What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-07-15 compared with 2023-06-28 · 226 added, 258 removed, 23 unchanged (95% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements

contained in this section are not historical facts, including statements about our strategies and expectations about new and existing

products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment growth,

and return on investments in products and markets.

These statements are forward looking statements within the meaning of the Private Securities

Litigation Reform Act of 1995 and involve substantial risks and uncertainties that may cause actual results to differ materially from

those indicated by the forward looking statements.

All forward looking statements in this section are based on information available to

us on the date of this document, and we assume no obligation to update such forward looking statements.

Readers of this Form 10-K are

strongly encouraged to review the section entitled “Risk Factors” .

Installed Base of AEM Monitoring Equipment .

We believe that we are gaining more awareness in medico-legal circles and publications and from presentations at medical meetings.

believe that improvement in the quality of sales representatives carrying our AEM products line, along with increased marketing efforts

and the introduction of new products, may provide the basis for increased sales and continuing profitable operations.

However, these measures,

or any others that we may adopt, may not result in either increased sales or continuing profitable operations.

Possibility of Operating Losses.

accumulated deficit of $21,853,264 at March 31, 2023.

We have made significant strides toward improving our operating results.

due to the ongoing need to develop new products, the need to develop, optimize and train our sales distribution network and the need to

increase sustained sales to a level adequate to cover fixed and variable operating costs, we may operate at a net loss in future periods.

Sales Growth .

We expect to generate increased

sales in the U.S.

from sales to new hospital customers and to grow AEM instrumentation sales to existing accounts.

In fiscal year 2024,

we will focus on growing our AEM franchise through a campaign focused on the clinical, economic and safety benefits of AEM technology,

a medico-legal initiative and our new AEM products.

In addition, prior years’ efforts in vertical integration have given us three

core competencies – electrosurgery, instrument design, and manufacturing – which we expect will allow us to increase sales

from our strategic partnership initiatives.

Our goal is to offer our customers an AEM disposable counterpart for each AEM reusable instrument.

Gross Margin.

We believe that if our fiscal

year 2024 revenues increase, then our fiscal year 2024 gross profit and gross margin, as a percentage of revenue, will increase due to

a higher gross margin on product revenue as a result of an increase in product produced.

Sales and Marketing Expenses.

our efforts to expand domestic and international distribution capability, and we believe that sales

and marketing expenses will need to be maintained at a healthy level in order to expand our market visibility and optimize the field sales

capability of converting new hospital customers to AEM technology .

Sales and marketing expenses

are expected to increase as we increase our marketing efforts to support our direct sales representatives.

In fiscal year 2024, we expect

to have six direct sales managers.

statements contained in this section are not historical facts, including statements about our strategies and expectations about new and

existing products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment

growth, and return on investments in products and markets.

These statements are forward looking statements within the meaning of the

Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties that may cause actual results to differ

materially from those indicated by the forward looking statements.

All forward looking statements in this section are based on information

available to us on the date of this document, and we assume no obligation to update such forward looking statements.

Readers of this

Form 10-K are strongly encouraged to review the section entitled “Risk Factors” .

Base of AEM Monitoring Equipment .

We believe that we are gaining more awareness in medico-legal circles and publications and from

presentations at medical meetings.

We believe that improvement in the quality of sales representatives carrying our AEM products line,

along with increased marketing efforts and the introduction of new products, may provide the basis for increased sales and continuing

profitable operations.

However, these measures, or any others that we may adopt, may not result in either increased sales or continuing

profitable operations.

of Operating Losses.

We have an accumulated deficit of $22,617,329 at March 31, 2024.

We have made significant strides toward improving

our operating results.

However, due to the ongoing need to develop new products, the need to develop, optimize and train our sales distribution

network and the need to increase sustained sales to a level adequate to cover fixed and variable operating costs, we may operate at a

net loss in future periods.

We expect to generate increased sales in the U.S.

from sales to new hospital customers and to grow AEM instrumentation sales

to existing accounts.

In fiscal year 2024, we will focus on growing our AEM franchise through a campaign focused on the clinical, economic

and safety benefits of AEM technology, a medico-legal initiative and our new AEM products.

In addition, prior years’ efforts in

vertical integration have given us three core competencies – electrosurgery, instrument design, and manufacturing – which

we expect will allow us to increase sales from our strategic partnership initiatives.

