What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2020-08-25 compared with 2019-08-27 · 215 added, 226 removed, 204 unchanged (68% of the section changed)

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following discussion and analysis of our financial condition and results of operations should be read in conjunction with our

financial statements and the accompanying notes included elsewhere in this Report.

The forward-looking statements include statements

that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to

our future development plans, capital resources and requirements, results of operations, and future business performance.

actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as

a result of certain factors, including, but not limited to, those discussed in the section entitled “Information Regarding

Forward-Looking Statements”

immediately preceding Part I of this Report.

financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

The forward-looking statements

include statements that reflect management’s good faith beliefs, plans, objectives, goals, expectations, anticipations and

intentions with respect to our future development plans, capital resources and requirements, results of operations, and future

business performance.

Our actual results could differ materially from those anticipated in the forward-looking statements included

in this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled “Information

Regarding Forward-Looking Statements”

immediately preceding Part I of this Annual Report on Form 10-K.

develops and provides innovative airway clearance products applying HFCWO technologies in pulmonary care for patients of all ages.

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compromised pulmonary function.

The SmartVest SQL is smaller, quieter and lighter than our previous product, with enhanced programmability

and ease of use.

Our products are sold in both the home health care market and the institutional market for use by patients in

hospitals, which we refer to as “institutional sales.”

The SmartVest SQL has been sold in the domestic home care market

The SmartVest SQL is smaller, quieter and lighter than our previous product (the SV2100), with

enhanced programmability and ease of use.

Our products are sold in both the home health care market and the institutional market

for use by patients in hospitals, which we refer to as “institutional sales.”

The SmartVest SQL has been sold in the

domestic home care market since 2014.

In 2017, we launched the SmartVest SQL with SmartVest Connect™

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equipment channel and capture both the manufacturer and distributor margins.

primary goals for the fiscal 2020, include:

profitable revenue growth;

quality referrals and increasing the rate of reimbursement on referrals through clinic

and hospital call point;

● maintaining

the highest standards of integrity, respect and privacy.

key growth strategies for the fiscal 2021 include:

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See also Note 1 to the Financial Statements, included in Part II, Item 8, of this

Annual Report on Form 10-K.

Pandemic and CARES Act Funding

March 2020, the World Health Organization designated COVID-19 as a global pandemic.

The impact of the COVID-19 pandemic on our

business remains uncertain and its effects on our operational and financial performance will depend in part on future developments,

which cannot be reasonably estimated at this time.

Such future developments include, but are not limited to, the duration, scope

and severity of the COVID-19 pandemic in geographic areas in which we operate or in which our patients live, actions taken to

contain or mitigate its impact, the impact on governmental healthcare programs and budgets, the development of treatments or vaccines,

and the resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and evolving situation,

we are unable to predict with confidence the likely impact of the COVID-19 pandemic on our future operations.

COVID-19 pandemic has created significant volatility, uncertainty and economic disruption and has negatively impacted business

in our industry starting in March 2020.

In particular, certain healthcare facilities and clinics restricted access to their clinicians,

reducing patient consultations and treatments, or closed temporarily due to the COVID-19 pandemic, which reduced homecare referrals

and resulted in institutional orders being postponed.

We believe that these and other responses by healthcare systems have had

a negative impact on our operating results and cash flows during the fourth quarter of fiscal 2020.

As we exited the fourth quarter

of fiscal 2020, home care referral levels returned to near prior year levels as government restrictions began to ease and patients

began re-engaging with our clinicians.

Institutional revenue has been negatively impacted as hospitals and long-term care facilities

have adjusted their operating protocols and procurement management since the onset of the COVID-19 pandemic.

We expect the impact

on our business will continue to lessen during fiscal 2021 and continue to do so in subsequent periods;

however, if COVID-19 rates

increase and federal, state and local restrictions on commerce, stay-at-home orders or other restrictions on businesses are reinstated,

such measures could have a material adverse effect on our business.

believe that the COVID-19 pandemic’s adverse impact on our operating results, cash flows and financial condition will be

primarily driven by:

the severity and duration of the pandemic;

its impact on the U.S.

healthcare system and economy;

timing, scope and effectiveness of U.S.

governmental responses to the COVID-19 pandemic.

we have not yet experienced adverse impacts on our supply chain, it is possible the COVID-19 pandemic could have an adverse impact

on our supply chain in the future, including impacts associated with preventive and precautionary measures that other businesses

and the governments are taking.

