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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Allied Healthcare Products, Inc.    AHPI

ALLIED HEALTHCARE PRODUCTS, INC.

(AHPI)
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ALLIED HEALTHCARE PRODUCTS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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09/28/2020 | 03:49pm EDT

COVID-19 Outbreak

Due to the COVID-19 pandemic, in the last quarter of 2020, the Company saw an
unprecedented increase in demand and orders for its AHP300 ventilators, EPV200
ventilators, other respiratory care products, and other emergency medical
devices. The Company has made capital investments, added employees, and
increased inventory purchases in order to increase production of these
ventilators and other products critical to the care of COVID-19 patients.



The Company's ability to meet this demand has been impaired by supply chain
challenges as demand for components critical for the production of these
products has spiked as all manufacturers of ventilators and other critical
medical equipment seek to increase production. At the same time, the COVID-19
pandemic could decrease demand for other products as hospitals reduce
"non-essential procedures." The economic effects on hospitals and providers
could negatively impact the market for the Company's construction products if
hospitals cut back on construction and capital improvements. The duration and
extent of this decreased demand is uncertain and depends on decisions by
government health authorities, hospitals and providers in responding to and
mitigating the COVID-19 outbreak.



Results for the year ended June 30, 2020 only partially reflect the impacts
discussed above. The full economic impact of the COVID-19 pandemic continues to
evolve as the date of this report. As such, the Company cannot predict with
certainty the full magnitude that the pandemic will have on the Company's
financial condition, liquidity, operations, suppliers, industry and workforce.
Please see Part II, Item 1A, Risk Factors for more information.



                                       15





Results of Operations



The Company manufactures and markets respiratory products, including respiratory
care products, medical gas equipment and emergency medical products. Set forth
below is certain information with respect to amounts and percentages of net
sales attributable to respiratory care products, medical gas equipment and
emergency medical products for the fiscal years ended June 30, 2020, 2019,
and
2018.



                                  Dollars in thousands
Year ended June 30,                       2020
                                 Net            % of Total
                                Sales           Net Sales
Respiratory care products    $     8,556               26.8 %
Medical gas equipment             15,283               47.9 %
Emergency medical products         8,055               25.3 %
Total                        $    31,894              100.0 %




                                  Dollars in thousands
Year ended June 30,                       2019
                                 Net            % of Total
                                Sales           Net Sales
Respiratory care products    $     8,993               28.7 %
Medical gas equipment             16,032               51.1 %
Emergency medical products         6,357               20.2 %
Total                        $    31,382              100.0 %




                                  Dollars in thousands
Year ended June 30,                       2018
                                 Net            % of Total
                                Sales           Net Sales
Respiratory care products    $     9,038               26.8 %
Medical gas equipment             17,645               52.2 %
Emergency medical products         7,077               21.0 %
Total                        $    33,760              100.0 %




                                       16





The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by the various income and expense categories reflected
in the Company's Statement of Operations.



Year ended June 30,                             2020         2019         2018
Net sales                                        100.0  %     100.0  %     100.0  %
Cost of sales                                     82.5         83.9         80.9
Gross profit                                      17.5         16.1         19.1

Selling, general and administrative expenses      27.1         24.9         25.0
Loss from operations                              (9.6  )      (8.8  )      (5.9  )
Interest expense                                   0.2          0.2          0.1
Legal settlement                                   0.0         (2.4  )       0.0
Other, net                                         0.1          0.0          0.0
Loss before provision for income taxes            (9.9  )      (6.6  )      (6.0  )
Provision for (benefit from) income taxes         (0.4  )       0.1        
 0.5
Net loss                                          (9.5 )%      (6.7 )%      (6.5 )%




Critical Accounting Policies



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.



