ALLIED HEALTHCARE PRODUCTS INC - Annual Report: 2022 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to_________

Commission File Number 0-19266

ALLIED HEALTHCARE PRODUCTS, INC.

[Exact name of registrant as specified in its charter]

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Registrant’s telephone number, including area code (314) 771-2400

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes.☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes. ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12 b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12 b-2). Yes ☐ No ☒

As of December 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter; the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $22,303,014.

As of September 14, 2022, there were 4,013,537 shares of common stock, $0.01 par value (the “Common Stock”), outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement to be filed within 120 days after June 30,

2022 (portion) (Part III)

ALLIED HEALTHCARE PRODUCTS, INC.

INDEX TO FORM 10-K

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“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION

REFORM ACT OF 1995

Statements contained in this Report, which are not historical facts or information, are “forward-looking statements.” Words such as “believe,” “expect,” “intend,” “will,” “should,” and other expressions that indicate future events and trends identify such forward-looking statements. These forward-looking statements involve risks and uncertainties, which could cause the outcome and future results of operations and financial condition to be materially different than stated or anticipated based on the forward-looking statements. Such risks and uncertainties include both general economic risks and uncertainties, risks and uncertainties affecting the demand for and economic factors affecting the delivery of health care services, impacts of the U.S. Affordable Care Act, our recent history of net losses and negative cash flow, the COVID-19 pandemic, and other specific matters which relate directly to the Company’s operations and properties as discussed in Items 1, 1A, 3 and 7 of Part I of this Report. The Company cautions that any forward-looking statements contained in this report reflect only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made. Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission which are available on our website at www.alliedhpi.com under “Financial/SEC Filings.”

PART I

Item 1. Business

General

Allied Healthcare Products, Inc. (“Allied”, the “Company”, “we”, or “us”) manufactures a variety of respiratory products used in the health care industry in a wide range of hospital and alternate site settings, including sub-acute care facilities, home health care and emergency medical care. The Company’s product lines include respiratory care products, medical gas equipment and emergency medical products.

The Company’s products are marketed under well-recognized and respected brand names to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers, emergency medical products dealers and others. Allied’s product lines include:

Respiratory Care Products

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Medical Gas Equipment

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Emergency Medical Products

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The Company’s principal executive offices are located at 1720 Sublette Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400.

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Markets and Products

In fiscal 2022, respiratory care products, medical gas equipment and emergency medical products represented approximately 30%, 50% and 20%, respectively, of the Company’s net sales. In comparison, in fiscal 2021, respiratory care products, medical gas equipment and emergency medical products represented approximately 22%, 44%, and 34%, respectively, of the Company’s net sales. The Company operates in a single industry segment and its principal products are described in the following table:

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Respiratory Care Products

Market. Respiratory care products are used in the treatment of acute and chronic respiratory disorders such as asthma, emphysema, bronchitis and pneumonia. Respiratory care products are used in both hospitals and alternate care settings. Sales of respiratory care products are made through distribution channels focusing on hospitals and other sub-acute facilities. Sales of home respiratory care products are made through durable medical equipment dealers through telemarketing, and by contract sales with national chains.

Respiratory Care/Anesthesia Products. The Company manufactures and sells a broad range of products for use in respiratory care and anesthesia delivery, including carbon dioxide absorbents. These products include large volume air compressors, calibration equipment, humidifiers, croup tents, equipment dryers and a complete line of respiratory disposable products such as oxygen tubing, facemasks, cannulas and ventilator circuits.

Home Respiratory Care Products. Allied’s broad line of home respiratory care products include aluminum oxygen cylinders, oxygen regulators, pneumatic nebulizers, portable suction equipment and a full line of respiratory disposable products.

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Medical Gas Equipment

Market. The market for medical gas equipment consists of hospitals, alternate care settings and surgery centers. The medical gas equipment group is broken down into three separate categories: construction products, regulation devices and suction equipment, and disposable cylinders.

Construction Products. Allied’s medical gas system construction products consist of in-wall medical system components, central station pumps and compressors, and headwalls. These products are typically installed during construction or renovation of a health care facility and are built in as an integral part of the facility’s physical plant. Typically, the contractor for the facility’s construction or renovation purchases medical gas system components from manufacturers and ensures that the design specifications of the health care facility are met.

Allied’s in-wall components, including outlets, manifolds, alarms, ceiling columns and zone valves, serve a fundamental role in medical gas delivery systems.

Central station pumps and compressors are individually engineered systems consisting of compressors, reservoirs, valves and controls designed to drive a hospital’s medical gas and suction systems. Each system is designed specifically for a given hospital or facility, which purchases pumps and compressors from suppliers. The Company’s sales of pumps and compressors are driven, in large part, by its share of the in-wall components market.

The Company’s construction products are sold primarily to hospitals, alternate care settings and hospital construction contractors. The Company believes that these products are installed in more than three thousand hospitals in the United States. The Company believes that most hospitals and sub-acute care facility construction spending is for expansion or renovation of existing facilities. Many hospital systems and individual hospitals undertake major renovations to upgrade their operations to improve the quality of care they provide, reduce costs and attract patients and personnel.

Regulation Devices and Suction Equipment. The Company’s medical gas system regulation products include flowmeters, vacuum regulators and pressure regulators, as well as related adapters, fittings and hoses which measure, regulate, monitor and help transfer medical gases from walled piping or equipment to patients in hospital rooms, operating theaters or intensive care areas.

Portable suction equipment is typically used when in-wall suction is not available or when medical protocol specifically requires portable suction. The Company also manufactures disposable suction canisters, which are clear containers used to collect the fluids suctioned by in-wall or portable suction systems. The containers have volume calibrations, which allow the medical practitioner to measure the volume of fluids suctioned.

The market for regulation devices and suction equipment includes hospital and sub-acute care facilities. Sales of these products are made through the same distribution channel as our respiratory care products. The Company believes that it holds a significant share of the U.S. market in both regulation devices and suction equipment.

Disposable Cylinders. Disposable oxygen cylinders are designed to provide oxygen for short periods of time in emergency situations. Since they are not subjected to the same pressurization as standard containers, they are much lighter and less expensive than standard gas cylinders. The Company markets filled disposable oxygen cylinders through industrial safety distributors and similar customers, principally to first aid providers, restaurants, industrial plants and other customers that require oxygen for infrequent emergencies.

Emergency Medical Products

Market. Emergency medical products are used in the treatment of trauma-induced injuries. The Company’s emergency medical products provide patient resuscitation or ventilation during cardiopulmonary resuscitation or respiratory distress as well as immobilization and treatment for burns. The Company expects that additional countries will develop trauma care systems in the future, although no assurance can be given that such systems will develop or that they will have a favorable impact on the Company. Sales of emergency medical products are made through specialized emergency medical products distributors to ambulance companies, fire departments and emergency medical systems volunteer organizations.

The emergency medical products are broken down into two categories: respiratory/resuscitator products and trauma patient handling products.

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Respiratory/Resuscitation Products. The Company’s respiratory/resuscitation products include demand resuscitation valves, portable resuscitation systems, bag masks and related products, emergency transport ventilators, precision oxygen regulators, minilators, multilators and humidifiers.