Our goal is to offer our customers an AEM disposable

counterpart for each AEM reusable instrument.

We believe that if our fiscal year 2024 revenues increase, then our fiscal year 2024 gross profit and gross margin, as a

percentage of revenue, will increase due to a higher gross margin on product revenue as a result of an increase in product produced.

and Marketing Expenses.

We continue our efforts to expand domestic and international distribution capability, and we

believe that sales and marketing expenses will need to be maintained at a healthy level in order to expand our market visibility and

optimize the field sales capability of converting new hospital customers to AEM technology .

Sales and marketing expenses are expected to increase as we increase our marketing efforts to support our direct sales representatives.

In fiscal year 2024, we expect to have six direct sales managers.

Each direct sales manager also manages a separate territory.

2 unchanged sentences

quality and consistency, by producing products on our own.

We manufacture our own disposable scissor inserts and are exploring other products

that we may manufacture internally.

Research and Development Expenses .

and development expenses are expected to increase to support expansion to our AEM product line, which will further expand the instrument

options for the surgeon.

New refinements to AEM product lines are planned for introduction

in fiscal year 2024.

Results of Operations

Net product revenue for the fiscal year ended March 31, 2023 (“FY

23”) was $6,885,158, and for the fiscal year ended March 31, 2022 (“FY 22”), net revenue was $6,914,678, or no percentage

Product revenue for the fiscal year ended March 31, 2023 decreased primarily as a result of the decrease in non-essential surgical

procedures performed during this period due to the COVID-19 pandemic.

Net service revenue for FY 23 was $463,356, and for FY 22 net service revenue

was $753,958.

Net service revenue was for engineering services performed under a Master Services Agreement with Auris Health, Inc.

Auris Health is a part of the Johnson & Johnson family of companies.

Under the agreement, we collaborated on the integration

of AEM technology into monopolar instrumentation produced by Auris Health for advanced surgical applications.

On August 23, 2021,

we entered into a Supply Agreement with Auris Health, Inc.

On May 5, 2022, the parties mutually agreed to terminate all of our agreements.

Gross profit.

Gross profit in FY 23 was $4,032,533, which represented an increase of $244,115, or 6%, from gross profit in FY 22 of $3,788,418.

profit margin was 52% of net product revenue for FY 22 and 49% of net product revenue for FY 21.

Gross profit increased in FY 23 from

FY 22 due principally to higher selling prices and high margin service revenue.

We manufacture our own disposable scissor inserts and are exploring other

products that we may manufacture internally.

and Development Expenses .

Research and development expenses are expected to increase to support

expansion to our AEM product line, which will further expand the instrument options for the

New refinements to AEM product lines are planned for introduction in fiscal year 2025.

of Operations

Product revenue.

product revenue for the fiscal year ended March 31, 2024 (“FY24”) was $6,431,969, and for the fiscal year ended March 31,

2023 (“FY23”), net revenue was $6,885,158, or a decrease of 7%.

Product revenue for the fiscal year ended March 31, 2024

decreased primarily because of the decrease in non-essential surgical procedures performed during this period.

Service revenue .

service revenue for FY24 was $153,913, and for FY23 net service revenue was $463,356.

Net service revenue for FY23 was for engineering

services performed under a Master Services Agreement with Auris Health, Inc.

(“Auris Health”).

Auris Health is a part of

the Johnson & Johnson family of companies.

Under the agreement, we collaborated on the integration of AEM technology into monopolar

instrumentation produced by Auris Health for advanced surgical applications.

Gross profit in FY24 was $3,135,962, which represented a decrease of $896,571, or 22%, from gross profit in FY23 of $4,032,533.

Gross profit margin was 48% of net product revenue for FY24 and 55% of net product revenue for FY 23.

Gross profit decreased in FY24

from FY23 due principally to higher product vendor costs and increased inventory reserves.

In FY23 we had high margin service revenue.

Our product revenue from GPOs in FY23 was approximately

1 unchanged sentence

In FY24 , we had increased product vendor costs that were not allowed

to be passed on to our GPO customers for most of the fiscal year and resulted in a compressed gross profit margin.

marketing expenses.

Sales and marketing expenses were $2,032,415 in FY 23, a decrease of $51,695, or 2%, from $2,084,110 in FY 22.

