UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended March 31, 2020
¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from________ to ________
Commission File Number: 0-19266
ALLIED HEALTHCARE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 25-1370721 |
(State or other jurisdiction of | (I.R.S. Employer |
Incorporation or organization) | Identification No.) |
1720 Sublette Avenue, St. Louis, Missouri 63110
(Address of principal executive offices, including zip code)
(314) 771-2400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 twelve months (or for such shorter periods that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark 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 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 | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x | Smaller reporting company | x |
Emerging growth 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 Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $.01 | AHPI | The NASDAQ Stock Market LLC |
The number of shares of common stock outstanding at May 1, 2020 is 4,013,537 shares.
INDEX
2
"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, both in the United States and in our overseas markets, impacts of the U.S. Affordable Care Act, our history of net losses and negative cash flows, risks arising from the COVID-19 pandemic and other specific matters which relate directly to the Company's operations and properties as discussed in the Company’s annual report on Form 10-K for the year ended June 30, 2019 and as supplemented in Part II, Item 1A, Risk Factors in this Report. The Company cautions that any forward-looking statements contained in this report reflect only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made.
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Item 1. | Financial Statements |
ALLIED HEALTHCARE PRODUCTS, INC.
(UNAUDITED)
Three months ended | Nine months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net sales | $ | 8,097,215 | $ | 8,316,027 | $ | 23,382,636 | $ | 23,691,922 | ||||||||
Cost of sales | 6,511,688 | 6,765,552 | 19,190,237 | 20,057,379 | ||||||||||||
Gross profit | 1,585,527 | 1,550,475 | 4,192,399 | 3,634,543 | ||||||||||||
Selling, general and administrative expenses | 1,890,296 | 1,903,408 | 6,617,016 | 5,975,580 | ||||||||||||
Loss from operations | (304,769 | ) | (352,933 | ) | (2,424,617 | ) | (2,341,037 | ) | ||||||||
Other (income) expenses: | ||||||||||||||||
Interest expense | 25,754 | 18,590 | 51,542 | 44,548 | ||||||||||||
Interest income | (48 | ) | (47 | ) | (100 | ) | (107 | ) | ||||||||
Legal settlement | - | (750,000 | ) | - | (750,000 | ) | ||||||||||
Other, net | 9 | 45 | 32 | 45 | ||||||||||||
25,715 | (731,412 | ) | 51,474 | (705,514 | ) | |||||||||||
Income (loss) before income taxes | (330,484 | ) | 378,479 | (2,476,091 | ) | (1,635,523 | ) | |||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income (loss) | $ | (330,484 | ) | $ | 378,479 | $ | (2,476,091 | ) | $ | (1,635,523 | ) | |||||
Basic income (loss) per share | $ | (0.08 | ) | $ | 0.09 | $ | (0.62 | ) | $ | (0.41 | ) | |||||
Diluted income (loss) per share | $ | (0.08 | ) | $ | 0.09 | $ | (0.62 | ) | $ | (0.41 | ) | |||||
Weighted average shares outstanding - basic | 4,013,537 | 4,013,537 | 4,013,537 | 4,013,537 | ||||||||||||
Weighted average shares outstanding - diluted | 4,013,537 | 4,013,537 | 4,013,537 | 4,013,537 |
See accompanying Notes to Financial Statements.
4
ALLIED HEALTHCARE PRODUCTS, INC.
ASSETS
(Unaudited) | ||||||||
March 31, | June 30, | |||||||
2020 | 2019 | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,155,099 | $ | 195,454 | ||||
Accounts receivable, net of allowances of $170,000 | 3,644,766 | 3,165,289 | ||||||
Inventories, net | 6,821,211 | 7,333,095 | ||||||
Income tax receivable | 18,453 | 12,178 | ||||||
Other current assets | 312,002 | 244,908 | ||||||
Total current assets | 11,951,531 | 10,950,924 | ||||||
Property, plant and equipment, net | 3,585,970 | 4,001,081 | ||||||
Deferred income taxes | 501,891 | 501,891 | ||||||
Total assets | $ | 16,039,392 | $ | 15,453,896 |
See accompanying Notes to Financial Statements.
(CONTINUED)
5
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) | ||||||||
March 31, | June 30, | |||||||
2020 | 2019 | |||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,690,963 | $ | 1,469,232 | ||||
Customer deposits | 2,737,635 | 562,905 | ||||||
Other accrued liabilities | 2,194,647 | 1,531,407 | ||||||
Total current liabilities | 6,623,245 | 3,563,544 | ||||||
Commitments and contingencies | ||||||||
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 March 31, 2020 and June 30, 2019;4,013,537 shares outstanding at March 31, 2020 and June 30, 2019 | 52,139 | 52,139 | ||||||
Additional paid-in capital | 48,493,203 | 48,491,317 | ||||||
Accumulated deficit | (18,148,407 | ) | (15,672,316 | ) | ||||
Less treasury stock, at cost; 1,200,365 shares at March 31, 2020 and June 30, 2019, respectively | (20,980,788 | ) | (20,980,788 | ) | ||||
Total stockholders' equity | 9,416,147 | 11,890,352 | ||||||
Total liabilities and stockholders' equity | $ | 16,039,392 | $ | 15,453,896 |
See accompanying Notes to Financial Statements.
