
Timeter®; Carbolime®;
Litholyme®
Hospitals and sub-acute
facilities
Timeter®;
B&F®;
Schuco®
Patients at home
Chemetron®; Oxequip®
Hospitals and sub-acute
facilities
Chemetron®; Oxequip®;
Timeter®
Hospitals and sub-acute
facilities
Disposable oxygen and gas
cylinders
Lif-O-Gen®
First aid providers and
specialty gas distributors
Portable suction equipment
and disposable suction
canisters
Gomco®;
Allied;
Schuco
Hospitals, sub-acute
facilities and homecare
products
Demand resuscitation valves;
bag mask resuscitators;
emergency transport
ventilators, oxygen regulators,
SurgeX - surge suppressing
post valve, mass casualty
ventilation line, and the
AHP300 Ventilator
LSP; Omni-Tech®; Allied
Emergency service
providers
Trauma and Patient Handling Products
Respiratory Care Products
Spine immobilization
products; pneumatic anti-
shock garments, trauma burn
kits and Xtra backboards
LSP
Emergency service
providers
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.
2
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 these products are installed in more than three thousand hospitals in the United States. 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.
3
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.
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 12 sales professionals, all of whom are full-time employees of the Company.
The sales force includes four domestic hospital, homecare and emergency specialists, three domestic construction specialists, and three
international sales representatives. A total of two sales managers lead the sales groups.
4
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 27% of total net
sales in fiscal 2020, 25% in 2019 and 24% in 2018. 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 2020 the research and development group worked on developing a new product slated for release in 2021. It also supported the
production ramp up of the AHP300 and EPV200 ventilators.
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.
5
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.
6
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. The company continues to seek U.S. and foreign patents on the EPV200 and AHP300 ventilators.
Patents which will expire in the period of 2020 to 2037 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 principle 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. See Item 3. Legal Proceedings for a discussion of the Company’s remediation obligations at its Stuyvesant Falls facility.
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, 2020, the Company had approximately 218 full-time employees. Approximately 139 employees in the Company’s principal
manufacturing facility located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2021.
7
Information about our Executive Officers
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
Earl R. Refsland
Andrew D. Riley
Daniel C. Dunn
Age
77
43
60
Director, President and Chief Executive Officer (1)
Vice President of Operations (2)
Vice President of Finance, Chief Financial Officer, Secretary & Treasurer (3)
Position
(1) Mr. Refsland has been Director, President and Chief Executive Officer of the Company since September, 1999.
(2) Mr. Riley served as Vice President of Operations from July 2014 until June 15, 2020, when he tendered his resignation. The Company has engaged in
a search to fill this position.
(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.
While the recent imposition of tariffs on steel and aluminum have not had material impacts on prices for our raw materials, continuation or
expansion of these tariffs could result in material increases in our costs. 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.
8
Our success depends upon the development of new products and product enhancements, which entails considerable time and expense.
To effectively compete, we must be able to invest in 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 operating losses and negative cash flow impede our ability to invest in the development of
new products and enhancements to existing products. 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.
9
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 Capital 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. Additionally, management believes that the COVID-19 pandemic has increased
speculation in the Company’s shares which has resulted in significant fluctuations in price since the onset of the COVID-19 pandemic. These fluctuations,
as well as general economic and market conditions, may adversely affect the market price for our common stock.
10
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. 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. 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.
We also could be adversely affected by, among other things, changes in the delivery or pricing of or reimbursement for medical devices.
We have a history of net losses in fiscal 2018, 2019 and 2020 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 a net loss of $2.2 million in fiscal 2018, a net loss of $2.1 million in fiscal 2019 and net loss of $3.1
million in fiscal 2020. 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. There is no guarantee that we will be successful in our efforts to return to profitability. 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. If we continue to experience operating losses and we are not able to generate additional liquidity through other means, then our
liquidity needs may exceed availability under our credit facility, and we might need to secure additional sources of funds, which may or may not be
available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to raw materials or services that are important to
the operation of our business.
11
The global COVID-19 outbreak or other similar outbreaks of infections or diseases could substantially harm our business.
The global COVID-19 outbreak and other possible pandemics, epidemics or other outbreaks of diseases or infections could have significant
negative impacts on our business, expenses, revenues and profitability. These events can result in, and in the case of the COVID-19 outbreak, have resulted
in disruptions to our business, including without limitation those arising from the following factors:
-
-
Employee matters: The Company is dependent on its workforce to deliver its products. As an essential supplier, the Company has continued to
operate through the date of this report. However, required social distancing directives and additional shelter-in place directives could impact
the Company’s ability to deploy its workforce. The Company’s ability to operate is also contingent on maintaining healthy and safe work
conditions. Incidents of COVID-19 in the Company’s workforce could lead to delays in production. While the Company is taking steps to
protect its employees and maintain safe work conditions, such efforts cannot guarantee that its employees will not be impacted, directly or
indirectly, by COVID-19.
Supply chain issues: Global demand for ventilators and other respiratory care products has reached previously unseen levels as a result of the
COVID-19 outbreak. This has, in turn, resulted in shortages of critical components. Disruptions to the supply chain may lead to a delayed
receipt by the Company of necessary raw materials and component inventory. The Company is working with existing and alternative suppliers
to obtain the necessary components for its products, however there is no guaranty it will succeed in doing so. In addition, the increased
demand for certain components and raw materials could lead to inflationary pressures for these inputs, which could affect the Company’s
costs.
- Working capital: As previously reported, the Company’s financial condition has made it dependent on lines of credit and cost saving
measures. Such cost saving measures included decreases in inventory. In order to meet the sudden increase in demand for ventilators and
respiratory care products, the Company has had to increase inventory. The Company has relied on its line of credit and other cash conservation
measures to finance the necessary increases in inventory.
-
Negative impact on construction products: Loss of revenue by hospitals for elective procedures could negatively impact their budgets for other
capital items, which could negatively impact sales of our construction products. This could reduce demand for the Company’s medical gas
system products, typically purchased for new construction or renovation of hospitals
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, 2020.
Location
St. Louis, Missouri
Square Footage
(Approximate)
Owned/
Leased
242,000
Owned
Activities/Products
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.
12
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.
Stuyvesant Falls Cleanup
On January 30, 2020, the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its
Brownfield Cleanup Program. The plan was with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil and
groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. The Company has applied to the
Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the site with oversight by the
Department of Environmental Conservation.
The Company’s best estimate of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense in the nine months
ended June 30, 2020 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As
of June 30, 2020, the Company has paid approximately $82,000 in remediation expenses which have been charged to the initial reserve.
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 Capital Market under the symbol AHPI. As of September 16, 2020, there were 30 record
owners of the Company’s common stock. The number of holders of record does not represent the actual number of beneficial owners of our common stock
because securities dealers and others frequently hold shares in “street name” for the benefit of individual owners who have the right to vote shares.
The following table summarizes information with respect to the high and low prices for the Company’s common stock as listed on the NASDAQ
Global or Capital Market for each quarter of fiscal 2020 and 2019, 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
2020
September quarter
December quarter
March quarter
June quarter
High
Low
2019
High
Low
$
$
$
$
1.88 $
1.45 $
45.00 $
20.95 $
1.25
0.92
1.19
7.60
September quarter
December quarter
March quarter
June quarter
$
$
$
$
3.05 $
2.80 $
2.17 $
2.08 $
2.03
1.62
1.69
1.43
Information concerning securities authorized for issuance under equity compensation plans is incorporated by reference to the Company’s proxy
statement for the 2020 annual meeting of stockholders, which will be filed within 120 days after June 30, 2020.
13
Item 6. Selected Financial Data
$
(In thousands, except per share data)
Year ended June 30,
Statement of Operations Data
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Loss from operations
Interest expense
Interest income
Legal settlement
Other, net
Loss before provision for
(benefit from) income taxes
Provision for (benefit from) income taxes
$
Net loss
$
Basic loss per share
Diluted loss per share
$
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
2020
2019
2018
2017
2016
31,894 $
26,323
5,571
8,633
(3,062)
65
(1)
-
18
(3,144)
(130)
(3,014) $
(0.75) $
(0.75) $
4,014
4,014
31,382 $
26,343
5,039
7,813
(2,774)
56
-
(750)
-
(2,080)
29
(2,109) $
(0.53) $
(0.53) $
4,014
4,014
33,760 $
27,309
6,451
8,446
(1,995)
24
-
-
-
(2,019)
173
(2,192) $
(0.55) $
(0.55) $
4,014
4,014
33,512 $
26,956
6,556
8,608
(2,052)
-
(1)
-
1
(2,052)
37
(2,089) $
(0.52) $
(0.52) $
4,014
4,014
35,952
28,593
7,359
9,279
(1,920)
-
(3)
-
87
(2,004)
301
(2,305)
(0.57)
(0.57)
4,014
4,014
(In thousands)
June 30,
Balance Sheet Data
Working capital
Total assets
Stockholders' equity
2020
2019
2018
2017
2016
$
5,949 $
19,672
8,879
7,387 $
15,454
11,890
8,653 $
17,321
13,997
9,748 $
19,637
16,186
10,736
22,478
18,272
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
COVID-19 Outbreak
Due to the COVID-19 pandemic, in the last quarter of 2020, the Company saw an unprecedented increase in demand and orders for its AHP300 ventilators,
EPV200 ventilators, other respiratory care products, and other emergency medical devices. The Company has made capital investments, added employees,
and increased inventory purchases in order to increase production of these ventilators and other products critical to the care of COVID-19 patients.
The Company’s ability to meet this demand has been impaired by supply chain challenges as demand for components critical for the production of these
products has spiked as all manufacturers of ventilators and other critical medical equipment seek to increase production. At the same time, the COVID-19
pandemic could decrease demand for other products as hospitals reduce “non-essential procedures.” The economic effects on hospitals and providers could
negatively impact the market for the Company’s construction products if hospitals cut back on construction and capital improvements. The duration and
extent of this decreased demand is uncertain and depends on decisions by government health authorities, hospitals and providers in responding to and
mitigating the COVID-19 outbreak.
Results for the year ended June 30, 2020 only partially reflect the impacts discussed above. The full economic impact of the COVID-19 pandemic continues
to evolve as the date of this report. As such, the Company cannot predict with certainty the full magnitude that the pandemic will have on the Company’s
financial condition, liquidity, operations, suppliers, industry and workforce. Please see Part II, Item 1A, Risk Factors for more information.
15
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, 2020, 2019, and 2018.
Year ended June 30,
Respiratory care products
Medical gas equipment
Emergency medical products
Total
Year ended June 30,
Respiratory care products
Medical gas equipment
Emergency medical products
Total
Year ended June 30,
Respiratory care products
Medical gas equipment
Emergency medical products
Total
Dollars in thousands
2020
% of Total
Net Sales
Net
Sales
8,556
15,283
8,055
31,894
26.8%
47.9%
25.3%
100.0%
Dollars in thousands
2019
% of Total
Net Sales
Net
Sales
8,993
16,032
6,357
31,382
28.7%
51.1%
20.2%
100.0%
Dollars in thousands
2018
% of Total
Net Sales
Net
Sales
9,038
17,645
7,077
33,760
26.8%
52.2%
21.0%
100.0%
$
$
$
$
$
$
16
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,
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Loss from operations
Interest expense
Legal settlement
Other, net
Loss before provision for income taxes
Provision for (benefit from) income taxes
Net loss
Critical Accounting Policies
Revenue recognition:
2020
2019
2018
100.0 %
82.5
17.5
27.1
(9.6 )
0.2
0.0
0.1
(9.9 )
(0.4 )
(9.5)%
100.0 %
83.9
16.1
24.9
(8.8 )
0.2
(2.4 )
0.0
(6.6 )
0.1
(6.7)%
100.0 %
80.9
19.1
25.0
(5.9 )
0.1
0.0
0.0
(6.0 )
0.5
(6.5)%
The Company’s revenues are derived primarily from the sales of respiratory products, medical gas equipment and emergency medical products.
