ALLIED HEALTHCARE PRODUCTS, INC. 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 endedJune 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 endedJune 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 0.0Loss 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. AtJune 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 inStuyvesant Falls, New York . As ofJune 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. AtJune 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 atJune 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 ofJune 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 endedJune 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 endedJune 30, 2020 of$40.8 million were$9.3 million or 29.54% higher than orders for the year endedJune 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 endedJune 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
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 inStuyvesant 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 endedJune 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 endedJune 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 endedJune 30, 2019 of$31.5 million were$1.3 million or 4.0% lower than orders for the year endedJune 30, 2018 of$32.8 million . Customer purchase order releases for the year endedJune 30, 2019 were$30.9 million or 5.2% lower than customer purchase order releases of$32.6 million for the year endedJune 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 endedJune 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
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 legalfees 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 inStuyvesant 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 endedJune 30, 2017 the Company recorded an additional allowance of$739,578 . For the year endedJune 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 endedJune 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$0.55 per basic and diluted earnings per share in fiscal 2018. In 2019 and 2018 the weighted number of shares used in the calculation of basic and diluted earnings per share was 4,013,537.
Financial Condition, Liquidity and Capital Resources
The following table sets forth selected information concerning Allied's
financial condition at
Dollars in thousands 2020 2019 2018 Cash & cash equivalents$ 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 atJune 30, 2020 compared to$7.4 million atJune 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 atJune 30, 2020 , down from 39 DSO atJune 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 endedJune 30, 2020 was$2.4 million . The net increase in cash for the fiscal year endedJune 30, 2019 was$0.1 million . Cash flows provided by operating activities for the fiscal year endedJune 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 endedJune 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 ofJune 30, 2020 , the Company was party to a Loan and Security Agreement withNorth Mill Capital, LLC ("North Mill"), as successor in interest toSummit Financial Resources, L.P. , dated effectiveFebruary 27, 2017 , as amendedApril 16, 2018 andApril 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
The Credit Facility will be available, subject to its terms, on a revolving basis until it expires onFebruary 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 theWall 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 toFebruary 27, 2021 , the Company will be obligated to pay an amount equal to the minimum monthly payment multiplied by the number of months remaining betweenFebruary 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
PPP Loan OnApril 13, 2020 , the Company entered into a Payroll Protection Program (PPP) loan agreement (the "SBA Loan") withJefferson Bank and Trust Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by theU.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 onApril 13, 2022 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by theU.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 untilNovember 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. AtJune 30, 2020 the Company had$2.4 million indebtedness, including capital lease obligations, short-term debt, and long term debt, of which$2.4 million is owed under the SBA Loan and which the Company believes it is entitled to forgiveness under the terms of such loan. This debt accrues interest at 1.00% per annum under the terms of the PPP. The following table summarizes the Company's contractual obligations atJune 30, 2020 : 23 Payments due by period Less than 1-3 3-5 More than Contractual Obligations Total 1 year years years 5 years Long-Term Debt$ 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. AtJune 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
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 inU.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 endedJune 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,
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 thetotal 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.
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