Demand resuscitation valves are designed to provide 100% oxygen to breathing or non-breathing patients. In an emergency situation they can be used with a mask or tracheotomy tubes and operate from a standard regulated oxygen system. The Company’s portable resuscitation systems provide fast, simple and effective means of ventilating a non-breathing patient during cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand with minimal inspiratory effort. The Company also markets a full line of disposable and reusable bag mask resuscitators, which are available in a variety of adult and child-size configurations. Disposable mouth-to-mask resuscitation systems have the added advantage of reducing the risk of transmission of communicable diseases.

The Company’s autovent transport ventilator can meet a variety of needs in different applications ranging from typical emergency medical situations to more sophisticated air and ground transport. Each autovent is accompanied by a patient valve, which provides effective ventilation during cardiopulmonary resuscitation or respiratory distress. When administration of oxygen is required at the scene of a disaster, in military field hospitals or in a multiple-victim incident, Allied’s minilators and multilators are capable of providing oxygen to one or a large number of patients.

The Company’s transport and mass casualty ventilation line has been designed to meet the unique ventilation demands that affect everyday inter-hospital and intra-hospital transport scenarios, and amplify exponentially during a mass casualty event or pandemic. Our ventilators for transport and mass casualty are rugged, easy to operate, and capable of providing reliable ventilation even in unpredictable environments and conditions. Additionally, they are affordable to purchase and require little periodic maintenance, minimizing the cost of ownership over time.

To complement the family of respiratory/resuscitation products, the Company offers a full line of oxygen product accessories. This line of accessory products includes reusable aspirators, tru-fit masks, disposable cuffed masks and related accessories.

Trauma and Patient Handling Products. The Company’s trauma and patient handling products include spine immobilization products, pneumatic anti-shock garments and trauma burn kits. Spine immobilization products include a backboard that is designed for safe immobilization of injury victims and provides a durable and cost effective means of emergency patient transportation and extrication. The infant/pediatric immobilization board is durable and scaled for children. The half back extractor/rescue vest is useful for both suspected cervical/spinal injuries and for mountain and air rescues. The Company’s pneumatic anti-shock garments are used to treat victims experiencing hypovolemic shock. Allied’s trauma burn kits contain a comprehensive line of products for the treatment of trauma and burns.

Sales and Marketing

Allied sells its products primarily to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers, emergency medical products dealers and others. The Company maintains a sales force of 9 sales professionals, all of whom are full-time employees of the Company.

The sales force includes three domestic hospital, homecare and emergency specialists, three domestic construction specialists, and two international sales representatives. One sales manager leads the sales groups.

The domestic hospital specialists are responsible for sales of all Allied products with the exception of construction products within their territory. Sales of hospital products are accomplished through respiratory care/anesthesia distributors for the regulation devices, suction equipment, respiratory care/anesthesia products and disposable cylinders. The domestic construction specialists are responsible for sales of all Allied construction products within their territory. Emergency products are principally sold to ambulance companies, fire departments and emergency medical systems volunteer organizations through specialized emergency medical products distributors.

Construction products are sold direct to hospital construction contractors and through distributors.

The Company’s international specialists sell all Allied products within their territory. Allied’s net sales to foreign markets totaled 24% of total net sales in fiscal 2022, 33% in 2021 and 27% in 2020. International sales are made through a network of dealers, agents and U.S. exporters who distribute the Company’s products throughout the world. Allied has market presence in Canada, Mexico, Central and South America, Europe, the Middle East and the Far East.

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Manufacturing

Allied’s manufacturing processes include fabrication, electro-mechanical assembly operations, plastics manufacturing, and chemical processing with automated packaging. A significant part of Allied’s manufacturing operations involves electro-mechanical assembly of proprietary products and the Company is vertically integrated in most elements of metal machining and fabrication. Most of Allied’s hourly employees are involved in machining, metal fabrication, plastics manufacturing and product assembly.

Allied manufactures small metal components from bar stock in a machine shop, which includes automatic screw machines, horizontal lathes and drill presses and computer controlled machining centers. The Company makes larger metal components from sheet metal using computerized punch presses, brake presses and shears. In its plastics manufacturing processes, the Company utilizes both extrusion and injection molding. In its chemical process, the Company utilizes mixing, drying, and sizing equipment. The Company believes that its production facilities and equipment are in good condition and sufficient to meet budgeted sales volume over the next few years, provided that the Company has sufficient labor and supply of raw materials and components. In fiscal 2022 the market for the skilled manufacturing employees critical to the Company’s production was extremely tight. The Company expects this tight labor market condition to continue in fiscal 2023.

Research and Development

Allied Healthcare Products’ research and development group is responsible for the development of new products. This group is staffed with mechanical and electrical engineers.

During fiscal year 2022 the research and development group supported production of our main product lines.

Government Regulation

The Company’s products and its manufacturing activities are subject to extensive and rigorous government regulation by federal and state authorities in the United States and other countries. In the United States, medical devices for human use are subject to comprehensive review by the United States Food and Drug Administration (the “FDA”). The Federal Food, Drug, and Cosmetic Act (“FDC Act”), and other federal statutes and regulations, govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of such products. Noncompliance with applicable requirements can result in warning letters, fines, recall or seizure of products, injunction, refusal to permit products to be imported into or exported out of the United States, refusal of the government to clear or approve marketing applications or to allow the Company to enter into government supply contracts, or withdrawal of previously approved marketing applications and criminal prosecution.

The Company is required to file a premarket notification in the form of a premarket approval (“PMA”) with the FDA before it begins marketing a new medical device that offers new technology that is currently not on the market. The Company also must file a premarket notification in the form of a 510(k) with the FDA before it begins marketing a new medical device that utilizes existing technology for devices that are currently on the market. The 510(k) submission process is also required when the Company makes a change or modifies an existing device in a manner that could significantly affect the device’s safety or effectiveness.

Compliance with the regulatory approval process in order to market a new or modified medical device can be uncertain, lengthy and, in some cases, expensive. There can be no assurance that necessary regulatory approvals will be obtained on a timely basis, or at all. Delays in receipt or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company manufactures and distributes a broad spectrum of respiratory therapy equipment, emergency medical equipment and medical gas equipment. To date, all of the Company’s FDA clearances have been obtained through the 510(k) clearance process. These determinations are very fact specific and the FDA has stated that, initially, the manufacturer is best qualified to make these determinations, which should be based on adequate supporting data and documentation. The FDA, however, may disagree with a manufacturer’s determination not to file a 510(k) and require the submission of a new 510(k) notification for the changed or modified device. Where the FDA believes that the change or modification raises significant new questions of safety or effectiveness, the agency may require a manufacturer to cease distribution of the device pending clearance of a new 510(k) notification. Certain of the Company’s medical devices have been changed or modified subsequent to 510(k) marketing clearance of the original device by the FDA. Certain of the Company’s medical devices, which were first marketed prior to May 28, 1976, and therefore, grandfathered and exempt from the 510(k) notification process, also have been subsequently changed or modified. The Company believes that these changes or modifications do not significantly affect the devices’ safety or effectiveness or make a major change or modification in the devices’ intended uses and, accordingly, submission of new 510(k) notification to the FDA is not required. There can be no assurance, however, that the FDA would agree with the Company’s determinations.

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In addition, commercial distribution in certain foreign countries is subject to additional regulatory requirements and receipt of approvals that vary widely from country to country. The Company believes it is in compliance with regulatory requirements of the countries in which it sells its products.

The Medical Device Reporting regulation requires that the Company provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. The Medical Device Tracking regulation requires the Company to adopt a method of device tracking of certain devices, such as ventilators, which are life-supporting or life-sustaining devices used outside of a device user facility, some of which are permanently implantable devices. The regulation requires that the method adopted by the Company will ensure that the tracked device can be traced from the device manufacturer to the person for whom the device is indicated (i.e., the patient). In addition, the FDA prohibits a company from promoting an approved device for unapproved applications and reviews a company’s labeling for accuracy. Labeling and promotional activities also are in certain instances, subject to scrutiny by the Federal Trade Commission.

The Company’s medical device manufacturing facilities in St. Louis, MO and Stuyvesant Falls, NY are registered with the FDA. The Company has received ISO 13485:2016 MDSAP certification, however it lapsed in fiscal year 2022. The Company has completed all the necessary audits and expect the Certificate to be re-issued early in fiscal year 2023. The Company is subject to audit by the FDA, International Organization for Standardization (“ISO”), and European auditors for compliance with the Good Manufacturing Practices (“GMP”), the ISO, and CMDCAS, regulations for medical devices. These regulations require the Company to manufacture its products and maintain its products and documentation in a prescribed manner with respect to design, manufacturing, testing and control activities. The Company also is subject to the registration and inspection requirements of state regulatory agencies.

There can be no assurance that any required FDA or other governmental approval will be granted, or, if granted, will not be withdrawn. Governmental regulation may prevent or substantially delay the marketing of the Company’s proposed products and cause the Company to undertake costly procedures. In addition, the extent of potentially adverse government regulation that might arise from future administrative action or legislation cannot be predicted. Any failure to obtain, and maintain, such approvals could adversely affect the Company’s ability to market its products or proposed products.

Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. FDA approval may be required under certain circumstances to export certain medical devices.

The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protections, fire hazard control and disposal of hazardous or potentially hazardous substances.

Patents, Trademarks and Proprietary Technology

The company owns and maintains domestic and foreign patents on several products it believes are useful to the business and provided the Company with an advantage over its competitors. The company continues to seek U.S. and foreign patents on the EPV200 and AHP300 ventilators.

Patents which will expire in the period of 2022 to 2036 in the aggregate are believed to be of material importance in the operation of Allied’s business. Allied believes no single patent, except that related to Litholyme®, is material in relation to Allied’s future business as a whole. Although the expiration of an individual patent may lead to increased competition, other factors such as a competitor’s need to obtain regulatory approvals prior to marketing a competitive product and the nature of the market, may allow Allied to continue to have commercial advantages after the expiration of the patent.

The company owns and maintains U.S. trademarks for Allied Healthcare Products Inc., Chemetron®, Gomco®, Oxequip®, Lif-O-Gen®, Life Support Products®, Timeter®, Vacutron® and Schuco®, its principle trademarks. Registrations for these trademarks are also owned and maintained in countries where such products are sold and such registrations are considered necessary to preserve the Company’s proprietary rights therein.

Environmental and Safety Regulation

The Company is subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. The Company is also subject to the Federal Occupational Safety and Health Act and similar state statutes. From time to time, the Company has been involved in environmental proceedings involving cleanup of hazardous waste. See Part I, Item 3. “Legal Proceedings” for a discussion of the Company’s remediation obligations at its Stuyvesant Falls facility.

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Competition

The Company has different competitors within each of its product lines. Many of the Company’s principal competitors are larger than the Company and have greater financial and other resources. The Company competes primarily on the basis of price, quality and service. The Company believes that it is well positioned with respect to product cost, brand recognition, product reliability, and customer service to compete effectively in each of its markets.

Employees

At June 30, 2022, the Company had approximately 146 full-time employees. Approximately 82 employees in the Company’s principal manufacturing facility located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on July 31, 2024.

Information about our Executive Officers

This section provides information regarding the executive officers of the Company who are appointed by and serve at the pleasure of the Board of Directors:

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Item 1A. Risk Factors

The Company’s business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report on Form 10-K and in the Company’s other filings with the Securities and Exchange Commission (“SEC”) before making any investment decision with respect to the Company’s securities. The risks and uncertainties described below may not be the only ones the Company faces. Additional risks and uncertainties not presently known by the Company or that the Company currently deems immaterial may also affect the Company’s business. If any of these known or unknown risks or uncertainties actually occur or develop, the Company’s business, financial condition, and results of operations could change.

COVID-19 RISKS

The global COVID-19 outbreak or other similar outbreaks of infections or diseases could substantially harm our business

The global COVID-19 outbreak and other possible pandemics, epidemics or other outbreaks of diseases or infections could have significant negative impacts on our business, expenses, revenues and profitability. These events can result in, and in the case of the COVID-19 outbreak, have resulted in disruptions to our business, including without limitation those arising from the following factors:

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LEGAL REGULATORY AND COMPLIANCE RISKS

We are subject to substantial domestic and international government regulation, including regulatory quality standards applicable to our manufacturing and quality processes. Failure by us to comply with these standards could have an adverse effect on our business, financial condition or results of operations.

The FDA regulates the approval, manufacturing, and sales and marketing of many of our products in the U.S. Significant government regulation also exists in Canada, Japan, and other countries in which we conduct business. As a device manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. Failure to comply with current governmental regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals, and/or declining sales.

Our products may be subject to product recalls even after receiving FDA clearance or approval, which would harm our reputation and our business.

The FDA and similar governmental authorities in other countries in which our products are sold, have the authority to request and, in some cases, require the recall of our products in the event of material deficiencies or defects in design or manufacture. A government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects. Any recall of product would divert managerial and financial resources, may harm our reputation with our customers and could damage our business.

BUSINESS AND OPERATIONAL RISKS

Our success depends upon the development of new products and product enhancements, which entails considerable time and expense.

To effectively compete, we must be able to invest in the development of new products to add to our product portfolio and on the development of enhancements to our existing products. Product development involves substantial expense and we cannot be certain that a completed product will generate sufficient revenue for our business to justify the resources that we devote to research and development related to such product. The time and expense required to develop new products and product enhancements is difficult to predict and we cannot assure you that we will succeed in developing, introducing and marketing new products and product enhancements. Our operating losses and negative cash flow impede our ability to invest in the development of new products and enhancements to existing products. Our inability to successfully develop and introduce new or enhanced products on a timely basis or at all, or to achieve market acceptance of such products, could materially impair our business.

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We are dependent on adequate protection of our patent and proprietary rights.

We rely on patents, trade secrets, trademarks, copyrights, know-how, license agreements and contractual provisions to establish and protect our intellectual property rights. However, these legal means afford us only limited protection and may not adequately protect our rights or remedies to gain or keep any advantages we may have over our competitors. We cannot assure you that others may not independently develop the same or similar technologies or otherwise obtain access to our technology and trade secrets. Our competitors, many of which have substantial resources and may make substantial investments in competing technologies, may apply for and obtain patents that will prevent, limit, or interfere with our ability to manufacture or market our products. Further, while we do not believe that any of our products or processes interfere with the rights of others, third parties may nonetheless assert patent infringement claims against us in the future.

Costly litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how we own, to defend us against claimed infringement of the rights of others or to determine the ownership, scope, or validity of our proprietary rights and the rights of others. Any claims of infringement against us may involve significant liabilities to third parties, could require us to seek licenses from third parties, and could prevent or delay us from manufacturing, selling, or using our products. The occurrence of such litigation or the effect of an adverse determination in any of this type of litigation could have a material adverse effect on our business, financial condition and results of operations.

Decreased availability or increased costs of raw materials could increase our costs of producing our products.

We purchase raw materials, fabricated components and services from a variety of suppliers. Raw materials such as brass, plastics, and calcium hydroxide are considered key raw materials. We believe that our relationships with our suppliers are satisfactory and that alternative sources of supply are readily available. From time to time, however, the prices and availability of these raw materials fluctuate due to global market demands, which could impair the company’s ability to procure necessary materials, or increase the cost of such materials. Inflationary and other increases in costs of these raw materials have occurred in the past and may recur from time to time. In addition, freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of oil and gas. Specifically, we are currently in a period of high inflation. While the Federal Reserve has commented that the rise in the cost of products is transitory, the Company cannot predict the path of future inflation. In fiscal year 2022, the Company believes that inflation raised the cost of its purchases by approximately $1.3 million. The Company anticipate that these cost increases will continue in fiscal year 2023, although it cannot predict the extent of such increases.

We are exposed to certain credit risks, resulting primarily from customer sales.

Substantially all of our receivables are due from homecare providers, distributors, hospitals, and contractors. Our customers are located throughout the U.S. and around the world. We record an estimated allowance for uncollectible amounts based primarily on our evaluation of the payment pattern, financial condition, cash flows, and credit history of our customers, as well as current industry and economic conditions. Our inability to collect on our trade accounts receivable could substantially reduce our income and have a material adverse effect on our financial condition and results of operations.

Our common stock is thinly traded and its market price may fluctuate widely.

Our common stock is listed on the NASDAQ Capital Market but is thinly traded. As a result, stockholders may not be able to sell shares of common stock on short notice. Additionally, the market price of our common stock could be subject to significant fluctuations in response to quarter-to-quarter variation in our operating results, announcements of new products or services by us or our competitors, and other events or factors. For example, a shortfall in net sales or net income, or an increase in losses could have an immediate and significant adverse effect on the market price and volume fluctuations that have particularly affected the market prices of many micro and small capitalization companies and that have often been unrelated or disproportionate to the operating performance of these companies. Additionally, management believes that since the onset of the COVID-19 pandemic there has increased speculation in the Company’s shares which has resulted in significant fluctuations in price. These fluctuations, as well as general economic and market conditions, may adversely affect the market price for our common stock.

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If a natural or man-made disaster strikes our manufacturing facilities, we may be unable to manufacture certain products for a substantial amount of time and our revenue could decline.

We have two manufacturing operations. In the event that one of these facilities were severely damaged or destroyed as a result of a natural or man-made disaster we would be forced to relocate production to other facilities and/or rely on third-party manufacturers. Such an event could have a material adverse effect on our business, results of operations and financial condition. Although we have insurance for damage to our property and the interruption of our business, this insurance may not be sufficient in scope or amount to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

If we are unable to hire or retain key employees, it could have a negative impact on our business.

Our failure to attract and retain skilled personnel could hinder the management of our business, our research and development, our sales and marketing efforts, and our manufacturing capabilities. However, there is no assurance that we will continue to be able to hire or retain key employees. We compete to hire new employees from larger, better capitalized companies, and then must train them and develop their skills and competencies. Our operating results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. Any unplanned turnover could deplete our institutional knowledge base and erode our competitive advantage. The Company has not provided salary increases to its employees outside of the collective bargaining unit in several years. While the Company does not believe that this has had a material impact on its operations, the Company may be materially adversely impacted if it fails to compete with the compensation offerings of other employers.

We have a history of net losses in fiscal 2019, 2020 and 2022 and we may not be able to return to profitability in the future and there is substantial doubt about our ability to continue as a going concern.

We have a history of net losses. We reported a net loss of $2.1 million in fiscal 2019, a net loss of $3.1 million in fiscal 2020 and a net loss of $5.4 million in the most recent fiscal year. In fiscal 2021 we had net income of $1.7 million including the benefit of the forgiveness of a $2.4 million PPP loan. We will need to generate and sustain increased sales levels in the future to become consistently profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. There is no guarantee that we will be successful in our efforts to achieve consistent profitability. We may also incur losses in the future for a number of reasons, including the other risks described in this Form 10-K, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease. If we continue to experience operating losses and we are not able to generate additional liquidity through other means, then our liquidity needs may exceed availability under our credit facility, and we might need to secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to raw materials or services that are important to the operation of our business. Most recently, the Company has experienced significant challenges sourcing necessary parts and components both from vendors and the Company’s internal production. As a result, the Company’s backlog of orders has grown. To the extent that the Company cannot timely meet shipping deadlines for existing orders, this may impair the Company’s ability to make future sales to impacted customers.

While the Company received $6.8 million, net of the escrowed amounts for repairs to the building, as a result of the sale-leaseback of its St. Louis Property, as described in Part I, Item 2 below, the Company continues to experience negative cash flows from its operations.

The Company’s financial statements have been presented assuming that the Company will continue as a going concern. The Company’s rate of cash used in operating activities has accelerated and there is doubt as to whether the Company’s liquidity and capital resources are sufficient to allow the Company to meet its needs for the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

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INDUSTRY & ECONOMIC RISKS

We participate in a highly competitive environment.

The medical device industry is characterized by rapid technological change, changing customer needs and frequent new product introductions. Our products may be rendered obsolete as a result of future innovations. We face intense competition from other manufacturers. Some of our competitors may be larger than we are and may have greater financial, technical, research, marketing, sales, distribution and other resources than we do. We believe that price competition will continue among products developed in our markets. Our competitors may develop or market technologies and products that are more effective or commercially attractive than any we are developing or marketing. Our competitors may succeed in obtaining regulatory approval and introducing or commercializing products before we do. Such developments could have a significant negative effect on our business, financial condition and results of operations. Even if we are able to compete successfully, we may not be able to do so in a profitable manner.

Our business of manufacturing, marketing, and selling of medical devices involves the risk of liability claims and such claims could seriously harm our business, particularly if our insurance coverage is inadequate.

Our business exposes us to potential product liability claims that are inherent in the testing, production, marketing and sale of medical devices. Like other participants in the medical device market, we are from time to time involved in lawsuits, claims and proceedings alleging product liability and related claims such as negligence. If any current or future product liability claims become substantial, our reputation could be damaged significantly, thereby harming our business. We may be required to pay substantial damage awards as a result of any successful product liability claims. Any product liability claim against us, whether with or without merit, could result in costly litigation, and divert the time, attention, and resources of our management.

As a result of our exposure to product liability claims, we currently carry product liability insurance covering our products with policy limits per occurrence and in the aggregate that we have deemed to be sufficient. Our insurance may not cover certain product liability claims or our liability for any claims may exceed our coverage limits. Therefore, we cannot predict whether this insurance is sufficient, or if not, whether we will be able to obtain sufficient insurance to cover the risks associated with our business or whether such insurance will be available at premiums that are commercially reasonable. In addition, these insurance policies must be renewed annually. Although we have been able to obtain liability insurance, such insurance may not be available in the future on acceptable terms, if at all. A successful claim against us or settlement by us with respect to uninsured liabilities or in excess of our insurance coverage, or our inability to maintain insurance in the future, or any claim that results in significant costs to or adverse publicity against us, could have a material adverse effect on our business, financial condition and results of operations.

Changes to the U.S. healthcare industry and third party payment structures may not be favorable to us.

Over a number of years, the U.S. healthcare industry has undergone significant changes designed to increase access to and affordability of medical care, improve safety and patient outcomes, contain costs and increase efficiencies. These changes have included general declines in Medicare and Medicaid reimbursement levels, efforts by healthcare insurance companies to limit or reduce payments to pharmacies and providers, the basis for payments beginning to transition from a fee-for-service model to value-based payments and risk-sharing models, and the industry shifting away from traditional healthcare venues like hospitals and into clinics, physician offices and patients’ homes. Any or all of the measures could impact demand for our products.

The cost of a majority of medical care in the United States is funded by the U.S. Government through the Medicare and Medicaid programs and by private insurance programs, such as corporate health insurance plans. Although we do not receive payments for our products directly from these programs, home respiratory care providers and durable medical equipment suppliers, who are the primary customers for several of our products, depend heavily on payments from Medicare, Medicaid and private insurers as a major source of revenues. In addition, sales of certain of our products are affected by the extent of hospital and health care facility construction and renovation at any given time. The federal government indirectly funds a significant percentage of such construction and renovation costs through Medicare and Medicaid reimbursements. In recent years, governmentally imposed limits on reimbursement to hospitals and other health care providers have impacted spending for services, consumables and capital goods. A material decrease from current reimbursement levels or a material change in the method or basis of reimbursing health care providers is likely to adversely affect future sales of our products.

We expect the U.S. healthcare industry to continue to change significantly in the future. Possible changes include further reduction or limitations on governmental funding at the state or federal level, efforts by healthcare insurance companies to further limit payments for products and services or changes in legislation or regulations governing prescription pharmaceutical pricing, healthcare services or mandated benefits. These possible changes, and the uncertainty surrounding these possible changes, may adversely affect us.

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Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

The Company’s headquarters are located in St. Louis, Missouri and the Company maintains manufacturing facilities in Missouri and New York. Set forth below is certain information with respect to the Company’s manufacturing facilities at June 30, 2022.

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In addition, the Company owns a 16.8-acre parcel of undeveloped land in Stuyvesant Falls, New York.

The Company owned its St. Louis, Missouri facility outright until June 2022. On June 16, 2022 the Company consummated a sale-leaseback transaction of its St. Louis real estate, consisting of its headquarters and plant. As part of this transaction, the Company sold the St. Louis real estate, including both the land and building, to a third party landlord for $8.3 million, of which $1.5 million was placed into escrow to provide security for repairs to the facility’s roof, HVAC and other issues. The Company simultaneously entered into a fifteen year lease with the purchaser pursuant to which the Company pays annual rent of $688,800, subject to annual increases.

Item 3. Legal Proceedings

Product liability lawsuits are filed against the Company from time to time for various injuries alleged to have resulted from defects in the manufacture and/or design of the Company’s products. Any such proceedings that are currently pending are not expected to have a material adverse effect on the Company. The Company maintains comprehensive general liability insurance coverage which it believes to be adequate for the continued operation of its business, including coverage of product liability claims.

In addition, from time to time the Company’s products may be subject to product recalls in order to correct design or manufacturing flaws in such products. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking to interrupt or suspend manufacturing or require any recall or modification of products.

However, for these matters, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on the Company’s financial condition as a whole, though the outcomes could be material to the Company’s operating results for a particular period, depending, in part, upon the operating results for such period.

Stuyvesant Falls Cleanup

On January 30, 2020, the Company filed a Citizen Participation Plan with the New York Department of Environmental Conservation under its Brownfield Cleanup Program. The plan was filed with respect to the Company’s property in Stuyvesant Falls, New York. The plan recognizes that the soil and groundwater at the Stuyvesant Falls facility is impacted by chemical compounds exceeding regulatory standards. On October 13, 2020, the Company executed a Brownfield Cleanup Program Agreement with the Department of Environmental Conservation with respect to the property. Under the agreement, the Company has voluntarily agreed to conduct, at its expense, certain remedial investigations and remedial actions with respect to suspected soil and groundwater contamination at the site with oversight by the department.

The Company’s best estimate of the expected cost to remediate the site is $1.3 million. The Company recorded $1.1 million as an expense in the fiscal year ended June 30, 2020 and is reflected in other accrued liabilities and selling, general and administrative expenses in the Company’s financial statements. During the fiscal year ended June 30, 2022, the Company recorded an additional $171,000. As of June 30, 2022, the Company has paid approximately $634,000 in remediation expenses which have been charged to the initial reserve.

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Vendor Demand Letter

On June 22, 2022, the Company received a demand letter from one of its vendors, International Control Services, Inc. (“ICS”) for $586,000 as payment on outstanding ICS invoices. The invoices in question cover components which the Company rejected as defective, certain charges for prior years and purchases the Company cancelled which ICS claims were non-cancellable. The Company’s standard purchase orders provide that the Company may reject defective parts and that all purchases are cancellable by the Company for its convenience. The Company disputes all of ICS’s claims, including that any portion of the subject purchases were non-cancellable. No litigation has been commenced as of this filing, but the Company will defend any such lawsuit. The Company estimates that the range of loss is between $0 and $586,000. The Company has not recorded a provision for this matter because, at this early stage, there is insufficient information to determine the likelihood of loss or to estimate any possible loss.

Item 4. Mine Safety Disclosures

None

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Allied Healthcare Products, Inc. trades on the NASDAQ Capital Market under the symbol AHPI. As of September 14, 2022, there were 34 record owners of the Company’s common stock. The number of holders of record does not represent the actual number of beneficial owners of our common stock because securities dealers and others frequently hold shares in “street name” for the benefit of individual owners who have the right to vote shares.

The following table summarizes information with respect to the high and low prices for the Company’s common stock as listed on the NASDAQ Global or Capital Market for each quarter of fiscal 2022 and 2021, respectively. The Company currently does not pay, and historically has not paid, any dividend on its common stock.

Common Stock Information

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Information concerning securities authorized for issuance under equity compensation plans is incorporated by reference to the Company’s proxy statement for the 2022 annual meeting of stockholders, which will be filed within 120 days after June 30, 2022.

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Item 6. Selected Financial Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

COVID-19 Outbreak and Aftermath of Pandemic

The Company believes that the Covid-19 pandemic resulted in increased sales in of ventilator products in fiscal 2021, however, this peak in demand ended in fiscal 2021 and the impacts of the COVID-19 continue to develop. In fiscal 2022 demand dropped from the peak, and the Company believes that COVID-19 is no longer contributing positively to product demand.

The pandemic is partially responsible for broad economic changes which have impacted the Company in fiscal 2021, and fiscal 2022 and continue to impact the Company as the Company begins fiscal 2023. Inflation has raised the cost of products and services the Company uses to provide its products. In fiscal year 2021, the Company estimates that inflationary price increases raised product cost by approximately $500,000. In fiscal year 2022, the Company estimates that inflationary price increases raised product cost by an additional $1.3 million dollars. While the Federal Reserve initially believed some of the inflation in the economy was transitory in nature, the Company believes inflation will continue to increase cost in fiscal 2023.

Since the onset of the pandemic the Company has found it harder to hire and retain hourly workers. This has led to the requirement for additional overtime for existing employees, inefficiency, and contributed to delays in shipments.

In fiscal year 2022, the Company faced production difficulties, including supply chain issues. A portion of these challenges were the result of general pressures on supply chains as the global economy emerged from lockdowns. For the Company, this has resulted in longer lead times and shortages of components. It has been difficult to replace those vendors not delivering components in a timely manner. In addition, our purchasing department effectiveness has suffered due to the amount of time required to expedite parts. At times, purchase orders have not been placed in a timely manner, lengthening the lead time and causing part shortages. Internally, we have had difficulty producing machined parts on a timely basis due to a shortage of skilled labor and a vacancy in a key machine shop management position. These problems have led to product shortages and a large increase in customer orders not shipped and past due. This results in a lower level of sales and liquidity. The Company believes these impacts will continue in fiscal year 2023 and the Company’s shipments and sales will remain under pressure as a result.

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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, 2022, 2021, and 2020.

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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.

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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.

Inventory reserve for obsolete and excess inventory:

Inventory is recorded net of a reserve for obsolete and excess inventory which is determined primarily based on an analysis of inventory items with no usage in the preceding year and for inventory items for which there is greater than two years’ usage on hand. 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, 2022 and 2021, inventory is recorded net of a reserve for obsolete and excess inventory of $2.4 million and $2.2 million, respectively.

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.

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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.

Considering 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. Prior to 2022, the Company relied on tax planning strategies which consisted of revocation of the LIFO inventory method and the recognition of a gain in the sale of excess land to support the value of a portion of the Company’s deferred tax assets. In light of continued losses and its assessment of the Company’s ability to continue as a going concern, management concluded that the previously relied upon tax planning strategies were no longer available to support any amount of deferred tax assets. Accordingly, the Company recorded a full valuation allowance for the excess of deferred tax assets over deferred tax liabilities as of June 30, 2022.

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 collectability of accounts receivable based on past collection history and specific risks identified among uncollected accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company determines that the receivable will not be collected and/or when the account has been referred to a third party collection agency. At June 30, 2022 and 2021, 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, 2022. 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, 2022 and 2021, the Company had approximately $125,000 and $120,000, 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.

Share Based Compensation:

The Company 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, 2022, 2021, and 2020, Allied recorded approximately $16,000, $14,000 and $2,000, respectively, in share-based employee compensation. This compensation cost is included in the general and administrative expenses in the accompanying Statements of Operations.

Fiscal 2022 Compared to Fiscal 2021

The Company had a loss of $4.8 million before taxes for fiscal 2022, compared to income of $1.8 million before taxes for fiscal 2021. It recorded an income tax provision of $599,672 in fiscal 2022, compared to an income tax provision of $72,484 in fiscal 2021.

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Net sales for fiscal 2022 of $27.0 million were $9.3 million or 25.6% lower than net sales of $36.3 million in fiscal 2021. Domestically, sales decreased by $3.5 million dollars while international sales, which represented 23.6% of fiscal 2022 sales, were $5.7 million lower. The $9.3 million decrease in sales includes a $2.5 million decrease in medical gas equipment and a $6.8 million decrease in emergency medical products consisting of a $4.9 million decrease in AHP300 ventilator sales. In the fiscal year ended June 30, 2021 the Company fulfilled orders that were taken at the start of the pandemic in fiscal 2020. Sales in fiscal 2022 were also negatively impacted by supply chain delays, production delays, and a staffing shortage in our manufacturing operation. The Company expects these trends to continue in fiscal 2023. 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.

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Orders for the Company’s products for the year ended June 30, 2022 of $28.5 million were $1.1 million or 3.7% lower than orders for the year ended June 30, 2021 of $29.6 million. Domestic orders are down 2.1% from the prior fiscal year while international orders, which represented 25.0% of orders for fiscal 2022, were 7.8% lower than orders for the prior year same period. The decrease in orders was primarily due to a $1.7 million decrease in orders for AHP300 ventilators. This decrease was partially offset by a $0.3 million increase in medical gas equipment and $0.6 million increase in respiratory care products.

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Respiratory care product sales, which include homecare products, were $8.2 million in fiscal 2022 compared to $8.1 million in 2021. Respiratory care products include carbon dioxide absorbents. For the year ended June 30, 2022 and 2021 the Company had carbon dioxide absorbent sales of Carbolime® and Litholyme® of $3.7 million.

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Medical gas equipment sales, which include construction products, of $13.4 million in fiscal 2022 were approximately $2.5 million, or 15.7% lower than prior year levels of $15.9 million, while orders for these products increased by 2.0%. The decrease in sales was attributable to production and shipping problems and the timing of customer releases.

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Emergency medical product sales in fiscal 2022 of $5.4 million were $6.9 million or 56.1% lower than fiscal 2021 sales of $12.3 million. International sales of emergency medical products decreased by $4.9 million from the prior year while domestic sales decreased by $1.9 million.

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International sales, which are included in the product lines discussed above, decreased $5.7 million, or 47.1%, to $6.4 million in fiscal 2022 compared to sales of $12.1 million in fiscal 2021. The decrease was primarily for AHP300 ventilators.

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Gross profit in fiscal 2022 was $2.5 million, or 9.3% of sales, compared to a gross profit of $7.1 million, or 19.6% of sales in fiscal 2021. The $4.6 million decrease in gross profit is mainly attributable to a $9.3 million decrease in sales. The decrease in gross profit was also attributable to increase of cost due to inflation for our purchased raw materials and components.

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Selling, General, and Administrative (“SG&A”) expenses for fiscal 2022 were $7.1 million compared to SG&A expenses of $7.6 million in fiscal 2021. The decrease is primarily due to a $0.5 million decrease in personnel costs consisting of salaries and benefits and a $0.3 million decrease in legal fees in fiscal 2022. These decreases were partially offset by a $0.2 million increase for environmental remediation expenses in fiscal 2022.

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Interest income in fiscal 2022 was $176 compared to interest income of $233 in fiscal 2021. Interest expense in fiscal 2022 was $191,450 compared to interest expense of $115,975 in fiscal 2021.

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Other income and expenses in fiscal 2021 include $2.4 million of income realized by the Company as a result of forgiveness of the PPP Loan.

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The Company’s effective tax rate in 2022 was a provision of 12.5% compared to a provision of 4.1% in 2021. The change in the effective tax rate in 2022 was attributable to an increase in the valuation allowance in 2022 and non-deductible expenses attributable to the Company’s PPP Loan forgiveness in 2021.

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The realization of the Company’s deferred tax assets has 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 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. For the year ended 2021, the company recorded an additional allowance of $723,248. The allowance was further increased by a reduction in the value of the tax planning strategy of $63,676 resulting in a total increase to the allowance of $786,921. For the year ended June 30, 2022, management concluded previously relied upon tax planning strategies were no longer available and the Company recorded an additional allowance of $1,735,227 fully reserving the value of its net deferred tax assets.

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Net loss in fiscal 2022 was $5.4 million or $1.34 per basic and diluted earnings per share compared to a net income of $1.7 million, or $0.42 per basic and diluted earnings per share in fiscal 2021. In 2022 and 2021 the weighted number of shares used in the calculation of basic earnings per share was 4,013,537. In 2022 and 2021 the weighted number of shares used in the calculation of diluted earnings per share was 4,013,537 and 4,026,446, respectively.

Fiscal 2021 Compared to Fiscal 2020

The Company had income of $1.8 million before taxes for fiscal 2021, compared to a loss of $3.1 million before taxes for fiscal 2020. It recorded an income tax provision of $72,484 in fiscal 2021, compared to an income tax benefit of $130,359 in fiscal 2020.

Net sales for fiscal 2021 of $36.3 million were $4.4 million or 13.8% higher than net sales of $31.9 million in fiscal 2020. Domestically, sales increased by $1.0 million dollars while international sales, which represented 33.4% of fiscal 2021 sales, were $3.4 million higher. The increase in domestic sales was largely attributable to increases in sales of construction products and emergency medical 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, 2021 of $29.6 million were $11.2 million or 27.5% lower than orders for the year ended June 30, 2020 of $40.8 million. As a result of the COVID-19 pandemic in fiscal year 2020, 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. In fiscal year 2021 the pace of orders materially decreased.

Respiratory care product sales, which include homecare products, were $8.1 million in fiscal 2021 compared to $8.6 million in 2020. Respiratory care products include carbon dioxide absorbents. For the year ended June 30, 2021 and 2020 the Company had carbon dioxide absorbent sales of Carbolime® and Litholyme® of $3.7 million.

Medical gas equipment sales, which include construction products, of $15.9 million in fiscal 2021 were approximately $0.6 million, or 3.9% higher than prior year levels of $15.3 million. The increase in sales was largely attributable to an increase sales of non-construction products of $1.5 million. This increase was partially offset by a decrease in international construction sales of $0.7 million.

Emergency medical product sales in fiscal 2021 of $12.3 million were $4.2 million or 51.9% higher than fiscal 2020 sales of $8.1 million. International sales of emergency medical products increased by $3.3 million from the prior year while domestic sales increased by $0.9 million. The onset of the COVID-19 pandemic increased demand for the Company’s emergency products including the AHP300 ventilator.

International sales, which are included in the product lines discussed above, increased $3.4 million, or 39.1%, to $12.1 million in fiscal 2021 compared to sales of $8.7 million in fiscal 2020.

Gross profit in fiscal 2021 was $7.1 million, or 19.6% of sales, compared to a gross profit of $5.6 million, or 17.6% of sales in fiscal 2020. The $1.5 million increase in gross profit is mainly attributable to a $4.4 million increase in sales.

The Company invested approximately $0.2 million in fiscal 2021 and $0.8 million in fiscal 2020 for capital expenditures primarily for the expansion of the production line of our AHP300 ventilator.

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Selling, General, and Administrative (“SG&A”) expenses for fiscal 2021 were $7.6 million compared to SG&A expenses of $8.6 million in fiscal 2020. The decrease is primarily due to the $1.1 million provision in fiscal 2020 for environmental cleanup costs at the Company’s facility in Stuyvesant Falls, New York and a decrease of $0.2 million for business travel expenses in fiscal 2021. These decreases were partially offset by a $0.2 million increase for legal and insurance expenses in fiscal 2021.

Interest income in fiscal 2021 was $233 compared to interest income of $654 in fiscal 2020. Interest expense in fiscal 2021 was $115,975 compared to interest expense of $64,682 in fiscal 2020.

Other income and expenses in fiscal 2021 include $2.4 million of income realized by the Company as a result of forgiveness of the PPP Loan.

The Company’s effective tax rate in 2021 was a provision of 4.1% compared to a benefit of 4.1% in 2020. The change in the effective tax rate in 2021 was attributable to non-deductible expenses attributable to the Company’s expected PPP Loan forgiveness and a decrease in the value of tax planning strategies.

The realization of the Company’s deferred tax assets has 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, 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. For the year ended 2021, the company recorded an additional allowance of $723,248. The allowance was further increased by a reduction in the value of the tax planning strategy of $63,676 resulting in a total increase to the allowance of $786,921. To the extent that the Company’s losses continue, the tax benefit of those losses would be fully offset by a valuation allowance.

Net income in fiscal 2021 was $1.7 million or $0.42 per basic and diluted earnings per share compared to a net loss of $3.0 million, or $0.75 per basic and diluted earnings per share in fiscal 2020. In 2021 and 2020 the weighted number of shares used in the calculation of basic earnings per share was 4,013,537. In 2021 and 2020 the weighted number of shares used in the calculation of diluted earnings per share was 4,026,446 and 4,013,537, respectively.

Financial Condition, Liquidity and Capital Resources

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

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The Company’s working capital was $10.1 million at June 30, 2022 compared to $6.3 million at June 30, 2021. The $3.8 million increase in working capital is attributed to a cash and restricted cash increase of $4.1 million, a decrease in accounts payable of $0.7 million and decrease in other accrued liabilities of $1.3 million. During fiscal 2022, these increases were partially offset by a $0.6 million decrease in accounts receivable, a $1.0 million decrease in inventory, a debt increase of $0.5 million and a $0.3 million in customer deposits. Accounts payable and other accrued liabilities are subject to normal fluctuations in purchasing levels and the timing of payments within the quarter. Accounts receivable as measured in days sales outstanding (“DSO”) is 38 DSO at June 30, 2022, down from 40 DSO at June 30, 2021. 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 and restricted cash for the fiscal year ended June 30, 2022 was $4.3 million. The net decrease in cash for the fiscal year ended June 30, 2021 was $1.9 million. Cash flows used in operating activities for the fiscal year ended June 30, 2022 consisted of net loss of $5.4 million, a $0.7 million decrease in accounts payable and $0.8 million decrease in other accrued liabilities. These cash out flows were offset by a decrease of Accounts receivable of $0.6 million, a decrease in inventory of $1.0 million and a $0.3 million increase in customer deposits, supplemented by $0.5 million in non-cash charges for amortization and depreciation.

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Cash flows used in operating activities for the fiscal year ended June 30, 2021 consisted of a decrease in Customer deposits of $2.2 million, a decrease of Accounts payable of $1.1 million and increase of Inventory of $0.5 million. These cash out flows were offset by a decrease of Accounts receivable of $0.2 million and net income of $1.7 million, supplemented by $0.6 million in non-cash charges for amortization and depreciation.

The Company’s financial statements have been presented assuming that the Company will continue as a going concern. The Company’s rate of cash used in operating activities has accelerated and there is doubt as to whether the Company’s liquidity and capital resources are sufficient to allow the Company to meet its needs for the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The Company is seeking to fill open positions, expedite needed components, improve the performance of management, and find new sources of components where necessary. The Company has engaged a consulting firm to assess and improve its operational capabilities. These actions are intended to mitigate the substantial doubt raised by the Company’s historical operating results and current shipping difficulties. There can be no assurance that such a plan will be successful.

Sale-Leaseback of St. Louis Property

On June 16, 2022 the Company entered into a sale agreement for the Company’s headquarters and manufacturing facilities located at 1720 Sublette Avenue in St. Louis, Missouri. Simultaneously with the closing of the sale of the property, the Company entered into a lease with the buyer with a fifteen year term. Under the terms of the lease agreement, the Company’s initial basic rent is approximately $57,400 per month, with annual increases of approximately 2% each year of the initial term.

Pursuant to the agreement for the sale of the St. Louis headquarters property, $1,500,000 of the sales proceeds is held in escrow to pay for the repair and/or replacement of certain agreed upon items, including the roof, HVAC system and certain lighting in the offices. Any funds remaining in the Improvement Escrow will be paid to the Company when the improvements are substantially completed.

Of the Company’s $4.3 million increase in cash during fiscal year 2022, $8.1 million was due to the closing of the sale leaseback. The sale leaseback has also resulted in an increase in the Company’s operating cash needs by the amount of the rent under the new lease, which is $57,400 per month.

North Mill Loan Agreement

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, December 18, 2020, October 7, 2021 and June 13, 2022 (as amended, the “Credit Agreement”). Pursuant to the Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit Facility”). The Company’s obligations under the Credit Facility are secured by all of the Company’s personal property, both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the Credit Agreement. Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not exceed $4,000,000. At June 30, 2022 borrowing under the agreement was $2,466,360, maximum available borrowing based on eligible collateral was $3,345,123, resulting in availability of $878,763.