                                       17




Inventory reserve for obsolete and excess inventory:




Inventory is recorded net of a reserve for obsolete and excess inventory which
is determined based on an analysis of inventory items with no usage in the
preceding year and for inventory items for which there is greater than two
years' usage on hand. This analysis considers those identified inventory items
to determine, in management's best estimate, if parts can be used beyond one
year, if there are alternate uses or at what values such parts may be disposed
for. At June 30, 2020 and 2019, inventory is recorded net of a reserve for
obsolete and excess inventory of $1.8 million.



Income taxes:



The Company accounts for income taxes under the FASB Accounting Standards
Codification ("ASC") Topic 740: "Income Taxes." Under ASC 740, the deferred tax
provision is determined using the liability method, whereby deferred tax assets
and liabilities are recognized based upon temporary differences between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates that are expected to apply to taxable income when such assets and
liabilities are anticipated to be settled or realized. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized as tax expense
or benefit in the period that includes the enactment date of the change.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Management uses a more likely
than not criterion in its assessment and considers all available evidence, both
positive and negative, in determining whether, based on the weight of that
evidence, a valuation allowance for deferred tax assets is needed. In assessing
the need for a valuation allowance the Company first considers the reversals of
existing temporary deferred tax liabilities and available tax planning
strategies.  To the extent these items are not sufficient to cause the
realization of deferred tax assets, the Company would then consider the
availability of future taxable income only to the extent such income is
considered likely to occur based on the Company's earnings history, current
income trends and projections.



In light of its history of operating losses the Company does not rely on the
existence of future taxable income as it currently cannot conclude future
taxable income is likely to occur. The Company does rely on reversals of
existing temporary deferred tax liabilities and tax planning strategies to the
extent available to support the value of its existing deferred tax assets. The
tax planning strategies available to the Company that it would use rather than
allow the tax benefits of net operating loss carryovers to expire include the
revocation of the LIFO method inventory and the recognition of a gain on the
sale of the Company's excess land in Stuyvesant Falls, New York. As of June 30,
2020, the Company's deferred tax assets exceeded the amount supportable through
reversals of existing deferred tax liabilities and tax planning strategies and a
valuation allowance has been recorded for this amount.



Accounts receivable net of allowances:

Accounts receivable are recorded net of an allowance for doubtful accounts,
which is determined based on an analysis of past due accounts including accounts
placed with collection agencies, and an allowance for returns and credits, which
is based on historical analysis of credit memo data and returns. The Company
maintains an allowance for doubtful accounts to reflect the uncollectibility of
accounts receivable based on past collection history and specific risks
indentified among uncollected accounts. Accounts receivable are charged to the
allowance for doubtful accounts when the Company determines that the receivable
will not be collected and/or when the account has been referred to a third party
collection agency. At June 30, 2020 and 2019, accounts receivable is recorded
net of allowances of $170,000.



Valuation of Long-Lived Assets:




The impairment of long-lived assets is assessed when changes in circumstances
(such as, but not limited to, a decrease in market value of an asset, current
and historical operating losses or a change in business strategy) indicate that
their carrying value may not be recoverable. This assessment is based on
management's expectations and judgments regarding future business and economic
conditions, future market values and disposal costs. Actual results and events
could differ significantly from management's estimates. Based upon our most
recent analysis, we believe that no impairment exists at June 30, 2020. There
can be no assurance that future impairment tests will not result in a charge to
net earnings (loss).



Self-insurance:


The Company maintains a self-insurance program for a portion of its health care
costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred
but not reported. As of June 30, 2020 and 2019, the Company had approximately
$150,000 and $210,000, respectively, of accrued liabilities related to health
care claims. In order to establish the self-insurance reserves, the Company
utilized actuarial estimates of expected claims based on analyses of historical
data.



                                       18







Share Based Compensation:



Allied calculates share based compensation using the Black-Sholes-Merton
("Black-Scholes") option-pricing model, which requires the input of highly
subjective assumptions including the expected stock price volatility. For the
twelve-month periods ended June 30, 2020, 2019, and 2018, Allied recorded
approximately $2,000, $3,000 and $3,000, respectively, in share-based employee
compensation. This compensation cost is included in the general and
administrative expenses in the accompanying Statements of Operations.



