|
Item 1.
|
Financial Statements
|
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
11,103,528
|
|
|
$
|
7,309,785
|
|
|
$
|
21,293,076
|
|
|
$
|
15,285,422
|
|
Cost of sales
|
|
|
8,491,333
|
|
|
|
5,962,607
|
|
|
|
16,807,070
|
|
|
|
12,678,549
|
|
Gross profit
|
|
|
2,612,195
|
|
|
|
1,347,178
|
|
|
|
4,486,006
|
|
|
|
2,606,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,878,307
|
|
|
|
2,859,633
|
|
|
|
3,887,405
|
|
|
|
4,726,720
|
|
Income (loss) from operations
|
|
|
733,888
|
|
|
|
(1,512,455
|
)
|
|
|
598,601
|
|
|
|
(2,119,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
33,452
|
|
|
|
19,037
|
|
|
|
51,703
|
|
|
|
25,789
|
|
Interest income
|
|
|
(42
|
)
|
|
|
(21
|
)
|
|
|
(199
|
)
|
|
|
(52
|
)
|
Other, net
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
23
|
|
|
|
|
33,410
|
|
|
|
19,029
|
|
|
|
51,504
|
|
|
|
25,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
700,478
|
|
|
|
(1,531,484
|
)
|
|
|
547,097
|
|
|
|
(2,145,607
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
$
|
700,478
|
|
|
$
|
(1,531,484
|
)
|
|
$
|
547,097
|
|
|
$
|
(2,145,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
4,013,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
4,024,952
|
|
|
|
4,013,537
|
|
|
|
4,027,788
|
|
|
|
4,013,537
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
ASSETS
|
|
(Unaudited)
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,128,511
|
|
|
$
|
2,600,083
|
|
Accounts receivable, net of allowances of $170,000
|
|
|
3,697,031
|
|
|
|
3,103,819
|
|
Inventories, net
|
|
|
10,220,254
|
|
|
|
8,928,688
|
|
Income tax receivable
|
|
|
21,298
|
|
|
|
12,178
|
|
Other current assets
|
|
|
330,986
|
|
|
|
229,805
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,398,080
|
|
|
|
14,874,573
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,986,031
|
|
|
|
4,139,693
|
|
Operating lease assets
|
|
|
15,264
|
|
|
|
17,326
|
|
Deferred income taxes
|
|
|
640,767
|
|
|
|
640,767
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,040,142
|
|
|
$
|
19,672,359
|
|
See accompanying Notes to Financial Statements.
(CONTINUED)
ALLIED HEALTHCARE PRODUCTS, INC.
BALANCE SHEET
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
(Unaudited)
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of Payroll Protection Program loan
|
|
$
|
1,839,696
|
|
|
$
|
1,042,655
|
|
Current portion of operating lease liability
|
|
|
4,506
|
|
|
|
4,249
|
|
Revolving credit facility
|
|
|
2,109,340
|
|
|
|
-
|
|
Accounts payable
|
|
|
3,060,274
|
|
|
|
2,940,006
|
|
Customer deposits
|
|
|
656,209
|
|
|
|
2,832,370
|
|
Other accrued liabilities
|
|
|
2,370,400
|
|
|
|
2,106,131
|
|
Total current liabilities
|
|
|
10,040,425
|
|
|
|
8,925,411
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of Payroll Protection Program loan
|
|
|
535,163
|
|
|
|
1,332,204
|
|
Long-term operating lease liability
|
|
|
10,760
|
|
|
|
13,077
|
|
Long-term environmental liability
|
|
|
24,000
|
|
|
|
523,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock; $0.01 par value; 200,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common stock; $0.01 par value; 30,000,000 shares authorized; 5,213,902 shares issued at December 31, 2020 and June 30, 2020; 4,013,537 shares outstanding at December 31, 2020 and June 30, 2020
|
|
|
52,139
|
|
|
|
52,139
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
48,497,762
|
|
|
|
48,493,732
|
|
Accumulated deficit
|
|
|
(18,139,319
|
)
|
|
|
(18,686,416
|
)
|
Less treasury stock, at cost; 1,200,365 shares at December 31, 2020 and June 30, 2020, respectively
|
|
|
(20,980,788
|
)
|
|
|
(20,980,788
|
)
|
Total stockholders' equity
|
|
|
9,429,794
|
|
|
|
8,878,667
|
|
Total liabilities and stockholders' equity
|
|
$
|
20,040,142
|
|
|
$
|
19,672,359
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE
PRODUCTS, INC.
