The following described
financial statements of Allied Healthcare Products, Inc. are included in response to this item:
NOTES TO FINANCIAL STATEMENTS
Allied Healthcare Products,
Inc. (the “Company” or “Allied”) is a manufacturer of respiratory products used in the health care industry
in a wide range of hospital and alternate site settings, including post-acute care facilities, home health care and trauma care.
The Company's product lines include respiratory care products, medical gas equipment and emergency medical products.
2.
|
Summary of Significant Accounting Policies
|
The significant accounting
policies followed by Allied are described below.
Use of estimates
The policies utilized
by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United
States of America, and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
Adoption of new revenue recognition
standard
In May 2014, the Financial
Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from
contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address
issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying
standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
Company adopted this new standard as of July 1, 2018, by applying the modified-retrospective method to those contracts that were
not completed as of that date.
The results for reporting
periods beginning after July 1, 2018, are presented in accordance with the new standard, although comparative information has not
been restated and continues to be reported under the accounting standards and policies in effect for those periods. The adoption
of this standard did not have a material impact on the amount of revenue recognized by the Company as it sells finished products
and recognizes revenue at the point of sale or delivery and the timing of revenue recognition has not changed with the adoption
of the new standard.
The cumulative impact
on accumulated deficit as a result of the adoption of this standard did not have a material impact on the Company’s historical
net losses and, therefore, no adjustment was made to the opening balance of accumulated deficit. In addition, the impact on reported
total revenues and operating income as compared to what reported amounts would have been under the prior standard was also immaterial.
The Company expects the impact of adoption in future periods to also be immaterial. The accounting policies under the new standard
were applied prospectively and are described below. See Note 2, Revenues.
Revenue recognition
The Company’s
revenues are derived primarily from the sales of respiratory products, medical gas equipment and emergency medical products. The
products are generally sold directly to distributors, customers affiliated with buying groups, individual customers and construction
contractors, throughout the world.
The Company recognizes
revenue from product sales upon satisfaction of its performance obligation which occurs on the transfer of control of the product,
which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Payment terms
between Allied and its customers vary by the type of customer, country of sale, and the products offered. The term between invoicing
and the payment due date is not significant.
Management exercises
judgment in estimating variable consideration. Provisions for early payment discounts, rebates and returns and other adjustments
are provided for in the period the related sales are recorded. Historical data is readily available and reliable, and is used for
estimating the amount of the reduction in gross sales.
The Company provides
rebates to wholesalers. Rebate amounts are based upon purchases using contractual amount for each product sold. Factors used in
the rebate calculations include the identification of which products have been sold subject to a rebate and the customer or price
terms that apply. Using known contractual allowances, the Company estimates the amount of the rebate that will be paid, and records
the liability as a reduction of gross sales when it records the sale of the product. Settlement of the rebate generally occurs
in the month following the sale.
The Company regularly
analyzes the historical rebate trends and adjusts reserves for changes in trends and terms of rebate programs. Historically, adjustments
to prior years’ rebate accruals have not been material to net income.
Other allowances charged
against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to 30 days
of sale, and therefore can be reliably estimated. Returns can be reliably estimated because the Company’s historical returns
are low, and because sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties
are also not significant.
The Company does not
allocate transaction price as the Company has only one performance obligation and its contracts do not span multiple periods. All
taxes imposed on and concurrent with revenue producing transactions and collected by the Company are excluded from the measurement
of transaction price.
Marketing and Advertising Costs
Promotional and advertising
costs are expensed as incurred and are included in selling, general and administrative expenses in the Statement of Operations.
Advertising expenses for the years ended June 30, 2020, 2019 and 2018 were $3,550, $0, and $2,000, respectively.
Cash and cash equivalents
For purposes of the
statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when acquired
to be cash equivalents.
The Company maintains
funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation. The risk of loss
attributable to these uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The
Company has not experienced any losses in such accounts.
Foreign currency transactions
Allied has international
sales which are denominated in U.S. dollars, the functional currency for these transactions.
Accounts receivable and concentrations
of credit risk
Accounts receivable
are recorded at the invoiced amount. The Company performs ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses based on past experience and an analysis of current amounts
due, and historically such losses have been within management's expectations. The Company maintains an allowance for doubtful accounts
to reflect the uncollectibility of accounts receivable based on past collection history and specific risks indentified among uncollected
accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company determines that the receivable
will not be collected and/or when the account has been referred to a third party collection agency. The Company’s customers
can be grouped into three main categories: medical equipment distributors, construction contractors and health care institutions.
At June 30, 2020, the Company believes that it has no significant concentration of credit risk.
Inventories
Inventories are stated
at the lower of cost, determined using the last-in, first-out (“LIFO”) method, or market. If the first-in, first-out
method (which approximates replacement cost) had been used in determining cost, inventories would have been $2,408,878 and $2,308,377
higher at June 30, 2020 and 2019, respectively. Changes in the LIFO reserve are included in cost of sales. Cost of sales was reduced
by $0, $120,965, and $242,885 in fiscal 2020, 2019, and 2018 respectively, as a result of LIFO liquidations. Costs in inventory
include raw materials, direct labor and manufacturing overhead.