Fiscal 2020 Compared to Fiscal 2019




The Company had a loss of $3.1 million before taxes for fiscal 2020, compared to
a loss of $2.1 million before taxes for fiscal 2019. It recorded an income tax
benefit of $130,359 in fiscal 2020, compared to an income tax provision of
$29,448 in fiscal 2019.



Net sales for fiscal 2020 of $31.9 million were $0.5 million or 1.6% higher than
net sales of $31.4 million in fiscal 2019. Domestically, sales decreased by $0.4
million dollars while international sales, which represented 27.5% of fiscal
2020 sales, were 11.7% higher. The decrease in domestic sales was largely
attributable to declines in sales of construction products and respiratory
therapy products. International business is dependent upon hospital construction
projects, and the development of medical facilities and emergency services in
those regions in which the Company operates, as well as the economic and
political climates in those international markets.



Orders for the Company's products for the year ended June 30, 2020 of $40.8
million were $9.3 million or 29.54% higher than orders for the year ended June
30, 2019 of $31.5 million. As a result of the COVID-19 pandemic, the Company
experienced significantly increased orders for the emergency medical products
sold by the Company, including the Company's AHP300 ventilator and the EPV200
ventilator.


Respiratory care product sales, which include homecare products, were $8.6
million in fiscal 2020 compared to $9.0 million in 2019. Respiratory care
products include carbon dioxide absorbents. For the year ended June 30, 2020 and
2019 the Company had carbon dioxide absorbent sales of Carbolime® and Litholyme®
of $3.7 million and $4.2 million, respectively.



Medical gas equipment sales, which include construction products, of $15.3
million in fiscal 2020 were approximately $0.7 million, or 4.4% lower than prior
year levels of $16.0. The decrease in domestic sales was largely attributable to
declines in sales of construction products. The Company continues to evaluate
and strengthen its sales strategy in this market.



Emergency medical product sales in fiscal 2020 of $8.1 million were $1.7 million
or 26.6% higher than fiscal 2019 sales of $6.4 million. International sales of
emergency medical products increased by 61.6% from the prior year while domestic
sales increased by 13.2%. The onset of the COVID-19 pandemic increased demand
for the Company's emergency products including the AHP300 ventilator. Most of
this increase occurred in the fourth quarter of the fiscal year. While demand
for emergency and mass-casualty ventilators increased in the last part of fiscal
year 2020, it was necessary for the company to ramp up its manufacturing
capacity and to address any supply chain issues. The ramp up has included
investment in capital equipment and training to increase capacity. For these
reasons some orders were not shipped immediately in the fourth quarter.



International sales, which are included in the product lines discussed above,
increased $0.9 million, or 11.5%, to $8.7 million in fiscal 2020 compared to
sales of $7.8 million in fiscal 2019.



Gross profit in fiscal 2020 was $5.6 million, or 17.6% of sales, compared to a
gross profit of $5.0 million, or 15.9% of sales in fiscal 2019. The $0.6 million
increase in gross profit is mainly attributable to a $0.7 million decrease in
fringe benefits including medical benefits. The Company is self-insured for
medical benefits and there is variation in the amount of claims over time.


                                       19




The Company invested approximately $0.8 million in capital expenditures in fiscal 2020 primarily for the expansion of the production line of our AHP300 ventilator. The Company did not invest in capital expenditures in fiscal 2019.

Selling, General, and Administrative ("SG&A") expenses for fiscal 2020 were $8.6
million compared to SG&A expenses of $7.8 million in fiscal 2019. The increase
is primarily due to the $1.1 million provision for environmental cleanup costs
at the Company's facility in Stuyvesant Falls, New York. This increase was
offset by a $0.3 million decrease in personnel cost consisting of salary and
fringe benefits.


Interest income in fiscal 2020 was $654 compared to interest income of $138 in
fiscal 2019. Interest expense in fiscal 2020 was $64,682 compared to interest
expense of $56,223 in fiscal 2019.



