The following described financial
statements of Allied Healthcare Products, Inc. are included in response to this item:
NOTES TO FINANCIAL STATEMENTS
Allied Healthcare Products, Inc.
(the “Company” or “Allied”) is a manufacturer of respiratory products used in the health care industry in a wide
range of hospital and alternate site settings, including post-acute care facilities, home health care and trauma care. The Company's product
lines include respiratory care products, medical gas equipment and emergency medical products.
|
2.
|
Summary of Significant Accounting Policies
|
The significant accounting
policies followed by the Company are described below.
Use of estimates
The policies utilized by the
Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America,
and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those
estimates.
Revenue recognition
The Company’s revenues
are derived primarily from the sales of respiratory products, medical gas equipment and emergency medical products. The products are generally
sold directly to distributors, customers affiliated with buying groups, individual customers and construction contractors, throughout
the world.
The Company recognizes revenue
from product sales upon satisfaction of its performance obligation which occurs on the transfer of control of the product, which is generally
upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Payment terms between Allied and its customers
vary by the type of customer, country of sale, and the products offered. The term between invoicing and the payment due date is not significant.
Management exercises judgment
in estimating variable consideration. Provisions for early payment discounts, rebates and returns and other adjustments are provided for
in the period the related sales are recorded. Historical data is readily available and reliable, and is used for estimating the amount
of the reduction in gross sales.
The Company provides rebates
to wholesalers. Rebate amounts are based upon purchases using contractual amount for each product sold. Factors used in the rebate calculations
include the identification of which products have been sold subject to a rebate and the customer or price terms that apply. Using known
contractual allowances, the Company estimates the amount of the rebate that will be paid, and records the liability as a reduction of
gross sales when it records the sale of the product. Settlement of the rebate generally occurs in the month following the sale.
The Company regularly analyzes
the historical rebate trends and adjusts reserves for changes in trends and terms of rebate programs. Historically, adjustments to prior
years’ rebate accruals have not been material to net income.
Other allowances charged against
gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to 30 days of sale, and
therefore can be reliably estimated. Returns can be reliably estimated because the Company’s historical returns are low, and because
sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant.
The Company does not allocate
transaction price as the Company has only one performance obligation and its contracts do not span multiple periods. All taxes imposed
on and concurrent with revenue producing transactions and collected by the Company are excluded from the measurement of transaction price.
Marketing and Advertising Costs
Promotional and advertising
costs are expensed as incurred and are included in selling, general and administrative expenses in the Statement of Operations. Advertising
expenses for the years ended June 30, 2021, 2020 and 2019 were $0, $3,550, and $0, respectively.
Cash and cash equivalents
For purposes of the statement
of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents.
The Company maintains funds
in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation. The risk of loss attributable
to these uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The Company has not experienced
any losses in such accounts.
Foreign currency transactions
Allied has international sales
which are denominated in U.S. dollars, the functional currency for these transactions.
Accounts receivable and concentrations of credit
risk
Accounts receivable are recorded
at the invoiced amount. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses based on past experience and an analysis of current amounts due, and historically
such losses have been within management's expectations. The Company maintains an allowance for doubtful accounts to reflect the uncollectibility
of accounts receivable based on past collection history and specific risks identified among uncollected accounts. Accounts receivable
are charged to the allowance for doubtful accounts when the Company determines that the receivable will not be collected and/or when the
account has been referred to a third party collection agency. The Company’s customers can be grouped into three main categories:
medical equipment distributors, construction contractors and health care institutions. At June 30, 2021, the Company believes that
it has no significant concentration of credit risk.
Inventories
Inventories are stated at
the lower of cost, determined using the last-in, first-out (“LIFO”) method, or market. If the first-in, first-out method (which
approximates replacement cost) had been used in determining cost, inventories would have been $2,149,560 and $2,408,878 higher at June 30,
2021 and 2020, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced by $0, $0, and $120,965
in fiscal 2021, 2020, and 2019 respectively, as a result of LIFO liquidations. Costs in inventory include raw materials, direct labor
and manufacturing overhead.
Inventory is recorded net
of a reserve for obsolete and excess inventory which is determined primarily based on an analysis of inventory items with no usage in
the preceding year and for inventory items for which there is greater than two years’ usage on hand. The reserve for obsolete and
excess inventory was $2,174,149 and $1,849,134 at June 30, 2021 and 2020, respectively.
Property, plant and equipment
Property, plant and equipment
are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, which range from
3 to 35 years. Expenditures for repairs, maintenance and renewals are charged to income as incurred. Expenditures, which improve an asset
or extend its estimated useful life, are capitalized. When properties are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in income.
Impairment of long-lived assets
The Company evaluates impairment
of long-lived assets under the provisions of ASC Topic 360: “Property, Plant and Equipment.” ASC 360 provides a single accounting
model for long-lived assets to be disposed of and reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Under ASC 360, if the sum of the expected future cash flows (undiscounted and without
interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss will be recognized. No
impairment losses of long-lived assets or identifiable intangibles were recorded by the Company for fiscal years ended June 30, 2021,
2020, and 2019.