The decrease was the result of decreased advertising.

to be passed on to our GPO customers for the fiscal year and resulted in a compressed gross profit margin.

and marketing expenses.

Sales and marketing expenses were $1,634,124 in FY24, a decrease of $398,291, or 20%, from $2,032,415 in

The decrease was because of decreased commissions on decreased revenue.

and administrative expenses.

General and administrative expenses were $1,520,727 in FY24, an increase of $33,931 or 2%, from $1,486,796

The increase was the result of decreased allocations.

The increase was because of increased regulatory fees.

and development expenses.

Research and development expenses were $621,894 in FY24, a decrease of $196,225 or 24%, from $816,119 in

The decrease was the result of decreased patent costs and test materials.

Other (expense), net.

Other (expense), net

of $21,148 for FY 23 was primarily for interest expense of $19,529.

Net (loss) in FY 23 of $323,945 represented a loss in crease of $258,351 compared to FY 22

net loss of $65,594.

The net loss increase was principally the result of extinguishment of debt income of $533,118 in FY 22.

Liquidity and Capital

To date, operating funds have been provided primarily

by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans and, in some years, by

operating profits.

To date, common stock and additional paid in capital totaled $24,348,075 from our inception through March 31, 2023.

Our operations used $861,485 and $444,432 of cash in FY 23 and FY 22, respectively, on net revenue of $7,348,514 and $7,668,636 in FY

23 and FY 22, respectively.

Working capital was $1,993,777 at March 31, 2023 compared to $2,325,331 at March 31, 2022.

The decrease in

working capital was primarily caused by the FY 23 net loss.

Current liabilities were $1,130,826 at March 31, 2023 compared to $1,276,391

at March 31, 2022.

On February 8,

2021, we entered into a second unsecured promissory note under the PPP for a principal amount of $533,118.

This was our second PPP loan.

During the quarter that ended September 30, 2021, we achieved the requirements for forgiveness of the second note and recognized the forgiveness

as extinguishment of debt income of $533,118.

On November 15, 2022, we entered into a loan and

security agreement with Pathward, N.A.

(formerly Crestmark Bank).

The decrease was the result of decreased compensation and outside services.

(expense), net.

Other (expense), net of $51,000 for FY24 was primarily for interest expense of $62,373.

Net (loss) in FY24 of $691,783 represented a loss in crease

of $367,838 compared to FY23 net loss of $323,945.

The net loss increase was principally because

of lower product and service revenue and was partially offset by decreased operating expenses.

and Capital Resources

date, operating funds have been provided primarily by issuances of our common stock and warrants, the exercise of stock options to purchase

our common stock, loans and, in some years, by operating profits.

To date, common stock and additional paid in capital totaled $24,371,795

from our inception through March 31, 2024.

Our operations provided $144,389 and used $861,485 of cash in FY24 and FY23, respectively,

on net revenue of $6,585,882 and $7,348,514 in FY24 and FY23, respectively.

Working capital was $1,206,252 at March 31, 2024 compared

to $1,993,777 at March 31, 2023.

The decrease in working capital was primarily caused by the FY24 net loss and decreased inventories.

Current liabilities were $1,220,022 at March 31, 2024 compared to $1,130,826 at March 31, 2023.

November 15, 2022, we entered into a loan and security agreement with Pathward, N.A.

The loan is due on demand and has no financial covenants.

the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable.

The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly

loan balance.

Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit fee

of 3%, 2% and 1% during years one, two and three, respectively.

We believe that the unique performance of AEM technology

and our breadth of independent endorsements provide an opportunity for market share growth.

We believe that the market awareness of AEM

technology and its endorsements is continually improving and that this will benefit revenue efforts in FY 24.

We believe that we enter

FY 24 having achieved improvements in the clinical credibility of our technology.

Our FY 24 operating plan is focused on growing revenue,

increasing gross profits, increasing research and development costs while increasing profits and positive cash flows.

We cannot predict

with certainty the expected revenue, gross profit, net income or loss and usage of cash, cash equivalents and restricted cash for FY 24.

We believe that cash resources and borrowing capacity will be sufficient to fund our operations for at least the next twelve months under

our current operating plan.

If we are unable to manage business operations in line with our budget expectations, it could have a material

adverse effect on business viability, financial position, results of operations and cash flows.