Inventory is recorded
net of a reserve for obsolete and excess inventory which is determined based on an analysis of inventory items with no usage in
the preceding year and for inventory items for which there is greater than two years’ usage on hand. The reserve for obsolete
and excess inventory was $1,849,134 and $1,800,935 at June 30, 2020 and 2019, respectively.
Property, plant and equipment
Property, plant and
equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets,
which range from 3 to 35 years. Expenditures for repairs, maintenance and renewals are charged to income as incurred. Expenditures,
which improve an asset or extend its estimated useful life, are capitalized. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Impairment of long-lived assets
The Company evaluates
impairment of long-lived assets under the provisions of ASC Topic 360: “Property, Plant and Equipment.” ASC 360 provides
a single accounting model for long-lived assets to be disposed of and reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Under ASC 360, if the sum of the expected future cash flows
(undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment
loss will be recognized. No impairment losses of long-lived assets or identifiable intangibles were recorded by the Company for
fiscal years ended June 30, 2020, 2019, and 2018.
Collective Bargaining Agreement
At June 30, 2020, the
Company had approximately 218 full-time employees. Approximately 139 employees in the Company’s principal manufacturing facility
located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2021.
Self-insurance
The Company maintains
a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred but not reported. As of June 30, 2020 and 2019, the
Company had $150,000 and $210,000 respectively, of accrued liabilities related to health care claims. In order to establish the
self-insurance reserves, the Company utilized actuarial estimates of expected claims based on analyses of historical data.
Fair value of financial instruments
The Company’s
financial instruments include cash, accounts receivable and accounts payable. The carrying amounts for cash, accounts receivable
and accounts payable approximate their fair value due to the short maturity of these instruments.
Income taxes
The
Company accounts for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is
determined using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences
between the financial statement and income tax bases of assets and liabilities using enacted tax rates that are expected
to apply to taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment
date of the change. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to
be realized. In assessing the need for a valuation allowance the Company first considers the reversals of existing temporary deferred
tax liabilities and available tax planning strategies. To the extent these items are not sufficient to cause the realization of
deferred tax assets, the Company considers the availability of future taxable income to the extent such income is considered likely
to occur based on the Company’s earnings history, current income trends and projections.
In light of its history
of operating losses the Company does not rely on the existence of future taxable income as it currently cannot conclude future
taxable income is likely to occur. The Company does rely on reversals of existing temporary deferred tax liabilities and tax planning
strategies to the extent available to support the value of its existing deferred tax assets. To the extent the Company’s
deferred tax assets exceeded the amount supportable through reversals of existing deferred tax liabilities and tax planning strategies
a valuation allowance is recorded against the excess deferred tax assets.
The Company recognizes
tax liabilities when, despite the Company’s belief that its tax return positions are supportable, the Company believes that
certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon settlement. To the extent the Company deems it
necessary to record a liability for its tax positions, the current portion of the liability is included in income taxes payable
and the noncurrent portion is included in other liabilities on the balance sheet. If upon the final tax outcome of these matters
the ultimate liability is different than the amounts recorded, such differences are reflected in income tax expense in the period
in which such determination is made. The Company files a federal and multiple state income tax returns. With few exceptions the
Company’s federal and state income tax returns are open for fiscal years ending after June 30, 2017.
The Company classifies
interest expenses on taxes payable as interest expense. Penalties are classified as a component of other expenses.
Research and development costs
Research and development
costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses
for the years ended June 30, 2020, 2019 and 2018 were $595,236, $459,455, and $472,077, respectively.
Earnings per share
Basic earnings per
share are based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share
are based on the sum of the weighted average number of shares of common stock and common stock equivalents outstanding during the
year. The weighted average number of basic and diluted shares outstanding for the years ended June 30, 2020, 2019 and 2018 was
4,013,537 shares. The dilutive effect of the Company's employee and director stock option plans are determined by use of the treasury
stock method. There are no potential common shares excluded from the calculation of net loss per share, as their effect would be
anti-dilutive for the years ended June 30, 2020, 2019 and 2018 respectively.
The following information is necessary
to calculate earnings per share for the periods presented:
Year ended June 30,
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net loss, as reported
|
|
$
|
(3,014,100
|
)
|
|
$
|
(2,109,685
|
)
|
|
$
|
(2,192,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
Effect of dilutive stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average diluted common shares outstanding
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.75
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.55
|
)
|
Diluted
|
|
$
|
(0.75
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options excluded
from computation of diluted income per share amounts because their effect would be anti-dilutive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Employee stock-based compensation
The company follows
the provisions of ASC Topic 718: “Compensation – Stock Compensation”, which sets accounting requirements for
“share-based” compensation to employees, including employee stock purchase plans, and requires companies to recognize
in the statement of operations the grant-date fair value of the stock options and other equity-based compensation.
The fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes the weighted
average assumptions utilized in the Black-Scholes option pricing model for options granted during the fiscal years ended June 30,
2020, 2019 and 2018.
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Weighted-average fair value
|
|
$
|
0.61
|
|
|
$
|
1.06
|
|
|
$
|
0.99
|
|
Weighted-average volatility
|
|
|
53
|
%
|
|
|
48
|
%
|
|
|
44
|
%
|
Weighted-average expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Weighted-average risk-free interest rate
|
|
|
1.77
|
%
|
|
|
3.03
|
%
|
|
|
2.11
|
%
|
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, 2020, 2019 and 2018 was approximately $2,000,
$3,000 and $3,000, respectively. Unrecognized shared-based compensation cost related to unvested stock options as of June 30, 2020
amounts to approximately $3,000. The cost is expected to be recognized through fiscal 2025.
The Company recognized
an income tax benefit for share-based compensation arrangements of approximately $1,000 for the years ended June 30, 2020, 2019
and 2018, all of which were fully offset by an increase in the deferred tax asset valuation allowance.
No stock options were
exercised during fiscal years 2020, 2019 and 2018.
Recent Accounting Pronouncements
Adoption of new lease standard
In February 2016, the
FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information
about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset
and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard was
effective for Allied on July 1, 2019. The Company adopted the new standard on its effective date and used the effective date as
our date of initial application. Consequently, financial information recorded and the disclosures required under the new standard
are not provided for dates and periods before July 1, 2019. Additionally, the Company determined that as of the effective date
of the standard, it had no material impact on the financial statements or disclosures of the Company.
The new standard provides
a number of optional practical expedients in transition. The Company elected the package of practical expedients which does not
require us to reassess under the new standard our prior conclusions about lease identification, lease classification and initial
direct costs. Leasing activities are not significant to Allied’s business and there is no significant change in the Company’s
leasing activities upon adoption. The new standard also provides practical expedients for an entity’s ongoing accounting.
The Company elected the short-term lease recognition exemption for all leases with terms of less than 12 months.
Recently Issued Accounting Pronouncements
In June 2016, the FASB
issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
(“ASU 2016-13”), which changes the way companies evaluate credit losses for most financial assets and certain other
instruments. For trade and other receivables, held-to-maturity debt securities, loans and other specified instruments, entities
will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in
earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to
disclose the information used to track credit quality by year of origination for most financing receivables. The guidance must
be applied using a cumulative-effect transition method. ASU 2016-13 is effective for fiscal years beginning after December 15,
2020, and for interim periods within those fiscal years (the fiscal year ending June 30, 2022 for the Company), with early adoption
permitted. The Company is currently evaluating the impact that adopting this guidance may have on its financial statements.
Environmental Remediation
The Company is subject
to federal and state requirements for protection of the environment, including the remediation of contaminated sites. The Company’s
policy is to accrue and charge to current expense identified exposures related to environmental remediation sites when it is probable
that a liability has been incurred and the amount can be reasonably estimated. The amount of the liability is based on the best
estimate or the low end of a range of reasonably possible exposure for investigation, cleanup, and monitoring costs to be incurred.
Estimated remediation costs are not discounted to present value.
On January 30, 2020,
the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield
Cleanup Program. The plan was filed with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes
that the soil and groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards.
The Company has applied to the Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation
and remediation at the site with oversight by the Department of Environmental Conservation.
The Company’s
best estimate of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense in fiscal year 2020 and $0.2 million is an expense in the three months ended June 30, 2020. These amounts are reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s
financial statements. As of June 30, 2020, the Company has paid approximately $82,000 in remediation expenses which have been charged
to the initial reserve.
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 and April 24, 2019 (as amended, the “Credit
Agreement”). Pursuant to the Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit
Facility”). The Company’s obligations under the Credit Facility are secured by all of the Company’s personal
property, both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the Credit Agreement.
Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not
exceed $2,000,000. At June 30, 2020 availability under the agreement was $1,994,657.
The Credit Facility
will be available, subject to its terms, on a revolving basis until it expires on February 27, 2021, at which time all amounts
outstanding under the Credit Facility will be due and payable. Advances will bear interest at a rate equal to 2.00% in excess of
the prime rate as reported in the Wall Street Journal. Interest is computed based on the actual number of days elapsed over a year
of 360 days. In addition to interest, the Credit facility requires that the Company pay the lender a monthly administration fee
in an amount equal to forty-seven hundredths percent (0.47%) of the average outstanding daily principal amount of loan advances
for the each calendar month, or portion thereof.
Regardless of the
amount borrowed under the Credit Facility, the Company will pay a minimum amount of .25% (25 basis points) per month on the maximum
availability ($5,000 per month). In the event the Company prepays or terminates the Credit Facility prior to February 27, 2021,
the Company will be obligated to pay an amount equal to the minimum monthly payment multiplied by the number of months remaining
between February 27, 2021 and the date of such prepayment or termination.