Collective Bargaining Agreement
At June 30, 2021, the
Company had approximately 189 full-time employees. Approximately 114 employees in the Company’s principal manufacturing facility
located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on July 31, 2024.
Self-insurance
The Company maintains a self-insurance
program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the liability for reported
claims and the estimated liability for claims incurred but not reported. As of June 30, 2021 and 2020, the Company had $120,000 and $150,000,
respectively, of accrued liabilities related to health care claims. In order to establish the self-insurance reserves, the Company utilized
actuarial estimates of expected claims based on analyses of historical data.
Fair value of financial instruments
The Company’s financial
instruments include cash, accounts receivable, the revolving line of credit and accounts payable. The carrying amounts for cash, accounts
receivable, the revolving line of credit and accounts payable approximate their fair value due to the short maturity of these instruments.
Income taxes
The
Company accounts for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined
using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial
statement and income tax bases of assets and liabilities using enacted tax rates that are expected to apply to taxable income when
such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the change. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation
allowance the Company first considers the reversals of existing temporary deferred tax liabilities and available tax planning strategies.
To the extent these items are not sufficient to cause the realization of deferred tax assets, the Company considers the availability of
future taxable income to the extent such income is considered likely to occur based on the Company’s earnings history, current income
trends and projections.
In light of its history of
operating losses the Company does not rely on the existence of future taxable income as it currently cannot conclude future taxable income
is likely to occur. The Company does rely on reversals of existing temporary deferred tax liabilities and tax planning strategies to the
extent available to support the value of its existing deferred tax assets. To the extent the Company’s deferred tax assets exceeded
the amount supportable through reversals of existing deferred tax liabilities and tax planning strategies, a valuation allowance is recorded
against the excess deferred tax assets.
The Company recognizes tax
liabilities when, despite the Company’s belief that its tax return positions are supportable, the Company believes that certain
positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon settlement. To the extent the Company deems it necessary to record
a liability for its tax positions, the current portion of the liability is included in income taxes payable and the noncurrent portion
is included in other liabilities on the balance sheet. If upon the final tax outcome of these matters the ultimate liability is different
than the amounts recorded, such differences are reflected in income tax expense in the period in which such determination is made. The
Company files a federal and multiple state income tax returns. With few exceptions, the Company’s federal and state income tax returns
are open for fiscal years ending after June 30, 2018.
The Company classifies interest
expenses on taxes payable as interest expense. Penalties are classified as a component of other expenses.
Research and development costs
Research and development costs
are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses for the years
ended June 30, 2021, 2020 and 2019 were $571,535, $595,236, and $459,455, respectively.
Earnings per share
Basic earnings per share are
based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are based on the
sum of the weighted average number of shares of common stock and common stock equivalents outstanding during the year. The weighted average
number of basic shares outstanding for the years ended June 30, 2021, 2020 and 2019 was 4,013,537 shares. The weighted average number
of diluted shares outstanding for the years ended June 30, 2021, 2020 and 2019 was 4,026,446, 4,013,537 and 4,013,537 shares, respectively.
The dilutive effect of the Company's employee and director stock option plans are determined by use of the treasury stock method. There
are 20,250 potential common shares excluded from the calculation of net income per share, as their effect would be anti-dilutive for the
year ended June 30, 2021. There are no potential common shares excluded from the calculation of net loss per share, as their effect
would be anti-dilutive for the years ended June 30, 2020 and 2019.
The following information is necessary to calculate
earnings per share for the periods presented:
|
Year ended June 30,
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Net income (loss), as reported
|
|
$
|
1,687,188
|
|
|
$
|
(3,014,100
|
)
|
|
$
|
(2,109,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
Effect of dilutive stock options
|
|
|
12,909
|
|
|
|
-
|
|
|
|
-
|
|
|
Weighted average diluted common shares outstanding
|
|
|
4,026,446
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.42
|
|
|
$
|
(0.75
|
)
|
|
$
|
(0.53
|
)
|
|
Diluted
|
|
$
|
0.42
|
|
|
$
|
(0.75
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options excluded from computation of diluted income
per share amounts because their effect would be anti-dilutive
|
|
|
20,250
|
|
|
|
-
|
|
|
|
-
|
|
Employee stock-based compensation
The company follows the provisions
of ASC Topic 718: “Compensation – Stock Compensation”, which sets accounting requirements for “share-based”
compensation to employees, including employee stock purchase plans, and requires companies to recognize in the statement of operations
the grant-date fair value of the stock options and other equity-based compensation.
The fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes the weighted average
assumptions utilized in the Black-Scholes option pricing model for options granted during the fiscal years ended June 30, 2021, 2020
and 2019.
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Weighted-average fair value
|
|
$
|
6.44
|
|
|
$
|
0.61
|
|
|
$
|
1.06
|
|
|
Weighted-average volatility
|
|
|
109
|
%
|
|
|
53
|
%
|
|
|
48
|
%
|
|
Weighted-average expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
|
Weighted-average risk-free interest rate
|
|
|
0.52
|
%
|
|
|
1.77
|
%
|
|
|
3.03
|
%
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility is based on the historical volatility of the Company’s common stock to estimate future volatility. The risk-free rates
are taken from rates as published by the Federal Reserve and represent the yields on actively traded treasury securities for terms equal
or approximately equal to the expected terms of the options. The expected term is calculated using the SEC Staff Accounting Bulletin 107
(ASC 718-10-S99) simplified method. Forfeitures are recognized as they occur. The dividend yield is zero based on the fact that the Company
has no intention of paying dividends in the near term.