Further, if we are not successful in sustaining

profitability and remaining at least cash flow break-even, additional capital may be required to maintain ongoing operations.

We have explored and are continuing to explore options

to provide additional financing to fund future operations as well as other possible courses of action.

Such actions include, but are not

limited to, securing a larger credit facility, sales of debt or equity securities (which may result in dilution to existing shareholders),

licensing of technology, strategic alliances and other similar actions.

There can be no assurance that we will be able to obtain additional

funding (if needed) through a sale of our common stock or loans from financial institutions or other third parties or through any of the

actions discussed above on terms acceptable to us or at all.

If we cannot sustain profitable operations and additional capital is unavailable,

lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

As of March 31, 2023, net operating loss carryforwards

totaling approximately $7.3 million were available to reduce taxable income in the future.

The net operating loss carryforwards expire,

if not previously utilized, at various dates beginning in fiscal year 2023.

We have not paid income taxes since our inception.

Reform Act of 1986 and other income tax regulations contain provisions which may limit the net operating loss carryforwards available

to be used in any given year if certain events occur, including changes in our ownership.

We have established a valuation allowance for

the entire amount of our deferred tax asset since inception due to our history of losses.

Should we achieve sufficient, sustained income

in the future, we may conclude that some or all of the valuation allowance should be reversed.

Off-Balance Sheet Financing Arrangements

We do not utilize variable interest entities or other

off-balance sheet financial arrangements.

Effective November 9, 2017, we extended our noncancelable

lease agreement through July 31, 2024, and further extended it through October 31, 2024, for our facilities at 6797 Winchester Circle,

Boulder, Colorado.

Lease expense was $329,255 for the fiscal year ended March 31, 2023 and $357,644 for the fiscal year ended March 31,

Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts

The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average

monthly loan balance.

Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit

fee of 3%, 2% and 1% during years one, two and three, respectively.

believe that the unique performance of AEM technology and our breadth of independent endorsements provide an opportunity for market share

We believe that the market awareness of AEM technology and its endorsements is continually improving and that this will benefit

revenue efforts in FY 25.

We believe that we enter FY 25 having achieved improvements in the clinical credibility of our technology.

Our FY 25 operating plan is focused on growing revenue, increasing gross profits, increasing research and development costs while increasing

profits and positive cash flows.

We cannot predict with certainty the expected revenue, gross profit, net income or loss and usage of

cash, cash equivalents and restricted cash for FY 25.

We believe that cash resources and borrowing capacity will be sufficient to fund

our operations for at least the next twelve months under our current operating plan.

If we are unable to manage business operations in

line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations

and cash flows.

Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional

capital may be required to maintain ongoing operations.

have explored and are continuing to explore options to provide additional financing to fund future operations as well as other possible

courses of action.

Such actions include, but are not limited to, securing a larger credit facility, sales of debt or equity securities

(which may result in dilution to existing shareholders), licensing of technology, strategic alliances and other similar actions.

can be no assurance that we will be able to obtain additional funding (if needed) through a sale of our common stock or loans from financial

institutions or other third parties or through any of the actions discussed above on terms acceptable to us or at all.

If we cannot sustain

profitable operations and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability,

financial position, results of operations and cash flows.

of March 31, 2024, net operating loss carryforwards totaling approximately $8.9 million were available to reduce taxable income in the

The net operating loss carryforwards expire, if not previously utilized, at various dates beginning in fiscal year 2025.

not paid income taxes since our inception.

The Tax Reform Act of 1986 and other income tax regulations contain provisions which may limit

the net operating loss carryforwards available to be used in any given year if certain events occur, including changes in our ownership.

We have established a valuation allowance for the entire amount of our deferred tax asset since inception due to our history of losses.

Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed.

Sheet Financing Arrangements

do not utilize variable interest entities or other off-balance sheet financial arrangements.

November 9, 2017, we extended our noncancelable lease agreement through July 31, 2024, and further extended it through October 31, 2026,

for our facilities at 6797 Winchester Circle, Boulder, Colorado.

Lease expense was $357,503 for the fiscal year ended March 31, 2024

and $329,255 for the fiscal year ended March 31, 2023.

The minimum future lease payment, by fiscal year, as of March 31, 2024 is as follows:

On August 4, 2020, we received $150,000 in loan funding

from the U.S.

Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered

by the SBA, which program was expanded pursuant to the CARES Act.

The EIDL is evidenced by a promissory note, dated August 1, 2021 in

the original principal amount of $150,000 with the SBA, the lender.

Under the terms of the Note, interest accrues on the outstanding principal

at the rate of 3.75% per annum.

The term of the Note is thirty years, though it may be payable sooner upon an event of default under the

Under the Note, we will be obligated to make equal monthly payments of principal and interest of $731 beginning on August 1, 2022

through the maturity date of August 1, 2050.

The Note may be prepaid in part or in full, at any time, without penalty.

The minimum future EIDL payment, by fiscal year, as

of March 31, 2023 is as follows:

During January 2022, we entered into a note agreement

August 4, 2020, we received $150,000 in loan funding from the U.S.

Small Business Administration (“SBA”) under the Economic

Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act.

EIDL is evidenced by a promissory note, dated August 1, 2021 in the original principal amount of $150,000 with the SBA, the lender.

the terms of the Note, interest accrues on the outstanding principal at the rate of 3.75% per annum.

The term of the Note is thirty years,

though it may be payable sooner upon an event of default under the Note.

minimum future EIDL payment, by fiscal year, as of March 31, 2024 is as follows:

June 2020, we entered into a note agreement with U.S.

Bank for $92,000.

The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment.

is secured by the equipment.

The minimum future U.S.

Bank payment, by fiscal year,

as of March 31, 2023 is as follows:

During September 2022, we entered into a note agreement

The note is for five years at a 5% interest rate and the proceeds

were used to purchase equipment.

The note is secured by the equipment.

minimum future U.S.

Bank payment, by fiscal year, as of March 31, 2024 is as follows:

September 2022, we entered into a note agreement with U.S.

Bank for $115,004.

The note is for five years at a 6% interest rate and the proceeds were used to purchase equipment.

is secured by the equipment.

The minimum future principal U.S.

Bank payment, by

fiscal year, as of December 31, 2022 is as follows:

The note is for five years at a 6% interest rate and the

proceeds were used to purchase equipment.

The note is secured by the equipment.

minimum future principal U.S.

Bank payment, by fiscal year, as of December 31, 2023 is as follows:

Payment due by period

1 unchanged sentence

Lease obligations

Aside from the

operating lease, we do not have any material contractual commitments requiring settlement in the future.

from the operating lease, we do not have any material contractual commitments requiring settlement in the future.

Accounting Policies and Estimates

Our discussion

and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in

accordance with accounting principles generally accepted in the United States .

The preparation

of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales

and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including

those related to bad debts, inventories, sales returns, warranty, contingencies and litigation.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,

the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent

from other sources.

discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been

prepared in accordance with accounting principles generally accepted in the United States .

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,

liabilities, sales and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates,

including those related to bad debts, inventories, sales returns, warranty, contingencies

and litigation.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

We believe the following

critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

We record revenue

at a single point in time, when control is transferred to the customer, which is consistent with past practice.

We will continue to apply

our current business processes, policies, systems and controls to support recognition and disclosure.

Our shipping policy is FOB Shipping

We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of

our financial statements.

record revenue at a single point in time, when control is transferred to the customer, which is consistent with past practice.

continue to apply our current business processes, policies, systems and controls to support recognition and disclosure.

policy is FOB Shipping Point.

We recognize revenue from sales to stocking distributors when there is no right of return, other than for

normal warranty claims.

We have no ongoing obligations related to product sales, except for normal warranty obligations.

We evaluated the requirement to disaggregate

product revenue, and concluded that substantially all of its revenue comes from multiple products within a line of medical devices.

engineering service contracts are billed on a time and materials basis and revenue is recognized over time as the services are performed

We maintain allowances

for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

If the financial condition

of our customers were to deteriorate, resulting in an impairment of their ability to make

payments, additional allowances would be required, which would increase our expenses during the periods in which any such allowances were

The amount recorded as a provision for bad debts in each period is based upon our assessment of the likelihood that we will be paid

on our outstanding receivables, based on customer-specific as well as general considerations.

To the extent that our estimates prove to

be too high, and we ultimately collect a receivable previously determined to be impaired, we may record a reversal of the provision in

the period of such determination.

We provide for

the estimated cost of product warranties at the time sales are recognized.