Other income and expenses in fiscal 2019 include $750,000 of income realized by
the Company as a result of the settlement of litigation with Niagara Mohawk
Power Corporation d/b/a National Grid ("Niagara"), which provides electrical
power to the Company's facility in Stuyvesant Falls, New York, and one other
party. See Part II, Item 1 - Legal Proceedings, below, for more information
concerning litigation.



The Company's effective tax rate in 2020 was a benefit of 4.1% compared to a
provision of 1.4% in 2019. The change in the effective tax rate in 2020 was
attributable to non-deductible expenses attributable to the Company's expected
PPP Loan forgiveness and an increase in the value of tax planning strategies.



The realization of the Company's deferred tax assets have been based on the
reversal of existing temporary deferred tax liabilities and tax planning
strategies and to the extent those items are not sufficient to support the value
of recorded deferred tax assets a valuation allowance is recorded. For the year
ended June 30, 2018 the Company recorded a $352,727 reduction to the allowance.
The reduction was caused by a decrease in the allowance of $1,080,362 due to a
reduction in federal rates expected to be in effect at reversal. The reduced
rates are as a result of the Tax Cuts and Jobs Act of 2017. This reduction was
offset by a $727,635 increase in the valuation allowance reflecting the impact
of 2018 additions to deferred tax assets not supported by deferred tax
liabilities or tax planning strategies. For the year ended June 30, 2019 the
Company recorded an additional allowance of $536,240. For the year ended 2020
the Company recorded an additional allowance of $178,111 offset by an increase
in the value of tax planning strategies of $138,873 resulting in a net increase
in the allowance of $39,238. To the extent that the Company's losses continue,
the tax benefit of those losses would be fully offset by a valuation allowance.



Net loss in fiscal 2020 was $3.0 million or $0.75 per basic and diluted earnings
per share, an increase from a net loss of $2.1 million, or $0.53 per basic and
diluted earnings per share in fiscal 2019. In 2020 and 2019 the weighted number
of shares used in the calculation of basic and diluted earnings per share was
4,013,537.


Fiscal 2019 Compared to Fiscal 2018




The Company had a loss of $2.1 million before taxes for fiscal 2019, compared to
a loss of $2.0 million before taxes for fiscal 2018. It recorded an income tax
provision of $29,448 in fiscal 2019, compared to an income tax provision of
$173,038 in fiscal 2018.



Net sales for fiscal 2019 of $31.4 million were $2.4 million or 7.1% less than
net sales of $33.8 million in fiscal 2018. Domestically, sales decreased by $2.2
million dollars. The decrease in domestic sales was largely attributable to
declines in sales of construction products. The Company continues to evaluate
and strengthen its sales strategy in this market. Internationally, sales
decreased by $0.2 million. International business is dependent upon hospital
construction projects, and the development of medical facilities and emergency
services in those regions in which the Company operates, as well as the economic
and political climates in those international markets.



Orders for the Company's products for the year ended June 30, 2019 of $31.5
million were $1.3 million or 4.0% lower than orders for the year ended June 30,
2018 of $32.8 million. Customer purchase order releases for the year ended June
30, 2019 were $30.9 million or 5.2% lower than customer purchase order releases
of $32.6 million for the year ended June 30, 2018. Customer purchase order
releases depend on the scheduling practices of individual customers and the
status of construction projects.



                                       20




Respiratory care product sales, which include homecare products, were $9.0
million in fiscal 2019 and 2018. Respiratory care products also include carbon
dioxide absorbents. For the year ended June 30, 2019 and 2018 the Company had
carbon dioxide absorbent sales of Carbolime® and Litholyme® of $4.2 million and
$3.9 million, respectively.



Medical gas equipment sales, which include construction products, of $16.0
million in fiscal 2019 were approximately $1.6 million, or 9.1% lower than prior
year levels of $17.6. The decrease in domestic sales was largely attributable to
declines in sales of construction products. The Company continues to evaluate
and strengthen its sales strategy in this market.