Share-based compensation expense
included in the Statement of Operations for the fiscal years ended June 30, 2021, 2020 and 2019 was approximately $14,000, $2,000
and $3,000, respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30, 2021 amounts
to approximately $9,000. The cost is expected to be recognized through fiscal 2025.
The Company recognized an
income tax benefit for share-based compensation arrangements of approximately $6,000, $1,000 and $1,000 respectively for the years ended
June 30, 2021, 2020 and 2019, all of which were fully offset by an increase in the deferred tax asset valuation allowance.
No stock options were exercised
during fiscal years 2021, 2020 and 2019.
Leases
In February 2016, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which requires lessees to
recognize leases on-balance sheet and disclose key information about leasing arrangements. The standard establishes a right-of-use model
(ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than
12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense
recognition in the income statement.
The new standard was effective
for Allied on July 1, 2019. The Company adopted the new standard on its effective date and used the effective date as our date of
initial application. Consequently, financial information recorded and the disclosures required under the new standard are not provided
for dates and periods before July 1, 2019. Additionally, the Company determined that as of the effective date of the standard, it
had no material impact on the financial statements or disclosures of the Company.
The new standard provides
a number of optional practical expedients in transition. The Company elected the package of practical expedients which does not require
us to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
Leasing activities are not significant to Allied’s business and there is no significant change in the Company’s leasing activities
upon adoption. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term
lease recognition exemption for all leases with terms of less than 12 months.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU
2016-13”), which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade
and other receivables, held-to-maturity debt securities, loans and other specified instruments, entities will be required to use a new
forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for
losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit
quality by year of origination for most financing receivables. The guidance must be applied using a cumulative-effect transition method.
ASU 2016-13 is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years (the fiscal
year ending June 30, 2022 for the Company), with early adoption permitted. The Company is currently evaluating the impact that adopting
this guidance may have on its financial statements.
In December 2019, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update eliminate
the need for an organization to analyze whether certain exceptions apply for tax purposes. It also simplifies GAAP for certain taxes.
The amendments in these updates are effective for us for fiscal years beginning after December 15, 2020, including interim periods
within those fiscal years. We do not expect the adoption of this standard to have a material impact on our financial statements.
Environmental Remediation
The Company is subject to
federal and state requirements for protection of the environment, including the remediation of contaminated sites. The Company’s
policy is to accrue and charge to current expense identified exposures related to environmental remediation sites when it is probable
that a liability has been incurred and the amount can be reasonably estimated. The amount of the liability is based on the best estimate
or the low end of a range of reasonably possible exposure for investigation, cleanup, and monitoring costs to be incurred. Estimated remediation
costs are not discounted to present value.
On January 30, 2020,
the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield Cleanup
Program. The plan was filed with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil
and groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. On October 13,
2020, the Company executed a Brownfield Cleanup Program Agreement with the Department of Environmental Conservation with respect to the
property. Under the agreement, the Company has voluntarily agreed to conduct, at its expense, certain remedial investigations and remedial
actions with respect to suspected soil and groundwater contamination at the site with oversight by the department.
The Company’s best estimate
of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense in the fiscal year ended June 30,
2020 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements.
As of June 30, 2021, the Company has paid approximately $142,000 in remediation expenses which have been charged to the initial reserve.
Risk and Uncertainties, Going Concern, Liquidity and Management’s
Plan
A novel strain of coronavirus
(“COVID-19”) was first identified in Wuhan, China in December 2019. On March 11, 2020, the World Health Organization
designated COVID-19 as a global pandemic. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business
slowdowns or shutdowns in affected areas. Despite our efforts to manage and remedy the effects of this pandemic, the significance depends
on factors beyond our control, including the duration and severity of the outbreak as well as third-party actions taken to contain the
spread and mitigate public health efforts. For the Company this creates additional economic uncertainty. Risks for the Company include
disruption in operations if a significant percentage of our workforce is unable to work due to illness, forced curtailment of business
operations and business travel by governmental authorities, and failure of others in our supply chain and distribution channel to meet
their obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational
difficulties.
North Mill Loan
The Company is party to a
Loan and Security Agreement with North Mill Capital, LLC (“North Mill”), as successor in interest to Summit Financial Resources,
L.P., dated effective February 27, 2017, as amended April 16, 2018, April 24, 2019 and December 18, 2020 (as amended,
the “Credit Agreement”). Pursuant to the Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit
Facility”). The Company’s obligations under the Credit Facility are secured by all of the Company’s personal property,
both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the Credit Agreement. Availability of funds
under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not exceed $4,000,000. At June 30,
2021 availability under the agreement was approximately $630,000.