Under the Credit Agreement,
advances are generally subject to customary borrowing conditions and to North Mill’s sole discretion to fund the advances.
The Credit Agreement also contains covenants with which the Company must comply during the term of the Credit Facility. Among other
things, such covenants require the Company to maintain insurance on the collateral, operate in the ordinary course and not engage
in a change of control, dissolve or wind up the Company.
The Credit Agreement
also contains certain events of default including, without limitation: the failure to make payments when due; the material breach
of representations or warranties contained in the Credit Agreement or other loan documents; cross-default with other indebtedness
of the Company; the entry of judgments or fines that may have a material adverse effect on the Company; failure to comply with
the observance or performance of covenants contained in the Credit Agreement or other loan documents; insolvency of the Company,
appointment of a receiver, commencement of bankruptcy or other insolvency proceedings; dissolution of the Company; the attachment
of any state or federal tax lien; attachment or levy upon or seizure of the Company’s property; or any change in the Company’s
condition that may have a material adverse effect. After an event of default, and upon the continuation thereof, the principal
amount of all loans made under the Credit Facility would bear interest at a rate per annum equal to 20.00% above the otherwise
applicable interest rate (provided, that the interest rate may not exceed the highest rate permissible under law), and would have
the option to accelerate maturity and payment of the Company’s obligations under the Credit Facility.
The Company was in compliance with all of the covenants associated with the Credit Facility at June 30, 2020.
PPP
Loan
On
April 13, 2020, the Company entered into a Payroll Protection Program (PPP) loan agreement (the “SBA Loan”) with Jefferson
Bank and Trust Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds
of $2.375 million from the SBA Loan. In accordance with the requirements of the CARES Act, the Company will use proceeds
from the SBA Loan for payroll costs and other permitted uses. The SBA Loan is scheduled to mature on April 13, 2022
and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business
Administration under the CARES Act.
All
or a portion of the SBA Loan may be forgiven by the SBA upon application by the Company upon documentation of expenditures in accordance
with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered
rent payments, covered mortgage interest and covered utilities during the eight week or at the Company’s election 24 week
period beginning on the loan origination date, subject to regulations and guidance provided by the United States Treasury. For
purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually.
Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines,
or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the
SBA Loan, or any portion thereof, is forgiven pursuant to the CARES Act, the amount forgiven is applied to outstanding principal.
The Company intends to seek forgiveness of the SBA Loan to the maximum extent permitted but cannot guarantee whether or to what
extent such forgiveness will be granted.
Payments
of unforgiven principal and interest are deferred until November 2020, at which point the Company is required to repay such amounts
in 18 equal monthly payments. The SBA Loan is evidenced by a promissory note, which contains customary events of default relating
to, among other things, payment defaults and breaches of representations and warranties. The SBA Loan may be prepaid by the Company
at any time prior to maturity with no prepayment penalties.
At June 30, 2020 the
Company had $2.4 million indebtedness, including lease obligations, short-term debt, and long term debt. The prime rate as reported
in the Wall Street Journal was 3.25% on June 30, 2020.
Future maturities of
debt are as follows:
Fiscal years ending
|
|
|
|
|
|
|
|
2021
|
|
$
|
1,042,655
|
|
2022
|
|
|
1,332,204
|
|
Total
|
|
$
|
2,374,859
|
|
The Company leases vehicles and equipment,
generally for terms of three to five years.
As described in Note
2, “Summary of Significant Accounting Policies” the Company adopted ASC Topic 842, Leases (“ASC 842” or
“Topic 842”), utilizing the modified retrospective adoption method with an effective date of July 1, 2019. The Company
made the election to not apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less).
Instead, as permitted by Topic 842, the Company recognizes the lease payments under its short-term leases in profit or loss on
a straight-line basis over the lease term. The Company elected this accounting policy for all classes of underlying assets. Right-of-use
assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement
date based on the estimated present value of lease payments over the lease term. The Company generally uses the rate implicit in
the lease to discount lease payments to present value.
As of June 30, 2020,
the Company had vehicles and equipment financed under operating leases with lease terms expiring through 2024. Rent expense consists
of monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis.
The following table
sets forth the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s
balance sheet as of June 30, 2020.
|
|
Maturity of
|
|
|
|
Operating Lease
|
|
Fiscal years ending
|
|
Liabilities
|
|
2021
|
|
$
|
6,065
|
|
2022
|
|
$
|
6,065
|
|
2023
|
|
$
|
6,065
|
|
2024
|
|
$
|
3,032
|
|
|
|
|
|
|
Total lease payments
|
|
$
|
21,227
|
|
Less: amounts representing interest
|
|
$
|
3,901
|
|
Present value of lease liabilities
|
|
$
|
17,326
|
|
Less: current portion
|
|
$
|
4,249
|
|
Long-term portion
|
|
$
|
13,077
|
|
The Company’s
operating lease cost amounted to $74,009 in 2020. Expenses are classified within selling, general and administrative expenses in
the Company’s statement of operations for the year ended June 30, 2020.