The products are generally sold directly to distributors, customers affiliated with buying groups, individual customers and construction contractors,
throughout the world.
The Company recognizes revenue from product sales upon satisfaction of its performance obligation which occurs on the transfer of control of the
product, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Payment terms between Allied
and its customers vary by the type of customer, country of sale, and the products offered. The term between invoicing and the payment due date is not
significant.
Management exercises judgment in estimating variable consideration. Provisions for early payment discounts, rebates and returns and other
adjustments are provided for in the period the related sales are recorded. Historical data is readily available and reliable, and is used for estimating the
amount of the reduction in gross sales.
The Company provides rebates to wholesalers. Rebate amounts are based upon purchases using contractual amount for each product sold. Factors
used in the rebate calculations include the identification of which products have been sold subject to a rebate and the customer or price terms that apply.
Using known contractual allowances, the Company estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross
sales when it records the sale of the product. Settlement of the rebate generally occurs in the month following the sale.
The Company regularly analyzes the historical rebate trends and adjusts reserves for changes in trends and terms of rebate programs. Historically,
adjustments to prior years’ rebate accruals have not been material to net income.
Other allowances charged against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to
30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because the Company’s historical returns are low, and because
sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant.
The Company does not allocate transaction price as the Company has only one performance obligation and its contracts do not span multiple
periods. All taxes imposed on and concurrent with revenue producing transactions and collected by the Company are excluded from the measurement of
transaction price.
17
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, 2020 and 2019, inventory is recorded net of a reserve for obsolete and excess inventory of $1.8 million.
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 enacted tax rates that are expected to apply to taxable
income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized as tax expense or benefit in the period that includes the enactment date of the change. 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. The tax planning strategies available to the Company that it would use rather than allow the
tax benefits of net operating loss carryovers to expire include the revocation of the LIFO method inventory and the recognition of a gain on the sale of the
Company’s excess land in Stuyvesant Falls, New York. As of June 30, 2020, the Company’s deferred tax assets exceeded the amount supportable through
reversals of existing deferred tax liabilities and tax planning strategies and a valuation allowance has been recorded for this amount.
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, 2020 and 2019,
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,
2020. 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, 2020 and 2019, the Company had
approximately $150,000 and $210,000, 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.
18
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, 2020, 2019, and 2018, Allied
recorded approximately $2,000, $3,000 and $3,000, respectively, in share-based employee compensation. This compensation cost is included in the general
and administrative expenses in the accompanying Statements of Operations.
Fiscal 2020 Compared to Fiscal 2019
The Company had a loss of $3.1 million before taxes for fiscal 2020, compared to a loss of $2.1 million before taxes for fiscal 2019. It recorded an
income tax benefit of $130,359 in fiscal 2020, compared to an income tax provision of $29,448 in fiscal 2019.
Net sales for fiscal 2020 of $31.9 million were $0.5 million or 1.6% higher than net sales of $31.4 million in fiscal 2019. Domestically, sales
decreased by $0.4 million dollars while international sales, which represented 27.5% of fiscal 2020 sales, were 11.7% higher. The decrease in domestic
sales was largely attributable to declines in sales of construction products and respiratory therapy products. International business is dependent upon
hospital construction projects, and the development of medical facilities and emergency services in those regions in which the Company operates, as well as
the economic and political climates in those international markets.
Orders for the Company’s products for the year ended June 30, 2020 of $40.8 million were $9.3 million or 29.54% higher than orders for the year
ended June 30, 2019 of $31.5 million. As a result of the COVID-19 pandemic, the Company experienced significantly increased orders for the emergency
medical products sold by the Company, including the Company’s AHP300 ventilator and the EPV200 ventilator.
Respiratory care product sales, which include homecare products, were $8.6 million in fiscal 2020 compared to $9.0 million in 2019. Respiratory
care products include carbon dioxide absorbents. For the year ended June 30, 2020 and 2019 the Company had carbon dioxide absorbent sales of
Carbolime® and Litholyme® of $3.7 million and $4.2 million, respectively.
Medical gas equipment sales, which include construction products, of $15.3 million in fiscal 2020 were approximately $0.7 million, or 4.4% lower
than prior year levels of $16.0. The decrease in domestic sales was largely attributable to declines in sales of construction products. The Company continues
to evaluate and strengthen its sales strategy in this market.
Emergency medical product sales in fiscal 2020 of $8.1 million were $1.7 million or 26.6% higher than fiscal 2019 sales of $6.4 million.
International sales of emergency medical products increased by 61.6% from the prior year while domestic sales increased by 13.2%. The onset of the
COVID-19 pandemic increased demand for the Company’s emergency products including the AHP300 ventilator. Most of this increase occurred in the
fourth quarter of the fiscal year. While demand for emergency and mass-casualty ventilators increased in the last part of fiscal year 2020, it was necessary
for the company to ramp up its manufacturing capacity and to address any supply chain issues. The ramp up has included investment in capital equipment
and training to increase capacity. For these reasons some orders were not shipped immediately in the fourth quarter.
International sales, which are included in the product lines discussed above, increased $0.9 million, or 11.5%, to $8.7 million in fiscal 2020
compared to sales of $7.8 million in fiscal 2019.
Gross profit in fiscal 2020 was $5.6 million, or 17.6% of sales, compared to a gross profit of $5.0 million, or 15.9% of sales in fiscal 2019. The
$0.6 million increase in gross profit is mainly attributable to a $0.7 million decrease in fringe benefits including medical benefits. The Company is self-
insured for medical benefits and there is variation in the amount of claims over time.
19
The Company invested approximately $0.8 million in capital expenditures in fiscal 2020 primarily for the expansion of the production line of our
AHP300 ventilator. The Company did not invest in capital expenditures in fiscal 2019.
Selling, General, and Administrative (“SG&A”) expenses for fiscal 2020 were $8.6 million compared to SG&A expenses of $7.8 million in fiscal
2019. The increase is primarily due to the $1.1 million provision for environmental cleanup costs at the Company’s facility in Stuyvesant Falls, New York.
This increase was offset by a $0.3 million decrease in personnel cost consisting of salary and fringe benefits.
Interest income in fiscal 2020 was $654 compared to interest income of $138 in fiscal 2019. Interest expense in fiscal 2020 was $64,682 compared
to interest expense of $56,223 in fiscal 2019.
Other income and expenses in fiscal 2019 include $750,000 of income realized by the Company as a result of the settlement of litigation with
Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”), which provides electrical power to the Company’s facility in Stuyvesant Falls, New
York, and one other party. See Part II, Item 1 – Legal Proceedings, below, for more information concerning litigation.
The Company’s effective tax rate in 2020 was a benefit of 4.1% compared to a provision of 1.4% in 2019. The change in the effective tax rate in
2020 was attributable to non-deductible expenses attributable to the Company’s expected PPP Loan forgiveness and an increase in the value of tax planning
strategies.
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 and to the extent those items are not sufficient to support the value of recorded deferred tax assets a valuation allowance is recorded. For the year
ended June 30, 2018 the Company recorded a $352,727 reduction to the allowance. The reduction was caused by a decrease in the allowance of $1,080,362
due to a reduction in federal rates expected to be in effect at reversal. The reduced rates are as a result of the Tax Cuts and Jobs Act of 2017. This reduction
was offset by a $727,635 increase in the valuation allowance reflecting the impact of 2018 additions to deferred tax assets not supported by deferred tax
liabilities or tax planning strategies. For the year ended June 30, 2019 the Company recorded an additional allowance of $536,240. For the year ended 2020
the Company recorded an additional allowance of $178,111 offset by an increase in the value of tax planning strategies of $138,873 resulting in a net
increase in the allowance of $39,238. To the extent that the Company’s losses continue, the tax benefit of those losses would be fully offset by a valuation
allowance.
Net loss in fiscal 2020 was $3.0 million or $0.75 per basic and diluted earnings per share, an increase from a net loss of $2.1 million, or $0.53 per
basic and diluted earnings per share in fiscal 2019. In 2020 and 2019 the weighted number of shares used in the calculation of basic and diluted earnings per
share was 4,013,537.
Fiscal 2019 Compared to Fiscal 2018
The Company had a loss of $2.1 million before taxes for fiscal 2019, compared to a loss of $2.0 million before taxes for fiscal 2018. It recorded an
income tax provision of $29,448 in fiscal 2019, compared to an income tax provision of $173,038 in fiscal 2018.
Net sales for fiscal 2019 of $31.4 million were $2.4 million or 7.1% less than net sales of $33.8 million in fiscal 2018. Domestically, sales
decreased by $2.2 million dollars. The decrease in domestic sales was largely attributable to declines in sales of construction products. The Company
continues to evaluate and strengthen its sales strategy in this market. Internationally, sales decreased by $0.2 million. International business is dependent
upon hospital construction projects, and the development of medical facilities and emergency services in those regions in which the Company operates, as
well as the economic and political climates in those international markets.
Orders for the Company’s products for the year ended June 30, 2019 of $31.5 million were $1.3 million or 4.0% lower than orders for the year
ended June 30, 2018 of $32.8 million. Customer purchase order releases for the year ended June 30, 2019 were $30.9 million or 5.2% lower than customer
purchase order releases of $32.6 million for the year ended June 30, 2018. Customer purchase order releases depend on the scheduling practices of
individual customers and the status of construction projects.
20
Respiratory care product sales, which include homecare products, were $9.0 million in fiscal 2019 and 2018. Respiratory care products also
include carbon dioxide absorbents. For the year ended June 30, 2019 and 2018 the Company had carbon dioxide absorbent sales of Carbolime® and
Litholyme® of $4.2 million and $3.9 million, respectively.
Medical gas equipment sales, which include construction products, of $16.0 million in fiscal 2019 were approximately $1.6 million, or 9.1% lower
than prior year levels of $17.6. The decrease in domestic sales was largely attributable to declines in sales of construction products. The Company continues
to evaluate and strengthen its sales strategy in this market.
Emergency medical product sales in fiscal 2019 of $6.4 million were $0.7 million or 9.9% lower than fiscal 2018 sales of $7.1 million.
International sales of emergency medical products decreased by 28.0% from the prior year while domestic sales decreased by 0.7%.
International sales, which are included in the product lines discussed above, decreased $0.2 million, or 2.5%, to $7.8 million in fiscal 2019
compared to sales of $8.0 million in fiscal 2018.
Gross profit in fiscal 2019 was $5.0 million, or 15.9% of sales, compared to a gross profit of $6.5 million, or 19.2% of sales in fiscal 2018. Gross
profit was primarily unfavorably impacted by the decrease in sales during the period. The decrease in sales and production resulted in less effective
utilization of fixed overhead cost. Manufacturing overhead spending increased by $52,000 for the year.
The Company did not invest in capital expenditures in fiscal 2019 and fiscal 2018. The Company continues to control cost and actively pursue
methods to reduce its costs through process changes, and purchasing initiatives.