The Credit Facility will be
available, subject to its terms, on a revolving basis until it expires on February 27, 2023, 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 ($10,000
per month). In the event the Company prepays or terminates the Credit Facility prior to February 27, 2022, 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, 2022 and
the date of such prepayment or termination.
Under the Credit Agreement,
advances are generally subject to customary borrowing conditions and to North Mill’s sole discretion to fund the advances. The Credit
Agreement also contains covenants with which the Company must comply during the term of the Credit Facility. Among other things, such
covenants require the Company to maintain insurance on the collateral, operate in the ordinary course and not engage in a change of control,
dissolve or wind up the Company.
The Credit Agreement also
contains certain events of default including, without limitation: the failure to make payments when due; the material breach of representations
or warranties contained in the Credit Agreement or other loan documents; cross-default with other indebtedness of the Company; the entry
of judgments or fines that may have a material adverse effect on the Company; failure to comply with the observance or performance of
covenants contained in the Credit Agreement or other loan documents; insolvency of the Company, appointment of a receiver, commencement
of bankruptcy or other insolvency proceedings; dissolution of the Company; the attachment of any state or federal tax lien; attachment
or levy upon or seizure of the Company’s property; or any change in the Company’s condition that may have a material adverse
effect. After an event of default, and upon the continuation thereof, the principal amount of all loans made under the Credit Facility
would bear interest at a rate per annum equal to 20.00% above the otherwise applicable interest rate (provided, that the interest rate
may not exceed the highest rate permissible under law), and would have the option to accelerate maturity and payment of the Company’s
obligations under the Credit Facility.
The Company was in compliance
with all of the covenants associated with the Credit Facility at June 30, 2021.
PPP
Loan
On
April 13, 2020, the Company entered into a Payroll Protection Program (PPP) loan agreement (the “SBA Loan”) with Jefferson
Bank and Trust Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered
by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $2.375 million from
the SBA Loan. In accordance with the requirements of the CARES Act, the Company used proceeds from the SBA Loan for payroll
costs and other permitted uses. The SBA Loan was 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.
The
loan, including all principal and accrued interest, was forgiven on June 11, 2021.
The company elected to account
for the PPP Loan using FASB ASC 470, Debt. The related forgiveness income is included in other income for the year ended June 30,
2021.
According to the rules of
the SBA, the Company is required to retain PPP Loan documentation for six years after the date the loan is forgiven or repaid in full,
and permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access such files upon
request. Should the SBA conduct such a review and reject all or some of the Company’s judgments pertaining to satisfying PPP Loan
eligibility or forgiveness conditions, the Company may be required to adjust previously reported amounts and disclosures in the financial
statements.
At June 30, 2021, the
Company had $2.1 million indebtedness, including lease obligations and short-term debt. The prime rate as reported in the Wall
Street Journal was 3.25% on June 30, 2021.
The Company leases vehicles and equipment, generally
for terms of three to five years.
As described in Note 2, “Summary
of Significant Accounting Policies” the Company adopted ASC Topic 842, Leases (“ASC 842” or “Topic 842”),
utilizing the modified retrospective adoption method with an effective date of July 1, 2019. The Company made the election to not
apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less). Instead, as permitted by Topic
842, the Company recognizes the lease payments under its short-term leases in profit or loss on a straight-line basis over the lease term.
The Company elected this accounting policy for all classes of underlying assets. Right-of-use assets represent the Company’s right
to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising
from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term. The Company generally uses the rate implicit in the lease to discount lease payments to present
value.
As of June 30, 2021,
the Company had vehicles and equipment financed under operating leases with lease terms expiring through 2024. Rent expense consists of
monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis.
The following table sets forth
the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s balance sheet as of
June 30, 2021.
|
|
|
Maturity of
|
|
|
|
|
Operating Lease
|
|
|
Fiscal years ending
|
|
Liabilities
|
|
|
2022
|
|
$
|
6,065
|
|
|
2023
|
|
|
6,065
|
|
|
2024
|
|
|
3,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease payments
|
|
|
15,162
|
|
|
Less: amounts representing interest
|
|
|
2,084
|
|
|
Present value of lease liabilities
|
|
|
13,078
|
|
|
Less: current portion
|
|
|
4,777
|
|
|
Long-term portion
|
|
$
|
8,301
|
|
The Company’s operating lease cost amounted
to $59,432 in 2021 and $74,009 in 2020. Expenses are classified within selling, general and administrative expenses in the Company’s
statement of operations for the year ended June 30, 2021 and 2020.