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ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
(UNAUDITED)
Three Months Ended March 31, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Accumulated | Treasury | |||||||||||||||||
Stock | Capital | Deficit | Stock | Total | ||||||||||||||||
Balance at December 31, 2019 | $ | 52,139 | $ | 48,492,674 | $ | (17,817,923 | ) | $ | (20,980,788 | ) | $ | 9,746,102 | ||||||||
Stock based compensation | - | 529 | - | - | 529 | |||||||||||||||
Net loss | - | - | (330,484 | ) | - | (330,484 | ) | |||||||||||||
Balance at March 31, 2020 | $ | 52,139 | $ | 48,493,203 | $ | (18,148,407 | ) | $ | (20,980,788 | ) | $ | 9,416,147 |
Three Months Ended March 31, 2019 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Accumulated | Treasury | |||||||||||||||||
Stock | Capital | Deficit | Stock | Total | ||||||||||||||||
Balance at December 31, 2018 | $ | 52,139 | $ | 48,489,734 | $ | (15,576,633 | ) | $ | (20,980,788 | ) | $ | 11,984,452 | ||||||||
Stock based compensation | - | 791 | - | - | 791 | |||||||||||||||
Net income (loss) | - | - | 378,479 | - | 378,479 | |||||||||||||||
Balance at March 31, 2019 | $ | 52,139 | $ | 48,490,525 | $ | (15,198,154 | ) | $ | (20,980,788 | ) | $ | 12,363,722 |
Nine Months Ended March 31, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Accumulated | Treasury | |||||||||||||||||
Stock | Capital | Deficit | Stock | Total | ||||||||||||||||
Balance at June 30, 2019 | $ | 52,139 | $ | 48,491,317 | $ | (15,672,316 | ) | $ | (20,980,788 | ) | $ | 11,890,352 | ||||||||
Stock based compensation | - | 1,886 | - | - | 1,886 | |||||||||||||||
Net loss | - | - | (2,476,091 | ) | - | (2,476,091 | ) | |||||||||||||
Balance at March 31, 2020 | $ | 52,139 | $ | 48,493,203 | $ | (18,148,407 | ) | $ | (20,980,788 | ) | $ | 9,416,147 |
Nine Months Ended March 31, 2019 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Accumulated | Treasury | |||||||||||||||||
Stock | Capital | Deficit | Stock | Total | ||||||||||||||||
Balance at June 30, 2018 | $ | 52,139 | $ | 48,488,220 | $ | (13,562,631 | ) | $ | (20,980,788 | ) | $ | 13,996,940 | ||||||||
Stock based compensation | - | 2,305 | - | - | 2,305 | |||||||||||||||
Net loss | - | - | (1,635,523 | ) | - | (1,635,523 | ) | |||||||||||||
Balance at March 31, 2019 | $ | 52,139 | $ | 48,490,525 | $ | (15,198,154 | ) | $ | (20,980,788 | ) | $ | 12,363,722 |
See accompanying Notes to Financial Statements.
7
ALLIED HEALTHCARE PRODUCTS, INC.
(UNAUDITED)
Nine months ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,476,091 | ) | $ | (1,635,523 | ) | ||
Adjustments to reconcile net loss to net cash provided (used in) by operating activities: | ||||||||
Depreciation and amortization | 462,274 | 635,868 | ||||||
Stock based compensation | 1,886 | 2,305 | ||||||
Provision for doubtful accounts and sales | ||||||||
returns and allowances | 21,623 | 20,178 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (501,100 | ) | 303,444 | |||||
Inventories | 511,884 | (62,904 | ) | |||||
Income tax receivable | (6,275 | ) | (8,120 | ) | ||||
Other current assets | (67,094 | ) | (39,666 | ) | ||||
Accounts payable | 221,731 | 359,851 | ||||||
Customer Deposits | 2,174,731 | 68,970 | ||||||
Other accrued liabilities | 663,239 | (55,440 | ) | |||||
Net cash provided by (used in) operating activities | 1,006,808 | (411,037 | ) | |||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (47,163 | ) | - | |||||
Net cash used in investing activities | (47,163 | ) | - | |||||
Cash flows from financing activities: | ||||||||
Borrowings under revolving credit agreement | 24,224,054 | 24,375,484 | ||||||
Payments under revolving credit agreement | (24,224,054 | ) | (23,964,749 | ) | ||||
Net cash provided by financing activities | - | 410,735 | ||||||
Net increase (decrease) in cash and cash equivalents | 959,645 | (302 | ) | |||||
Cash and cash equivalents at beginning of period | 195,454 | 136,112 | ||||||
Cash and cash equivalents at end of period | $ | 1,155,099 | $ | 135,810 |
See accompanying Notes to Financial Statements.
8
ALLIED HEALTHCARE PRODUCTS, INC.
(UNAUDITED)
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation
The accompanying unaudited financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.
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. We 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.
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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 $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving credit facility. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short maturity of these instruments. The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate.
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 and manage 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.
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The Company believes the combination of cash on hand at March 31, 2020, cash flows from operations, additional borrowings on the credit facility (Note 6), and additional liquidity provided by the Paycheck Protection Program loan (Note 8) will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. To the extent these measures do not provide sufficient liquidity, the Company will consider additional borrowings through the sale leaseback of its corporate headquarters and delaying certain expenditures until sufficient capital becomes available. Historically, the Company has experienced, and continues to experience, net losses and net losses from operations. Additionally, the Company expects to incur significant environmental costs that are planned to be expended over the next year (Note 1). The Company’s liquidity needs will be largely determined by the success of the Company executing management’s plan.
2. Revenues
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 the transfer of control, 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. For certain customers or product orders, Allied may require advance payments. These contract liabilities are reflected as customer deposits on the Company’s balance sheet.
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.
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The Company regularly analyzes the historical rebate trends and makes adjustments to 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.