Selling, General, and Administrative (“SG&A”) expenses for fiscal 2019 were $7.8 million compared to SG&A expenses of $8.4 million in fiscal
2018. Personnel cost, primarily salaries and fringe benefits, decreased by approximately $0.1 million, business travel decreased by approximately $0.1
million, and legal fees decreased by $0.2 million.
Interest income in fiscal 2019 was $138 compared to interest income of $288 in fiscal 2018. Interest expense in fiscal 2019 was $56,223 compared
to interest expense of $23,569 in fiscal 2018.
Other income and expenses in fiscal 2019 include $750,000 of income realized by the Company as a result of the settlement of litigation with
Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”), which provides electrical power to the Company’s facility in Stuyvesant Falls, New
York, and one other party. See Part II, Item 1 – Legal Proceedings, below, for more information concerning litigation.
The Company’s effective tax rate in 2019 was a provision of 1.4% compared to a provision of 8.6% in 2018. The decrease in the effective tax rate
in 2019 was attributable to changes in the valuation allowance for indefinite lived deferred tax assets and a reduction value in the value attributable to the
tax planning strategies recorded in fiscal 2018 as a result of the Tax Cuts and Jobs Act of 2017.
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 and to the extent those items are not sufficient to support the value of recorded deferred tax assets a valuation allowance is recorded. For the year
ended June 30, 2017 the Company recorded an additional allowance of $739,578. For the year ended June 30, 2018 the Company recorded a $352,727
reduction to the allowance. The reduction was caused by a decrease in the allowance of $1,080,362 due to a reduction in federal rates expected to be in
effect at reversal. The reduced rates are as a result of the Tax Cuts and Jobs Act of 2017. This reduction was offset by a $727,635 increase in the valuation
allowance reflecting the impact of 2018 additions to deferred tax assets not supported by deferred tax liabilities or tax planning strategies. For the year
ended June 30, 2019 the Company recorded an additional allowance of $536,240. To the extent that the Company’s losses continue, the tax benefit of those
losses would be fully offset by a valuation allowance.
21
Net loss in fiscal 2019 was $2.1 million or $0.53 per basic and diluted earnings per share, a decrease from a net loss of $2.2 million, or $0.55 per
basic and diluted earnings per share in fiscal 2018. In 2019 and 2018 the weighted number of shares used in the calculation of basic and diluted earnings per
share was 4,013,537.
Financial Condition, Liquidity and Capital Resources
The following table sets forth selected information concerning Allied's financial condition at June 30:
Dollars in thousands
Cash & cash equivalents
Working Capital
Total Debt
Current Ratio
$
$
$
2020
2019
2018
2,600 $
5,949 $
2,392 $
1.67:1
195 $
7,387 $
- $
3.07:1
136
8,653
-
3.60:1
The Company’s working capital was $5.9 million at June 30, 2020 compared to $7.4 million at June 30, 2019. Accounts payable increased by $1.5
million, The current portion of long term debt increased by $1.0 million, customer deposits increased by $2.3 million and Other Accrued Liabilities
increased by $0.6 million. The increase in Other Accrued Liabilities reflects a $0.6 million provision for environmental costs. During fiscal 2020, these
decreases in working capital were partially offset by a $1.6 million increase in Inventory. Accounts receivable as measured in days sales outstanding
(“DSO”) is 35 DSO at June 30, 2020, down from 39 DSO at June 30, 2019. 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, 2020 was $2.4 million. The net increase in cash for the fiscal year ended June 30, 2019
was $0.1 million. Cash flows provided by operating activities for the fiscal year ended June 30, 2020 consisted of an increase in Customer deposits of $2.3
million, an increase of Accounts payable of $1.3 million and increase of Other accrued liabilities of $1.1 million. These cash flows were offset by an
increase of Inventories of $1.6 million and a net loss of $3.1 million, supplemented by $0.6 million in non-cash charges for amortization and depreciation.
Cash flows provided by operating activities for the fiscal year ended June 30, 2019 consisted of a decrease in accounts receivable of $0.6 million
and decrease in Inventory of $0.5 million. These cash flows were offset by a net loss of $2.1 million, supplemented by $0.8 million in non-cash charges for
amortization and depreciation.
North Mill Loan Agreement
As of June 30, 2020, the Company was party to a Loan and Security Agreement with North Mill Capital, LLC (“North Mill”), as successor in
interest to Summit Financial Resources, L.P., dated effective February 27, 2017, as amended April 16, 2018 and April 24, 2019 (as amended, the “Credit
Agreement”). Pursuant to the Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit Facility”). The Company’s
obligations under the Credit Facility are secured by all of the Company’s personal property, both tangible and intangible, pursuant to the terms and subject
to the conditions set forth in the Credit Agreement. Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and
inventory but will not exceed $2,000,000. At June 30, 2020 availability under the agreement was $1,994,657.
The Credit Facility will be available, subject to its terms, on a revolving basis until it expires on February 27, 2021, at which time all amounts
outstanding under the Credit Facility will be due and payable. Advances will bear interest at a rate equal to 2.00% in excess of the prime rate as reported in
the Wall Street Journal. Interest is computed based on the actual number of days elapsed over a year of 360 days. In addition to interest, the Credit facility
requires that the Company pay the lender a monthly administration fee in an amount equal to forty-seven hundredths percent (0.47%) of the average
outstanding daily principal amount of loan advances for the each calendar month, or portion thereof.
22
Regardless of the amount borrowed under the Credit Facility, the Company will pay a minimum amount of .25% (25 basis points) per month on the
maximum availability ($5,000 per month). In the event the Company prepays or terminates the Credit Facility prior to February 27, 2021, the Company will
be obligated to pay an amount equal to the minimum monthly payment multiplied by the number of months remaining between February 27, 2021 and the
date of such prepayment or termination.
Under the Credit Agreement, advances are generally subject to customary borrowing conditions and to North Mill’s sole discretion to fund the
advances. The Credit Agreement also contains covenants with which the Company must comply during the term of the Credit Facility. Among other things,
such covenants require the Company to maintain insurance on the collateral, operate in the ordinary course and not engage in a change of control, dissolve
or wind up the Company.
The Credit Agreement also contains certain events of default including, without limitation: the failure to make payments when due; the material
breach of representations or warranties contained in the Credit Agreement or other loan documents; cross-default with other indebtedness of the Company;
the entry of judgments or fines that may have a material adverse effect on the Company; failure to comply with the observance or performance of covenants
contained in the Credit Agreement or other loan documents; insolvency of the Company, appointment of a receiver, commencement of bankruptcy or other
insolvency proceedings; dissolution of the Company; the attachment of any state or federal tax lien; attachment or levy upon or seizure of the Company’s
property; or any change in the Company’s condition that may have a material adverse 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 20.00% above the otherwise applicable
interest rate (provided, that the interest rate may not exceed the highest rate permissible under law), and North Mill would have the option to accelerate
maturity and payment of the Company’s obligations under the Credit Facility.
The Company was in compliance with all of the covenants associated with the Credit Facility at June 30, 2020.
PPP Loan
On April 13, 2020, the Company entered into a Payroll Protection Program (PPP) loan agreement (the “SBA Loan”) with Jefferson Bank and Trust
Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business
Administration (the “SBA”). The Company received total proceeds of $2.375 million from the SBA Loan. In accordance with the requirements of the
CARES Act, the Company will use proceeds from the SBA Loan for payroll costs and other permitted uses. The SBA Loan is scheduled to mature on April
13, 2022 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration
under the CARES Act.
All or a portion of the SBA Loan may be forgiven by the SBA upon application by the Company upon documentation of expenditures in
accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent
payments, covered mortgage interest and covered utilities during the eight week or at the Company’s election 24 week period beginning on the loan
origination date, subject to regulations and guidance provided by the United States Treasury. For purposes of the CARES Act, payroll costs exclude
compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40 % of the forgiven amount may be for non-payroll
costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced
by more than 25%. In the event the SBA Loan, or any portion thereof, is forgiven pursuant to the CARES Act, the amount forgiven is applied to
outstanding principal. The Company intends to seek forgiveness of the SBA Loan to the maximum extent permitted but cannot guarantee whether or to
what extent such forgiveness will be granted.
Payments of unforgiven principal and interest are deferred until November 2020, at which point the Company is required to repay such amounts in
18 equal monthly payments. The SBA Loan is evidenced by a promissory note, which contains customary events of default relating to, among other things,
payment defaults and breaches of representations and warranties. The SBA Loan may be prepaid by the Company at any time prior to maturity with no
prepayment penalties.
At June 30, 2020 the Company had $2.4 million indebtedness, including capital lease obligations, short-term debt, and long term debt, of which
$2.4 million is owed under the SBA Loan and which the Company believes it is entitled to forgiveness under the terms of such loan. This debt accrues
interest at 1.00% per annum under the terms of the PPP.
The following table summarizes the Company’s contractual obligations at June 30, 2020:
23
Contractual Obligations
Long-Term Debt
Capital Lease Obligations
Operating Leases
Unconditional Purchase Obligations
Other Long-Term Obligations
Total Contractual Cash Obligations
Total
2,374,859 $
-
71,535 $
-
-
2,446,394 $
$
$
$
Less than
1 year
Payments due by period
1-3
years
1,332,204
-
12,130 $
-
-
1,344,334 $
1,042,655 $
-
56,373 $
-
-
1,099,028 $
3-5
years
More than
5 years
-
-
3,032
-
-
3,032 $
-
-
-
-
-
-
Capital expenditures were approximately $758,000, $0, and $0 in fiscal 2020, 2019, and 2018, respectively. The Company believes that cash flows
from operations and available borrowings under its credit facilities will be sufficient to finance fixed payments and planned capital expenditures of $1.0
million in 2021.
At June 30, 2020, the Company had $2.4 million outstanding debt, of which $2.4 million is owed under the SBA Loan and which the Company
believes it is entitled to forgiveness under the terms of such loan. During fiscal 2020 the Company had borrowings and repayments under the Credit
Agreement of $32.9 million. Our cash flows from operations were $647,581 in fiscal 2020 and $59,342 in fiscal 2019. Cash flow from operations was
negative in fiscal 2018. Our cash flows may be further negatively impacted by decreases in sales, market conditions, and adverse changes in working
capital. While we believe that our borrowing capacity under the Credit Agreement provides sufficient financial flexibility, continued negative cash flows
could negatively affect our ability to access the Credit Agreement or to repay amounts borrowed and we might need to secure additional sources of funds,
which may or may not be available to us.
In fiscal 2019 and 2018 the Company had borrowings and repayments under the Credit Agreement of $32.9 and $14.8 million, respectively.
In 2020, inflation in the price of raw materials and purchased components negatively impacted earnings by approximately $0.3 million dollars. The
Company experienced a material direct impact of $44,000 on 2020, and $0 in 2019, from changes in trade policy or tariffs. The Company also believes a
portion of its increased raw materials costs were due to tariffs imposed on steel and aluminum import. The Company makes its foreign sales in U.S. dollars
and, accordingly, sales proceeds are not affected by exchange rate fluctuations. However, fluctuations in exchange rates can affect the price of our products
in local currency, which does impact the pace of incoming orders.
Quarterly Results
The following table sets forth selected operating results for the eight quarters ended June 30, 2020. 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
Three months ended,
Net sales
Gross profit
June 30,
2020
March 31, Dec. 31,
Sept. 30,
2020
2019
2019
June 30,
2019
March 31, Dec. 31,
Sept. 30,
2019
2018
2018
$
8,511 $
8,097 $
7,310 $
7,976 $
7,690 $
8,316 $
8,107 $
7,269
1,378
1,586
1,347
1,260
1,405
1,550
1,205
879
Loss from operations
(638)
(305)
(1,512)
(607)
(433)
(353)
(762)
(1,226)
Net income (loss)
(539)
(330)
(1,531)
(614)
(474)
378
(779)
(1,235)
Basic earnings (loss) per share
(0.14)
(0.08)
(0.38)
(0.15)
(0.12)
0.09
(0.19)
(0.31)
Diluted earnings (loss) per share
(0.14)
(0.08)
(0.38)
(0.15)
(0.12)
0.09
(0.19)
(0.31)
24
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, 2020, the Company had no debt outstanding under its revolving credit facility. The revolving credit facility bears an interest rate using
the prime rate as reported in the Wall Street Journal 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, 2020. 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, 2020, 2019 and 2018.
Balance Sheet for the fiscal years ended June 30, 2020 and 2019.
Statement of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2020, 2019 and 2018.
Statement of Cash Flows for the fiscal years ended June 30, 2020, 2019 and 2018.
Notes to Financial Statements.
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
25
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Allied Healthcare Products, Inc.
Opinion On The Financial Statements
We have audited the accompanying balance sheet of Allied Healthcare Products, Inc. (the Company) as of June 30, 2020 and 2019 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, 2020, and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of
Allied Healthcare Products, Inc. as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis For Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RubinBrown LLP
We have served as the Company’s auditor since 2003.
St. Louis, Missouri
September 28, 2020
26
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF OPERATIONS
Year ended June 30,
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Loss from operations
Other (income) expenses:
Interest expense
Interest income
Legal settlement
Other, net
Loss before provision for
income taxes
Provision for (benefit from) income taxes
Net loss
Basic loss per share:
Diluted loss per share:
Weighted average shares outstanding – Basic
Weighted average shares outstanding – Diluted
See accompanying Notes to Financial Statements.
$
$
$
$
2020
31,894,262 $
26,323,646
5,570,616
8,632,795
(3,062,179)
2019
31,381,521 $
26,342,894
5,038,627
7,812,649
(2,774,022)
2018
33,759,953
27,309,511
6,450,442
8,446,056
(1,995,614)
64,682
(654)
-
18,252
82,280
(3,144,459)
(130,359)
(3,014,100) $
(0.75) $
(0.75) $
4,013,537
4,013,537
56,223
(138)
(750,000)
130
(693,785)
(2,080,237)
29,448
(2,109,685) $
(0.53) $
(0.53) $
4,013,537
4,013,537
23,569
(288)
-
237
23,518
(2,019,132)
173,038
(2,192,170)
(0.55)
(0.55)
4,013,537
4,013,537
27
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $170,000
Inventories, net
Income tax receivable
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease assets
Deferred income taxes
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of Payroll Protection Program loan
Current portion of operating lease liablity
Accounts payable
Customer deposits
Other accrued liabilities
Total current liabilities
Long-term operating lease liability
Long-term portion of Payroll Protection Program
Long-term environmental liability
Commitments and contingencies (Notes 4 and 9)
Stockholders' equity:
Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding
Series A preferred stock; $0.01 par value; 200,000 shares authorized; no shares issued and outstanding
Common stock; $0.01 par value; 30,000,000 shares authorized; 5,213,902 shares issued at June 30, 2020 and
June 30, 2019; 4,013,537 shares outstanding at June 30, 2020 and June 30, 2019
Additional paid-in capital
Accumulated deficit
Less: treasury stock, at cost; 1,200,365 shares at
June 30, 2020 and 2019
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying Notes to Financial Statements.
28
June 30, 2020
June 30, 2019
$
$
$
2,600,083 $
3,103,819
8,928,688
12,178
229,805
14,874,573
4,139,693
17,326
640,767
19,672,359 $
1,042,655
4,249
2,940,006 $
2,832,370
2,106,131
8,925,411
13,077
1,332,204
523,000
195,454
3,165,289
7,333,095
12,178
244,908
10,950,924
4,001,081
-
501,891
15,453,896
-
-
1,469,232
562,905
1,531,407
3,563,544
-
-
-
-
-
-
-
52,139
48,493,732
(18,686,416)
52,139
48,491,317
(15,672,316)
(20,980,788)
8,878,667
19,672,359 $
(20,980,788)
11,890,352
15,453,896
$
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Balance, June 30, 2017
Stock based compensation
Net loss for the year ended June 30, 2018
Balance, June 30, 2018
Stock based compensation
Net loss for the year ended June 30, 2019
Balance, June 30, 2019
Stock based compensation
Net loss for the year ended June 30, 2020
Balance, June 30, 2020
See accompanying Notes to Financial Statements.
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Total
-
-
2,830
-
52,139 $ 48,485,390 $ (11,370,461) $ (20,980,788) $ 16,186,280
2,830
-
-
- (2,192,170)
(2,192,170)
52,139 48,488,220 (13,562,631) (20,980,788) 13,996,940
-
3,097
-
- (2,109,685)
(2,109,685)
52,139 48,491,317 (15,672,316) (20,980,788) 11,890,352
-
2,415
-
- (3,014,100)
(3,014,100)
52,139 $ 48,493,732 $ (18,686,416) $ (20,980,788) $ 8,878,667
3,097
-
2,415
-
-
-
-
-
$
$
29
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CASH FLOWS
Year ended June 30,
Cash flows from operating activities:
2020
2019
2018
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
$
(3,014,100) $
(2,109,685) $
(2,192,170)
Depreciation and amortization
Stock based compensation
Provision for doubtful accounts and sales returns and allowances
Deferred tax provision
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Income tax receivable
Customer deposits
Other current assets
Accounts payable
Other accrued liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Capital expenditures
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under revolving credit agreement
Payments under revolving credit agreement
Proceeds from Payroll Protection Program loan
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes
Interest
Non-cash investing and financing activities lease liability and right of use asset arising from
operating leases
Capital expenditures included in accounts payable at year end
See accompanying Notes to Financial Statements.
30
619,801
2,415
21,750
(138,876)
39,720
(1,595,593)
-
2,269,465
15,103
1,330,172
1,097,724
647,581
(617,811)
(617,811)
822,068
3,097
19,649
18,772
563,055
497,446
-
192,020
5,697
(4,386)
51,609
59,342
-
-
931,408
2,830
(12,118)
163,100
(373,437)
681,413
377
(242,023)
65,073
33,215
82,740
(859,592)
-
-
32,856,428
(32,856,428)
2,374,859
2,374,859
2,404,629
195,454
2,600,083 $
32,176,067
(32,176,067)
-
-
59,342
136,112
195,454 $
14,774,091
(14,774,091)
-
-
(859,592)
995,704
136,112
8,517 $
64,862 $
10,675 $
56,223 $
9,561
23,569
17,326
140,602
-
-
-
-
$
$
$
$
$
1. Organization
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.
Adoption of new revenue recognition standard
In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of
revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues
arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to
recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The Company adopted this new standard as of July 1, 2018, by applying the modified-
retrospective method to those contracts that were not completed as of that date.
The results for reporting periods beginning after July 1, 2018, are presented in accordance with the new standard, although comparative
information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods. The adoption of this
standard did not have a material impact on the amount of revenue recognized by the Company as it sells finished products and recognizes revenue at the
point of sale or delivery and the timing of revenue recognition has not changed with the adoption of the new standard.
The cumulative impact on accumulated deficit as a result of the adoption of this standard did not have a material impact on the Company’s
historical net losses and, therefore, no adjustment was made to the opening balance of accumulated deficit. In addition, the impact on reported total
revenues and operating income as compared to what reported amounts would have been under the prior standard was also immaterial. The Company
expects the impact of adoption in future periods to also be immaterial. The accounting policies under the new standard were applied prospectively and are
described below. See Note 2, Revenues.
Revenue recognition
The Company’s revenues are derived primarily from the sales of respiratory products, medical gas equipment and emergency medical products.
The products are generally sold directly to distributors, customers affiliated with buying groups, individual customers and construction contractors,
throughout the world.
The Company recognizes revenue from product sales upon satisfaction of its performance obligation which occurs on the transfer of control of the
product, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Payment terms between Allied
and its customers vary by the type of customer, country of sale, and the products offered. The term between invoicing and the payment due date is not
significant.
31
Management exercises judgment in estimating variable consideration. Provisions for early payment discounts, rebates and returns and other
adjustments are provided for in the period the related sales are recorded. Historical data is readily available and reliable, and is used for estimating the
amount of the reduction in gross sales.
The Company provides rebates to wholesalers. Rebate amounts are based upon purchases using contractual amount for each product sold. Factors
used in the rebate calculations include the identification of which products have been sold subject to a rebate and the customer or price terms that apply.
Using known contractual allowances, the Company estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross
sales when it records the sale of the product. Settlement of the rebate generally occurs in the month following the sale.
The Company regularly analyzes the historical rebate trends and adjusts reserves for changes in trends and terms of rebate programs. Historically,
adjustments to prior years’ rebate accruals have not been material to net income.
Other allowances charged against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to
30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because the Company’s historical returns are low, and because
sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant.
The Company does not allocate transaction price as the Company has only one performance obligation and its contracts do not span multiple
periods. All taxes imposed on and concurrent with revenue producing transactions and collected by the Company are excluded from the measurement of
transaction price.
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, 2020, 2019 and 2018 were $3,550, $0, and $2,000, 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, 2020, the Company believes that it has no significant concentration of credit risk.
32
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 $2,408,878 and $2,308,377 higher at June 30, 2020
and 2019, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced by $0, $120,965, and $242,885 in fiscal 2020,
2019, and 2018 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
$1,849,134 and $1,800,935 at June 30, 2020 and 2019, 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, 2020, 2019, and 2018.
Collective Bargaining Agreement
At June 30, 2020, the Company had approximately 218 full-time employees. Approximately 139 employees in the Company’s principal
manufacturing facility located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2021.
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, 2020 and 2019, the Company had
$150,000 and $210,000 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 enacted tax rates that are expected to apply to taxable income when such assets and liabilities are anticipated
to be settled or realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as tax expense or benefit in the period that
includes the enactment date of the change. 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.
33
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. To the extent the Company’s deferred tax assets exceeded the amount supportable through
reversals of existing deferred tax liabilities and tax planning strategies a valuation allowance is recorded against the excess deferred tax assets.
The Company recognizes tax liabilities when, despite the Company’s belief that its tax return positions are supportable, the Company believes that
certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon settlement. To the extent the Company deems it necessary to record a liability for its tax positions, the
current portion of the liability is included in income taxes payable and the noncurrent portion is included in other liabilities on the balance sheet. If upon the
final tax outcome of these matters the ultimate liability is different than the amounts recorded, such differences are reflected in income tax expense in the
period in which such determination is made. The Company files a federal and multiple state income tax returns. With few exceptions the Company’s federal
and state income tax returns are open for fiscal years ending after June 30, 2017.
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, 2020, 2019 and 2018 were $595,236, $459,455, and $472,077, 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, 2020, 2019 and 2018 was 4,013,537 shares. The dilutive
effect of the Company's employee and director stock option plans are determined by use of the treasury stock method. There are no potential common
shares excluded from the calculation of net loss per share, as their effect would be anti-dilutive for the years ended June 30, 2020, 2019 and 2018
respectively.
34
The following information is necessary to calculate earnings per share for the periods presented:
Year ended June 30,
Net loss, as reported
Weighted average common shares outstanding
Effect of dilutive stock options
Weighted average diluted common shares outstanding
Net loss per common share
Basic
Diluted
2020
(3,014,100) $
2019
(2,109,685) $
2018
(2,192,170)
4,013,537
-
4,013,537
4,013,537
-
4,013,537
4,013,537
-
4,013,537
(0.75) $
(0.75) $
(0.53) $
(0.53) $
(0.55)
(0.55)
$
$
$
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, 2020, 2019
and 2018.
Weighted-average fair value
Weighted-average volatility
Weighted-average expected life (in years)
Weighted-average risk-free interest rate
Dividend yield
$
2020
2019
2018
0.61
$
53%
6.0
1.77%
0%
1.06
$
48%
6.0
3.03%
0%
0.99
44%
6.0
2.11%
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.
Forfeitures are recognized as they occur. 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, 2020, 2019 and 2018 was
approximately $2,000, $3,000 and $3,000, respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30,
2020 amounts to approximately $3,000. The cost is expected to be recognized through fiscal 2025.
The Company recognized an income tax benefit for share-based compensation arrangements of approximately $1,000 for the years ended June 30,
2020, 2019 and 2018, all of which were fully offset by an increase in the deferred tax asset valuation allowance.
No stock options were exercised during fiscal years 2020, 2019 and 2018.
35
Recent Accounting Pronouncements
Adoption of new lease standard
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and
disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense recognition in the income statement.
The new standard was effective for Allied on July 1, 2019. The Company adopted the new standard on its effective date and used the effective date
as our date of initial application. Consequently, financial information recorded and the disclosures required under the new standard are not provided for
dates and periods before July 1, 2019. Additionally, the Company determined that as of the effective date of the standard, it had no material impact on the
financial statements or disclosures of the Company.
The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients which
does not require us to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. Leasing
activities are not significant to Allied’s business and there is no significant change in the Company’s leasing activities upon adoption. The new standard also
provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with terms
of less than 12 months.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”), which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade
and other receivables, held-to-maturity debt securities, loans and other specified instruments, entities will be required to use a new forward-looking
“expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced
disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. The
guidance must be applied using a cumulative-effect transition method. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020, and
for interim periods within those fiscal years (the fiscal year ending June 30, 2022 for the Company), with early adoption permitted. The Company is
currently evaluating the impact that adopting this guidance may have on its financial statements.
Environmental Remediation
The Company is subject to federal and state requirements for protection of the environment, including the remediation of contaminated sites. The
Company’s policy is to accrue and charge to current expense identified exposures related to environmental remediation sites when it is probable that a
liability has been incurred and the amount can be reasonably estimated. The amount of the liability is based on the best estimate or the low end of a range of
reasonably possible exposure for investigation, cleanup, and monitoring costs to be incurred. Estimated remediation costs are not discounted to present
value.
On January 30, 2020, the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its
Brownfield Cleanup Program. The plan was filed with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil
and groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. The Company has applied to the
Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the site with oversight by the
Department of Environmental Conservation.
The Company’s best estimate of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense in fiscal year 2020
and $0.2 million is an expense in the three months ended June 30, 2020. These amounts are reflected in other accrued liabilities and selling, general and
administrative expenses in the Company’s financial statements. As of June 30, 2020, the Company has paid approximately $82,000 in remediation expenses
which have been charged to the initial reserve.
36
Risk and Uncertainties, Going Concern, Liquidity and Management’s Plan
A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019. On March 11, 2020, the World Health
Organization designated COVID-19 as a global pandemic. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business
slowdowns or shutdowns in affected areas. Despite our efforts to manage and remedy the effects of this pandemic, the significance depends on factors
beyond our control, including the duration and severity of the outbreak as well as third-party actions taken to contain the spread and mitigate public health
efforts. For the Company this creates additional economic uncertainty. Risks for the Company include disruption in operations if a significant percentage of
our workforce is unable to work due to illness, forced curtailment of business operations and business travel by governmental authorities, and failure of
others in our supply chain and distribution channel to meet their obligations to us, or significant disruptions in their ability to do so, which may be caused
by their own financial or operational difficulties.
3. Financing
North Mill Loan
The Company is party to a Loan and Security Agreement with North Mill Capital, LLC (“North Mill”), as successor in interest to Summit Financial
Resources, L.P., dated effective February 27, 2017, as amended April 16, 2018 and April 24, 2019 (as amended, the “Credit Agreement”). Pursuant to the
Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit Facility”). The Company’s obligations under the Credit Facility
are secured by all of the Company’s personal property, both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the
Credit Agreement. Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not exceed
$2,000,000. At June 30, 2020 availability under the agreement was $1,994,657.
The Credit Facility will be available, subject to its terms, on a revolving basis until it expires on February 27, 2021, at which time all amounts
outstanding under the Credit Facility will be due and payable. Advances will bear interest at a rate equal to 2.00% in excess of the prime rate as reported in
the Wall Street Journal. Interest is computed based on the actual number of days elapsed over a year of 360 days. In addition to interest, the Credit facility
requires that the Company pay the lender a monthly administration fee in an amount equal to forty-seven hundredths percent (0.47%) of the average
outstanding daily principal amount of loan advances for the each calendar month, or portion thereof.
Regardless of the amount borrowed under the Credit Facility, the Company will pay a minimum amount of .25% (25 basis points) per month on the
maximum availability ($5,000 per month). In the event the Company prepays or terminates the Credit Facility prior to February 27, 2021, the Company will
be obligated to pay an amount equal to the minimum monthly payment multiplied by the number of months remaining between February 27, 2021 and the
date of such prepayment or termination.
Under the Credit Agreement, advances are generally subject to customary borrowing conditions and to North Mill’s sole discretion to fund the
advances. The Credit Agreement also contains covenants with which the Company must comply during the term of the Credit Facility. Among other things,
such covenants require the Company to maintain insurance on the collateral, operate in the ordinary course and not engage in a change of control, dissolve
or wind up the Company.
The Credit Agreement also contains certain events of default including, without limitation: the failure to make payments when due; the material
breach of representations or warranties contained in the Credit Agreement or other loan documents; cross-default with other indebtedness of the Company;
the entry of judgments or fines that may have a material adverse effect on the Company; failure to comply with the observance or performance of covenants
contained in the Credit Agreement or other loan documents; insolvency of the Company, appointment of a receiver, commencement of bankruptcy or other
insolvency proceedings; dissolution of the Company; the attachment of any state or federal tax lien; attachment or levy upon or seizure of the Company’s
property; or any change in the Company’s condition that may have a material adverse 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 20.00% above the otherwise applicable
interest rate (provided, that the interest rate may not exceed the highest rate permissible under law), and would have the option to accelerate maturity and
payment of the Company’s obligations under the Credit Facility.
The Company was in compliance with all of the covenants associated with the Credit Facility at June 30, 2020.
37
PPP Loan
On April 13, 2020, the Company entered into a Payroll Protection Program (PPP) loan agreement (the “SBA Loan”) with Jefferson Bank and Trust
Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business
Administration (the “SBA”). The Company received total proceeds of $2.375 million from the SBA Loan. In accordance with the requirements of the
CARES Act, the Company will use proceeds from the SBA Loan for payroll costs and other permitted uses. The SBA Loan is scheduled to mature on April
13, 2022 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration
under the CARES Act.
All or a portion of the SBA Loan may be forgiven by the SBA upon application by the Company upon documentation of expenditures in
accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent
payments, covered mortgage interest and covered utilities during the eight week or at the Company’s election 24 week period beginning on the loan
origination date, subject to regulations and guidance provided by the United States Treasury. For purposes of the CARES Act, payroll costs exclude
compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs.
Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by
more than 25%. In the event the SBA Loan, or any portion thereof, is forgiven pursuant to the CARES Act, the amount forgiven is applied to outstanding
principal. The Company intends to seek forgiveness of the SBA Loan to the maximum extent permitted but cannot guarantee whether or to what extent such
forgiveness will be granted.
Payments of unforgiven principal and interest are deferred until November 2020, at which point the Company is required to repay such amounts in
18 equal monthly payments. The SBA Loan is evidenced by a promissory note, which contains customary events of default relating to, among other things,
payment defaults and breaches of representations and warranties. The SBA Loan may be prepaid by the Company at any time prior to maturity with no
prepayment penalties.
At June 30, 2020 the Company had $2.4 million indebtedness, including lease obligations, short-term debt, and long term debt. The prime rate as
reported in the Wall Street Journal was 3.25% on June 30, 2020.
Future maturities of debt are as follows:
Fiscal years ending
2021
2022
Total
4. Lease Commitments
$
$
1,042,655
1,332,204
2,374,859
The Company leases vehicles and equipment, generally for terms of three to five years.
As described in Note 2, “Summary of Significant Accounting Policies” the Company adopted ASC Topic 842, Leases (“ASC 842” or “Topic
842”), utilizing the modified retrospective adoption method with an effective date of July 1, 2019. The Company made the election to not apply the
recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less). Instead, as permitted by Topic 842, the Company recognizes
the lease payments under its short-term leases in profit or loss on a straight-line basis over the lease term. The Company elected this accounting policy for
all classes of underlying assets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities
represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease
commencement date based on the estimated present value of lease payments over the lease term. The Company generally uses the rate implicit in the lease
to discount lease payments to present value.
As of June 30, 2020, the Company had vehicles and equipment financed under operating leases with lease terms expiring through 2024. Rent
expense consists of monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis.
The following table sets forth the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s balance
sheet as of June 30, 2020.
38
Fiscal years ending
2021
2022
2023
2024
Total lease payments
Less: amounts representing interest
Present value of lease liabilities
Less: current portion
Long-term portion
Maturity of
Operating Lease
Liabilities
6,065
6,065
6,065
3,032
21,227
3,901
17,326
4,249
13,077
$
$
$
$
$
$
$
$
$
The Company’s operating lease cost amounted to $74,009 in 2020. Expenses are classified within selling, general and administrative expenses in
the Company’s statement of operations for the year ended June 30, 2020.
The table below presents lease-related terms and discount rates as of June 30, 2020.
Weighted average remaining lease terms
Operating leases
Weighted average discount rate
Operating leases
39
June 30, 2020
3.5 years
12%
5.
Income Taxes
The provision for (benefit from) income taxes consists of the following:
Current:
Federal
State
Less net operating loss carryforward applied
Total current
Deferred:
Federal
State
Valuation Allowance
Total deferred
Provision (benefit)
2020
2019
2018
$
$
84,420 $
23,093
(98,996)
8,517
(182,517)
4,405
39,236
(138,876)
(130,359) $
- $
10,676
-
10,676
-
9,938
-
9,938
(451,591)
(65,877)
536,240
18,772
29,448 $
424,038
91,789
(352,727)
163,100
173,038
A reconciliation of income taxes, with the amounts computed at the statutory federal rate is as follows:
Computed tax at federal statutory rate
State income taxes, net of federal tax (benefit) provision
Non deductible expenses
Federal research credit
Net operating loss carryforward adjustment
State NOLs
Stock Options - Expired
Changes resulting from the TCJA
Other, net
Valuation Allowance
Total
2020
2019
2018
(662,125) $
(17,475)
506,798
(31,076)
-
30,397
3,763
-
123
39,236
(130,359) $
(436,850) $
(61,974)
7,699
(22,906)
-
6,772
2,536
-
(2,069)
536,240
29,448 $
(555,261)
(54,471)
9,775
(16,880)
131,244
(39,979)
4,424
1,080,362
(33,449)
(352,727)
173,038
$
$
On December 22, 2017, President Trump signed into law tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which
became effective on that date. The TCJA significantly revised U.S. tax law by lowering the U.S. federal statutory income tax rate from 35% to 21%
effective January 1, 2018.
ASC Topic 740, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. Accordingly, in the
second quarter of fiscal 2018, the Company recorded a one-time charge of $136,386 within its income tax provision in connection with the TCJA. The net
expense of $136,386 relates to revaluation of the Company’s valuation allowance.
40
The deferred tax assets and deferred tax liabilities recorded on the balance sheet as of June 30, 2020 and 2019 are as follows:
Deferred tax assets
Bad debts
Intangible assets
Accrued liabilities
Stock options
Net operating loss and credit carryforwards
Total Assets
Deferred tax liabilities
Prepaid expenses
Inventory
Depreciation
Other
Total Liabilities
Valuation Allowance
Total deferred taxes
2020
2019
25,500 $
1,340
491,605
25,276
3,807,811
4,351,532
10,587
614,184
194,920
116,007
935,698
(2,775,069)
640,765 $
25,500
1,935
262,970
28,568
3,914,655
4,233,628
10,937
652,251
233,142
99,575
995,905
(2,735,832)
501,891
$
$
At June 30, 2020, there were $13.2 million dollars of federal net operating loss carryforwards which will expire in 2031 through 2038 and $1.5
million subject to indefinite carryforward. In addition, the Company has state tax net operating losses of approximately $8.1 million that expire in varying
years from 2020 through 2039.
The Company files a federal and multiple state income tax returns. With few exceptions the Company’s federal and state income tax returns are
open for fiscal years ending after June 30, 2017.
The Company has not taken any uncertain tax positions on its federal or state income tax filings for open tax years.
6. Employee Retirement Benefits
The Company offers a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each
employee may elect to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed to the plan.
During the fiscal years ended June 30, 2020, 2019 and 2018, the Company made contributions of $185,000, $190,965, and $197,999, 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, 2020, 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 2019 and 2018 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 less than 65 percent funded, plans in the yellow zone are between 65 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.
41
Pension Trust Fund
EIN/PN
2019
2018
FIP/RP
Status
Pending/
Implemented
2020
2019
Surcharge Expiration
2018 Imposed Date of CBA
PPA Zone Status
Contributions by the Company
51-
0138317/001
Green
Green
12/31/2019 12/31/2018
N/A $ 245,824 $ 236,256 $ 269,928
No
5/31/2021
District No. 9
International
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 2009 Incentive Stock Plan. The Employee Plan provides 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 300,000 shares of common stock may be granted under the Employee Plan. 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 75,000
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.
42
A summary of stock option transactions in fiscal 2018, 2019 and 2020, respectively, pursuant to the Employee Plans and the Directors Plans is as
follows:
Weighted
Average
June 30, 2017
Options Granted
Options Exercised
Options Forfeited or Expired
June 30, 2018
Options Granted
Options Exercised
Options Forfeited or Expired
June 30, 2019
Options Granted
Options Exercised
Options Forfeited or Expired
June 30, 2020
Exercisable at June 30, 2020
Shares
Weighted
Average
Remaining
Contractual
Exercise Price Term (years)
6.67
2.22
0.00
13.46
5.92
45,000 $
3,000 $
0 $
(3,000) $
45,000 $
3,000 $
0 $
(3,000) $
45,000 $
7,500 $
0 $
(9,750) $
42,750 $
35,250 $
2.13
0.00
8.10
5.52
1.20
0.00
6.00
4.65
5.38
Aggregate
Intrinsic
Value
-
-
4.3 $
4.0 $
4.1 $
3.0 $
304,768
225,443
The following table provides additional information for options outstanding and exercisable at June 30, 2020:
Options Outstanding
Range of Exercise Prices
$1.17 - 6.99
$7.00
$7.01 -10.08
$1.17 - 10.08
Options Exercisable
Range of Exercise Prices
$1.17 - 6.99
$7.00
$7.01 -10.08
$1.17 - 10.08
Number
Weighted Average
Remaining Life
Weighted Average
Exercise Price
23,250
15,000
4,500
42,750
6.7 years $
1.2 years $
0.9 years $
4.1 years $
2.51
7.00
7.89
4.65
Number Weighted Average Exercise Price
3.13
7.00
7.89
15,750 $
15,000 $
4,500 $
35,250 $
5.38
See Note 2 for discussion of accounting for stock awards and related fair value disclosures.
43
8. Supplemental Balance Sheet Information
Inventories
Work in progress
Component parts
Finished goods
Reserve for obsolete and excess inventory
Property, plant and equipment
Machinery and equipment
Buildings
Land and land improvements
Total property, plant and equipment at cost
Less accumulated depreciation and amortization
$
$
$
$
Estimated
Useful Life
(years)
3-10
28-35
5-7
June 30,
2020
2019
817,692 $
8,299,972
1,660,158
(1,849,134)
8,928,688 $
288,828
7,151,228
1,693,974
(1,800,935)
7,333,095
18,831,765 $
13,055,628
919,566
32,806,959
(28,667,266)
4,139,693 $
18,073,352
13,055,628
919,566
32,048,546
(28,047,465)
4,001,081
Depreciation and amortization expense was approximately $0.6 million, $0.8 million, and $.09 million for
the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
Other accrued liabilities
Accrued compensation expense
Environmental remediation
Other
$
$
1,257,332 $
514,000
334,799
2,106,131 $
1,149,210
-
382,197
1,531,407
Depreciation and amortization expense was approximately $0.6 million, $0.8 million, and $.09 million for
the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
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.
On January 30, 2020, the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its
Brownfield Cleanup Program. The plan was with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil and
groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. The Company has applied to the
Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the site with oversight by the
Department of Environmental Conservation.
44
The Company’s best estimate of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense during fiscal 2020
and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of June 30, 2020, the
Company has paid approximately $82,000 in remediation expenses which have been charged to the initial reserve.
Liability for future environmental expenditures
Beginning Balance
Charges to income
Remedial and investigatory spending
Ending Balance
Reflected in the Balance sheet as:
Current, included in Other Liabilities
Long-term environmental
Total
2020
2019
$
$
$
$
- $
1,119,155
82,155
1,037,000 $
514,000 $
523,000
1,037,000 $
-
-
-
-
-
-
-
Stuyvesant Falls Power Litigation. The Company has been involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid
(“Niagara”), which provides electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. The Company maintained in its
defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running with the land which have been honored for more
than a century. After the commencement of the litigation, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant
Falls plant. Niagara’s attempts to collect such invoices were stopped in December 2010 by a temporary restraining order. Among other things, Niagara
sought as damages the value of electricity received by the Company without charge. The total value of electricity at issue in the litigation was not known
with certainty and Niagara alleged different amounts of damages. Niagara alleged in its Second Amended Verified Complaint, dated February 6, 2012,
damages of approximately $469,000 in free electricity from May 2003 through May 2010. Niagara also alleged in its Motion For Summary Judgment, filed
on March 14, 2014, damages of approximately $492,000 in free electricity from May 2010 through the date of the filing. In April 2015, Allied received an
invoice for electrical power at the Stuyvesant Falls plant with an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the
period of time covered by the invoice.
The Company filed a Motion for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions
were held on June 13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled that the Company is entitled
to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara and the other party filed separate notices of
appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New York, Appellate Division, Third Department reversed the trial court decision
and held that the free power covenants are no longer enforceable. The Company’s application for leave to appeal this ruling was dismissed as premature by
the New York Court of Appeals on September 20, 2016. On May 26, 2017 the Company again moved for leave to appeal the March 31, 2016 decision. That
motion was granted on October 7, 2017 by the New York State Court of Appeals. The Company filed its brief and record on January 26, 2018. Niagara and
the other party to the lawsuit, Albany Engineering Corporation, filed their responses on July 16, 2018 and the Company filed its reply on August 14, 2018.
On February 20, 2019, the Company, Niagara and Albany entered into a Final Settlement Agreement pursuant to which the Company agreed,
among other things, to cancel and forgo its rights to free power from either Niagara or Albany under the power covenants. The New York State Court of
Appeals granted a request of all parties to withdraw the appeal on March 5, 2019 and all parties entered a Stipulation of Discontinuance on March 7, 2019
which discontinued the litigation. By separate agreement, Niagara paid the Company $750,000 as consideration for the Company’s agreements pursuant to
the settlement. On March 15, 2019 the Appellate Division of the Supreme Court of New York granted Niagara’s request to withdraw its pending appeal.
The matter is now fully concluded.
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.
45
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. Disaggregation information of sales by region, and by product, are as
follows:
Sales by Region
Domestic United States
Europe
Canada
Latin America
Middle East
Far East
Other International
Respiratory care products
Medical gas equipment
Emergency medical products
2020
2018
2019
$ 23,138,276 $ 23,541,614 $ 25,711,912
1,428,245
795,357
1,855,013
857,066
3,107,339
5,021
$ 31,894,262 $ 31,381,521 $ 33,759,953
1,422,660
829,901
3,122,929
693,716
2,686,206
574
877,308
758,145
2,450,969
464,470
3,259,905
29,110
Sales by Product
$
2020
8,555,954 $
15,282,732
8,055,576
2018
9,037,704
17,645,413
7,076,836
$ 31,894,262 $ 31,381,521 $ 33,759,953
2019
8,993,216 $
16,031,109
6,357,196
11. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for fiscal 2020 and 2019
appears below (all amounts in thousands except per share amounts):
Three months ended,
Net sales
Gross profit
Loss from operations
Net income (loss)
June 30,
2020
March 31, Dec. 31, Sept. 30,
2019
2020
2019
June 30,
2019
March 31, Dec. 31, Sept. 30,
2018
2019
2018
$
8,511 $
8,097 $
7,310 $
7,976 $
7,690 $
8,316 $
8,107 $
7,269
1,378
1,586
1,347
1,260
1,405
1,550
1,205
879
(638)
(305)
(1,512)
(607)
(433)
(353)
(762)
(1,226)
(539)
(330)
(1,531)
(614)
(474)
378
(779)
(1,235)
Basic earnings (loss) per share
(0.14)
(0.08)
(0.38)
(0.15)
(0.12)
0.09
(0.19)
(0.31)
Diluted earnings (loss) per share
(0.14)
(0.08)
(0.38)
(0.15)
(0.12)
0.09
(0.19)
(0.31)
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.
46
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, 2020, 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, 2020. 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, 2020, 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 under the caption “Information About our Executive Officers,” 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, 2020. 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.
47
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
2020 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, 2020, 2019, and 2018
Balance Sheet at June 30, 2020 and 2019
Statement of Changes in Stockholders’ Equity for the years ended June 30, 2020, 2019 and 2018
Statement of Cash Flows for the years ended June 30, 2020, 2019 and 2018
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule
Financial statement schedules which are not required under applicable regulations or related instructions and notes thereto or which are
inapplicable have been omitted.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part of this Report.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALLIED HEALTHCARE PRODUCTS, INC.