The table below presents lease-related
terms and discount rates as of June 30, 2021.
|
|
|
June 30, 2021
|
|
|
Weighted average remaining lease terms
|
|
|
|
|
|
Operating leases
|
|
|
2.5 years
|
|
|
Weighted average discount rate
|
|
|
|
|
|
Operating leases
|
|
|
12
|
%
|
The provision for (benefit
from) income taxes consists of the following:
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
84,420
|
|
|
$
|
-
|
|
|
State
|
|
|
8,805
|
|
|
|
23,093
|
|
|
|
10,676
|
|
|
Less net operating loss carryforward applied
|
|
|
-
|
|
|
|
(98,996
|
)
|
|
|
-
|
|
|
Total current
|
|
|
8,805
|
|
|
|
8,517
|
|
|
|
10,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(644,606
|
)
|
|
|
(182,517
|
)
|
|
|
(451,591
|
)
|
|
State
|
|
|
(78,641
|
)
|
|
|
4,405
|
|
|
|
(65,877
|
)
|
|
Valuation allowance
|
|
|
786,926
|
|
|
|
39,236
|
|
|
|
536,240
|
|
|
Total deferred
|
|
|
63,679
|
|
|
|
(138,876
|
)
|
|
|
18,772
|
|
|
Provision (benefit)
|
|
$
|
72,484
|
|
|
$
|
(130,359
|
)
|
|
$
|
29,448
|
|
A reconciliation of income
taxes, with the amounts computed at the statutory federal rate is as follows:
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Computed tax at federal statutory rate
|
|
$
|
367,682
|
|
|
$
|
(662,125
|
)
|
|
$
|
(436,850
|
)
|
|
State income taxes, net of federal tax (benefit) provision
|
|
|
(13,771
|
)
|
|
|
(17,475
|
)
|
|
|
(61,974
|
)
|
|
Non deductible expenses
|
|
|
1,570
|
|
|
|
506,798
|
|
|
|
7,699
|
|
|
Federal research credit
|
|
|
(28,428
|
)
|
|
|
(31,076
|
)
|
|
|
(22,906
|
)
|
|
Non taxable income from PPP Loan forgiveness
|
|
|
(504,470
|
)
|
|
|
-
|
|
|
|
-
|
|
|
State NOLs
|
|
|
11,602
|
|
|
|
30,397
|
|
|
|
6,772
|
|
|
Stock Options - Expired
|
|
|
5,243
|
|
|
|
3,763
|
|
|
|
2,536
|
|
|
Change in tax law allowing deductibilty of PPP Loan related expenses
|
|
|
(553,653
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Other, net
|
|
|
(217
|
)
|
|
|
123
|
|
|
|
(2,069
|
)
|
|
Valuation Allowance
|
|
|
786,926
|
|
|
|
39,236
|
|
|
|
536,240
|
|
|
Total
|
|
$
|
72,484
|
|
|
$
|
(130,359
|
)
|
|
$
|
29,448
|
|
The deferred tax assets and
deferred tax liabilities recorded on the balance sheet as of June 30, 2021 and 2020 are as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
$
|
25,500
|
|
|
$
|
25,500
|
|
|
Intangible assets
|
|
|
745
|
|
|
|
1,340
|
|
|
Accrued liabilities
|
|
|
458,337
|
|
|
|
491,605
|
|
|
Stock options
|
|
|
23,403
|
|
|
|
25,276
|
|
|
Net operating loss and credit carryforwards
|
|
|
4,505,628
|
|
|
|
3,807,813
|
|
|
Total Assets
|
|
|
5,013,613
|
|
|
|
4,351,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
10,341
|
|
|
|
10,587
|
|
|
Inventory
|
|
|
529,045
|
|
|
|
614,184
|
|
|
Depreciation
|
|
|
209,997
|
|
|
|
194,920
|
|
|
Other
|
|
|
125,147
|
|
|
|
116,007
|
|
|
Total Liabilities
|
|
|
874,530
|
|
|
|
935,698
|
|
|
Valuation Allowance
|
|
|
(3,561,995
|
)
|
|
|
(2,775,069
|
)
|
|
Total deferred taxes
|
|
$
|
577,088
|
|
|
$
|
640,767
|
|
At June 30, 2021, there were
$13.2 million dollars of federal net operating loss carryforwards which will expire in 2031 through 2038 and $3.8 million subject to indefinite
carryforward. In addition, the Company has state tax net operating losses of approximately $8.3 million that expire in varying years from
2021 through 2041 and $0.7 million subject to indefinite carryforward.
The Company files a federal
and multiple state income tax returns. With few exceptions the Company’s federal and state income tax returns are open for fiscal
years ending after June 30, 2018.
The Company has not taken
any uncertain tax positions on its federal or state income tax filings for open tax years.
|
6.
|
Employee Retirement Benefits
|
The Company offers a retirement
savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee may elect
to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed to the plan.
During the fiscal years ended
June 30, 2021, 2020 and 2019, the Company made contributions of $186,366, $185,000, and $190,965, respectively, to the retirement
savings plan. The Company contributes 2% of eligible salaried employee’s annual income to the plan. In addition, the Company provides
a 25% match on the first 8% of employee deferrals for eligible employees.
The risk of participating
in multi-employer pension plan is different from single-employer plans. Assets contributed to a multi-employer plan by one employer may
be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan,
the unfunded obligations of the plan may be borne by the remaining participating employers.