A reduction or interruption in any of our manufacturing processes could have a material adverse

effect on our business.

response to the negative impacts of the COVID-19 pandemic on our business, in April 2020 we initiated cost-containment measures,

which included reducing discretionary and variable spend, such as travel, and the use of contractors, consultants, temporary help

and employee furloughs in our manufacturing and general and administrative functions due to lower near-term demand for our products.

Employee furloughs continued through the end of July 2020, at which time we returned to full employment in both our manufacturing

and general and administrative functions.

have also taken measures to ensure the safety of our employees and to comply with applicable governmental orders.

our business to be essential under applicable orders due primarily to our role in manufacturing and supplying needed medical devices

to patients with respiratory related issues.

response to the COVID-19 pandemic and the U.S.

federal government’s declaration of a public health emergency, the CMS implemented

a number of temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public health

These waivers are retroactively effective to March 1, 2020.

Clinical indications and documentation typically required

will not be enforced for respiratory related products including the SmartVest System (solely with respect to Medicare patients).

The minimum documentation now requires a valid order and documentation of a respiratory related diagnosis.

Face-to-face and in-person

requirements for respiratory devices are being waived during such period, which is currently scheduled to expire in October 2020.

April 10, 2020, we received a stimulus payment in the amount of approximately $913,000 under the Provider Relief Fund established

pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which is intended to offset losses

in revenue and expenses Medicare fee-for-service providers incurred due to the impacts of the COVID-19 pandemic.

We are a Medicare

fee-for-service provider, and incurred revenue losses subsequent to receipt of the funds in excess of the amount of the stimulus

payment, and recognized the full amount as income during fiscal 2020.

Recognition and Allowance for Doubtful Accounts

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criteria for capitalization of costs under Accounting Standards Codification (“ASC”) 340-40, “Other Assets and

Deferred Costs”, or other applicable guidance are met.

Deferred Costs,”

or other applicable guidance are met.

include shipping and handling fees in net revenues.

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it to expected future production requirements, sales forecasts and current estimated market values.

recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the

tax basis of assets and liabilities.

We provide a valuation allowance for deferred tax assets if we determine, based on the weight

of available evidence, that it is more likely than not that some or all of the deferred tax assets will not be realized.

reverse a valuation allowance if we determine, based on the weight of all available evidence, including when cumulative losses

become positive income, that it is more likely than not that some or all of the deferred tax assets will be realized.

provide a warranty on the SmartVest System that covers the cost of replacement parts and labor, or a new SmartVest System in the

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and Canada, we provide a lifetime warranty to the individual patient for whom the SmartVest System is prescribed.

For sales to institutions within the U.S., and for all international sales, we provide a three-year warranty.

We estimate, based

upon a review of historical warranty claim experience, the costs that may be incurred under our warranty policies and record a

liability in the amount of such estimate at the time a product is sold.

The warranty cost is based upon future product performance

and durability and is estimated largely based upon historical experience.

We estimate the average useful life of our products

to be approximately five years.

Factors that affect our warranty liability include the number of units sold, historical and anticipated

rates of warranty claims, the product’s useful life, and cost per claim.

At our discretion, based upon the cost to either

repair or replace a product, we have occasionally replaced such products covered under warranty with a new or refurbished model.

We periodically assess the adequacy of our recorded warranty liability and make adjustments to the accrual as claims data and

historical experience warrant.

payment awards consist of options and restricted stock issued to employees and directors for services.

Expense for options is

estimated using the Black-Scholes pricing model at the date of grant and expense for restricted stock is determined by the closing

price on the day the grant is made.

The portion of the award that is ultimately expected to vest is recognized on a straight-line

basis over the requisite service or vesting period of the award and adjusted upon completion of the vesting period.

In determining

the fair value of our share-based payment awards, we make various assumptions using the Black-Scholes pricing model, including

expected risk-free interest rate, stock price volatility, life and forfeitures.

See Note 8 to the Financial Statements included

in Part II, Item 8, of this Report for a description of these assumptions.

For sales to institutions within the U.S., and for all international sales, except Canadian home care, we provide a three-year

We estimate, based upon a review of historical warranty claim experience, the costs that may be incurred under our warranty

policies and record a liability in the amount of such estimate at the time a product is sold.

The warranty cost is based on future

product performance and durability and is estimated largely based on historical experience.

We estimate the average useful life

of our products is approximately five years.

Factors that affect our warranty liability include the number of units sold, historical

and anticipated rates of warranty claims, the product’s useful life, and cost per claim.

At our discretion, based upon the

cost to either repair or replace a product, we have occasionally replaced such products covered under warranty with a new or refurbished

We periodically assess the adequacy of our recorded warranty liability and make adjustments to the accrual as claims data

and historical experience warrant.

payment awards consist of options issued to employees.

Expense for options is estimated using the Black-Scholes pricing model

at the date of grant.

The portion of the award that is ultimately expected to vest is recognized on a straight-line basis over

the requisite service or vesting period of the award and adjusted upon completion of the vesting period.

In determining the fair

value of our share-based payment awards, we make various assumptions using the Black-Scholes pricing model, including expected

risk-free interest rate, stock price volatility, life and forfeitures.

See Note 8 to the Financial Statements included in Part

II, Item 8, of this Annual Report on Form 10-K for a description of these assumptions.

of Operations

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Months Ended June 30,

Increase (Decrease)

Total Revenue

Home Care Revenue

Institutional Revenue

International Revenue

Institutional

Care Distributor Revenue

International

Care Revenue.

Our home care revenue increased by 1.3%, or approximately $374,000, for fiscal 2020, compared to fiscal 2019.

Home care revenue increased year-over-year predominantly due to a higher number of referrals per field sales employee, a higher

number of field sales employees and a greater referral to approval percentage.

Home care revenue increased year-over-year predominantly due to a greater percentage of approved referrals and a higher average

allowable based on payer mix, which was partially offset by a lower level of referrals as compared to the prior year.

in fiscal 2020 referrals was due to a significant decrease in referrals that occurred during the three months ended June 30, 2020

driven by the COVID-19 pandemic.

As we exited fiscal 2020, referrals began to come back to pre-COVID-19 levels.

Home care referrals

benefited from a temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public

health emergency.

These waivers are retroactively effective to March 1, 2020.

Clinical indications and documentation typically

required will not be enforced for respiratory related products including the SmartVest System (solely with respect to Medicare

The minimum documentation now requires a valid order and documentation of a respiratory related diagnosis.

and in-person requirements for respiratory devices are being waived during such period, which is currently scheduled to expire

in October 2020.

Institutional

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Institutional

revenue includes sales to distributors, group purchasing organization (“GPO”) members, and other institutions.

increase in institutional revenue was a result of an increase in the number of single patient use garments sold compared to the

same period in the prior year, partially offset by lower revenue and average selling prices of units sold.

revenue includes sales to group purchasing organization (“GPO”) members, rental companies and other institutions.

The increases in institutional revenue was primarily due to a higher selling price per device and an increase in the number of

devices sold as compared to the prior year.

Since the onset of the COVID-19 pandemic, institutional revenue has been negatively

impacted as hospitals and long-term care facilities have adjusted their operating protocols and procurement management.

Care Distributor Revenue.

Home care distributor revenue was approximately $430,000 for fiscal 2020.

We began selling to home

medical equipment distributors during fiscal 2020, who in turn sell our SmartVest System in the U.S.

home care market.

International

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The increase in gross profit was primarily related to increases in domestic home care,

The decrease in gross profit as a percentage of net revenue was driven by a lower selling price per device in our institutional

the fiscal years ended June 30, 2017 and June 30, 2016, we lowered the cost of our SmartVest SQL to a cost significantly lower

than our previous products.

This shortened the time in which we expect to phase out sales of our SV2100 product.

Because of this,

we recorded an additional reserve on certain SV2100 parts that may no longer be utilized in production, of $30,000 and $100,000

during fiscal 2019 and 2018, respectively.

As we continue to phase out sales of the SV2100, we will continue to monitor and refine

our reserve estimate if circumstances change.

believe that as we continue to grow sales we will be able to leverage manufacturing costs, and that gross margins, over the long-term,

will be in a range slightly below 80%, although there can be fluctuations on a short-term basis related to average reimbursement

based on the mix of referrals during any given period.

Factors such as diagnoses that are not assured of reimbursement, insurance

programs with lower allowable reimbursement amounts (for example, state Medicaid programs), and whether an individual patient

meets prerequisite medical criteria for reimbursement, may have an effect on average reimbursement received on a short-term basis.

institutional revenue and home care distributor revenue.