The Company operates in one segment consisting of the manufacturing, marketing and distribution of a variety of respiratory products used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers and emergency medical product dealers. The Company’s product lines include respiratory care products, medical gas equipment and emergency medical products. The Company does not have any one single customer that represents more than 10 percent of total sales. Sales by region, and by product, are as follows:
Sales by Region | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Domestic United States | $ | 6,142,406 | $ | 6,128,063 | $ | 17,338,254 | $ | 17,819,577 | ||||||||
Europe | 148,255 | 327,357 | 545,372 | 707,296 | ||||||||||||
Canada | 186,032 | 212,219 | 555,410 | 585,542 | ||||||||||||
Latin America | 782,650 | 515,753 | 2,345,441 | 1,642,390 | ||||||||||||
Middle East | 205,633 | 236,834 | 429,590 | 382,845 | ||||||||||||
Far East | 632,239 | 892,044 | 2,167,995 | 2,534,292 | ||||||||||||
Other International | - | 3,757 | 574 | 19,980 | ||||||||||||
$ | 8,097,215 | $ | 8,316,027 | $ | 23,382,636 | $ | 23,691,922 |
Sales by Product | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Respiratory care products | $ | 2,289,920 | $ | 2,292,547 | $ | 6,507,371 | $ | 6,707,384 | ||||||||
Medical gas equipment | 3,848,923 | 4,371,944 | 11,453,496 | 12,191,622 | ||||||||||||
Emergency medical products | 1,958,372 | 1,651,536 | 5,421,769 | 4,792,916 | ||||||||||||
$ | 8,097,215 | $ | 8,316,027 | $ | 23,382,636 | $ | 23,691,922 |
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3. Inventories
Inventories are comprised as follows:
March 31, 2020 | June 30, 2019 | |||||||
Work-in progress | $ | 458,675 | $ | 288,828 | ||||
Component parts | 6,694,041 | 7,151,228 | ||||||
Finished goods | 1,448,757 | 1,693,974 | ||||||
Reserve for obsolete and excess | ||||||||
inventories | (1,780,262 | ) | (1,800,935 | ) | ||||
$ | 6,821,211 | $ | 7,333,095 |
4. Earnings per share
Basic earnings per share are based on the weighted average number of shares of all common stock outstanding during the period. 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 period. The number of basic and diluted shares outstanding for the three and nine months ended March 31, 2020 and 2019 were 4,013,537.
5. 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 has recognized 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.
Environmental Remediation
As more fully described in Note 1, the Company has filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield Cleanup Program 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. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the site.
The Company’s best estimate of the expected cost to remediate the site is $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve.
Employment Contract
The Company has entered into an employment contract with its chief executive officer with annual renewals. 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.
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6. Financing
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 but will not exceed $2,000,000. At March 31, 2020 availability under the agreement was $2.0 million.
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 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.
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At March 31, 2020, the Company had no indebtedness. The prime rate as reported in the Wall Street Journal was 3.25% on March 31, 2020.
The Company was in compliance with all of the covenants associated with the Credit Facility at March 31, 2020.
7. Income Taxes
The Company accounts for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In the three and nine months ended March 31, 2020 the Company recorded the tax benefit of losses incurred in the amount of approximately $82,000 and $623,000, respectively. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of a like amount was recorded. Due to the reduction in the cumulative to date loss occurring in the three months ended March 31, 2019, the Company recorded a provision for income taxes of approximately $100,000 along with a reduction in the valuation allowance for a like amount. For the nine months ended March 31, 2019 the Company recorded the tax benefit of cumulative losses incurred to date in the amount of approximately $406,000. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of a like amount was recorded. The total valuation allowance recorded by the Company as of March 31, 2020 and 2019 was approximately $3,348,000 and $2,606,000, respectively. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be subject to a valuation allowance.
8. Subsequent Events
COVID-19
On January 30, 2020 the World Health Organization (“WHO’) announced a global health emergency because of a new strain of coronavirus originating in Wuhan China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
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The full impact of the COVID-19 outbreak continues to evolve as the date of this report. As such, it is uncertain as the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity. The Company is dependent on its workforce to deliver its products. As an essential supplier under state and local shelter in-place orders, 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. Disruptions to the supply chain may lead to a delayed receipt by the Company of necessary raw materials and component inventory. The Company cannot estimate the length or gravity of the impact of the COVID-9 outbreak on the Company’s results of future operations, financial position, or liquidity.
CARES Act Loan
On April 22, 2020, the Company entered into a 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 beginning 60 days but not later than 120 days after loan approval and 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 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 25% 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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
COVID-19 Outbreak
On January 30, 2020 the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
As discussed in more detail in this Item 2, the Company has seen 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 faces 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. The Company cannot be certain that it will be able to obtain the needed components in a timely fashion. In addition, while the Company has not yet seen material price increases for its raw materials or necessary components, such increases are possible.
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 quarter ended March 31, 2020 only partially reflects 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.
Three months ended March 31, 2020 compared to three months ended March 31, 2019
Allied had net sales of $8.1 million for the three months ended March 31, 2020, down $0.2 million from net sales of $8.3 million in the prior year same quarter. Domestic sales were unchanged while international sales, which represented 24.1% of third quarter sales, were down 10.7% from the prior year same quarter.
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Total orders for the Company’s products for the three months ended March 31, 2020 of $17.8 million were $9.9 million or 125.3% higher than orders for the prior year same quarter of $7.9 million. Domestic orders are up 81.8% over the prior year same quarter while international orders, which represented 43.4% of third quarter orders, were 230.3% higher than orders for the prior year same quarter.
Almost all of the increase in orders for the period was due to increased demand for the Company’s emergency products. In total, orders for the AHP300 ventilator line for the three months ended March 31, 2020 were $7.4 million dollars, a $7.0 million increase over orders for the prior year same quarter of $0.3 million. The increase in total orders for the AHP300 consisted of an increase of $2.7 million in domestic orders and $4.3 million in international orders. Orders for the Company’s other products for the quarter were $10.4 million, $2.8 million higher than orders for the prior year same quarter of $7.6 million. These products include medical devices used in direct patient care, in an emergency or hospital setting, including suction pumps, oxygen regulators, air compressors, nebulizers, demand valves, aspirators, and emergency use ventilators.