The table below presents
lease-related terms and discount rates as of June 30, 2020.
|
|
June 30, 2020
|
|
Weighted average remaining lease terms
|
|
|
|
|
Operating leases
|
|
|
3.5 years
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
12
|
%
|
The provision for
(benefit from) income taxes consists of the following:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
84,420
|
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
23,093
|
|
|
|
10,676
|
|
|
|
9,938
|
|
Less net operating loss carryforward applied
|
|
|
(98,996
|
)
|
|
|
-
|
|
|
|
-
|
|
Total current
|
|
|
8,517
|
|
|
|
10,676
|
|
|
|
9,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(182,517
|
)
|
|
|
(451,591
|
)
|
|
|
424,038
|
|
State
|
|
|
4,405
|
|
|
|
(65,877
|
)
|
|
|
91,789
|
|
Valuation Allowance
|
|
|
39,236
|
|
|
|
536,240
|
|
|
|
(352,727
|
)
|
Total deferred
|
|
|
(138,876
|
)
|
|
|
18,772
|
|
|
|
163,100
|
|
Provision (benefit)
|
|
$
|
(130,359
|
)
|
|
$
|
29,448
|
|
|
$
|
173,038
|
|
A reconciliation of
income taxes, with the amounts computed at the statutory federal rate is as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Computed tax at federal statutory rate
|
|
$
|
(662,125
|
)
|
|
$
|
(436,850
|
)
|
|
$
|
(555,261
|
)
|
State income taxes, net of federal tax (benefit) provision
|
|
|
(17,475
|
)
|
|
|
(61,974
|
)
|
|
|
(54,471
|
)
|
Non deductible expenses
|
|
|
506,798
|
|
|
|
7,699
|
|
|
|
9,775
|
|
Federal research credit
|
|
|
(31,076
|
)
|
|
|
(22,906
|
)
|
|
|
(16,880
|
)
|
Net operating loss carryforward adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
131,244
|
|
State NOLs
|
|
|
30,397
|
|
|
|
6,772
|
|
|
|
(39,979
|
)
|
Stock Options - Expired
|
|
|
3,763
|
|
|
|
2,536
|
|
|
|
4,424
|
|
Changes resulting from the TCJA
|
|
|
-
|
|
|
|
-
|
|
|
|
1,080,362
|
|
Other, net
|
|
|
123
|
|
|
|
(2,069
|
)
|
|
|
(33,449
|
)
|
Valuation Allowance
|
|
|
39,236
|
|
|
|
536,240
|
|
|
|
(352,727
|
)
|
Total
|
|
$
|
(130,359
|
)
|
|
$
|
29,448
|
|
|
$
|
173,038
|
|
On December 22, 2017,
President Trump signed into law tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which
became effective on that date. The TCJA significantly revised U.S. tax law by lowering the U.S. federal statutory income tax rate
from 35% to 21% effective January 1, 2018.
ASC Topic 740, requires the effects of changes
in tax laws to be recognized in the period in which the legislation is enacted. Accordingly, in the second quarter of fiscal
2018, the Company recorded a one-time charge of $136,386 within its income tax provision in connection with the TCJA. The net expense
of $136,386 relates to revaluation of the Company’s valuation allowance.
The deferred tax assets
and deferred tax liabilities recorded on the balance sheet as of June 30, 2020 and 2019 are as follows:
|
|
2020
|
|
|
2019
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Bad debts
|
|
$
|
25,500
|
|
|
$
|
25,500
|
|
Intangible assets
|
|
|
1,340
|
|
|
|
1,935
|
|
Accrued liabilities
|
|
|
491,605
|
|
|
|
262,970
|
|
Stock options
|
|
|
25,276
|
|
|
|
28,568
|
|
Net operating loss and credit carryforwards
|
|
|
3,807,811
|
|
|
|
3,914,655
|
|
Total Assets
|
|
|
4,351,532
|
|
|
|
4,233,628
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
10,587
|
|
|
|
10,937
|
|
Inventory
|
|
|
614,184
|
|
|
|
652,251
|
|
Depreciation
|
|
|
194,920
|
|
|
|
233,142
|
|
Other
|
|
|
116,007
|
|
|
|
99,575
|
|
Total Liabilities
|
|
|
935,698
|
|
|
|
995,905
|
|
Valuation Allowance
|
|
|
(2,775,069
|
)
|
|
|
(2,735,832
|
)
|
Total deferred taxes
|
|
$
|
640,765
|
|
|
$
|
501,891
|
|
At June 30, 2020,
there were $13.2 million dollars of federal net operating loss carryforwards which will expire in 2031 through 2038 and $1.5
million subject to indefinite carryforward. In addition, the Company has state tax net operating losses of approximately $8.1
million that expire in varying years from 2020 through 2039.