Availability of funds under the Credit Agreement is based on the Company’s eligible accounts receivable and eligible inventory but will not exceed $4,000,000. In determining eligible Accounts Receivable Advances several classifications are considered ineligible and are subtracted from the Company’s total Accounts Receivable before calculating eligible Accounts Receivable. Ineligible receivables include receivables from governmental entities, receivables to be paid by credit card, uninsured international receivables, receivables over 90 days old, and receivables from customers with a significant concentration of receivables over 90 days old. The Company may be advanced up to 85% of eligible Accounts Receivable under the loan agreement.

Accounts Receivable is dependent on sales revenue. Decreased sales revenue has resulted in decreased Accounts Receivable available for loan collateral. At June 30, 2022 the Company had Accounts Receivable of $1,672,581 included as eligible collateral in determining total available borrowing advances under the loan agreement.

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In determining eligible inventory several categories of inventory are subtracted from total inventory. Work in Process Inventory, Packaging and Supplies, and Inventory Reserves are subtracted from total inventory to calculate eligible inventory. The Company may be advanced up to 25% of eligible inventory. Advances from inventory are limited by the lesser of the calculated eligible inventory, two million dollars ($2,000,000), or the amount advanced from eligible Accounts Receivable. At June 30, 2022 the Company had $1,672,581 from Inventory included as eligible collateral in determining total available borrowing under the loan agreement. At June 30, 2022 Inventory Advances were limited by the eligible Accounts Receivable Advance of $1,672,581.

The Credit Facility will be available, subject to its terms, on a revolving basis until it expires on September 30, 2024, 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).

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

The Credit Agreement also contains certain events of default including, without limitation: the failure to make payments when due; the material breach of representations or warranties contained in the Credit Agreement or other loan documents; cross-default with other indebtedness of the Company; the entry of judgments or fines that may have a material adverse effect on the Company; failure to comply with the observance or performance of covenants contained in the Credit Agreement or other loan documents; insolvency of the Company, appointment of a receiver, commencement of bankruptcy or other insolvency proceedings; dissolution of the Company; the attachment of any state or federal tax lien; attachment or levy upon or seizure of the Company’s property; or any change in the Company’s condition that may have a material adverse effect. After an event of default, and upon the continuation thereof, the principal amount of all loans made under the Credit Facility would bear interest at a rate per annum equal to 20.00% above the otherwise applicable interest rate (provided, that the interest rate may not exceed the highest rate permissible under law) and would have the option to accelerate maturity and payment of the Company’s obligations under the Credit Facility. The Company was in compliance with all of the covenants associated with the Credit Facility at June 30, 2022.

PPP Loan

On April 13, 2020, the Company entered into a Payroll Protection Program (PPP) loan agreement (the “SBA Loan”) with Jefferson Bank and Trust Company under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $2.375 million from the SBA Loan. In accordance with the requirements of the CARES Act, the Company used proceeds from the SBA Loan for payroll costs and other permitted uses.

The loan, including all principal and accrued interest, was forgiven on June 11, 2021.

At June 30, 2022 the Company had $10.6 million indebtedness, including lease obligations, short-term debt, and long term debt. The prime rate as reported in the Wall Street Journal was 4.75% on June 30, 2022.

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The following table summarizes the Company’s contractual obligations at June 30, 2022:

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Capital expenditures were approximately $75,000, $167,000, and $758,000 in fiscal 2022, 2021, and 2020, 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 $1.6 million in 2023. Pursuant to the agreement for the sale of the St. Louis headquarters property, $1,500,000 of the sales proceeds is held in escrow to pay for the repair and/or replacement of certain agreed upon items, including the roof, HVAC system and certain lighting in the offices. It is anticipated that these capital expenditures will be completed in 2023.

At June 30, 2022, the Company had $10.6 million outstanding debt. During fiscal 2022 the Company had $28.5 million in borrowings and $28.1 million in repayments under the Credit Agreement. The Company received cash from a failed sale-leaseback reflected as a financial liability on the Companies balance sheet of $8.1 million net of financing costs of $0.2 million. Cash used in operations was $4.1 million in fiscal 2022. Cash used in operations in fiscal 2021 was $3.8 million and cash from operations in fiscal 2020 was $0.6 million. 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 2022, inflation in the price of raw materials and purchased components negatively impacted earnings by approximately $1.3 million dollars. The Company experienced a material direct impact of $21,000 in 2022, and $35,000 in 2021, 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, 2022. 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.

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Dollars in thousands, except per share data

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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.

In addition, the Company has received a demand letter from a vendor for $586,000 and is committed to ongoing expenses related to the remediation of its property in Stuyvesant Falls, New York. See Part I, Item 3 for a discussion of these material legal proceedings.

Off Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements.

Recently Issued Accounting Pronouncements

See Part II, 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

At June 30, 2022, the Company had $2.5 million debt outstanding under the revolving credit facility. The revolving credit facility bears an interest rate using the prime rate as reported in the Wall Street Journal as the basis, as defined in the loan agreement, and therefore is subject to additional expense should there be an increase in market interest rates.

The Company had no holdings of derivative financial or commodity instruments at June 30, 2022. Allied has international sales; however these sales are denominated in U.S. dollars, mitigating foreign exchange rate fluctuation risk.

Item 8. Financial Statements and Supplementary Data

The following described financial statements of Allied Healthcare Products, Inc. are included in response to this item:

Report of Independent Registered Public Accounting Firm. (PCAOB No. 41)

Statement of Operations for the fiscal years ended June 30, 2022, 2021 and 2020.

Balance Sheet for the fiscal years ended June 30, 2022 and 2021.

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Statement of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2022, 2021 and 2020.

Statement of Cash Flows for the fiscal years ended June 30, 2022, 2021 and 2020.

Notes to Financial Statements.

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Allied Healthcare Products, Inc.

Opinion On The Financial Statements

We have audited the accompanying balance sheet of Allied Healthcare Products, Inc. (the Company) as of June 30, 2022 and 2021, the related statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis For Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Reserve for Obsolete and Excess Inventory - Refer To Notes 2 And 10 To The Financial Statements

Critical Audit Matter Description

Inventory is recorded at the lower of cost, determined using the last-in, first-out (“LIFO”) method, or market. Inventory is recorded net of a reserve for obsolete and excess inventory which is determined primarily based on an analysis of inventory items with no usage in the preceding year and for inventory items for which there is greater than two years’ usage on hand. When quantities on hand exceed usage benchmarks, a write-down is recorded for such excess inventory. Changes in assumptions of product demand could have a significant impact on the amount of write-down recorded.

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Given the inherent uncertainty in forecasting future inventory usage, including the impact of forecasting future sales activity, auditing the reasonableness of the reserve for obsolete and excess inventory required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the reserve for obsolete and excess inventory included the following, among others:

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/s/RubinBrown LLP

We have served as the Company’s auditor since 2003.

St. Louis, Missouri

October 7, 2022

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ALLIED HEALTHCARE PRODUCTS, INC.

STATEMENT OF OPERATIONS

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See accompanying Notes to Financial Statements.

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ALLIED HEALTHCARE PRODUCTS, INC.

BALANCE SHEET

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See accompanying Notes to Financial Statements.

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ALLIED HEALTHCARE PRODUCTS, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

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