Emergency medical product sales in fiscal 2019 of $6.4 million were $0.7 million
or 9.9% lower than fiscal 2018 sales of $7.1 million. International sales of
emergency medical products decreased by 28.0% from the prior year while domestic
sales decreased by 0.7%.


International sales, which are included in the product lines discussed above, decreased $0.2 million, or 2.5%, to $7.8 million in fiscal 2019 compared to sales of $8.0 million in fiscal 2018.




Gross profit in fiscal 2019 was $5.0 million, or 15.9% of sales, compared to a
gross profit of $6.5 million, or 19.2% of sales in fiscal 2018. Gross profit was
primarily unfavorably impacted by the decrease in sales during the period. The
decrease in sales and production resulted in less effective utilization of fixed
overhead cost. Manufacturing overhead spending increased by $52,000 for the
year.



The Company did not invest in capital expenditures in fiscal 2019 and fiscal 2018. The Company continues to control cost and actively pursue methods to reduce its costs through process changes, and purchasing initiatives.

Selling, General, and Administrative ("SG&A") expenses for fiscal 2019 were $7.8
million compared to SG&A expenses of $8.4 million in fiscal 2018. Personnel
cost, primarily salaries and fringe benefits, decreased by approximately $0.1
million, business travel decreased by approximately $0.1 million, and legal
fees
decreased by $0.2 million.


Interest income in fiscal 2019 was $138 compared to interest income of $288 in
fiscal 2018. Interest expense in fiscal 2019 was $56,223 compared to interest
expense of $23,569 in fiscal 2018.



Other income and expenses in fiscal 2019 include $750,000 of income realized by
the Company as a result of the settlement of litigation with Niagara Mohawk
Power Corporation d/b/a National Grid ("Niagara"), which provides electrical
power to the Company's facility in Stuyvesant Falls, New York, and one other
party. See Part II, Item 1 - Legal Proceedings, below, for more information
concerning litigation.



The Company's effective tax rate in 2019 was a provision of 1.4% compared to a
provision of 8.6% in 2018. The decrease in the effective tax rate in 2019 was
attributable to changes in the valuation allowance for indefinite lived deferred
tax assets and a reduction value in the value attributable to the tax planning
strategies recorded in fiscal 2018 as a result of the Tax Cuts and Jobs Act
of
2017.


The realization of the Company's deferred tax assets have been based on the
reversal of existing temporary deferred tax liabilities and tax planning
strategies and to the extent those items are not sufficient to support the value
of recorded deferred tax assets a valuation allowance is recorded. For the year
ended June 30, 2017 the Company recorded an additional allowance of $739,578.
For the year ended June 30, 2018 the Company recorded a $352,727 reduction to
the allowance. The reduction was caused by a decrease in the allowance of
$1,080,362 due to a reduction in federal rates expected to be in effect at
reversal. The reduced rates are as a result of the Tax Cuts and Jobs Act of
2017. This reduction was offset by a $727,635 increase in the valuation
allowance reflecting the impact of 2018 additions to deferred tax assets not
supported by deferred tax liabilities or tax planning strategies. For the year
ended June 30, 2019 the Company recorded an additional allowance of $536,240. To
the extent that the Company's losses continue, the tax benefit of those losses
would be fully offset by a valuation allowance.



                                       21





Net loss in fiscal 2019 was $2.1 million or $0.53 per basic and diluted earnings
per share, a decrease from a net loss of $2.2 million, or $0.55 per basic and
diluted earnings per share in fiscal 2018. In 2019 and 2018 the weighted number
of shares used in the calculation of basic and diluted earnings per share was
4,013,537.