While we engage in extensive product quality programs and processes,

including actively monitoring and evaluating the quality of our component suppliers, we have

experienced some costs related to warranty.

The warranty accrual is based upon historical experience and is adjusted based on current

Should actual warranty experience differ from our estimates, revisions to the estimated warranty liability would be required.

We reduce inventory

for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value

based upon assumptions about future demand and market conditions.

If a ctual market conditions

are less favorable than those projected by management, additional inventory write-downs may be required.

Any write-downs of inventory

would reduce our reported net income during the period in which such write-downs were applied.

We recognize deferred income tax assets and liabilities

for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and

tax bases of assets and liabilities.

Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount

of any tax benefits which, more likely than not based on current circumstances, are not expected to be realized.

Should we achieve sufficient,

sustained income in the future, we may conclude that all or some of the valuation allowance should be reversed.

Property and equipment are stated at cost, with depreciation

computed over the estimated useful lives of the assets, generally three to seven years.

We use the straight-line method of depreciation

for property and equipment.

Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful

life of the asset.

Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

We amortize our

patent costs over their estimated useful lives, which is typically the remaining statutory life.

From time to time, we may be required

to adjust these lives based on advances in technology, competitor actions, and the like .

review the recorded amounts of patents at each period end to determine if their carrying amount is still recoverable based on our expectations

regarding sales of related products.

Such an assessment, in the future, may result in a conclusion that the assets are impaired, with

a corresponding charge against earnings.

Stock-based compensation

is presented in accordance with the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) Topic 718, Compensation – Stock Compensation (“ASC 718 ”).

the requirement to disaggregate product revenue, and concluded that substantially all of its revenue comes from multiple products within

a line of medical devices.

Our engineering service contracts are billed on a time and materials basis and revenue is recognized over

time as the services are performed

maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

If the financial condition of our customers were to deteriorate, resulting in an impairment

of their ability to make payments, additional allowances would be required, which would increase

our expenses during the periods in which any such allowances were made.

The amount recorded as a provision for bad debts in each period

is based upon our assessment of the likelihood that we will be paid on our outstanding receivables, based on customer-specific as well

as general considerations.

To the extent that our estimates prove to be too high, and we ultimately collect a receivable previously determined

to be impaired, we may record a reversal of the provision in the period of such determination.

provide for the estimated cost of product warranties at the time sales are recognized.

While we engage in extensive product quality programs

and processes, including actively monitoring and evaluating the quality of our component

suppliers, we have experienced some costs related to warranty.

The warranty accrual is based upon

historical experience and is adjusted based on current experience.

Should actual warranty experience differ from our estimates, revisions

to the estimated warranty liability would be required.

reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated

market value based upon assumptions about future demand and market conditions.

market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Any write-downs

of inventory would reduce our reported net income during the period in which such write-downs were applied.

recognize deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary

differences between the financial reporting and tax bases of assets and liabilities.

Deferred tax assets are then reduced, if deemed

necessary, by a valuation allowance for the amount of any tax benefits which, more likely than not based on current circumstances, are

not expected to be realized.

Should we achieve sufficient, sustained income in the future, we may conclude that all or some of the valuation

allowance should be reversed.

and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally three to seven

We use the straight-line method of depreciation for property and equipment.

Leasehold improvements are depreciated over the shorter

of the remaining lease term or the estimated useful life of the asset.

Maintenance and repairs are expensed as incurred and major additions,

replacements and improvements are capitalized.

amortize our patent costs over their estimated useful lives, which is typically the remaining statutory life.

From time to time, we may

be required to adjust these lives based on advances in technology, competitor actions, and the like .

We review the recorded amounts of patents at each period end to determine if their carrying amount is still recoverable based on our

expectations regarding sales of related products.

Such an assessment, in the future, may result in a conclusion that the assets are impaired,

with a corresponding charge against earnings.

compensation is presented in accordance with the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards

Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“ASC 718 ”).

Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards made to employees and

directors including employee stock options based on estimated fair values on the date of grant

using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as expense over

the requisite service periods in our statements of operations.

Quantitative and Qualitative Disclosures

About Market Risk

Not required.

directors including employee stock options based on estimated fair values on the date of

grant using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as expense

over the requisite service periods in our statements of operations.

Quantitative and Qualitative Disclosures About Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis