See accompanying Notes to Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

See accompanying Notes to Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

See accompanying Notes to Financial Statements.

ALLIED HEALTHCARE PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

1. Summary of Significant Accounting and Reporting Policies

Basis of Presentation

The accompanying unaudited financial statements of Allied Healthcare Products, Inc. (the “Company”) have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes to the financial statements thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016.2017.

Recently Issued Accounting Guidance

In May 2014, the FinancialFASB and International Accounting Standards Board (“FASB”)jointly issued Accounting Standards Update (“ASU” or “Update”) No. 2014-09, “Revenue from Contracts with Customers.” This ASU is a comprehensive new principles-based accounting guidance for revenue recognition model that requires a company towill supersede virtually all existing revenue guidance. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to a customer atcustomers in an amount that reflects the consideration itto which the entity expects to receivebe entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also details the accounting treatment for costs to obtain or services.fulfill a contract. Lastly, disclosure requirements have been enhanced to provide sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This ASU isguidance was effective for annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. Onincluding interim periods within that reporting period. In July 9, 2015, the FASB votedaffirmed its proposal to defer the effective date of this standard by one year to December 15, 2017 for the interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU. We are currently evaluating which transition approach to use and the full impact this ASU will have on our future financial statements.

year. In August 2014,May 2016, the FASB issued ASU No. 2014-15,improvements and practical expedients to communicate amendments to FASB Account Standards Codification Subtopic 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The ASU requires management to evaluate relevant conditions, events and certain management plansthe standard that are known or reasonably knowable asincluded clarification of the evaluation date when determining whether substantial doubt about an entity’s ability to continuecollectability criterion, noncash considerations as a going concern exists. Management will be required to make this evaluation for both annual and interim reporting periods. Management will have to make certain disclosures if it concludes that substantial doubt exists or when it plans to alleviate substantial doubt about the entity’s ability to continuewell as a going concern. The standard is effective for annual periods ending afterclarification of options at transition. In December 15, 2016, and for interim periods thereafter. Early adoption is permitted. We currently believe there will be no impact on our financial statement disclosures.

In July 2015, the FASB issued ASU No. 2015-11 to simplify the subsequent measurement of inventory. Under this new standard, an entity should measure inventory at the lower of costadditional corrections and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact to our future financial statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (“ASU 2015-17”),Income Taxes (Topic 740):Balance Sheet Classification of Deferred Taxes. The amendments in ASU 2015-17 seek to simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early application permitted for all entities as of the beginning of an interim or annual reporting period.improvements. The Company is in the process of evaluating the impact of this updateguidance. This new guidance, will likely result in a change in the nature and extent of the related footnote disclosures. The new guidance will be effective for the Company commencing in the 2019 fiscal year. The Company presently anticipates adopting on its financial statements.  a modified retrospective basis to each prior reporting period presented with the election of applicable practical expedients.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months and disclose key information about leasing arrangements. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The update is effective for reporting periods beginning after December 15, 2018.2018, which for the Company will be the first quarter the 2020 fiscal year. Early adoption is permitted. The Company is in the process of evaluating the impact of this update on its financial statements.

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”). ASU 2016-08 further clarifies principal and agent relationships within ASU 2014-09. Similar to ASU 2014-09, the effective date will be the first quarter of fiscal year 2018 with early adoption permitted in the first quarter of fiscal year 2017. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 is intended to simplify several aspects of accounting for share-based payment awards. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing” (“ASU 2016-10”).  The amendments in ASU 2016-10 are expected to reduce the cost and complexity of applying the guidance on identifying promised goods or services in contracts with customers and to improve the operability and understandability of licensing implementation guidance related to the entity’s intellectual property.  Similar to ASU 2014-09, the effective date will be the first quarter of fiscal year 2018 with early adoption permitted in the first quarter of fiscal year 2017.  The Company is evaluating the impact that adoption of this new standard will have on its financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,” (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting by clarifying existing principles in ASC 230, “Statement of Cash Flows,” and provides specific guidance on certain cash flow classification issues. The effective date for ASU 2016-15 will be the first quarter of fiscal year 2018 with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its financial statements.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accounts payable.revolving credit facility. The carrying amounts for cash and cash equivalents, accounts receivable, and accounts payable and revolving credit facility approximate their fair value due to the short maturity of these instruments.

2. Inventories

Inventories are comprised as follows:

3. Earnings per share

On December 5, 2016, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a one-for-two reverse stock split of the Company’s Common Stock (the “Reverse Stock Split”). The Reverse Stock Split was effective on the Nasdaq Stock Exchange on December 7, 2016.

Outstanding share and per-share amounts disclosed as of March 31, 2017 and for all other comparative periods provided have been retroactively adjusted to reflect the effects of the Reverse Stock Split.

Basic earnings per share are based on the weighted average number of shares of all common stock outstanding during the period. Diluted earnings per share are based on the sum of the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The number of basic and diluted shares outstanding for the three and nine months ended March 31, 20172018 and 20162017 were 4,013,537.

4. Commitments and Contingencies

Legal Claims

The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. The Company intends to continue to conduct business in such a manner as to avert any FDA action seeking to interrupt or suspend manufacturing or require any recall or modification of products.

The Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is probable that liabilities have been incurred and the related amounts are estimable. Based upon information currently available, management believes that existing accrued liabilities are sufficient.

Stuyvesant Falls Power Litigation. The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”), which provides electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. The Company maintains in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running with the land which have been honored for more than a century. After the commencement of the litigation, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. Niagara’s attempts to collect such invoices were stopped in December 2010 by a temporary restraining order. Among other things, Niagara seeks as damages the value of electricity received by the Company without charge. The total value of electricity at issue in the litigation is not known with certainty and Niagara has alleged different amounts of damages. Niagara alleged in its Second Amended Verified Complaint, dated February 6, 2012, damages of approximately $469,000 in free electricity from May 2003 through May 2010. Niagara also alleged in its Motion For Summary Judgment, filed on March 14, 2014, damages of approximately $492,000 in free electricity from May 2010 through the date of the filing. In April 2015, Allied received an invoice for electrical power at the Stuyvesant Falls plant with an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the period of time covered by the invoice.

The Company filed a Motion for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions were held on June 13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled that the Company is entitled to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara and the other party filed separate notices of appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New York, Appellate Division, Third Department reversed the trial court decision and held that the free power covenants are no longer enforceable. The Company’s application for leave to appeal this ruling was dismissed as premature by the New York Court of Appeals on September 20, 2016. Avenues for appeal remain andOn May 26, 2017 the Company intendsagain moved for leave to exercise all available options to enforceappeal the free power covenants which have beenMarch 31, 2016 decision. That motion was granted on October 7, 2017 by the New York State Court of Appeals. The Company filed its brief and record on January 26, 2018. Niagara’s responses are due on May 16, 2018, with the Company’s reply due by May 31, 2018. Once fully briefed, the matter will be scheduled for argument, most likely in place for over 100 years.2019.

The appellate decision terminated the enforceability of the free power covenants as of March 31, 2016. The appellate decision did not order the Company to pay any amounts for power consumed prior to such date and the Company believes that it is not liable for any such damages as a result of the appellate decision. On December 21, 2016, Niagara filed a motion to the trial court asking that it hold additional proceedings to establish what damages, if any, are owed to Niagara as the result of the appellate decision. The Company filed its response on January 23, 2017. On April 25, 2017, the court denied Niagara’s motion in its entirety finding that no damages could be awarded based on the Appellate Division’s decision. ThisNiagara has filed a Notice of Appeal from that decision, is appealable by Niagarabut to date, has not later than May 25, 2017.filed the appeal.

As of March 31, 2017,2018, the Company has not recorded a provision for this matter. The Company commenced paying for power at the Stuyvesant Falls facility in April 2016.

Employment Contract

The Company has entered into an employment contract with its chief executive officer with annual renewals. The contract includes termination without cause and change of control provisions, under which the chief executive officer is entitled to receive specified severance payments generally equal to two times ending annual salary if the Company terminates his employment without cause or he voluntarily terminates his employment with “good reason.” “Good Reason” generally includes changes in the scope of his duties or location of employment but also includes (i) the Company’s written election not to renew the Employment Agreement and (ii) certain voluntary resignations by the chief executive officer following a “Change of Control” as defined in the Agreement.

5. Financing

On February 27, 2017, Allied Healthcare Products, Inc. (the “Company”) entered into that certainis party to a Loan and Security Agreement (the “Credit Agreement”) with Summit Financial Resources, L.P. (“Summit”) pursuant, dated effective February 27, 2017, as amended April 16, 2018 (as amended, the “Credit Agreement”). Pursuant to whichthe Credit Agreement, the Company obtained a secured revolving credit facility (the “Credit Facility”). The Company’s obligations under the Credit Facility are secured by all of the Company’s personal property, both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the Credit Agreement. Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not exceed $2,000,000. At March 31, 2017 availability under the agreement was $2,000,000.