By:
/s/ Earl R. Refsland
Earl R. Refsland
President and Chief Executive Officer
/s/ Daniel C. Dunn
Daniel C. Dunn
Vice President, Chief Financial Officer, and Secretary
Dated: September 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on September 28th, 2020.
Signatures
*
John D. Weil
*
Earl R. Refsland
*
Joseph Root
*
Judy Graves
*
Susan Deuser
Title
Chairman of the Board
President, Chief Executive Officer and Director (Principal Executive
Officer)
Director
Director
Director
* By:
/s/ Earl R. Refsland
Earl R. Refsland
Attorney-in-Fact
* Such signature has been affixed pursuant to Power of Attorney.
49
Exhibit
No.
3.1
INDEX TO EXHIBITS
Description
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)
3.1.1
Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as Exhibit 99.1 to Current Report on Form 8-K
filed December 6, 2016 with event date of December 5, 2016 and incorporated by reference)
3.2
4
10.1
10.2
10.3
10.4
10.4.1
10.5
10.6
By-Laws of the Registrant (filed as Exhibit 3(2) to the Registration Statement and incorporated herein by reference)
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
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)
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)
Form of Indemnification Agreement with officers and directors (filed as Exhibit 10.22 to the 2001 Form 10-K and incorporated herein by
reference).
Amended and restated Employment Agreement dated December 21, 2009 by and between Allied Healthcare Products, Inc. and Earl
Refsland (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 and
incorporated by reference)
Change of Control Agreement dated March 16, 2007 by and between Allied Healthcare Products, Inc. and certain executive officers (filed
as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 and incorporated by
reference)
Allied Healthcare Products, Inc. 2009 Incentive Stock Plan (filed as Appendix A to the Company’s 2009 Proxy Statement on Schedule
14A)
Loan and Security Agreement dated February 27, 2017 by and between the Company and North Mill Capital, LLC, as successor in interest
to Summit Financial Resources, L.P. (filed as Exhibit 99.1 to Current Report on Form 8-K filed March 1, 2017 with event date of February
27, 2017 and incorporated by reference)
10.6.1
First Amendment to Loan and Security Agreement, dated April 16, 2018 (filed as Exhibit 99.1 to Current Report on Form 8-K filed April
20, 2018 with event date of April 16, 2018)
10.6.2
Second Amendment to Loan and Security Agreement, dated April 24, 2019 (filed as Exhibit 99.1 to Current Report on Form 8-K filed on
April 25, 2019 with event date of April 24, 2019)
10.7
Patent License Agreement, dated June 8, 2012, by and between Allied Healthcare Products, Inc. and Armstrong Medical Limited (filed as
Exhibit 10.12 to the Company’s annual report on for the fiscal year ended June 30, 2012 on Form 10-K and incorporated by reference).
50
10.8
23.1
24
31.1
31.2
32.1
32.2
101
Promissory Note, dated April 22, 2020, issued by the Company to Jefferson Bank and Trust Company in the original principal amount of
$2.375 million under the terms of the Paycheck Protection Program administered by the Small Business Administration and the United
States Treasury.
Consent of RubinBrown LLP (filed herewith)
Form of Power of Attorney – (filed herewith)
Certification of Chief Executive Officer (filed herewith)
Certification of Chief Financial Officer (filed herewith)
Sarbanes-Oxley Certification of Chief Executive Officer (provided herewith)*
Sarbanes-Oxley Certification of Chief Financial Officer (provided herewith)*
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, 2020, is formatted in XBRL interactive data files: (i) Statement of Operations for the fiscal years ended June 30,
2020, 2019 and 2018; (ii) Balance Sheet at June 30, 2020 and June 30, 2019; (iii) Statement of Changes in Stockholders’ Equity for the
fiscal years ended June 30, 2020, 2019 and 2018; (iv) Statement of Cash Flows for the fiscal years ended June 30, 2020, 2019 and 2018;
and (v) Notes to Financial Statements.
*Notwithstanding any incorporation of this Annual Report on Form 10-K 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.
51
Exhibit 10.8
PROMISSORY
NOTE
(Commercial-Single
Advance)
DATE AND PARTIES. The date of this Promissory Note (Note) is April 13, 2020. The parties and their addresses are:
LENDER:
JEFFERSON BANK AND TRUST COMPANY
2301 Market Street
Saint Louis, MO 63103
Telephone: 314-621-0100
BORROWER:
ALLIED HEALTHCARE PRODUCTS, INC.
a Missouri Corpooration
1720 Sublette Ave.
Saint Louis, MO 63110
1. DEFINITIONS. As used in this Note, the terms have the following meanings:
A. Pronouns. The pronouns "I," "me," and "my" refer to each Borrower signing this Note and each other person or legal entity (including guarantors,
endorsers, and sureties) who agrees to pay this Note. "You" and "Your" refer to the Lender, any participants or syndicators, successors and assigns, or
any person or company that acquires an interest in the Loan.
B. Note. Note refers to this document, and any extensions, renewals, modifications and substitutions of this Note.
C. Loan. Loan refers to this transaction generally, including obligations and duties arising from the terms of all documents prepared or submitted for
this transaction such as applications, security agreements, disclosures or notes, and this Note.
D. Loan Documents. Loan Documents refer to all the documents executed as a part of or in connection with the Loan.
E. Property. Property is any property, real, personal or intangible, that secures my performance of the obligations of this Loan.
F. Percent. Rates and rate change limitations are expressed as annualized percentages.
G. Dollar Amounts. All dollar amounts will be payable in lawful money of the United States of America.
2. PROMISE TO PAY. For value received, I promise to pay you or your order, at your address, or at such other location as you may designate, the
principal sum of $2,374,859.00 (Principal) plus interest from April 13, 2020 on the unpaid Principal balance until this Note matures or this obligation is
accelerated.
3. INTEREST. Interest will accrue on the unpaid Principal balance of this Note at the rate of 1.000 percent (Interest Rate).
A. Post-Maturity Interest. After maturity or acceleration, interest will accrue on the unpaid Principal balance of this Note at the Interest Rate in effect
from time to time, until paid in full.
B. Maximum Interest Amount. Any amount assessed or collected as interest under the terms of this Note will be limited to the maximum lawful
amount of Interest allowed by applicable law. Amounts collected in excess of the maximum lawful amount will be applied first to the unpaid Principal
balance. Any remainder will be refunded to me.
C. Accrual. Interest accrues using an Actual/360 days counting method.
4. REMEDIAL CHARGES. In addition to interest or other finance charges, I agree that I will pay these additional fees based on my method and pattern of
payment. Additional remedial charges may be described elsewhere in this Note.
A. Late Charge. If a payment is more than 15 days late, I will be charged 5.000 percent of the Unpaid Portion of Payment. However, this charge will
not be greater than $500.00. I will pay this late charge promptly but only once for each late payment.
5. PAYMENT. I agree to pay this Note in 18 payments. I will make 17 payments of $133,673.80 beginning on November 13, 2020, and on the 13th day of
each month thereafter. A single, final payment of the entire unpaid balance of Principal and interest will be due April 13, 2022.
52
Payments will be rounded to the nearest $.01. With the final payment I also agree to pay any additional fees or charges owing and the amount of any
advances you have made to others on my behalf. Payments scheduled to be paid on the 29th, 30th or 31st day of a month that contains no such day will,
instead, be made on the last day of such month.
Each payment I make on this Note will be applied first to interest that is due, then to principal that is due, and finally to any charges that I owe other than
principal and interest. If you and I agree to a different application of payments, we will describe our agreement on this Note. You may change how
payments are applied in your sole discretion without notice to me. The actual amount of my final payment will depend on my payment record.
6. PREPAYMENT. I may prepay this Loan in full or in part at any time. Any partial prepayment will not excuse any later scheduled payments until I pay
in full.
7. LOAN PURPOSE. The purpose of this Loan is CARES ACT·PAYCHECK PROTECTION LOAN.
8. SECURITY. The Loan is secured by the following, previously executed, security instruments or agreements: UNSECURED.
9. LIMITATIONS ON CROSS COLLATERAUZATION. The cross-collateralization clause on any existing or future loan, but not including this Loan, is
void and ineffective as to this Loan, including any extension or refinancing.
The Loan is not secured by a previously executed security instrument if a non-possessory, non-purchase money security interest is created in "household
goods" in connection with a "consumer loan," as those terms are defined by federal law governing unfair and deceptive credit practices. The Loan is not
secured by a previously executed security instrument if you fail to fulfill any necessary requirements or fail to conform to any limitations of the Real Estate
Settlement Procedures Act, (Regulation X), that are required for loans secured by the Property or if, as a result, the other debt would become subject to
Section 670 of the John Warner National Defense Authorization Act for Fiscal Year 2007.
The Loan is not secured by a previously executed security instrument if you fail to fulfill any necessary requirements or fail to conform to any limitations of
the Truth in Lending Act, (Regulation Z), that are required for loans secured by the Property.
10. DEFAULT. I will be in default if any of the following events (known separately and collectively as an Event of Default) occur:
A. Payments. I fail to make a payment in full when due.
B. Insolvency or Bankruptcy. The death, dissolution or insolvency of, appointment of a receiver by or on behalf of, application of any debtor relief law,
the assignment for the benefit of creditors by or on behalf of, the voluntary or involuntary termination of existence by, or the commencement of any
proceeding under any present or future federal or state insolvency, bankruptcy, reorganization, composition or debtor relief law by or against m or any
co-signer, endorser, surety or guarantor of this Note or any other obligations I have with you.
C. Business Termination. I merge, dissolve, reorganize, end my business or existence, or a partner or majority owner dies or is declared legally
incompetent.
D. New Organizations. Without your written consent, I organize, merge into, or consolidate with an entity; acquire all or substantially all of the assets
of another; materially change the legal structure, management, ownership or financial condition; or effect or enter into a domestication, conversion or
interest exchange.
E. Failure to Perform. I fail to perform any condition or to keep any promise or covenant of this Note.
F. Other Documents. A default occurs under the terms of any other Loan Document.
G. Other Agreements. I am in default on any other debt or agreement I have with you.
H. Misrepresentation. I make any verbal or written statement or provide any financial information that is untrue, inaccurate, or conceals a material fact
at the time it is made or provided.
I. Judgment. I fail to satisfy or appeal any judgment against me.
J. Name Change. I change my name or assume an additional name without notifying you before making such a change.
K. Property Transfer. I transfer all or a substantial part of my money or property.
L. Property Value. You determine in good faith that the value of the Property has declined or is impaired.
M. Material Change. Without first notifying you, there is a material change in my business, including ownership, management, and financial
conditions.
N. Insecurity. You determine in good faith that a material adverse change has occurred in my financial condition from the conditions set forth in my
most recent financial statement before the date of this Note or that the prospect for payment or performance of the Loan is impaired for any reason.
11. WAIVERS AND CONSENT. To the extent not prohibited by law, I waive protest, presentment for payment, demand, notice of acceleration, notice of
intent to accelerate and notice of dishonor.
53
A. Additional Waivers By Borrower. In addition, I, and any party to this Note and Loan, to the extent permitted by law, consent to certain actions you
may take, and generally waive defenses that may be available based on these actions or based on the status of a party to this Note.
(1) You may renew or extend payments on this Note, regardless of the number of such renewals or extensions.