The Company files a
federal and multiple state income tax returns. With few exceptions the Company’s federal and state income tax returns are
open for fiscal years ending after June 30, 2017.
The Company has not
taken any uncertain tax positions on its federal or state income tax filings for open tax years.
6.
|
Employee Retirement Benefits
|
The Company offers
a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee
may elect to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed
to the plan.
During the fiscal years
ended June 30, 2020, 2019 and 2018, the Company made contributions of $185,000, $190,965, and $197,999, respectively, to the retirement
savings plan. The Company contributes 2% of eligible salaried employee’s annual income to the plan. In addition, the Company
provides a 25% match on the first 8% of employee deferrals for eligible employees.
The risk of participating
in multi-employer pension plan is different from single-employer plans. Assets contributed to a multi-employer plan by one employer
may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to
the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
The Company’s
participation in a multi-employer pension plan for the year ended June 30, 2020, is outlined in the table below. The “EIN/PN”
column provides the Employee Identification Number (EIN) and the three-digit plan number (PN). The most recent Pension Protection
Act (PPA) zone status for 2019 and 2018 is for the plan year-ends as indicated below. The zone status is based on information that
the Company obtained from the annual funding notice for District No. 9 International Association of Machinists and Aerospace Workers
Pension Trust. Among other factors, plans in the red zone are less than 65 percent funded, plans in the yellow zone are between
65 and 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented”
column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been
implemented. In addition to regular plan contributions, the Company may be subject to a surcharge if the plan is in the red zone.
The “Surcharge Imposed” column indicates whether a surcharge has been imposed on contributions to the plan. The last
column lists the expiration date(s) of the collective-bargaining agreement (CBA) to which the plan is subject.
|
|
|
PPA Zone Status
|
|
|
|
|
|
Contributions by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIP/RP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending/
|
|
|
|
|
|
|
|
|
|
|
|
Surcharge
|
|
|
Expiration
|
Pension Trust Fund
|
EIN/PN
|
|
2019
|
|
|
2018
|
|
|
Implemented
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
Imposed
|
|
|
Date of CBA
|
District No. 9
|
51-0138317/001
|
|
|
Green
|
|
|
|
Green
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
12/31/2019
|
|
|
|
12/31/2018
|
|
|
|
N/A
|
|
|
$
|
245,824
|
|
|
$
|
236,256
|
|
|
$
|
269,928
|
|
|
|
No
|
|
|
|
5/31/2021
|
Association of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinist and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Workers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company was not
listed in the Form 5500 for the above plan as of the plan year ends as providing more than 5 percent of total contributions.
|
7.
|
Stock Based Compensation
|
The Company has established
a 2009 Incentive Stock Plan. The Employee Plan provides for the granting of options to the Company's executive officers and key
employees to purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options
to purchase up to 300,000 shares of common stock may be granted under the Employee Plan. Options generally become exercisable ratably
over a four year period or one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the
first or second anniversary of the date granted. The right to exercise the options generally expires in ten years from the date
of grant, or earlier if an option holder ceases to be employed by the Company.
In addition, the Company
has established a 2005 Directors Non-Qualified Stock Option Plan and a 2013 Incentive Plan for Non-Employee Directors (collectively
the “Directors Plans”). The Directors Plans provide for the granting of options to the Company's directors who are
not employees of the Company to purchase shares of common stock at prices equal to the fair market value of the stock on the date
of grant. Options to purchase up to 75,000 shares of common stock may be granted under the Directors Plans. Options shall become
exercisable with respect to one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the
second anniversary of the date granted, except for certain options which become exercisable with respect to all of the shares covered
thereby one year after the grant date. The right to exercise the options expires in ten years from the date of grant, or earlier
if an option holder ceases to be a director of the Company.
Upon stock-settled
compensation exercises and awards, the Company issues new shares of common stock.
A summary of
stock option transactions in fiscal 2018, 2019 and 2020, respectively, pursuant to the Employee Plans and the Directors Plans
is as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
Value
|
|
June 30, 2017
|
|
|
45,000
|
|
|
$
|
6.67
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
3,000
|
|
|
$
|
2.22
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(3,000
|
)
|
|
$
|
13.46
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
45,000
|
|
|
$
|
5.92
|
|
|
|
4.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
3,000
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
0
|
|
|
$
|
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
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options Forfeited or Expired
|
|
|
(9,750
|
)
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
42,750
|
|
|
$
|
4.65
|
|
|
|
4.1
|
|
|
$
|
304,768
|
|
Exercisable at June 30, 2020
|
|
|
35,250
|
|
|
$
|
5.38
|
|
|
|
3.0
|
|
|
$
|
225,443
|
|
The following table
provides additional information for options outstanding and exercisable at June 30, 2020:
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average
Remaining Life
|
|
|
Weighted Average
Exercise Price
|
|
|
$1.17 - 6.99
|
|
|
|
23,250
|
|
|
|
6.7 years
|
|
|
$
|
2.51
|
|
|
$7.00
|
|
|
|
15,000
|
|
|
|
1.2 years
|
|
|
$
|
7.00
|
|
|
$7.01 -10.08
|
|
|
|
4,500
|
|
|
|
0.9 years
|
|
|
$
|
7.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.17 - 10.08
|
|
|
|
42,750
|
|
|
|
4.1 years
|
|
|
$
|
4.65
|
|
Range of Exercise Prices
|
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
$1.17 - 6.99
|
|
|
|
15,750
|
|
|
$
|
3.13
|
|
|
$7.00
|
|
|
|
15,000
|
|
|
$
|
7.00
|
|
|
$7.01 -10.08
|
|
|
|
4,500
|
|
|
$
|
7.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.17 - 10.08
|
|
|
|
35,250
|
|
|
$
|
5.38
|
|
See Note 2 for discussion
of accounting for stock awards and related fair value disclosures.
8. Supplemental Balance Sheet Information
|
|
|
|
June 30,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
|
$
|
817,692
|
|
|
$
|
288,828
|
|
Component parts
|
|
|
|
|
8,299,972
|
|
|
|
7,151,228
|
|
Finished goods
|
|
|
|
|
1,660,158
|
|
|
|
1,693,974
|
|
Reserve for obsolete and excess inventory
|
|
|
|
|
(1,849,134
|
)
|
|
|
(1,800,935
|
)
|
|
|
|
|
$
|
8,928,688
|
|
|
$
|
7,333,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
3-10
|
|
$
|
18,831,765
|
|
|
$
|
18,073,352
|
|
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
|
|
|
|
|
32,806,959
|
|
|
|
32,048,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(28,667,266
|
)
|
|
|
(28,047,465
|
)
|
|
|
|
|
$
|
4,139,693
|
|
|
$
|
4,001,081
|
|
Depreciation and amortization
expense was approximately $0.6 million, $0.8 million, and $.09 million for
the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
Other accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation expense
|
|
|
|
$
|
1,257,332
|
|
|
$
|
1,149,210
|
|
Environmental remediation
|
|
|
|
|
514,000
|
|
|
|
-
|
|
Other
|
|
|
|
|
334,799
|
|
|
|
382,197
|
|
|
|
|
|
$
|
2,106,131
|
|
|
$
|
1,531,407
|
|
Depreciation and amortization expense was approximately $0.6 million, $0.8 million, and $.09 million for
|
the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
|
9. Commitments and Contingencies
Legal Claims
The Company is subject
to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its
business activities. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking to
interrupt or suspend manufacturing or require any recall or modification of products.
The Company has recognized
the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is
probable that liabilities have been incurred and the related amounts are estimable. Based upon information currently available,
management believes that existing accrued liabilities are sufficient.
On January 30, 2020,
the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield
Cleanup Program. The plan was with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that
the soil and groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. The
Company has applied to the Brownfield Cleanup Program. Pursuant to the plan, the Company will conduct, at its expense, investigation
and remediation at the site with oversight by the Department of Environmental Conservation.
The Company’s
best estimate of the expected cost to remediate the site is $1.1 million. This amount was recorded as an expense during fiscal
2020 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial
statements. As of June 30, 2020, the Company has paid approximately $82,000 in remediation expenses which have been charged to
the initial reserve.
Liability for future environmental
expenditures
|
|
2020
|
|
|
2019
|
|
Beginning Balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Charges to income
|
|
|
1,119,155
|
|
|
|
-
|
|
Remedial and investigatory spending
|
|
|
82,155
|
|
|
|
-
|
|
Ending Balance
|
|
$
|
1,037,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Reflected in the Balance sheet as:
|
|
|
|
|
|
|
|
|
Current, included in Other Liabilities
|
|
$
|
514,000
|
|
|
$
|
-
|
|
Long-term environmental
|
|
|
523,000
|
|
|
|
-
|
|
Total
|
|
$
|
1,037,000
|
|
|
$
|
-
|
|
Stuyvesant Falls Power
Litigation. The Company has been involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”),
which provides electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. The Company
maintained in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running
with the land which have been honored for more than a century. After the commencement of the litigation, Niagara began sending
invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. Niagara’s attempts to collect
such invoices were stopped in December 2010 by a temporary restraining order. Among other things, Niagara sought as damages the
value of electricity received by the Company without charge. The total value of electricity at issue in the litigation was not
known with certainty and Niagara alleged different amounts of damages. Niagara alleged in its Second Amended Verified Complaint,
dated February 6, 2012, damages of approximately $469,000 in free electricity from May 2003 through May 2010. Niagara also alleged
in its Motion For Summary Judgment, filed on March 14, 2014, damages of approximately $492,000 in free electricity from May 2010
through the date of the filing. In April 2015, Allied received an invoice for electrical power at the Stuyvesant Falls plant with
an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the period of time covered by
the invoice.
The Company filed a
Motion for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions were
held on June 13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled
that the Company is entitled to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara
and the other party filed separate notices of appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New
York, Appellate Division, Third Department reversed the trial court decision and held that the free power covenants are no longer
enforceable. The Company’s application for leave to appeal this ruling was dismissed as premature by the New York Court of
Appeals on September 20, 2016. On May 26, 2017 the Company again moved for leave to appeal the March 31, 2016 decision. That motion
was granted on October 7, 2017 by the New York State Court of Appeals. The Company filed its brief and record on January 26, 2018.
Niagara and the other party to the lawsuit, Albany Engineering Corporation, filed their responses on July 16, 2018 and the Company
filed its reply on August 14, 2018.
On February 20, 2019,
the Company, Niagara and Albany entered into a Final Settlement Agreement pursuant to which the Company agreed, among other things,
to cancel and forgo its rights to free power from either Niagara or Albany under the power covenants. The New York State Court
of Appeals granted a request of all parties to withdraw the appeal on March 5, 2019 and all parties entered a Stipulation of Discontinuance
on March 7, 2019 which discontinued the litigation. By separate agreement, Niagara paid the Company $750,000 as consideration for
the Company’s agreements pursuant to the settlement. On March 15, 2019 the Appellate Division of the Supreme Court of New
York granted Niagara’s request to withdraw its pending appeal. The matter is now fully concluded.
Employment Contract
In March 2007, the
Company entered into a three year employment contract with its chief executive officer. The contract is subject to automatic annual
renewals after the initial term unless notification is given. The contract was amended and restated in December 2009 without extending
its term. The contract includes termination without cause and change of control provisions, under which the chief executive officer
is entitled to receive specified severance payments generally equal to two times ending annual salary if the Company terminates
his employment without cause or he voluntarily terminates his employment with “good reason.” “Good Reason”
generally includes changes in the scope of his duties or location of employment but also includes (i) the Company’s written
election not to renew the Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following
a “Change of Control” as defined in the Agreement.
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
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic United States
|
|
$
|
23,138,276
|
|
|
$
|
23,541,614
|
|
|
$
|
25,711,912
|
|
Europe
|
|
|
1,422,660
|
|
|
|
877,308
|
|
|
|
1,428,245
|
|
Canada
|
|
|
829,901
|
|
|
|
758,145
|
|
|
|
795,357
|
|
Latin America
|
|
|
3,122,929
|
|
|
|
2,450,969
|
|
|
|
1,855,013
|
|
Middle East
|
|
|
693,716
|
|
|
|
464,470
|
|
|
|
857,066
|
|
Far East
|
|
|
2,686,206
|
|
|
|
3,259,905
|
|
|
|
3,107,339
|
|
Other International
|
|
|
574
|
|
|
|
29,110
|
|
|
|
5,021
|
|
|
|
$
|
31,894,262
|
|
|
$
|
31,381,521
|
|
|
$
|
33,759,953
|
|
Sales by Product
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Respiratory care products
|
|
$
|
8,555,954
|
|
|
$
|
8,993,216
|
|
|
$
|
9,037,704
|
|
Medical gas equipment
|
|
|
15,282,732
|
|
|
|
16,031,109
|
|
|
|
17,645,413
|
|
Emergency medical products
|
|
|
8,055,576
|
|
|
|
6,357,196
|
|
|
|
7,076,836
|
|
|
|
$
|
31,894,262
|
|
|
$
|
31,381,521
|
|
|
$
|
33,759,953
|
|
11. Quarterly
Financial Data (unaudited)
Summarized
quarterly financial data for fiscal 2020 and 2019
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,
|
|
2020
|
|
2020
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2018
|
|
2018
|
|
Net sales
|
|
$
|
8,511
|
|
$
|
8,097
|
|
$
|
7,310
|
|
$
|
7,976
|
|
$
|
7,690
|
|
$
|
8,316
|
|
$
|
8,107
|
|
$
|
7,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,378
|
|
|
1,586
|
|
|
1,347
|
|
|
1,260
|
|
|
1,405
|
|
|
1,550
|
|
|
1,205
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(638
|
)
|
|
(305
|
)
|
|
(1,512
|
)
|
|
(607
|
)
|
|
(433
|
)
|
|
(353
|
)
|
|
(762
|
)
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(539
|
)
|
|
(330
|
)
|
|
(1,531
|
)
|
|
(614
|
)
|
|
(474
|
)
|
|
378
|
|
|
(779
|
)
|
|
(1,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
(0.14
|
)
|
|
(0.08
|
)
|
|
(0.38
|
)
|
|
(0.15
|
)
|
|
(0.12
|
)
|
|
0.09
|
|
|
(0.19
|
)
|
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
(0.14
|
)
|
|
(0.08
|
)
|
|
(0.38
|
)
|
|
(0.15
|
)
|
|
(0.12
|
)
|
|
0.09
|
|
|
(0.19
|
)
|
|
(0.31
|
)
|
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.