Gross profit for the three months ended March 31, 2020 was $1.6 million, or 19.8% of net sales, compared to $1.6 million, or 19.3% of net sales, for the three months ended March 31, 2019.
Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019 were $1.9 million.
Loss from operations was $305,000 for the three months ended March 31, 2020 compared to loss from operations of $353,000 for the three months ended March 31, 2019.
Other income and expenses for the three months ended March 31, 2020 was an expense of $25,700 compared to income of $731,400 for the three months ended March 31, 2019 which included approximately $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. Interest expense for the three months ended March 31, 2020 was $26,000 compared to interest expense of $19,000 for the three months ended March 31, 2019.
Allied had a loss before benefit from income taxes in the third quarter of fiscal 2020 of $330,000 compared to income before provision for income taxes in the third quarter of fiscal 2019 of $378,000. The Company’s tax provision net of valuation allowance reflects a tax benefit of $0 for the three months ended March 31, 2020 and 2019. In the quarter ended March 31, 2020 the tax benefit of losses in the amount of approximately $82,000 was fully offset by a valuation allowance of equivalent amount. Due to the reduction in the cumulative to date loss occurring in the three months ended March 31, 2019, a tax provision in the amount of $100,000 was recorded offset by a reduction in the valuation allowance. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully offset by a valuation allowance.
Net loss for the third quarter of fiscal 2020 was $330,000 or $0.08 per basic and diluted share compared to net income of $378,000 or $0.09 per basic and diluted share for the third quarter of fiscal 2019. The weighted average number of common shares outstanding, used in the calculation of basic and diluted earnings per share for the third quarters of fiscal 2020 and 2019 were 4,013,537.
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Nine months ended March 31, 2020 compared to nine months ended March 31, 2019
Allied had net sales of $23.4 million for the nine months ended March 31, 2020, down $0.3 million, or 1.3% from net sales of $23.7 million in the prior year same period. Domestic sales were down 2.7% from the prior year same period while international sales were up 2.9% from the prior year same period. International business represented 25.8% of sales for the first nine months of fiscal 2020.
Total orders for the Company’s products for the nine months ended March 31, 2020 of $33.2 million were $10.0 million or 43.1% higher than orders for the prior year same period of $23.2 million. Domestic orders are up 27.3% from the prior year same period while international orders, which represented 35.6% of orders for the first nine months of fiscal 2020, were 83.1% higher than orders for the prior year same period. Changes in orders for specific products due to COVID-19 during the nine month period reflect the same patterns discussed for the current quarter above.
Gross profit for the nine months ended March 31, 2020 was $4.2 million, or 17.9% of net sales, compared to $3.6 million, or 15.2% of net sales, for the nine months ended March 31, 2019. The $0.6 million increase in gross profit is mainly attributable to a $0.6 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.
Selling, general and administrative expenses for the nine months ended March 31, 2020 were $6.6 million compared to selling, general and administrative expenses of $6.0 million for the nine months ended March 31, 2019. The increase is primarily due to the $0.9 million provision for environmental cleanup costs at the Company’s facility in Stuyvesant Falls, New York. This increase was partially offset by a $0.2 million decrease in personnel cost consisting of salary and fringe benefits.
Loss from operations was $2.5 million for the nine months ended March 31, 2020 compared to loss from operations of $2.3 million for the nine months ended March 31, 2019.
Other income and expenses for the nine months ended March 31, 2020 was an expense of $51,500 compared to income of $705,500 for the nine months ended March 31, 2019 which included approximately $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. Interest expense for the nine months ended March 31, 2020 was $51,500 compared to interest expense of $44,500 for the nine months ended March 31, 2019.
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Allied had a loss before benefit from income taxes in the first nine months of fiscal 2020 of $2.5 million compared to loss before benefit from income taxes in the first nine months of fiscal 2019 of $1.6 million. The Company’s tax provision net of valuation allowance reflects a tax benefit of $0 for the nine months ended March 31, 2020 and 2019. In the nine months ended March 31, 2020 the tax benefit of losses in the amount of approximately $623,000 was fully offset by a valuation allowance of equivalent amount. In the nine months ended March 31, 2019 the Company recorded the tax benefit of losses incurred in the amount of approximately $406,000 net of additions to the valuation allowance of like amount. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully offset by a valuation allowance.
Net loss for the nine months ended March 31, 2020 was $2.5 million or $0.62 per basic and diluted share compared to net loss of $1.6 million or $0.41 per basic and diluted share for the first nine months of fiscal 2019. The weighted average number of common shares outstanding, used in the calculation of basic and diluted earnings per share for the first nine months of fiscal 2020 and 2019 was 4,013,537.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are its cash, cash equivalents, other items of working capital and available borrowing under the Credit Facility discussed below.
The Company’s working capital was $5.3 million at March 31, 2020 compared to $7.4 million at June 30, 2019. Inventory decreased by $0.5 million, Customer Deposits increased by $2.2 million and Other Accrued Liabilities increased by $0.7 million. During fiscal 2020, these decreases in working capital were partially offset by a $1.0 million increase in Cash and cash equivalents and $0.4 million increase in Accounts Receivable. Accounts Receivable was $3.6 million at March 31, 2020, an increase from $3.2 million at June 30, 2019. Accounts Receivable as measured in days sales outstanding (“DSO”) was 43 DSO at March 31, 2020; an increase 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 Company will spend about $1.2 million in capital expenditures as part of the ramp-up of our operation to produce additional ventilators. These expenditures are planned for the fourth quarter of the current fiscal year.