Financial Condition, Liquidity and Capital Resources

The following table sets forth selected information concerning Allied's financial condition at June 30:



Dollars in thousands        2020         2019         2018
Cash & cash equivalents   $  2,600$    195$    136
Working Capital           $  5,949$  7,387$  8,653
Total Debt                $  2,392     $      -     $      -
Current Ratio               1.67:1       3.07:1       3.60:1


TheCompany's working capital was $5.9 million at June 30, 2020 compared to $7.4
million at June 30, 2019. Accounts payable increased by $1.5 million, The
current portion of long term debt increased by $1.0 million, customer deposits
increased by $2.3 million and Other Accrued Liabilities increased by $0.6
million. The increase in Other Accrued Liabilities reflects a $0.6 million
provision for environmental costs. During fiscal 2020, these decreases in
working capital were partially offset by a $1.6 million increase in Inventory.
Accounts receivable as measured in days sales outstanding ("DSO") is 35 DSO at
June 30, 2020, down from 39 DSO at June 30, 2019. The Company does adjust
product forecast, order quantities, and safety stock based on changes in demand
patterns in order to manage inventory levels.



The net increase in cash for the fiscal year ended June 30, 2020 was $2.4
million. The net increase in cash for the fiscal year ended June 30, 2019 was
$0.1 million. Cash flows provided by operating activities for the fiscal year
ended June 30, 2020 consisted of an increase in Customer deposits of $2.3
million, an increase of Accounts payable of $1.3 million and increase of Other
accrued liabilities of $1.1 million. These cash flows were offset by an increase
of Inventories of $1.6 million and a net loss of $3.1 million, supplemented by
$0.6 million in non-cash charges for amortization and depreciation.



Cash flows provided by operating activities for the fiscal year ended June 30,
2019 consisted of a decrease in accounts receivable of $0.6 million and decrease
in Inventory of $0.5 million. These cash flows were offset by a net loss of $2.1
million, supplemented by $0.8 million in non-cash charges for amortization
and
depreciation.



North Mill Loan Agreement


As of June 30, 2020, the Company was party to a Loan and Security Agreement with
North Mill Capital, LLC ("North Mill"), as successor in interest to Summit
Financial Resources, L.P., dated effective February 27, 2017, as amended April
16, 2018 and April 24, 2019 (as amended, the "Credit Agreement"). Pursuant to
the Credit Agreement, the Company obtained a secured revolving credit facility
(the "Credit Facility"). The Company's obligations under the Credit Facility are
secured by all of the Company's personal property, both tangible and intangible,
pursuant to the terms and subject to the conditions set forth in the Credit
Agreement. Availability of funds under the Credit Agreement is based on the
Company's accounts receivable and inventory but will not exceed $2,000,000.

At

June 30, 2020 availability under the agreement was $1,994,657.

The Credit Facility will be available, subject to its terms, on a revolving
basis until it expires on February 27, 2021, at which time all amounts
outstanding under the Credit Facility will be due and payable. Advances will
bear interest at a rate equal to 2.00% in excess of the prime rate as reported
in the Wall Street Journal. Interest is computed based on the actual number of
days elapsed over a year of 360 days. In addition to interest, the Credit
facility requires that the Company pay the lender a monthly administration fee
in an amount equal to forty-seven hundredths percent (0.47%) of the average
outstanding daily principal amount of loan advances for the each calendar month,
or portion thereof.



                                       22





Regardless of the amount borrowed under the Credit Facility, the Company will
pay a minimum amount of .25% (25 basis points) per month on the maximum
availability ($5,000 per month). In the event the Company prepays or terminates
the Credit Facility prior to February 27, 2021, the Company will be obligated to
pay an amount equal to the minimum monthly payment multiplied by the number of
months remaining between February 27, 2021 and the date of such prepayment
or
termination.



Under the Credit Agreement, advances are generally subject to customary
borrowing conditions and to North Mill's sole discretion to fund the advances.
The Credit Agreement also contains covenants with which the Company must comply
during the term of the Credit Facility. Among other things, such covenants
require the Company to maintain insurance on the collateral, operate in the
ordinary course and not engage in a change of control, dissolve or wind up
the
Company.