(2) You may release any Borrower, endorser, guarantor, surety, accommodation maker or any other co-signer.
(3) You may release, substitute or impair any Property securing this Note.
(4) You, or any institution participating in this Note, may invoke your right of set-off.
(5) You may enter into any sales, repurchases or participations of this Note to any person in any amounts and I waive notice of such sales,
repurchases or participations.
(6) I agree that any of us signing this Note as a Borrower is authorized to modify the terms of this Note or any instrument securing, guarantying or
relating to this Note.
B. No Waiver By Lender. Your course of dealing, or your forbearance from, or delay in, the exercise of any of your rights, remedies, privileges or right
to insist upon my strict performance of any provisions contained in this Note, or any other Loan Document, shall not be construed as a waiver by you,
unless any such waiver is in writing and is signed by you.
12. REMEDIES. After I default, you may at your option do any one or more of the following.
A. Acceleration. You may make all or any part of the amount owing by the terms of this Note immediately due.
B. Sources. You may use any and all remedies you have under state or federal law or in any Loan Document.
C. Insurance Benefits. You may make a claim for any and all insurance benefits or refunds that may be available on my default.
D. Payments Made On My Behalf. Amounts advanced on my behalf will be immediately due and may be added to the balance owing under the terms
of this Note, and accrue interest at the highest post-maturity interest rate.
E. Set-Off. You may use the right of set-off. This means you may set-off any amount due and payable under the terms of this Note against any right I
have to receive money from you.
My right to receive money from you includes any deposit or share account balance l have with you; any money owed to me on an item presented to you
or in your possession for collection or exchange; and any repurchase agreement or other non-deposit obligation. "Any amount due and payable under
the terms of this Note" means the total amount to which you are entitled to demand payment under the terms of this Note at the time you set-off.
Subject to any other written contract, if my right to receive money from you is also owned by someone who has not agreed to pay this Note, your right
of set-off will apply to my interest in the obligation and to any other amounts I could withdraw on my sole request or endorsement.
Your right of set-off does not apply to an account or other obligation where my rights arise only in a representative capacity. It also does not apply to
any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs because you set-off against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right of set-off.
F. Waiver. Except as otherwise required by law, by choosing any one or more of these remedies you do not give up your right to use any other remedy.
You do not waive a default if you choose not to use a remedy. By electing not to use any remedy, you do not waive your right to later consider the event
a default and to use any remedies if the default continues or occurs again.
13. COLLECTION EXPENSES AND ATTORNEYS' FEES. On or after the occurrence of an Event of Default, to the extent permitted by law, I agree to
pay all expenses of collection, enforcement or protection of your rights and remedies under this Note or any other Loan Document. Expenses include, but
are not limited to, attorneys' fees, court costs and other legal expenses, as allowed by law. These expenses are due and payable immediately. If not paid
immediately, these expenses will bear interest from the date of payment until paid in full at the highest interest rate in effect as provided for in the terms of
this Note. All fees and expenses will be secured by the Property I have granted to you, if any. In addition, to the extent permitted by the United States
Bankruptcy Code, l agree to pay the reasonable attorneys' fees incurred by you to protect your rights and interests in connection with any bankruptcy
proceedings initiated by or against me.
14. COMMISSIONS, I understand and agree that you (or your affiliate) will earn commissions or fees on any insurance products, and may earn such fees
on other services that I buy through you or your affiliate.
15. WARRANTIES AND REPRESENTATIONS. I make to you the following warranties and representations which will continue as long as this Note is in
effect:
A. Power. I am duly organized, and validly existing and in good standing in all jurisdictions in which I operate. I have the power and authority to enter
into this transaction and to carry on my business or activity as it is now being conducted and, as applicable, am qualified to do so in each jurisdiction in
which I operate.
B. Authority. The execution, delivery and performance of this Note and the obligation evidenced by this Note are within my powers, have been duly
authorized, have received all necessary governmental approval, will not violate any provision of law, or order of court or governmental agency, and
will not violate any agreement to which I am a party or to which I am or any of my Property is subject.
C. Name and Place of Business. Other than previously disclosed in writing to you l have not changed my name or principal place of business within the
last 10 years and have not used any other trade or fictitious name. Without your prior written consent, I do not and will not use any other name and will
preserve my existing name, trade names and franchises.
54
16. APPLICABLE LAW. This Note is governed by the laws of Missouri, the United States of America, and to the extent required, by the laws of the
jurisdiction where the Property is located, except to the extent such state laws are preempted by federal law. In the event of a dispute, the exclusive forum,
venue and place of jurisdiction will be in Missouri, unless otherwise required by law.
17. JOINT AND SEVERAL LIABILITY AND SUCCESSORS. My obligation to pay the Loan is independent of the obligation of any other person who
has also agreed to pay it. You may sue me alone, or anyone else who is obligated on the Loan, or any number of us together, to collect the Loan. Extending
the Loan or new obligations under the Loan, will not affect my duty under the Loan and I will still be obligated to pay the Loan. This Note shall inure to the
benefit of and be enforceable by you and your successors and assigns and shall be binding upon and enforceable against me and my successors and assigns.
18. AMENDMENT, INTEGRATION ANO SEVERABIUTY. This Note may not be amended or modified by oral agreement. No amendment or
modification of this Note is effective unless made in writing. This Note and the other Loan Documents are the complete and final expression of the
agreement. If any provision of this Note is unenforceable, then the unenforceable provision will be severed and the remaining provisions will still be
enforceable. No present or future agreement securing any other debt I owe you will secure the payment of this Loan if, with respect to this loan, you fail to
fulfill any necessary requirements or fail to conform to any !imitations of the Truth in Lending Act {Regulation Z) or the Real Estate Settlement Procedures
Act (Regulation X) that are required for loans secured by the Property or if, as a result, this Loan would become subject to Section 670 of the John Warner
National Defense Authorization Act for Fiscal Year 2007.
19. INTERPRETATION. Whenever used, the singular includes the plural and the plural includes the singular. The section headings are for convenience
only and are not to be used to interpret or define the terms of this Note.
20, NOTICE, FINANCIAL REPORTS AND ADDITIONAL DOCUMENTS. Unless otherwise required by law, any notice will be given by delivering it or
mailing it by first class mail or via a nationally recognized overnight courier to the appropriate party's address listed in the DATE AND PARTIES section,
or to any other address designated in writing. Notice to one Borrower will be deemed to be notice to all Borrowers. I will inform you in writing of any
change in my name, address or other application information. I will provide you any correct and complete financial statements or other information you
request. I agree to sign, deliver, and file any additional documents or certifications that you may consider necessary to perfect, continue, and preserve my
obligations under this Loan and to confirm your lien status on any Property. Time is of the essence.
21. CREDIT INFORMATION. I agree to supply you with whatever information you reasonably request. You will make requests for this information
without undue frequency, and will give me reasonable time in which to supply the information.
22. ERRORS AND OMISSIONS. I agree, if requested by you, to fully cooperate in the correction, if necessary, in the reasonable discretion of you of any
and all loan closing documents so that all documents accurately describe the loan between you and me. I agree to assume all costs including by way of
illustration and not limitation, actual expenses, legal fees and marketing losses for failing to reasonably comply with your requests within thirty {30) days.
23. AGREEMENT TO ARBITRATE. You or I may submit to binding arbitration any dispute, claim or other matter in question between or among you and
me that arises out of or relates to this Transaction (Dispute), except as otherwise indicated in this section or as you and I agree to in writing. For purposes of
this section, this Transaction includes this Note and the other Loan Documents, and proposed loans or extensions of credit that relate to this Note. You or I
will not arbitrate any Dispute within any "core proceedings" under the United States bankruptcy laws.
You and I must consent to arbitrate any Dispute concerning a debt secured by real estate at the time of the proposed arbitration. You may foreclose or
exercise any powers of sale against real property securing a debt underlying any Dispute before, during or after any arbitration. You may also enforce a debt
secured by this real property and underlying the Dispute before, during or after any arbitration.
You or I may, whether or not any arbitration has begun, pursue any self-help or similar remedies, including taking property or exercising other rights under
the law; seek attachment, garnishment, receivership or other provisional remedies from a court having jurisdiction to preserve the rights of or to prevent
irreparable injury to you or me; or foreclose against any property by any method or take legal action to recover any property. Foreclosing or exercising a
power of sale, beginning and continuing a judicial action or pursuing self-help remedies will not constitute a waiver of the right to compel arbitration.
The arbitrator will determine whether a Dispute is arbitrable. A single arbitrator will resolve any Dispute, whether individual or joint in nature, or whether
based on contract, tort, or any other matter at law or in equity. The arbitrator may consolidate any Dispute with any related disputes, claims or other matters
in question not arising out of this Transaction. Any court having jurisdiction may enter a judgment or decree on the arbitrator's award. The judgment or
decree will be enforced as any other judgment or decree.
You and I acknowledge that the agreements, transactions or the relationships which result from the agreements or transactions between and among you and
me involve interstate commerce. The United States Arbitration Act will govern the interpretation and enforcement of this section.
The American Arbitration Association's Commercial Arbitration Rules, in effect on the date of this Note, will govern the selection of the arbitrator and the
arbitration process, unless otherwise agreed to in this Note or another writing.
24. WAIVER OF TRIAL FOR ARBITRATION. You and I understand that the parties have the right or opportunity to litigate any Dispute through a trial
by judge or jury, but that the parties prefer to resolve Disputes through arbitration instead of litigation. If any Dispute is arbitrated, you and I voluntarily and
knowingly waive the right to have a trial by jury or judge during the arbitration.
55
25. SIGNATURES. By signing, I agree to the terms contained in this Note. I also acknowledge receipt of a copy of this Note.
BORROWER:
ALLIED HEALTHCARE PRODUCTS. INC.
By
/s/ Daniel C. Dunn
DANIEL C DUNN, VICE
PRESIDENT FINANCE/CFO
56
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-99960, 33-86019, 33-45147, 33-45146, 333-
16489, 333-132223 and 333-177837) of Allied Healthcare Products, Inc. of our report dated September 28, 2020, relating to the financial statements, which
appear in this Form 10-K.
/s/ RubinBrown LLP
St. Louis, Missouri
September 28, 2020
57
POWER OF ATTORNEY
Exhibit 24
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 2020 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.
58
Exhibit 31.1
I, EARL R. REFSLAND, certify that:
1. I have reviewed this Form 10-K of ALLIED HEALTHCARE PRODUCTS, INC.;
CERTIFICATION
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 28, 2020
/s/ EARL R. REFSLAND
Earl. R. Refsland
President & Chief Executive Officer
59
Exhibit 31.2
I, DANIEL C. DUNN, certify that:
1. I have reviewed this Form 10-K of ALLIED HEALTHCARE PRODUCTS, INC.;
CERTIFICATION
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 28, 2020
/s/ DANIEL C. DUNN
Daniel C. Dunn
Vice President, Chief Financial Officer & Secretary
60
CERTIFICATION Pursuant to 18 U.S.C. § 1350
Exhibit 32.1
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, 2020 (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.
September 28, 2020
/s/ Earl R. Refsland
Earl R. Refsland
President & Chief Executive Officer
61
CERTIFICATION Pursuant to 18 U.S.C. § 1350
Exhibit 32.2
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, 2020 (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.
September 28, 2020
/s/ Daniel C. Dunn
Daniel C. Dunn
Vice President, Chief Financial Officer & Secretary
62