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Credit Arrangements
As of March 31, 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 but will not exceed $2,000,000. At March 31, 2020 availability under the agreement was $2.0 million. The Company expects that it will use the Credit Facility to finance the Company’s operations in the short term.
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 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 North Mill would have the option to accelerate maturity and payment of the Company’s obligations under the Credit Facility.
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On April 22, 2020, the Company entered into a 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 beginning 60 days but not later than 120 days after loan approval and 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 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 25% 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 March 31, 2020, the Company had no indebtedness, including short-term debt, long term debt and an immaterial amount of capital leases. The prime rate as reported in the Wall Street Journal was 3.25% on March 31, 2020.
Further reductions in availability, either due to continued losses, or changes by North Mill to the Company’s borrowing base, could have a material adverse impact on our liquidity and ability to meet our operating requirements. In such a case, the Company would need to access additional sources of liquidity if it does not return to profitability. If the Company were unable to reach such an agreement with North Mill to increase availability, the Company could also attempt to negotiate a larger credit facility with another lender, but the Company would be obligated to pay the above described pre-payment penalty to North Mill. There is no assurance that the Company could secure either increased availability from North Mill or a new credit facility from a new lender, in which case the Company would have to use other assets to obtain liquidity, such as a sale-leaseback of some or all of its real estate. The Company was in compliance with all of the covenants associated with the Credit Facility at March 31, 2020.
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Further losses or negative cash flow, including as a result of expenses connected with (i) the investigation and possible environmental remediation of the Stuyvesant Falls facility and (ii) the Company’s response to the COVID-19 outbreak, could result in the Company requiring additional capital or liquidity, which may not be available or may only be available on economically adverse terms. To the extent the Company is able to satisfy the increased orders for its respiratory care products, the increased revenue from such sales should provide increased liquidity. In addition, the Company could consider additional borrowings to the extent available, including without limitation through the sale leaseback of its corporate headquarters.
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 these claims over its self-insured retention will be covered by the Company’s product liability insurance. See Part II, Item 1 – Legal Proceedings, below, for more information concerning litigation.
Critical Accounting Policies
The impact and any associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect the Company’s reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.
Recently Issued Accounting Guidance
See Note 1 – Summary of Significant Accounting and Reporting Policies for more information on recent accounting pronouncements and their impact, if any, on the Company’s financial statements. Management believes there have been no material changes to our critical accounting policies.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
At March 31, 2020, the Company has no debt outstanding. The Credit Facility bears interest at a rate using the Prime Rate, as reported in the Wall Street Journal, as the basis, and therefore is subject to additional expense should there be an increase in market interest rates while borrowing on the revolving credit facility.
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The Company had no holdings of derivative financial or commodity instruments at March 31, 2020. The Company has international sales; however, these sales are denominated in U.S. dollars, mitigating foreign exchange rate fluctuation risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed as of March 31, 2020, the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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 $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve.
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In connection with information set forth in this Quarterly Report on Form 10-Q, readers should also consider the risk factors discussed under Item 1A. Risk Factors, in Part I of our 2019 Form 10-K, together with the supplement below. The risks set forth in our 2019 Form 10-K, as supplemented in this Item 1A, Risk Factors, could materially and adversely affect our business, financial condition, and results of operations.
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.
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Item 6. | Exhibits |
(a) Exhibits:
10.8 Promissory Note, dated April 22, 2020, by and between the Company and Jefferson Bank and Trust Company | |
31.1 Certification of Chief Executive Officer (filed herewith) | |
31.2 Certification of Chief Financial Officer (filed herewith) | |
32.1 Sarbanes-Oxley Certification of Chief Executive Officer (furnished herewith)* | |
32.2 Sarbanes-Oxley Certification of Chief Financial Officer (furnished herewith)* | |
101.INS XBRL Instance Document** | |
101.SCH XBRL Taxonomy Extension Schema Document** | |
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document** | |
101.DEF XBRL Taxonomy Extension Definition Linkbase Document** | |
101.LAB XBRL Taxonomy Extension Label Linkbase Document** | |
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document** |
* Notwithstanding any incorporation of this Quarterly Report on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with an asterisk (*) shall not be deemed incorporated by reference to any other filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless specifically otherwise set forth therein.
** Filed herewith as Exhibit 101 are the following materials formatted in XBRL: (i) Statement of Operations, (ii) Balance Sheet, (iii) Statement of Cash Flows and (iv) Notes to Financial Statements.
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Pursuant to the requirements 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. | ||
/s/ Daniel C. Dunn | ||
Daniel C. Dunn | ||
Chief Financial Officer | ||
Date: May 15, 2020 |
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Exhibit 10.8
LOAN NUMBER 5310597103 |
LOAN NAME ALLIED HEALTHCARE PRODUCTS, INC. |
ACCT. NUMBER AAA0992 |
NOTE DATE 04/13/20 |
INITIALS DLD | ||||
NOTE AMOUNT $2,374,859.00 |
INDEX (w/Margin) Not Applicable |
RATE 1.000% Creditor Use |
MATURITY DATE 4/13/2022 |
LOAN PURPOSE Commercial |
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 Corporation
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. |
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. |
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. |
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. |
ORAL OR UNEXECUTED AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT YOU (BORROWER) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT. |
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.
/s/ Daniel C. Dunn | |||
By | DANIEL C DUNN, VICE PRESIDENT FINANCE/CFO |
Exhibit 31.1
CERTIFICATION
I, EARL R. REFSLAND, certify that:
1. I have reviewed this Form 10-Q of ALLIED HEALTHCARE PRODUCTS, INC.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, 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: May 15, 2020
/s/ EARL R. REFSLAND | |
Earl. R. Refsland | |
President & Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, DANIEL C. DUNN, certify that:
1. I have reviewed this Form 10-Q of ALLIED HEALTHCARE PRODUCTS, INC.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, 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: May 15, 2020
/s/ DANIEL C. DUNN | |
Daniel C. Dunn | |
Vice President, Chief Financial Officer & Secretary |
Exhibit 32.1
CERTIFICATION Pursuant to 18 U.S.C. § 1350
The undersigned officer of ALLIED HEALTHCARE PRODUCTS, INC. (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the Company’s fiscal quarter ended March 31, 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.
/s/ Earl R. Refsland | |
Earl R. Refsland | |
President & Chief Executive Officer |
May 15, 2020
Exhibit 32.2
CERTIFICATION Pursuant to 18 U.S.C. § 1350
The undersigned officer of ALLIED HEALTHCARE PRODUCTS, INC. (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the Company’s fiscal quarter ended March 31, 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.
/s/ Daniel C. Dunn | |
Daniel C. Dunn | |
Vice President, Chief Financial Officer & Secretary |
May 15, 2020
Earnings per share |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Earnings Per Share | |
Earnings Per Share | 4. Earnings per share Basic earnings per share are based on the weighted average number of shares of all common stock outstanding during the period. 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 period. The number of basic and diluted shares outstanding for the three and nine months ended March 31, 2020 and 2019 were 4,013,537.
|
BALANCE SHEET (Parenthetical) - USD ($) |
Mar. 31, 2020 |
Jun. 30, 2019 |
---|---|---|
Allowances for accounts receivable (in dollars) | $ 170,000 | $ 170,000 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 1,500,000 | 1,500,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 30,000,000 | 30,000,000 |
Common stock, shares issued | 5,213,902 | 5,213,902 |
Common stock, shares outstanding | 4,013,537 | 4,013,537 |
Treasury stock, at cost | 1,200,365 | 1,200,365 |
Series A Preferred Stock | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 200,000 | 200,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Subsequent Events |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Subsequent Events | |
Subsequent Events | 8. Subsequent Events COVID-19 On January 30, 2020 the World Health Organization (“WHO’) announced a global health emergency because of a new strain of coronavirus originating in Wuhan China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as the date of this report. As such, it is uncertain as the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity. The Company is dependent on its workforce to deliver its products. As an essential supplier under state and local shelter in-place orders, 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. Disruptions to the supply chain may lead to a delayed receipt by the Company of necessary raw materials and component inventory. The Company cannot estimate the length or gravity of the impact of the COVID-9 outbreak on the Company’s results of future operations, financial position, or liquidity. CARES ACT LOAN On April 22, 2020, the Company entered into a 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 beginning 60 days but not later than 120 days after loan approval and 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 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 25% 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. |
Revenues |
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Revenues | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | 2. Revenues 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 the transfer of control, 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. For certain customers or product orders, Allied may require advance payments. These contract liabilities are reflected as customer deposits on the Company's balance sheet. 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 makes adjustments to 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. The Company operates in one segment consisting of the manufacturing, marketing and distribution of a variety of respiratory products used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers and emergency medical product dealers. The Company’s product lines include respiratory care products, medical gas equipment and emergency medical products. The Company does not have any one single customer that represents more than 10 percent of total sales. Sales by region, and by product, are as follows:
|
Summary of Significant Accounting and Reporting Policies (Details) - USD ($) |
3 Months Ended | 9 Months Ended |
---|---|---|
Dec. 31, 2019 |
Mar. 31, 2020 |
|
Summary of Significant Accounting and Reporting Policies | ||
Environmental Remediation Expense | $ 900,000 | |
Payment of environmental liabilities | $ 79,000 |
Earnings per share (Details) - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Earnings Per Share | ||||
Weighted Average Number of Shares Outstanding, Basic and Diluted | 4,013,537 | 4,013,537 | 4,013,537 | 4,013,537 |
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Subsequent Events (Details) - Small Business Administration Loan - Subsequent Event |
Apr. 22, 2020
USD ($)
installment
|
---|---|
Subsequent Event [Line Items] | |
Proceeds from Loans | $ 2,375,000 |
Debt instrument, Interest rate | 1.00% |
Number of installments | installment | 18 |
Description of loan forgiveness | loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight 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 25% 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%. |
Prepayment penalties | $ 0 |
Maximum | |
Subsequent Event [Line Items] | |
Debt Instrument, Period | 120 days |
Minimum | |
Subsequent Event [Line Items] | |
Debt Instrument, Period | 60 days |
Commitments and Contingencies (Details) - USD ($) |
3 Months Ended | 9 Months Ended |
---|---|---|
Dec. 31, 2019 |
Mar. 31, 2020 |
|
Commitments and Contingencies | ||
Environmental Remediation Expense | $ 900,000 | |
Payments for Environmental Liabilities | $ 79,000 |
Inventories |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | 3. Inventories Inventories are comprised as follows:
|
Revenues (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Revenues | $ 8,097,215 | $ 8,316,027 | $ 23,382,636 | $ 23,691,922 |
Domestic United States | ||||
Revenues | 6,142,406 | 6,128,063 | 17,338,254 | 17,819,577 |
Europe | ||||
Revenues | 148,255 | 327,357 | 545,372 | 707,296 |
Canada | ||||
Revenues | 186,032 | 212,219 | 555,410 | 585,542 |
Latin America | ||||
Revenues | 782,650 | 515,753 | 2,345,441 | 1,642,390 |
Middle East | ||||
Revenues | 205,633 | 236,834 | 429,590 | 382,845 |
Far East | ||||
Revenues | $ 632,239 | 892,044 | 2,167,995 | 2,534,292 |
Other International | ||||
Revenues | $ 3,757 | $ 574 | $ 19,980 |
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY - USD ($) |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Treasury Stock |
Total |
---|---|---|---|---|---|
Balance at Beginning of period at Jun. 30, 2018 | $ 52,139 | $ 48,488,220 | $ (13,562,631) | $ (20,980,788) | $ 13,996,940 |
Stock based compensation | 0 | 2,305 | 0 | 0 | 2,305 |
Net income (loss) | 0 | 0 | (1,635,523) | 0 | (1,635,523) |
Balance at End of period at Mar. 31, 2019 | 52,139 | 48,490,525 | (15,198,154) | (20,980,788) | 12,363,722 |
Balance at Beginning of period at Dec. 31, 2018 | 52,139 | 48,489,734 | (15,576,633) | (20,980,788) | 11,984,452 |
Stock based compensation | 0 | 791 | 0 | 0 | 791 |
Net income (loss) | 0 | 0 | 378,479 | 0 | 378,479 |
Balance at End of period at Mar. 31, 2019 | 52,139 | 48,490,525 | (15,198,154) | (20,980,788) | 12,363,722 |
Balance at Beginning of period at Jun. 30, 2019 | 52,139 | 48,491,317 | (15,672,316) | (20,980,788) | 11,890,352 |
Stock based compensation | 0 | 1,886 | 0 | 0 | 1,886 |
Net income (loss) | 0 | 0 | (2,476,091) | 0 | (2,476,091) |
Balance at End of period at Mar. 31, 2020 | 52,139 | 48,493,203 | (18,148,407) | (20,980,788) | 9,416,147 |
Balance at Beginning of period at Dec. 31, 2019 | 52,139 | 48,492,674 | (17,817,923) | (20,980,788) | 9,746,102 |
Stock based compensation | 0 | 529 | 0 | 0 | 529 |
Net income (loss) | 0 | 0 | (330,484) | 0 | (330,484) |
Balance at End of period at Mar. 31, 2020 | $ 52,139 | $ 48,493,203 | $ (18,148,407) | $ (20,980,788) | $ 9,416,147 |
Commitments and Contingencies |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Commitments and Contingencies | |
Commitments and Contingencies | 5. 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 has recognized 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. Environmental Remediation As more fully described in Note 1, the Company has filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield Cleanup Program 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. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the site. The Company’s best estimate of the expected cost to remediate the site is $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve. Employment Contract The Company has entered into an employment contract with its chief executive officer with annual renewals. 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.
|
Summary of Significant Accounting and Reporting Policies (Policies) |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Summary of Significant Accounting and Reporting Policies | |
Basis of Presentation | Basis of Presentation The accompanying unaudited financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the instructions for Form 10‑Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s Annual Report on Form 10‑K for the year ended June 30, 2019. |
Adoption of new lease standard | 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. We 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. |
Environmental Remediation | 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 $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving credit facility. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short maturity of these instruments. The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate. |
Risk and Uncertainties, Going Concern, Liquidity and Management's Plan | 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 and manage 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. The Company believes the combination of cash on hand at March 31, 2020, cash flows from operations, additional borrowings on the credit facility (Note 6), and additional liquidity provided by the Paycheck Protection Program loan (Note 8) will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. To the extent these measures do not provide sufficient liquidity, the Company will consider additional borrowings through the sale leaseback of its corporate headquarters and delaying certain expenditures until sufficient capital becomes available. Historically, the Company has experienced, and continues to experience, net losses and net losses from operations. Additionally, the Company expects to incur significant environmental costs that are planned to be expended over the next year (Note 1). The Company’s liquidity needs will be largely determined by the success of the Company executing management’s plan. |
Document And Entity Information - shares |
9 Months Ended | |
---|---|---|
Mar. 31, 2020 |
May 01, 2020 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2020 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
Entity Registrant Name | ALLIED HEALTHCARE PRODUCTS INC | |
Entity Central Index Key | 0000874710 | |
Current Fiscal Year End Date | --06-30 | |
Entity Filer Category | Non-accelerated Filer | |
Trading Symbol | AHPI | |
Entity Common Stock, Shares Outstanding | 4,013,537 | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes |
Inventories (Details) - USD ($) |
Mar. 31, 2020 |
Jun. 30, 2019 |
---|---|---|
Inventories | ||
Work-in progress | $ 458,675 | $ 288,828 |
Component parts | 6,694,041 | 7,151,228 |
Finished goods | 1,448,757 | 1,693,974 |
Reserve for obsolete and excess inventories | (1,780,262) | (1,800,935) |
Inventories | $ 6,821,211 | $ 7,333,095 |
Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Income Taxes | ||||
Deferred Other Tax Expense (Benefit) | $ (82,000) | $ 100,000 | $ (623,000) | $ (406,000) |
Deferred tax assets valuation allowance | $ 3,348,000 | $ 2,606,000 |
Income Taxes |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Income Taxes | |
Income Taxes | 7. Income Taxes The Company accounts for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In the three and nine months ended March 31, 2020 the Company recorded the tax benefit of losses incurred in the amount of approximately $82,000 and $623,000, respectively. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of a like amount was recorded. Due to the reduction in the cumulative to date loss occurring in the three months ended March 31, 2019, the Company recorded a provision for income taxes of approximately $100,000 along with a reduction in the valuation allowance for a like amount. For the nine months ended March 31, 2019 the Company recorded the tax benefit of cumulative losses incurred to date in the amount of approximately $406,000. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of a like amount was recorded. The total valuation allowance recorded by the Company as of March 31, 2020 and 2019 was approximately $3,348,000 and $2,606,000, respectively. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be subject to a valuation allowance. |
Summary of Significant Accounting and Reporting Policies |
9 Months Ended |
---|---|
Mar. 31, 2020 | |
Summary of Significant Accounting and Reporting Policies | |
Summary of Significant Accounting and Reporting Policies | 1. Summary of Significant Accounting and Reporting Policies Basis of Presentation The accompanying unaudited financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the instructions for Form 10‑Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s Annual Report on Form 10‑K for the year ended June 30, 2019. 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. We 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. 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 $0.9 million. This amount was recorded as an expense in the three months ended December 31, 2019 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. As of March 31, 2020, the Company has paid approximately $79,000 in remediation expenses which have been charged to the initial reserve. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving credit facility. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short maturity of these instruments. The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate. 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 and manage 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. The Company believes the combination of cash on hand at March 31, 2020, cash flows from operations, additional borrowings on the credit facility (Note 6), and additional liquidity provided by the Paycheck Protection Program loan (Note 8) will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. To the extent these measures do not provide sufficient liquidity, the Company will consider additional borrowings through the sale leaseback of its corporate headquarters and delaying certain expenditures until sufficient capital becomes available. Historically, the Company has experienced, and continues to experience, net losses and net losses from operations. Additionally, the Company expects to incur significant environmental costs that are planned to be expended over the next year (Note 1). The Company’s liquidity needs will be largely determined by the success of the Company executing management’s plan.