The Credit Agreement also contains certain events of default including, without
limitation: the failure to make payments when due; the material breach of
representations or warranties contained in the Credit Agreement or other loan
documents; cross-default with other indebtedness of the Company; the entry of
judgments or fines that may have a material adverse effect on the Company;
failure to comply with the observance or performance of covenants contained in
the Credit Agreement or other loan documents; insolvency of the Company,
appointment of a receiver, commencement of bankruptcy or other insolvency
proceedings; dissolution of the Company; the attachment of any state or federal
tax lien; attachment or levy upon or seizure of the Company's property; or any
change in the Company's condition that may have a material adverse effect. After
an event of default, and upon the continuation thereof, the principal amount of
all loans made under the Credit Facility would bear interest at a rate per annum
equal to 20.00% above the otherwise applicable interest rate (provided, that the
interest rate may not exceed the highest rate permissible under law), and North
Mill would have the option to accelerate maturity and payment of the Company's
obligations under the Credit Facility.



The Company was in compliance with all of the covenants associated with the Credit Facility at June 30, 2020.



PPP Loan



On April 13, 2020, the Company entered into a Payroll Protection Program (PPP)
loan agreement (the "SBA Loan") with Jefferson Bank and Trust Company under the
recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") administered by the U.S. Small Business Administration (the "SBA"). The
Company received total proceeds of $2.375 million from the SBA Loan. In
accordance with the requirements of the CARES Act, the Company will use proceeds
from the SBA Loan for payroll costs and other permitted uses. The SBA Loan is
scheduled to mature on April 13, 2022 and has a 1.00% interest rate and is
subject to the terms and conditions applicable to loans administered by the U.S.
Small Business Administration under the CARES Act.



All or a portion of the SBA Loan may be forgiven by the SBA upon application by
the Company upon documentation of expenditures in accordance with the SBA
requirements. Under the CARES Act, loan forgiveness is available for the sum of
documented payroll costs, covered rent payments, covered mortgage interest and
covered utilities during the eight week or at the Company's election 24 week
period beginning on the loan origination date, subject to regulations and
guidance provided by the United States Treasury. For purposes of the CARES Act,
payroll costs exclude compensation of an individual employee in excess of
$100,000, prorated annually. Not more than 40 % of the forgiven amount may be
for non-payroll costs. Forgiveness is reduced if full-time headcount declines,
or if salaries and wages for employees with salaries of $100,000 or less
annually are reduced by more than 25%. In the event the SBA Loan, or any portion
thereof, is forgiven pursuant to the CARES Act, the amount forgiven is applied
to outstanding principal. The Company intends to seek forgiveness of the SBA
Loan to the maximum extent permitted but cannot guarantee whether or to what
extent such forgiveness will be granted.



Payments of unforgiven principal and interest are deferred until November 2020,
at which point the Company is required to repay such amounts in 18 equal monthly
payments. The SBA Loan is evidenced by a promissory note, which contains
customary events of default relating to, among other things, payment defaults
and breaches of representations and warranties. The SBA Loan may be prepaid by
the Company at any time prior to maturity with no prepayment penalties.



At June 30, 2020 the Company had $2.4 million indebtedness, including capital
lease obligations, short-term debt, and long term debt, of which $2.4 million is
owed under the SBA Loan and which the Company believes it is entitled to
forgiveness under the terms of such loan. This debt accrues interest at 1.00%
per annum under the terms of the PPP.



The following table summarizes the Company's contractual obligations at June 30,
2020:



                                       23





                                                         Payments due by period
                                               Less than          1-3            3-5           More than
Contractual Obligations          Total          1 year           years          years           5 years
Long-Term Debt                $ 2,374,859$ 1,042,655$ 1,332,204              -                  -
Capital Lease Obligations               -               -               -              -                  -
Operating Leases              $    71,535$    56,373$    12,130$    3,032                  -
Unconditional Purchase
Obligations                             -               -               -              -                  -
Other Long-Term Obligations             -               -               -              -                  -
Total Contractual Cash
Obligations                   $ 2,446,394$ 1,099,028$ 1,344,334$    3,032     $            -




Capital expenditures were approximately $758,000, $0, and $0 in fiscal 2020,
2019, and 2018, respectively. The Company believes that cash flows from
operations and available borrowings under its credit facilities will be
sufficient to finance fixed payments and planned capital expenditures of $1.0
million in 2021.



At June 30, 2020, the Company had $2.4 million outstanding debt, of which $2.4
million is owed under the SBA Loan and which the Company believes it is entitled
to forgiveness under the terms of such loan. During fiscal 2020 the Company had
borrowings and repayments under the Credit Agreement of $32.9 million. Our cash
flows from operations were $647,581 in fiscal 2020 and $59,342 in fiscal 2019.
Cash flow from operations was negative in fiscal 2018. Our cash flows may be
further negatively impacted by decreases in sales, market conditions, and
adverse changes in working capital. While we believe that our borrowing capacity
under the Credit Agreement provides sufficient financial flexibility, continued
negative cash flows could negatively affect our ability to access the Credit
Agreement or to repay amounts borrowed and we might need to secure additional
sources of funds, which may or may not be available to us.



In fiscal 2019 and 2018 the Company had borrowings and repayments under the Credit Agreement of $32.9 and $14.8 million, respectively.




In 2020, inflation in the price of raw materials and purchased components
negatively impacted earnings by approximately $0.3 million dollars. The Company
experienced a material direct impact of $44,000 on 2020, and $0 in 2019, from
changes in trade policy or tariffs. The Company also believes a portion of its
increased raw materials costs were due to tariffs imposed on steel and aluminum
import. The Company makes its foreign sales in U.S. dollars and, accordingly,
sales proceeds are not affected by exchange rate fluctuations. However,
fluctuations in exchange rates can affect the price of our products in local
currency, which does impact the pace of incoming orders.



Quarterly Results



The following table sets forth selected operating results for the eight quarters
ended June 30, 2020. The information for each of these quarters is unaudited,
but includes all normal recurring adjustments which the Company considers
necessary for a fair presentation thereof. These operating results, however, are
not necessarily indicative of results for any future period. Further, operating
results may fluctuate as a result of the timing of orders, the Company's product
and customer mix, the introduction of new products by the Company and its
competitors, and overall trends in the health care industry and the economy.
While these patterns have an impact on the Company's quarterly operations, the
Company is unable to predict the extent of this impact in any particular period.



Dollars in thousands, except per share data




                         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 )




                                       24





Earnings per share is computed independently for each of the quarters presented.
Therefore, the sum of the quarterly amounts will not necessarily equal the
total
for the year.



Litigation and Contingencies



The Company becomes, from time to time, a party to personal injury litigation
arising out of incidents involving the use of its products. The Company believes
that any potential judgments resulting from such claims over its self-insured
retention will be covered by the Company's product liability insurance.



Off Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements.

Recently Issued Accounting Pronouncements




See Item 8, Note 2 "Summary of Significant Accounting Policies" for a discussion
of recent accounting pronouncements and their impact on the Company's financial
statements, if any.

© Edgar Online, source Glimpses


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Financials (USD)
Sales 2020 31,9 M - -
Net income 2020 -3,01 M - -
Net cash 2020 0,21 M - -
P/E ratio 2020 -15,7x
Yield 2020 -
Capitalization 20,8 M 20,8 M -
EV / Sales 2019 0,23x
EV / Sales 2020 1,48x
Nbr of Employees 218
Free-Float 46,3%
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NameTitle
Earl R. Refsland President, Chief Executive Officer & Director
John David Weil Chairman
Daniel C. Dunn CFO, Secretary, Treasurer & Vice President-Finance
Judith T. Graves Independent Director
Joseph Ernest Root Independent Director
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