The Company’s participation
in a multi-employer pension plan for the year ended June 30, 2021, is outlined in the table below. The “EIN/PN” column
provides the Employee Identification Number (EIN) and the three-digit plan number (PN). The most recent Pension Protection Act (PPA) zone
status for 2020 and 2019 is for the plan year-ends as indicated below. The zone status is based on information that the Company obtained
from the annual funding notice for District No. 9 International Association of Machinists and Aerospace Workers Pension Trust. Among
other factors, plans in the red zone are less than 65 percent funded, plans in the yellow zone are between 65 and 80 percent funded, and
plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for
which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. In addition to regular
plan contributions, the Company may be subject to a surcharge if the plan is in the red zone. The “Surcharge Imposed” column
indicates whether a surcharge has been imposed on contributions to the plan. The last column lists the expiration date(s) of the
collective-bargaining agreement (CBA) to which the plan is subject.
|
|
|
|
|
|
PPA Zone Status
|
|
|
|
Contributions by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIP/RP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending/
|
|
|
|
|
|
|
|
|
|
|
Surcharge
|
|
Expiration
|
|
Pension Trust Fund
|
|
EIN/PN
|
|
|
2020
|
|
2019
|
|
Implemented
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Imposed
|
|
Date of CBA
|
|
District No. 9
|
|
|
51-0138317/001
|
|
|
Yellow
|
|
Yellow
|
|
Implemented
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
12/31/2020
|
|
12/31/2019
|
|
N/A
|
|
$
|
315,342
|
|
|
$
|
245,824
|
|
|
$
|
236,256
|
|
|
No
|
|
7/31/2024
|
|
Association of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinists and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Workers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company was not listed
in the Form 5500 for the above plan as of the plan year ends as providing more than 5 percent of total contributions.
Under federal pension law, a plan generally is
in “endangered” status if its funded percentage is less than 80% (other factors may apply).
If a pension plan enters endangered status, the
trustees of the plan are required to adopt a funding improvement plan. Funding improvement plans establish benchmarks for pension plans
to improve their funding status over a specified period of time.
The plan was first certified as being in endangered
status in the 2019 Plan Year because the Plan was projected to have a funding deficiency in the 2023 Plan Year. The Plan continues to
be in endangered status in the 2020 Plan Year because funding improvement plan contribution rate increases are required to eliminate the
Plan’s projected deficiency.
In an effort to improve the Plan’s funding
situation, the Board of Trustees adopted a funding improvement plan that includes increases in the contribution by employers and/or decreases
in the benefit accrual rate for members.
As a result, Allied Healthcare Products, Inc.
and District 9 of the International Association of Machinist were required to collectively bargain the required Contribution Rate Increase
and the impact on the Future Benefit Accrual. On June 30, 2021 the two parties reached agreement on the Funding Improvement Plan.
Under the plan, future benefit accruals are eliminated for members and the monthly employer contribution rate will increase by 80%. Additional
contributions under the plan will begin on December 1, 2021.
|
7.
|
Stock Based Compensation
|
The Company has established
a 2009 Incentive Stock Plan. The Employee Plan provides for the granting of options to the Company's executive officers and key employees
to purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase up
to 300,000 shares of common stock may be granted under the Employee Plan. Options generally become exercisable ratably over a four-year
period or one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the first or second anniversary
of the date granted. The right to exercise the options generally expires in ten years from the date of grant, or earlier if an option
holder ceases to be employed by the Company.
In addition, the Company has
established a 2005 Directors Non-Qualified Stock Option Plan and a 2013 Incentive Plan for Non-Employee Directors (collectively the “Directors
Plans”). The Directors Plans provide for the granting of options to the Company's directors who are not employees of the Company
to purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase up
to 75,000 shares of common stock may be granted under the Directors Plans. Options shall become exercisable with respect to one-fourth
of the shares covered thereby on each anniversary of the date of grant, commencing on the second anniversary of the date granted, except
for certain options which become exercisable with respect to all of the shares covered thereby one year after the grant date. The right
to exercise the options expires in ten years from the date of grant, or earlier if an option holder ceases to be a director of the Company.
Upon stock-settled compensation
exercises and awards, the Company issues new shares of common stock.
A summary of stock option
transactions in fiscal 2019, 2020 and 2021, respectively, pursuant to the Employee Plans and the Directors Plans is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
Value
|
|
|
June 30, 2018
|
|
|
45,000
|
|
|
$
|
5.92
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
3,000
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(3,000
|
)
|
|
$
|
8.10
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
45,000
|
|
|
$
|
5.52
|
|
|
|
4.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
7,500
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(9,750
|
)
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
42,750
|
|
|
$
|
4.65
|
|
|
|
4.1
|
|
|
$
|
304,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
3,000
|
|
|
$
|
7.86
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(2,250
|
)
|
|
$
|
8.68
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
43,500
|
|
|
$
|
4.66
|
|
|
|
3.8
|
|
|
$
|
41,915
|
|
|
Exercisable at June 30, 2021
|
|
|
35,500
|
|
|
$
|
4.88
|
|
|
|
2.6
|
|
|
$
|
27,165
|
|
The following table provides
additional information for options outstanding and exercisable at June 30, 2021:
Options Outstanding
|
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average
Remaining Life
|
|
Weighted Average
Exercise Price
|
|
|
|
$1.17 - 6.99
|
|
|
|
23,250
|
|
|
5.7 years
|
|
$
|
2.51
|
|
|
|
$7.00
|
|
|
|
15,000
|
|
|
0.2 years
|
|
$
|
7.00
|
|
|
|
$7.01 -8.68
|
|
|
|
5,250
|
|
|
5.5 years
|
|
$
|
7.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.17 - 8.68
|
|
|
|
43,500
|
|
|
3.8 years
|
|
$
|
4.66
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average
Exercise Price
|
|
|
|
$1.17 - 6.99
|
|
|
|
18,250
|
|
|
$
|
2.86
|
|
|
|
$7.00
|
|
|
|
15,000
|
|
|
$
|
7.00
|
|
|
|
$7.01 -8.68
|
|
|
|
2,250
|
|
|
$
|
7.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.17 - 8.68
|
|
|
|
35,500
|
|
|
$
|
4.88
|
|
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
8. Supplemental Balance Sheet Information
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
|
$
|
829,962
|
|
|
$
|
817,692
|
|
|
Component parts
|
|
|
|
|
8,994,457
|
|
|
|
8,299,972
|
|
|
Finished goods
|
|
|
|
|
1,800,461
|
|
|
|
1,660,158
|
|
|
Reserve for obsolete and excess inventory
|
|
|
|
|
(2,174,149
|
)
|
|
|
(1,849,134
|
)
|
|
|
|
|
|
$
|
9,450,731
|
|
|
$
|
8,928,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
3-10
|
|
$
|
18,998,928
|
|
|
$
|
18,831,765
|
|
|
Buildings
|
|
28-35
|
|
|
13,055,628
|
|
|
|
13,055,628
|
|
|
Land and land improvements
|
|
5-7
|
|
|
919,566
|
|
|
|
919,566
|
|
|
Total property, plant and equipment at cost
|
|
|
|
|
32,974,122
|
|
|
|
32,806,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(29,246,738
|
)
|
|
|
(28,667,266
|
)
|
|
|
|
|
|
$
|
3,727,384
|
|
|
$
|
4,139,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately
$0.6 million, $0.6 million, and $0.8 million for the fiscal years ended June 30,
2021, 2020 and 2019, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation expense
|
|
|
|
$
|
1,323,901
|
|
|
$
|
1,257,332
|
|
|
Environmental remediation
|
|
|
|
|
976,720
|
|
|
|
514,000
|
|
|
Other
|
|
|
|
|
256,514
|
|
|
|
334,799
|
|
|
|
|
|
|
$
|
2,557,135
|
|
|
$
|
2,106,131
|
|
9. Commitments and Contingencies
Legal Claims
The Company is subject to
various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business
activities. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking to interrupt or suspend
manufacturing or require any recall or modification of products.
The Company has recognized
the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is probable
that liabilities have been incurred and the related amounts are estimable. Based upon information currently available, management believes
that existing accrued liabilities are sufficient.
On January 30, 2020,
the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield Cleanup
Program. The plan was with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil and
groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. The Company has applied
to the Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation and remediation at the
site with oversight by the Department of Environmental Conservation.
The Company’s best estimate
of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense in the fiscal year ended June 30,
2020 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements.
As of June 30, 2021, the Company has paid approximately $142,000 in remediation expenses which have been charged to the initial reserve.
|
Liability for future environmental expenditures
|
|
2021
|
|
|
2020
|
|
|
Beginning Balance
|
|
$
|
1,037,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to income
|
|
|
-
|
|
|
|
1,119,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Remedial and investigatory spending
|
|
|
60,280
|
|
|
|
82,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
976,720
|
|
|
$
|
1,037,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflected in the Balance sheet as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current, included in Other Liabilities
|
|
$
|
976,720
|
|
|
$
|
514,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term environmental
|
|
|
-
|
|
|
|
523,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
976,720
|
|
|
$
|
1,037,000
|
|
Stuyvesant Falls Power Litigation.
The Company has been involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”), which provides
electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. The Company maintained in its defense
of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running with the land which have been honored
for more than a century. After the commencement of the litigation, Niagara began sending invoices to the Company for electricity used
at the Company’s Stuyvesant Falls plant. Niagara’s attempts to collect such invoices were stopped in December 2010 by a temporary
restraining order. Among other things, Niagara sought as damages the value of electricity received by the Company without charge. The
total value of electricity at issue in the litigation was not known with certainty and Niagara alleged different amounts of damages. Niagara
alleged in its Second Amended Verified Complaint, dated February 6, 2012, damages of approximately $469,000 in free electricity from May
2003 through May 2010. Niagara also alleged in its Motion For Summary Judgment, filed on March 14, 2014, damages of approximately $492,000
in free electricity from May 2010 through the date of the filing. In April 2015, Allied received an invoice for electrical power at the
Stuyvesant Falls plant with an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the period
of time covered by the invoice.
The Company filed a Motion
for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions were held on June
13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled that the Company is
entitled to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara and the other party
filed separate notices of appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New York, Appellate Division, Third
Department reversed the trial court decision and held that the free power covenants are no longer enforceable. The Company’s application
for leave to appeal this ruling was dismissed as premature by the New York Court of Appeals on September 20, 2016. On May 26, 2017 the
Company again moved for leave to appeal the March 31, 2016 decision. That motion was granted on October 7, 2017 by the New York State
Court of Appeals. The Company filed its brief and record on January 26, 2018. Niagara and the other party to the lawsuit, Albany Engineering
Corporation, filed their responses on July 16, 2018 and the Company filed its reply on August 14, 2018.
On February 20, 2019, the
Company, Niagara and Albany entered into a Final Settlement Agreement pursuant to which the Company agreed, among other things, to cancel
and forgo its rights to free power from either Niagara or Albany under the power covenants. The New York State Court of Appeals granted
a request of all parties to withdraw the appeal on March 5, 2019 and all parties entered a Stipulation of Discontinuance on March 7, 2019
which discontinued the litigation. By separate agreement, Niagara paid the Company $750,000 as consideration for the Company’s agreements
pursuant to the settlement. On March 15, 2019 the Appellate Division of the Supreme Court of New York granted Niagara’s request
to withdraw its pending appeal. The matter is now fully concluded.
Employment Contract
On April 20, 2021, the
Company entered into an employment contract with its chief executive officer, Joseph F. Ondrus, Jr., which provides for an initial
term of three years with annual renewals. The contract includes termination without cause and change of control provisions, under which
the chief executive officer is entitled to continued payments of annual salary and benefits if the Company terminates his employment without
cause or he voluntarily terminates his employment with “good reason.” “Good Reason” generally includes changes
in the scope of his duties or location of employment but also includes (i) the Company’s written election not to renew the
Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following a “Change of Control”
as defined in the Agreement.
10. Segment Information
The
Company operates in one segment consisting of the manufacturing, marketing and distribution of a variety of respiratory products
used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers
and emergency medical product dealers. The Company’s product lines include respiratory care products, medical gas equipment and
emergency medical products. The Company does not have any one single customer
that represents more than 10 percent of total sales. Disaggregation information of sales by region, and by product, are as follows:
Sales by Region
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Domestic United States
|
|
$
|
24,162,321
|
|
|
$
|
23,138,276
|
|
|
$
|
23,541,614
|
|
|
Europe
|
|
|
4,069,672
|
|
|
|
1,422,660
|
|
|
|
877,308
|
|
|
Canada
|
|
|
1,310,440
|
|
|
|
829,901
|
|
|
|
758,145
|
|
|
Latin America
|
|
|
2,819,165
|
|
|
|
3,122,929
|
|
|
|
2,450,969
|
|
|
Middle East
|
|
|
1,189,139
|
|
|
|
693,716
|
|
|
|
464,470
|
|
|
Far East
|
|
|
2,727,508
|
|
|
|
2,686,206
|
|
|
|
3,259,905
|
|
|
Other International
|
|
|
1,231
|
|
|
|
574
|
|
|
|
29,110
|
|
|
|
|
$
|
36,279,476
|
|
|
$
|
31,894,262
|
|
|
$
|
31,381,521
|
|
Sales by Product
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
Respiratory care products
|
|
$
|
8,082,974
|
|
|
$
|
8,555,954
|
|
|
$
|
8,993,216
|
|
|
Medical gas equipment
|
|
|
15,943,246
|
|
|
|
15,282,732
|
|
|
|
16,031,109
|
|
|
Emergency medical products
|
|
|
12,253,256
|
|
|
|
8,055,576
|
|
|
|
6,357,196
|
|
|
|
|
$
|
36,279,476
|
|
|
$
|
31,894,262
|
|
|
$
|
31,381,521
|
|
11. Quarterly Financial
Data (unaudited)
Summarized
quarterly financial data for fiscal 2021 and 2020 appears
below (all amounts in thousands except per share amounts):
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Three months ended,
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
|
Net sales
|
|
$
|
7,018
|
|
|
$
|
7,967
|
|
|
$
|
11,104
|
|
|
$
|
10,190
|
|
|
$
|
8,511
|
|
|
$
|
8,097
|
|
|
$
|
7,310
|
|
|
$
|
7,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,188
|
|
|
|
1,435
|
|
|
|
2,612
|
|
|
|
1,874
|
|
|
|
1,378
|
|
|
|
1,586
|
|
|
|
1,347
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(745
|
)
|
|
|
(381
|
)
|
|
|
734
|
|
|
|
(135
|
)
|
|
|
(638
|
)
|
|
|
(305
|
)
|
|
|
(1,512
|
)
|
|
|
(607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,553
|
|
|
|
(413
|
)
|
|
|
700
|
|
|
|
(153
|
)
|
|
|
(539
|
)
|
|
|
(330
|
)
|
|
|
(1,531
|
)
|
|
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
0.39
|
|
|
|
(0.10
|
)
|
|
|
0.17
|
|
|
|
(0.04
|
)
|
|
|
(0.14
|
)
|
|
|
(0.08
|
)
|
|
|
(0.38
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
0.39
|
|
|
|
(0.10
|
)
|
|
|
0.17
|
|
|
|
(0.04
|
)
|
|
|
(0.14
|
)
|
|
|
(0.08
|
)
|
|
|
(0.38
|
)
|
|
|
(0.15
|
)
|
Earnings
per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily
equal the total for the year.