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Inventories (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories | Inventories are comprised as follows:
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Financing |
9 Months Ended |
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Mar. 31, 2020 | |
Financing | |
Financing | 6. Financing 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 but will not exceed $2,000,000. At March 31, 2020 availability under the agreement was $2.0 million. 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 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. At March 31, 2020, the Company had no indebtedness. The prime rate as reported in the Wall Street Journal was 3.25% on March 31, 2020. The Company was in compliance with all of the covenants associated with the Credit Facility at March 31, 2020.
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Revenues (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue from external customers by geographic areas | The Company does not have any one single customer that represents more than 10 percent of total sales. Sales by region, and by product, are as follows:
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Schedule of Revenue from external customers by products and services |
|
STATEMENT OF OPERATIONS - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
STATEMENT OF OPERATIONS | ||||
Net sales | $ 8,097,215 | $ 8,316,027 | $ 23,382,636 | $ 23,691,922 |
Cost of sales | 6,511,688 | 6,765,552 | 19,190,237 | 20,057,379 |
Gross profit | 1,585,527 | 1,550,475 | 4,192,399 | 3,634,543 |
Selling, general and administrative expenses | 1,890,296 | 1,903,408 | 6,617,016 | 5,975,580 |
Loss from operations | (304,769) | (352,933) | (2,424,617) | (2,341,037) |
Other (income) expenses: | ||||
Interest expense | 25,754 | 18,590 | 51,542 | 44,548 |
Interest income | (48) | (47) | (100) | (107) |
Legal settlement | 0 | (750,000) | 0 | (750,000) |
Other, net | 9 | 45 | 32 | 45 |
Nonoperating Income (Expense) | 25,715 | (731,412) | 51,474 | (705,514) |
Income (loss) before income taxes | (330,484) | 378,479 | (2,476,091) | (1,635,523) |
Provision for income taxes | 0 | 0 | 0 | 0 |
Net income (loss) | $ (330,484) | $ 378,479 | $ (2,476,091) | $ (1,635,523) |
Basic income (loss) per share | $ (0.08) | $ 0.09 | $ (0.62) | $ (0.41) |
Diluted income (loss) per share | $ (0.08) | $ 0.09 | $ (0.62) | $ (0.41) |
Weighted average shares outstanding - basic | 4,013,537 | 4,013,537 | 4,013,537 | 4,013,537 |
Weighted average shares outstanding - diluted | 4,013,537 | 4,013,537 | 4,013,537 | 4,013,537 |
Revenues (Revenue from External Customers) (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Revenues | $ 8,097,215 | $ 8,316,027 | $ 23,382,636 | $ 23,691,922 |
Respiratory care products | ||||
Revenues | 2,289,920 | 2,292,547 | 6,507,371 | 6,707,384 |
Medical gas equipment | ||||
Revenues | 3,848,923 | 4,371,944 | 11,453,496 | 12,191,622 |
Emergency medical products | ||||
Revenues | $ 1,958,372 | $ 1,651,536 | $ 5,421,769 | $ 4,792,916 |
Financing (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Feb. 27, 2017 |
Mar. 31, 2020 |
|
Debt Instrument [Line Items] | ||
Debt Instrument, Interest Rate, Stated Percentage | 20.00% | |
Line of Credit Facility, Expiration Date | Feb. 27, 2021 | |
Line of Credit Facility, Frequency of Payment and Payment Terms | the Company will pay a minimum amount of .25% (25 basis points) per month on the maximum availability ($5,000 per month). | |
Line of Credit, Current | $ 0 | |
Summit Financial Resources Lp [Member] | Revolving Credit Facility [Member] | ||
Debt Instrument [Line Items] | ||
Line Of Credit Facility, Maximum Borrowing Capacity | $ 2,000,000 | |
Debt Instrument, Basis Spread on Variable Rate | 2.00% | |
Line of Credit Facility, Remaining Borrowing Capacity | $ 2,000,000 | |
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage | 0.47% | |
Summit Financial Resources Lp [Member] | Revolving Credit Facility [Member] | Prime Rate [Member] | ||
Debt Instrument [Line Items] | ||
Debt Instrument, Interest Rate, Effective Percentage | 3.25% |
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