STATEMENT OF CHANGES
IN STOCKHOLDER’S EQUITY
(UNAUDITED)
|
|
Three Months Ended December 31, 2020
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
Balance at September 30, 2020
|
|
$
|
52,139
|
|
|
$
|
48,494,261
|
|
|
$
|
(18,839,797
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
8,725,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
3,501
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
700,478
|
|
|
|
-
|
|
|
|
700,478
|
|
Balance at December 31, 2020
|
|
$
|
52,139
|
|
|
$
|
48,497,762
|
|
|
$
|
(18,139,319
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
9,429,794
|
|
|
|
Three Months Ended December 31, 2019
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
Balance at September 30, 2019
|
|
$
|
52,139
|
|
|
$
|
48,492,110
|
|
|
$
|
(16,286,439
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
11,277,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
564
|
|
|
|
-
|
|
|
|
-
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,531,484
|
)
|
|
|
-
|
|
|
|
(1,531,484
|
)
|
Balance at December 31, 2019
|
|
$
|
52,139
|
|
|
$
|
48,492,674
|
|
|
$
|
(17,817,923
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
9,746,102
|
|
|
|
Six Months Ended December 31, 2020
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
Balance at June 30, 2020
|
|
$
|
52,139
|
|
|
$
|
48,493,732
|
|
|
$
|
(18,686,416
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
8,878,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
4,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
547,097
|
|
|
|
-
|
|
|
|
547,097
|
|
Balance at December 31, 2020
|
|
$
|
52,139
|
|
|
$
|
48,497,762
|
|
|
$
|
(18,139,319
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
9,429,794
|
|
|
|
Six Months Ended December 31, 2019
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
Balance at June 30, 2019
|
|
$
|
52,139
|
|
|
$
|
48,491,317
|
|
|
$
|
(15,672,316
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
11,890,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
1,357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,145,607
|
)
|
|
|
-
|
|
|
|
(2,145,607
|
)
|
Balance at December 31, 2019
|
|
$
|
52,139
|
|
|
$
|
48,492,674
|
|
|
$
|
(17,817,923
|
)
|
|
$
|
(20,980,788
|
)
|
|
$
|
9,746,102
|
|
See accompanying Notes to Financial Statements.
ALLIED HEALTHCARE PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
547,097
|
|
|
$
|
(2,145,607
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
320,825
|
|
|
|
322,866
|
|
Stock based compensation
|
|
|
4,030
|
|
|
|
1,357
|
|
Provision for
doubtful accounts and sales returns and allowances
|
|
|
16,397
|
|
|
|
(1,438
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(609,609
|
)
|
|
|
235,519
|
|
Inventories
|
|
|
(1,291,566
|
)
|
|
|
(163,964
|
)
|
Income tax receivable
|
|
|
(9,120
|
)
|
|
|
(6,275
|
)
|
Other current assets
|
|
|
(101,181
|
)
|
|
|
1,547
|
|
Accounts payable
|
|
|
120,268
|
|
|
|
425,083
|
|
Customer deposits
|
|
|
(2,176,161
|
)
|
|
|
(117,637
|
)
|
Other accrued liabilities
|
|
|
(234,729
|
)
|
|
|
647,275
|
|
Net cash used in operating activities
|
|
|
(3,413,749
|
)
|
|
|
(801,274
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(167,163
|
)
|
|
|
(28,387
|
)
|
Net cash used in investing activities
|
|
|
(167,163
|
)
|
|
|
(28,387
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
|
21,098,996
|
|
|
|
16,591,120
|
|
Payments under revolving credit agreement
|
|
|
(18,989,656
|
)
|
|
|
(15,605,330
|
)
|
Net cash provided by financing activities
|
|
|
2,109,340
|
|
|
|
985,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,471,572
|
)
|
|
|
156,129
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,600,083
|
|
|
|
195,454
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,128,511
|
|
|
$
|
351,583
|
|
See
accompanying Notes to Financial Statements.
ALLIED HEALTHCARE
PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation
The accompanying unaudited
financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with
the instructions for Form 10-Q and do not include all of the information and disclosures required by accounting principles
generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results
for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should
be read in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s
Annual Report on Form 10-K for the year ended June 30, 2020.
Fair Value of Financial Instruments
The Company’s financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving credit facility. The carrying amounts
for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short maturity
of these instruments. The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable
interest rate.
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.
Risk and Uncertainties, 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.
The Company returned to profitable operations this quarter with
income from operations and net income for the quarter and six months ended December 31, 2020. It believes that the combination
of cash on hand at December 31, 2020, additional borrowings available on the credit facility (Note 6), reductions in inventory
levels and future earnings will be sufficient to meet its obligations as they become due in the ordinary course of business for
at least 12 months following the date these financial statements are issued. If additional liquidity would be required, the
Company would consider additional borrowings through the sale leaseback of its corporate headquarters and delaying certain expenditures
until sufficient capital becomes available.
2. Revenues
The Company’s
revenues are derived primarily from the sales of respiratory products, medical gas equipment and emergency medical products. The
products are generally sold directly to distributors, customers affiliated with buying groups, individual customers and construction
contractors, throughout the world.
The Company recognizes revenue from product sales upon the transfer
of control, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Payment
terms between Allied and its customers vary by the type of customer, country of sale, and the products offered. The term between
invoicing and the payment due date is not significant. For certain customers or product orders, Allied may require advance payments.
The contract liabilities are reflected as customer deposits on the Company’s balance sheet.
Management exercises
judgment in estimating variable consideration. Provisions for early payment discounts, rebates and returns and other adjustments
are provided for in the period the related sales are recorded. Historical data is readily available and reliable, and is used for
estimating the amount of the reduction in gross sales.
The Company provides
rebates to wholesalers. Rebate amounts are based upon purchases using contractual amount for each product sold. Factors used in
the rebate calculations include the identification of which products have been sold subject to a rebate and the customer or price
terms that apply. Using known contractual allowances, the Company estimates the amount of the rebate that will be paid, and records
the liability as a reduction of gross sales when it records the sale of the product. Settlement of the rebate generally occurs
in the month following the sale.
The Company regularly
analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Historically,
adjustments to prior years’ rebate accruals have not been material to net income.
Other allowances charged
against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to 30 days
of sale, and therefore can be reliably estimated. Returns can be reliably estimated because the Company’s historical returns
are low, and because sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties
are also not significant.
The Company does not allocate transaction
price as the Company has only one performance obligation and its contracts do not span multiple periods.
The Company operates in one segment consisting of the manufacturing,
marketing and distribution of a variety of respiratory products used in the health care industry to hospitals, hospital equipment
dealers, hospital construction contractors, home health care dealers and emergency medical product dealers. The Company’s
product lines include respiratory care products, medical gas equipment and emergency medical products. Sales by region, and by
product, are as follows:
|
|
Sales by Region
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Domestic United States
|
|
$
|
6,797,291
|
|
|
$
|
5,451,615
|
|
|
$
|
12,900,780
|
|
|
$
|
11,195,850
|
|
Europe
|
|
|
2,078,512
|
|
|
|
69,449
|
|
|
|
3,447,073
|
|
|
|
397,116
|
|
Canada
|
|
|
512,592
|
|
|
|
212,976
|
|
|
|
880,533
|
|
|
|
369,378
|
|
Latin America
|
|
|
632,526
|
|
|
|
807,799
|
|
|
|
1,795,794
|
|
|
|
1,562,791
|
|
Middle East
|
|
|
511,256
|
|
|
|
86,383
|
|
|
|
1,017,982
|
|
|
|
223,957
|
|
Far East
|
|
|
571,086
|
|
|
|
681,316
|
|
|
|
1,249,683
|
|
|
|
1,535,756
|
|
Other International
|
|
|
265
|
|
|
|
247
|
|
|
|
1,231
|
|
|
|
574
|
|
|
|
$
|
11,103,528
|
|
|
$
|
7,309,785
|
|
|
$
|
21,293,076
|
|
|
$
|
15,285,422
|
|
|
|
Sales by Product
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Respiratory care products
|
|
$
|
1,838,325
|
|
|
$
|
2,061,248
|
|
|
$
|
3,986,664
|
|
|
$
|
4,217,451
|
|
Medical gas equipment
|
|
|
4,354,549
|
|
|
|
3,824,007
|
|
|
|
8,313,070
|
|
|
|
7,604,573
|
|
Emergency medical products
|
|
|
4,910,654
|
|
|
|
1,424,530
|
|
|
|
8,993,342
|
|
|
|
3,463,398
|
|
|
|
$
|
11,103,528
|
|
|
$
|
7,309,785
|
|
|
$
|
21,293,076
|
|
|
$
|
15,285,422
|
|
3. Inventories
Inventories are comprised as follows:
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
Work-in progress
|
|
$
|
1,517,277
|
|
|
$
|
817,692
|
|
Component parts
|
|
|
8,920,804
|
|
|
|
8,299,972
|
|
Finished goods
|
|
|
1,631,307
|
|
|
|
1,660,158
|
|
Reserve for obsolete and excess
|
|
|
|
|
|
|
|
|
inventories
|
|
|
(1,849,134
|
)
|
|
|
(1,849,134
|
)
|
|
|
$
|
10,220,254
|
|
|
$
|
8,928,688
|
|
4. Earnings per share
Basic earnings per share are based on the weighted average number of shares of all
common stock outstanding during the period. Diluted earnings per share are based on the sum of the weighted average number of shares
of common stock and common stock equivalents outstanding during the period. The number of basic shares outstanding for the three
and six months ended December 31, 2020 and 2019 were 4,013,537. The number of diluted shares outstanding for the three months ended
December 31, 2020 and 2019 were 4,024,952 and 4,013,537 respectively. The number of diluted shares outstanding for the six months
ended December 31, 2020 and 2019 were 4,027,788 and 4,013,537 respectively.
5. Commitments and Contingencies
Legal Claims
The Company is subject
to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its
business activities. The Company has recognized costs and associated liabilities only for those investigations, claims and legal
proceedings for which in its view it is probable that liabilities have been incurred and the related amounts are estimable.
Environmental Remediation
The Company is party
to a Brownfield Cleanup Program Agreement with the New York Department of Environmental Conservation under its Brownfield Cleanup
Program with respect to the Company’s property in Stuyvesant Falls, New York. The agreement recognizes that the soil and
groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. Pursuant to the
agreement, the Company will conduct, at its expense, investigation and remediation at the site.
The Company’s
best estimate of the expected cost to remediate the site is $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 December 31, 2020, the Company has paid approximately $104,000 in remediation expenses which have been charged
to the initial reserve.
Liability for future environmental expenditures
Balance - July 1, 2020
|
|
$
|
1,037,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to income
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remedial and investigatory spending
|
|
|
21,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31 , 2020
|
|
$
|
1,015,465
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
Reflected in the Balance sheet as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current, included in Other Liabilities
|
|
$
|
991,465
|
|
|
$
|
514,000
|
|
|
|
|
|
|
|
|
|
|
Long-term environmental
|
|
|
24,000
|
|
|
|
523,000
|
|
|
|
|
|
|
|
|
|
|
Total liability
|
|
$
|
1,015,465
|
|
|
$
|
1,037,000
|
|
Employment Contract
The Company has entered
into an employment contract with its chief executive officer with annual renewals. The contract includes termination without cause
and change of control provisions, under which the chief executive officer is entitled to receive specified severance payments generally
equal to two times ending annual salary if the Company terminates his employment without cause or he voluntarily terminates his
employment with “good reason.” “Good Reason” generally includes changes in the scope of his duties or location
of employment but also includes (i) the Company’s written election not to renew the Employment Agreement and (ii) certain
voluntary resignations by the chief executive officer following a “Change of Control” as defined in the Agreement.
6. Financing
North Mill Loan
The Company is party
to a Loan and Security Agreement with North Mill Capital, LLC (“North Mill”), as successor in interest to Summit Financial
Resources, L.P., dated effective February 27, 2017, as amended April 16, 2018, 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 December 31, 2020 availability under the agreement was $1.5 million.
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 December 31, 2020.
PPP
Loan
On
April 22, 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 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%. The Company has
submitted its application for forgiveness and is awaiting approval from the SBA. 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 has filed an application
for forgiveness of the entire principal of the SBA Loan but cannot guarantee whether or to what extent such forgiveness will be
granted.
Payments
of unforgiven principal and interest are deferred until the date that SBA remits the Company’s loan forgiveness amount to
the lender, 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 December 31,
2020 the Company had $4.5 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 December 31, 2020.
7.
Income Taxes
The Company accounts for income taxes under ASC Topic 740: “Income
Taxes.” Under ASC 740, the deferred tax provision is determined using the liability method, whereby deferred tax assets and
liabilities are recognized based upon temporary differences between the financial statement and income tax bases of assets and
liabilities using presently enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets
to the amounts expected to be realized. As a result of the Consolidated Appropriations Act of 2021 signed by the President
on December 27, 2020, approximately $2,400,000 of expenses incurred that were attributed to the Company’s PPP loan became
deductible in the three months ended December 31, 2020. The deductibility of these expenses created a tax loss for the three and
six months ended December 31, 2020. In the three and six months ended December 31, 2020 the Company recorded the tax benefit of
losses incurred in the amount of approximately $410,000 and $449,000, respectively. As the realization of the tax benefit
of the net operating loss is not assured, an additional valuation allowance of a like amount was recorded. For the three
and six months ended December 31, 2019 the Company recorded the tax benefit of losses incurred in the amount of approximately $387,000
and $541,000. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance
of a like amount was recorded. The total valuation allowance recorded by the Company as of December 31, 2020 and 2019 was approximately
$3,224,000 and $3,266,000, respectively. To the extent that the Company incurs losses in future quarters, the tax benefit of those
losses will be subject to a valuation allowance. To the extent the Company has taxable income, the taxable income will be offset
by net operating loss carryforwards.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Covid-19 Outbreak
Due to the COVID-19 pandemic, in recent
quarters the Company saw an unprecedented increase in demand and orders for its AHP300 ventilators, EPV200 ventilators, other respiratory
care products, and other emergency medical devices. Orders have now stabilized. Orders for the Company’s products for the
six months ended December 31, 2020 of $16.2 million were $0.8 million or 5.2% higher than orders for the prior year same period
of $15.4 million. The Company has made capital investments, added employees, and increased inventory purchases in order to increase
production of these ventilators and other products critical to the care of COVID-19 patients. The Company’s ability to meet
this demand has been impaired, at times, by supply chain challenges as demand for components critical for the production of these
products has spiked as all manufacturers of ventilators and other critical medical equipment sought to increase production. At
the same time, the COVID-19 pandemic could decrease demand for other products as hospitals reduce “non-essential procedures.”
The economic effects on hospitals and providers could negatively impact the market for the Company’s construction products
if hospitals cut back on construction and capital improvements. The duration and extent of this decreased demand is uncertain and
depends on decisions by government health authorities, hospitals and providers in responding to and mitigating the COVID-19 outbreak.
The full economic impact
of the COVID-19 pandemic continues to evolve as the date of this report. As such, the Company cannot predict with certainty the
full magnitude that the pandemic will have on the Company’s financial condition, liquidity, operations, suppliers, industry
and workforce. Please see Part II, Item 1A, Risk Factors of our Annual Report on Form 10-K for more information.
Three
months ended December 31, 2020 compared to three months ended December 31, 2019
Allied
had net sales of $11.1 million for the three months ended December 31, 2020, up $3.8 million from net sales of $7.3 million
in the prior year same quarter. Domestic sales were up 24.7% and international sales, which represented 38.8% of second quarter
sales, were up 131.7% from the prior year same quarter. The increase in sales is the result of shipment of orders received
in previous quarters. These orders are primarily for the AHP300 ventilator and other products used to increase capacity to treat
COVID-19 patients.
Orders
for the Company’s products for the three months ended December 31, 2020 of $8.4 million were $0.7 million or 9.1% higher
than orders for the prior year same quarter of $7.7 million. Domestic orders are up 1.6% over the prior year same quarter
while international orders, which represented 32.6% of second quarter orders, were 29.5% higher than orders for the prior year
same quarter. International sales and orders are subject to fluctuation in international demand. International and construction
sales and orders are subject to fluctuation in demand. Internationally, these fluctuations are at times due to political and economic
uncertainty.
Gross profit for the
three months ended December 31, 2020 was $2.6 million, or 23.4% of net sales, compared to $1.3 million, or 17.8% of net sales,
for the three months ended December 31, 2019. Gross profit for the quarter was favorably impacted by the increase in sales
volume. Manufacturing overhead spending increased from the prior year by approximately $0.4 million as the Company increased its
capacity to manufacture those products that have had higher demand related to the COVID-19 pandemic.
Selling,
general and administrative expenses for the three months ended December 31, 2020 were $1.9 million compared to selling, general
and administrative expenses of $2.9 million for the three months ended December 31, 2019. The decrease is primarily
due to the $0.9 million provision that was recorded in the second quarter of Fiscal 2020 for environmental cleanup costs at the
Company’s facility in Stuyvesant Falls, New York.
Income
from operations was $0.7 million for the three months ended December 31, 2020 compared to loss from operations of $1.5 million
for the three months ended December 31, 2019.
Allied had income before benefit from income taxes in the second
quarter of fiscal 2021 of $0.7 million compared to loss before benefit from income taxes in the second quarter of fiscal 2020 of
$1.5 million. The Company’s tax provision net of valuation allowance reflects a tax benefit of $0 for the three months
ended December 31, 2020 and 2019. As a result of the Consolidated Appropriations Act of 2021 signed by the President on December
27, 2020, approximately $2,400,000 of expenses incurred that were attributed to the Company’s PPP loan became deductible
in the three months ended December 31, 2020. The deductibility of these expenses created a tax loss for the three months ended
December 31, 2020. In the quarter ended December 31, 2020 the tax benefit of losses in the amount of approximately $410,000 was
fully offset by a valuation allowance of equivalent amount. In the quarter ended December 31, 2019 the Company recorded
the tax benefit of losses incurred in the amount of approximately $387,000 net of additions to the valuation allowance of like
amount. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully
offset by a valuation allowance. To the extent the Company has taxable income, the taxable income will be offset by net operating
loss carryforwards.
Net
income for the second quarter of fiscal 2021 was $0.7 million or $0.17 per basic and diluted share compared to net loss of $1.5
million or $0.38 per basic and diluted share for the second quarter of fiscal 2020. The weighted average number of common shares
outstanding, used in the calculation of basic earnings per share for the second quarters of fiscal 2021 and 2020 were 4,013,537.
The weighted average number of common shares outstanding, used in the calculation of diluted earnings per share for the second
quarters of fiscal 2021 and 2020 were 4,024,952 and 4,013,537 respectively.
Six months ended December 31, 2020 compared to six
months ended December 31, 2019
Allied
had net sales of $21.3 million for the six months ended December 31, 2020, up $6.0 million, or 39.2% from net sales of $15.3
million in the prior year same period. Domestic sales were up 15.2% from the prior year same period while international sales were
up 105.2% from the prior year same period. International business represented 39.4% of sales for the first six months of fiscal
2021. The increase in sales is the result of shipment of orders received in previous quarters. These orders are primarily
for the AHP300 ventilator and other products used to increase capacity to treat COVID-19 patients.
Orders
for the Company’s products for the six months ended December 31, 2020 of $16.2 million were $0.8 million or 5.2% higher
than orders for the prior year same period of $15.4 million. Domestic orders are down 0.9% from the prior year same period
while international orders, which represented 31.0% of orders for the first six months of fiscal 2021, were 22.4% higher than orders
for the prior year same period. The increase in orders are primarily for the AHP300 ventilator and accessories.
Gross profit for the
six months ended December 31, 2020 was $4.5 million, or 21.1% of net sales, compared to $2.6 million, or 17.0% of net sales,
for the six months ended December 31, 2019. The $1.9 million increase in gross profit is mainly attributable the $6.0 million
increase in sales.
Selling, general and
administrative expenses for the six months ended December 31, 2020 were $3.9 million compared to selling, general and administrative
expenses of $4.7 million for the six months ended December 31, 2019. The decrease is primarily due to the $0.9 million provision
that was recorded in the second quarter of Fiscal 2020 for environmental cleanup costs at the Company’s facility in Stuyvesant
Falls, New York.
Income
from operations was $0.6 million for the six months ended December 31, 2020 compared to loss from operations of $2.1 million
for the six months ended December 31, 2019.
Allied had income before benefit from income taxes in the first
six months of fiscal 2021 of $0.5 million compared to loss before benefit from income taxes in the first six months of fiscal 2020
of $2.1 million. The Company’s tax provision net of valuation allowance reflects a tax benefit of $0 for the six months
ended December 31, 2020 and 2019. As a result of the Consolidated Appropriations Act of 2021 signed by the President on December
27, 2020, approximately $2,400,000 of expenses incurred that were attributed to the Company’s PPP loan became deductible
in the six months ended December 31, 2020. The deductibility of these expenses created a tax loss for the six months ended December
31, 2020. In the six months ended December 31, 2020 the tax benefit of losses in the amount of approximately $449,000 was fully
offset by a valuation allowance of equivalent amount. In the six months ended December 31, 2019 the Company recorded
the tax benefit of losses incurred in the amount of approximately $541,000 net of additions to the valuation allowance of like
amount. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully
offset by a valuation allowance. To the extent the Company has taxable income, the taxable income will be offset by net operating
loss carryforwards.
Net
income for the six months ended December 31, 2020 was $0.5 million or $0.14 per basic and diluted share compared to net loss
of $2.1 million or $0.53 per basic and diluted share for the first six months of fiscal 2020. The weighted average number
of common shares outstanding, used in the calculation of basic earnings per share for fiscal 2021 and 2020 were 4,013,537. The
weighted average number of common shares outstanding, used in the calculation of diluted earnings per share for fiscal 2021 and
2020 were 4,027,788 and 4,013,537 respectively.
Liquidity and Capital Resources
The Company’s
primary sources of liquidity are its cash, cash equivalents, other items of working capital and available borrowing under the Credit
Facility discussed below.
The Company’s
working capital was $5.4 million at December 31, 2020 compared to $5.9 million at June 30, 2020. Cash decreased by $1.5
million, other accrued liabilities increased by $0.3 million and debt increased by $2.9 million. During the quarter, these decreases
in working capital were offset by an increase in inventory by $1.3 million, an increase in Accounts receivable of 0.6 million,
and a decrease in customer deposits by $2.2 million. The increase in inventory was part of the Company’s efforts to fulfill
increased orders in prior periods for respiratory care products. Accounts payable and other accrued liabilities are subject to
normal fluctuations in purchasing levels and the timing of payments within the quarter. Accounts receivable was $3.7 million at
December 31, 2020 and as measured in days sales outstanding (“DSO”) was 32 DSO compared to a 35 DSO at June 30,
2020. The Company does adjust product forecast, order quantities and safety stock based on changes in demand patterns in order
to manage inventory levels.
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 December 31, 2020 availability under the agreement was $1.5 million.
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 December 31, 2020.
PPP
Loan
On
April 22, 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 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%. The Company has
submitted its application for forgiveness and is awaiting approval from the SBA. 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 has submitted an application
for forgiveness of the entire principal amount of the SBA Loan but cannot guarantee whether or to what extent such forgiveness
will be granted.
Payments
of unforgiven principal and interest are deferred until the date that SBA remits the Company’s loan forgiveness amount to
the lender, 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 December 31, 2020 the Company had
$4.5 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 December 31, 2020.
Litigation
and Contingencies
The Company becomes,
from time to time, a party to personal injury litigation arising out of incidents involving the use of its products. The Company
believes that any potential judgments resulting from these claims over its self-insured retention will be covered by the Company’s
product liability insurance. See Part II, Item 1 – Legal Proceedings, below, for more information concerning litigation.
Critical Accounting Policies
The impact and any
associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect the Company’s
reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see
the Company’s Annual Report on Form 10-K for the year ended June 30, 2020.
Recently Issued Accounting Guidance
See Note 1 –
Summary of Significant Accounting and Reporting Policies for more information on recent accounting pronouncements and their impact,
if any, on the Company’s financial statements. Management believes there have been no material changes to our critical accounting
policies.