The Credit Facility will be available, subject to its terms, on a revolving basis until it expires on February 27, 2019,2020, at which time all amounts outstanding under the Credit Facility will be due and payable. Advances will bear interest at a rate equal to 2.00% in excess of the prime rate as reported in the Wall Street Journal. Interest is computed based on the actual number of days elapsed over a year of 360 days. In addition to interest, the Credit facility requires that the Company pay the lender a monthly administration fee in an amount equal to forty-seven hundredths percent (0.47%) of the average outstanding daily principal amount of loan advances for the each calendar month, or portion thereof.

Regardless of the amount borrowed under the Credit Facility, the Company will pay a minimum amount of .25% (25 basis points) per month on the maximum availability ($5,000 per month). In the event the Company prepays or terminates the Credit Facility prior to February 27, 2019, the Company will be obligated to pay an amount equal to twelve months ofthe minimum monthly payments, minuspayment multiplied by the number of months elapsed sinceremaining between February 27, 2019 and the effective date of the Credit Agreement.such prepayment or termination.

Under the Credit Agreement, advances are generally subject to customary borrowing conditions and to Summit’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 Summit would have the option to accelerate maturity and payment of the Company’s obligations under the Credit Facility.

At March 31, 2017,2018, the Company had no aggregate$682,772 of indebtedness, including capital lease obligations, short-term debt and long term debt.debt, and $1,317,228 available to borrow from the line based on collateral requirements. The prime rate as reported in the Wall Street Journal was 4.00%4.75% on March 31, 2017.2018.

The Company was in compliance with all of the covenants associated with the Credit Facility at March 31, 2017.2018.

6. Income Taxes

The Company accounts for income taxes under ASC Topic 740: “Income Taxes.” Under ASC 740, the deferred tax provision is determined using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. 

In the three and nine months ended March 31, 2018 the Company recorded the tax benefit of losses incurred in the amount of approximately $260,000 and $627,000, respectively.  As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of a like amount was recorded.

For the three and nine months ended March 31, 2017 the Company recorded the tax benefit of losses incurred in the amount of approximately $142,000 and $578,000, respectively.$578,000. As the realization of the tax benefit of the net operating loss is not assured an additional valuation allowance of approximately $142,000a like amount was recorded.

U.S. Tax Reform

On December 22, 2017, President Trump signed into law new tax legislation commonly referred to as the Tax Cuts and $578,000Jobs Act (the "TCJA"), which became effective January 1, 2018. The TCJA significantly revises U.S. tax law by, among other provisions lowering the U.S. federal statutory income tax rate from 35% to 21%, and eliminating or reducing certain income tax deductions.

ASC Topic 740, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA's provisions, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") on December 22, 2017, which allows companies to record the tax effects of the TCJA on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment.

During the second quarter of fiscal 2018, the Company recorded a one-time charge of $136,386 within its income tax provision in connection with the TCJA, all of which related to the revaluation of the Company's deferred tax assets and liabilities net of a resultant impact of the revaluation on the recorded valuation allowance. This one-time charge, which was also recorded. Forrecorded on a provisional basis had no impact on the three months ended March 31, 2018 and impacted the Company's effective tax rate for the nine-month period by increasing it from 0% to 7%. The charge lowered its basic and diluted earnings per share by $0.03 for the nine months ended March 31, 2016,2018. The provisional amounts were based on the Company recorded the tax benefit of losses incurred in the amount of $233,000 and $660,000 net of additions to the valuation allowance of like amounts netCompany's present interpretations of the effectTCJA and current available information, including assumptions and expectations about future events, such as its projected financial performance, and are subject to further refinement as additional information becomes available (including the Company's actual full fiscal 2018 results of deferred taxes in the amount of $10,000operations and ($35,000) for the three and nine month respectively.  The total valuation allowance recordedfinancial condition, as well as potential new or interpretative guidance issued by the Company as of March 31, 2017FASB or the Internal Revenue Service and 2016 was approximately $2,390,000other tax agencies) and $1,920,000, respectively.  To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be subject to a valuation allowance.further analyses are completed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three months ended March 31, 20172018 compared to three months ended March 31, 20162017

Allied had net sales of $8.6$8.5 million for the three months ended March 31, 2017,2018, down $0.2$0.1 million from net sales of $8.8$8.6 million in the prior year same quarter resulting from lower customer releases for shipments. Customer releases for shipment are dependent on many factors, including order levels, construction schedules, international financing arrangements, and customer preferences.quarter. Domestic sales were up 1.1%down 3.5% while international sales, which represented 18.0%19.8% of third quarter sales, were down 17.7%up 8.5% from the prior year same quarter.

Orders for the Company’s products for the three months ended March 31, 20172018 of $9.2$8.8 million were $0.3$0.4 million or 3.4% higher4.3% lower than orders for the prior year same quarter of $8.9$9.2 million. Domestic orders are up 6.2%down 5.5% over the prior year same quarter while international orders, which represented 23.5%24.0% of third quarter orders, were 4.5%2.6% lower than orders for the prior year same quarter.

Gross profit for the three months ended March 31, 20172018 was $1.7$1.2 million, or 19.8%14.1% of net sales, compared to $1.6$1.7 million, or 18.2%19.8% of net sales, for the three months ended March 31, 2016.2017. The $0.1$0.5 million increasedecrease in gross profit is primarily attributable to several factors including product mix, cost of raw materials, pricing and production variances. In the third quarter of 2018, the sale of lower margin vendor supplied items made up a $0. 2larger percentage of sales than in the third quarter of 2017 leading to an approximate $0.2 million decrease in manufacturing salaries and benefits,margins. Production costs, primarily material costs were approximately $0.1 million higher than in the prior year as the cost of purchased commodities has increased. Margins also decreased due to slightly higher production variances, including medical benefit payments.scrap.

Selling, general, and administrative expenses for the three months ended March 31, 2018 and March 31, 2017 were $2.1 million compared to selling, general and administrative expenses of $2.4 millionmillion.

Loss from operations was $887,626 for the three months ended March 31, 2016. Salaries and benefit expenses are approximately $209,000 lower than in the prior year and legal expenses are approximately $35,000 lower than in the prior year.

Loss2018 compared to loss from operations wasof $403,361 for the three months ended March 31, 2017 compared to loss from operations of $762,477 for the three months ended March 31, 2016.2017.

Allied had a loss before benefit from income taxes in the third quarter of fiscal 20172018 of $403,242$901,137 compared to loss before benefit from income taxes in the third quarter of fiscal 20162017 of $784,466.$403,242.  The Company’s tax provision net of valuation allowance reflects a tax benefit of $0 for the three months ended March 31, 20172018 and 2016.2017.  In the quarterboth quarters ended March 31, 2018 and 2017, the tax benefit of losses in the amount of approximately $260,000 and $142,000, wasrespectively were fully offset by a valuation allowance of equivalent amount.   To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully offset by a valuation allowance.

Net loss for the third quarter of fiscal 20172018 was $403,242$901,037 or $0.10$0.22 per basic and diluted share compared to net loss of $784,466$403,242 or $0.20$0.10 per basic and diluted share for the third quarter of fiscal 2016.2017. The weighted average number of common shares outstanding, used in the calculation of basic and diluted earnings per share for the third quarters offiscal 2017 2018 and 20162017 were 4,013,537.

Nine months ended March 31, 20172018 compared to nine months ended March 31, 20162017

Allied had net sales of $25.3$25.1 million for the nine months ended March 31, 2017,2018, down $0.8$0.2 million, or 3.1%0.8% from net sales of $26.1$25.3 million in the prior year same period. Domestic sales were down 3.1%2.5% from the prior year same period while international sales were down 4.0%up 5.2% from the prior year same period. International business represented 22.2%23.6% of sales for the first nine months of fiscal 2017. The drop in international sales reflects the decrease in international orders.2018.

Orders for the Company’s products for the nine months ended March 31, 2017 and 20162018 of $24.5 million were $0.6 million or 2.4% lower than orders for the prior same period of $25.1 million. Domestic orders are up 1.2%down 3.3% over the prior year same period while international orders, which represented 22.6%23.2% of orders for the first nine months of fiscal 2017,2018, were 4.2% lower0.1% higher than orders for the prior year same period. The decrease in domestic orders reflects variability across the markets served. The increase in International orders was due to increased demand for the AHP300 Ventilator. International sales and orders are subject to fluctuation in international demand. These fluctuations are at times due to political and economic uncertainty internationally. International sales continue tocan be impacted by political and economic uncertainty in regions and countries such as Russia, Ukraine, and South America, including Venezuela. Economic uncertainty is reflected inwhere the current relative strength of the United States Dollar versus currencies in those regions.Company markets its products.

Gross profit for the nine months ended March 31, 20172018 was $5.0$4.5 million, or 19.8%17.9% of net sales, compared to $5.1$5.0 million, or 19.5%19.8% of net sales, for the nine months ended March 31, 2016. The improvement in gross margin percentage is primarily due to decreases in fixed manufacturing overhead spending. Management salaries and benefits in manufacturing overhead decreased by approximately $360,000 from the prior year. This decrease2017. Gross profit was offset by a $108,000 increase in utility costs, which was partly due to March 2016 decision of the Supreme Court of New York terminating covenants that had previously provided for the Company’s Stuyvesant Falls facility to obtain free electrical power. See below Part II, Item 1 Legal Proceedings for a more detailed discussion of this court decision. Margins were also negatively impacted by lowercost increases as well as price and mix changes. The largest impact on gross profits was the increased cost of production, levels, as a resultprimarily materials of lower sales. Lower production levels negatively impactapproximately $0.3 million. The remaining decrease in margins were due to unfavorable changes in the utilizationmix and price of fixed overhead costs.products sold.

Selling, general and administrative expenses for the nine months ended March 31, 20172018 were $6.6$6.4 million compared to selling, general and administrative expenses of $7.2$6.6 million for the nine months ended March 31, 2016. Legal expenses2017. Salaries and benefits are approximately $275,000$135,000 lower than in the prior year and salaries and benefitsbusiness travel expenses are approximately $290,000$93,000 lower than in the prior year.

Loss from operations was $1.9 million for the nine months ended March 31, 2018 compared to loss from operations of $1.6 million for the nine months ended March 31, 2017 compared to loss from operations of $2.1 million for the nine months ended March 31, 2016. 2017.

Allied had a loss before benefit fromprovision for income taxes in the first nine months of fiscal 20172018 of $1.6$1.9 million compared to loss before benefit from income taxes in the first nine monthsthird quarter of fiscal 20162017 of $2.1$1.6 million.  The Company’s tax provision net of valuation allowance reflects a tax benefitprovision of $136,386 and $0 for the nine months ended March 31, 2018 and 2017. The Company’s tax provision net of valuation allowance reflected a tax benefit of approximately $124,000 forIn both the nine months ended March 31, 2016. In the nine months ended December 31,2018 and 2017, the tax benefit of losses in the amount of approximately $627,000 and $578,000, wasrespectively were fully offset by a valuation allowance of an equivalent amount.   In the nine months ended March 31, 2016,2018, effective as of December 22, 2017, the Company revaluated its deferred tax benefit of lossesassets, liabilities and valuation allowance to reflect the changes in tax rate occurring in connection with the amount of approximately $660,000, netTCJA. The impact of the effect of deferredrevaluation was a charge to the provision for income taxes in the amount of ($35,000), was fully offset by a valuation allowance of equivalent amount. As a result of the expiration of tax benefits associated with expiring stock options not previously covered by the valuation allowance, the Company recorded a deferred tax benefit$136,386 in the amount of approximately $124,000.December 2017. To the extent that the Company’s losses continue in future quarters, the tax benefit of those losses will be fully offset by a valuation allowance.

Net loss for the nine months ended March 31, 20172018 was $1,594,277$2,048,966 or $0.40$0.51 per basic and diluted share compared to net loss of $2,022,788$1,594,277 or $0.50$0.40 per basic and diluted share for the first nine months of fiscal 2016.2017. The weighted average number of common shares outstanding, used in the calculation of basic and diluted earnings per share for the first nine months of fiscal 20172018 and 20162017 was 4,013,537.

Liquidity and Capital Resources

The Company believes that available resources, including availableCompany’s primary sources of liquidity are its cash and cash equivalents, other items in working capital and borrowing availability under the Credit FacilityAgreement, discussed below, are sufficient to meet operating requirements in the next twelve months.

below.

The Company’s working capital was $9.2$8.5 million at March, 20172018 compared to $10.0$9.7 million at June 30, 2016.2017. Cash and cash equivalents decreased by $0.9 million, Accounts Receivable decreased by $0.7 million, and Inventories decreased by $0.3$0.1 million, accounts payable increased by $0.2 million, and Debt under the Credit Facility increased $0.7 million. These decreases in working capital have been offset by a $0.4 million decreaseincrease in in Accounts Payable and a $0.7 million decrease in Other Accrued Liabilities.Receivable. Accounts Payable and Other Accrued Liabilities are subject to normal fluctuations in purchasing levels, and the timing of payments. Accounts Receivable was $3.4$3.7 million at March 31, 2017, a decrease2018, an increase from $4.1$3.4 million at June 30, 2016.2017. Accounts Receivable as measured in days sales outstanding (“DSO”) was 3841 DSO at March 31, 2017;2018; a decreaseincrease from 4039 DSO at June 30, 2016 The2017. To manage inventory, the Company does adjust product forecast, order quantities and safety stock based on changes in demand patterns in order to manage inventory levels.

At the end of the quarter, the Company wasAllied Healthcare Products, Inc. (the “Company”) is party to a Loan and Security Agreement dated February 27, 2017, with Summit Financial Resources, L.P. (the(“Summit”), dated effective February 27, 2017, as amended April 16, 2018 (as amended, the “Credit Agreement”), under which. Pursuant to the Credit Agreement the Company had $2,000,000 available for borrowingobtained a secured revolving credit facility (the “Credit Facility”).The Company’s obligations under the Credit Facility are secured by all of the Company’s personal property, both tangible and intangible, pursuant to the terms and subject to the conditions set forth in the Credit Agreement. Availability of funds under the Credit Agreement is based on the Company’s accounts receivable and inventory but will not exceed $2,000,000.00.$2,000,000. At March 31, 20172018 availability under the agreementCredit Agreement was $2,000,000.

$1,317,228. At March 31, 2018, the Company expected that it will use the Credit Facility to finance the Company’s operations in the short term.

The Credit Facility will be available, subject to its terms, on a revolving basis until it expires on February 27, 2019.2020. Advances will bear interest at a rate equal to 2.00% in excess of the prime rate as reported in the Wall Street Journal and subject to a minimum availability fee of 0.25% (25 basis points) per month on the maximum availability ($5,000 per month). . In addition to interest, the Credit facility requires that the Company pay the lender a monthly administration fee in an amount equal to forty-seven hundredths percent (0.47%) of the average outstanding daily principal amount of loan advances for the each calendar month, or portion thereof.

Under the Credit Agreement, advances are generally subject to customary borrowing conditions and to Summit’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. In the event of default, interest is calculated on a variable interest rate equal to 20.00% above the prime rate, adjusted as of the date of any change in the prime rate.

At March 31, 2017,2018, the Company had no aggregate$682,772 of indebtedness, including capital lease obligations, short-term debt, and long term debt.

Inflation hasDue to its continued operating losses, the Company may need to access additional sources of liquidity if it does not hadreturn to profitability. The Company believes it could negotiate with Summit to increase the availability under the Credit Agreement to utilize more of its borrowing base. This would likely involve an increase in the minimum availability fees under the Credit Agreement and there is no guarantee that Summit would agree to such an increase. If the Company were unable to reach such an agreement, the Company could also attempt to negotiate a material effect onlarger credit facility with another lender, but the Company’s business or resultsCompany would be obligated to pay the above described pre-payment penalty to Summit.

The Company was in compliance with all of operations during the first nine months of fiscal 2017.covenants associated with the Credit Facility at March 31, 2018.

Litigation and Contingencies

The Company becomes, from time to time, a party to personal injury litigation arising out of incidents involving the use of its products. The Company believes that any potential judgments resulting from these claims over its self-insured retention will be covered by the Company’s product liability insurance. See Part II, Item 1 – Legal Proceedings, below, for more information concerning litigation.

Critical Accounting Policies

The impact and any associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect the Company’s reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended June 30, 2016.2017.

Recently Issued Accounting Guidance

See Note 1 – Summary of Significant Accounting and Reporting Policies for more information on recent accounting pronouncements and their impact, if any, on the Company’s financial statements. Management believes there have been no material changes to our critical accounting policies.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

At March 31, 2017,2018, the Company did not have anyhad $682,772 debt outstanding. The Credit Facility bears interest at a rate using the Prime Rate, as reported in the Wall Street Journal, as the basis, and therefore is subject to additional expense should there be an increase in market interest rates while borrowing on the revolving credit facility.Credit Facility.

The Company had no holdings of derivative financial or commodity instruments at March 31, 2017.2018. The Company has international sales; however these sales are denominated in U.S. dollars, mitigating foreign exchange rate fluctuation risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company’sCompany's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed as of March 31, 2017,2018, the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 20172018 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Part II.          OTHER INFORMATION

Item 1. Legal Proceedings

Stuyvesant Falls Power Litigation. The Company is currently involved in litigation with Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara”), which provides electrical power to the Company’s facility in Stuyvesant Falls, New York, and one other party. The Company maintains in its defense of the lawsuit that it is entitled to a certain amount of free electricity based on covenants running with the land which have been honored for more than a century. After the commencement of the litigation, Niagara began sending invoices to the Company for electricity used at the Company’s Stuyvesant Falls plant. Niagara’s attempts to collect such invoices were stopped in December 2010 by a temporary restraining order. Among other things, Niagara seeks as damages the value of electricity received by the Company without charge. The total value of electricity at issue in the litigation is not known with certainty and Niagara has alleged different amounts of damages. Niagara alleged in its Second Amended Verified Complaint, dated February 6, 2012, damages of approximately $469,000 in free electricity from May 2003 through May 2010. Niagara also alleged in its Motion For Summary Judgment, filed on March 14, 2014, damages of approximately $492,000 in free electricity from May 2010 through the date of the filing. In April 2015, Allied received an invoice for electrical power at the Stuyvesant Falls planplant with an “Amount Due” balance of $696,000 as of March 31, 2015 without any description as to the period of time covered by the invoice.

The Company filed a Motion for Summary Judgment on March 14, 2014, seeking dismissal of Niagara’s claims and oral arguments on the motions were held on June 13, 2014. On October 1, 2014, the Court granted the Company’s motion, denied Niagara’s motion and ruled that the Company is entitled to receive electrical power pursuant to the power covenants. On October 26 and October 30, 2014, Niagara and the other party filed separate notices of appeal of the Court’s decision. On March 31, 2016 the Supreme Court of New York, Appellate Division, Third Department reversed the trial court decision and held that the free power covenants are no longer enforceable. The Company’s application for leave to appeal this ruling was dismissed as premature by the New York Court of Appeals on September 20, 2016. Avenues for appeal remain andOn May 26, 2017 the Company intendsagain moved for leave to exercise all available options to enforceappeal the free power covenants which have beenMarch 31, 2016 decision. That motion was granted on October 7, 2017 by the New York State Court of Appeals. The Company filed its brief and record on January 26, 2018. Niagara’s responses are due on May 16, 2018, with the Company’s reply due by May 31, 2018. Once fully briefed, the matter will be scheduled for argument, most likely in place for over 100 years.2019.

The appellate decision terminated the enforceability of the free power covenants as of March 31, 2016. The appellate decision did not order the Company to pay any amounts for power consumed prior to such date and the Company believes that it is not liable for any such damages as a result of the appellate decision. On December 21, 2016, Niagara filed a motion to the trial court asking that it hold additional proceedings to establish what damages, if any, are owed to Niagara as the result of the appellate decision. The Company filed its response on January 23, 2017. On April 25, 2017, the court denied Niagara’s motion in its entirety finding that no damages could be awarded based on the Appellate Division’s decision. ThisNiagara has filed a Notice of Appeal from that decision, is appealable by Niagarabut to date, has not later than May 25, 2017.filed the appeal.

As of March 31, 2017,2018, the Company has not recorded a provision for this matter. The Company commenced paying for power at the Stuyvesant Falls facility in April 2016.

Item 6. Exhibits

(a) Exhibits:

31.1 Certification of Chief Executive Officer (filed herewith)

31.2 Certification of Chief Financial Officer (filed herewith)

32.1 Sarbanes-Oxley Certification of Chief Executive Officer (furnished herewith)*

32.2 Sarbanes-Oxley Certification of Chief Financial Officer (furnished herewith)*

101.INS XBRL Instance Document**

101.SCH XBRL Taxonomy Extension Schema Document**

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB XBRL Taxonomy Extension Label Linkbase Document**

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**

*Notwithstanding any incorporation of this Quarterly Report on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with an asterisk (*) shall not be deemed incorporated by reference to any other filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless specifically otherwise set forth therein.

**Filed herewith as Exhibit 101 are the following materials formatted in XBRL: (i) Statement of Operations, (ii) Balance Sheet, (iii) Statement of Cash Flows and (iv) Notes to Financial Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.