The increase in gross profit as a percentage of net revenue was driven

by a higher average allowable due to payer mix compared to the prior fiscal year.

believe as we continue to grow revenue we will be able to leverage manufacturing costs, although there can be fluctuations on

a short-term basis related to average reimbursement based on the mix of referrals during any given period.

Factors such as diagnoses

that are not assured of reimbursement, insurance programs with lower allowable reimbursement amounts (for example, state Medicaid

programs), and whether an individual patient meets prerequisite medical criteria for reimbursement, may have an effect on average

reimbursement received on a short-term basis.

General and Administrative Expenses.

Selling, general and administrative (“SG&A”) expenses for fiscal 2020

were approximately $20,446,000, compared to approximately $18,809,000 for the prior year, an increase of approximately $1,637,000,

payroll and compensation-related expenses increased by approximately $1,369,000, or 11.6%, to approximately $13,148,000.

The increases

in fiscal 2019 were due to additional employees in sales and administrative roles, additional sales incentives on higher revenue

accruals, annual salary increases, a higher management bonus accrual and higher share-based equity compensation expense as compared

to the prior year periods.

and legal fees decreased by approximately $206,000 to approximately $1,524,000 in fiscal 2019, compared to approximately $1,730,000

were approximately $19,945,000, compared to approximately $20,435,000 for the prior year, a decrease of approximately $490,000,

payroll and compensation-related expenses decreased by approximately $687,000, or 5.2%, to approximately $12,461,000.

was due to eliminating certain sales roles during the latter part of fiscal 2019, a lower number of administrative roles and lower

share-based compensation expense.

and legal fees increased by approximately $487,000 to approximately $2,002,000 in fiscal 2020, compared to approximately $1,524,000

in fiscal 2019.

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information technology (“IT”) technical support, and consulting fees for enhancing our market development strategy.

The decreases in professional fees were primarily in shareowner services, legal and IT costs, which were partially offset by an

increase in marketing consulting fees.

fees were approximately $256,000 in fiscal 2019, representing a decrease of approximately $376,000, or 59.5%, as compared to the

The decrease in recruiting fees was due primarily to adding fewer employees in sales as compared to the prior year.

meals and entertainment expenses were approximately $2,341,000 for fiscal 2019 compared to $2,181,000 in the prior year, an increase

The increase in professional fees were primarily in legal, consulting and shareowner services.

fees were approximately $430,000 in fiscal 2020, representing an increase of approximately $174,000, or 68.0%, as compared to

the prior year.

The increase in recruiting fees was due primarily to hiring a greater number of employees in sales and administrative

roles as compared to the prior year.

meals and entertainment expenses were approximately $1,944,000 for fiscal 2020 compared to $2,341,000 in the prior year, a decrease

of approximately $397,000, or 17.0%.

The increase was due primarily to an increase in the average travel, meals and entertainment

expense per salesperson.

Depreciation and amortization expense was approximately $537,000 for fiscal 2019 compared to $396,000 in the

prior year, an increase of approximately $141,000, or 35.4%.

The increase was due primarily to our decision to terminate a lease

of a property used for office space on June 30, 2019, which required us to accelerate the amortization of the leasehold improvement

assets associated with the property in the amount of approximately $151,000.

We are currently expanding owned real estate to replace

the leased office space which should be completed in the first quarter of fiscal 2020.

during fiscal 2018, we concluded an examination with the Internal Revenue Service (“IRS”) related to federal medical

device excise taxes paid on revenue associated with the sales of the SmartVest System during the tax periods ended June 30, 2014

through December 31, 2015.

As a result, it was determined the SmartVest System was eligible for the retail exemption from the

medical device excise tax, resulting in the IRS agreeing to a refund of approximately $406,000, which was included as a reduction

of SG&A expense during fiscal 2018.

The refund was received from the IRS in July 2018.

We expect the SmartVest System we will

be exempt from the medical device tax after the conclusion of the current two-year medical device tax moratorium, which is scheduled

to end on December 31, 2019.

The decrease was due primarily to eliminating certain sales roles during fiscal 2019 and

a lower level of travel due to the COVID-19 pandemic during the three months ended June 30, 2020.

and amortization expense was approximately $397,000 for fiscal 2020 compared to $537,000 in the prior year, a decrease of approximately

$140,000, or 26.1%.

The decrease was due primarily to our decision to terminate the lease of a property used for office space

on June 30, 2019, which required us to accelerate the amortization of the leasehold improvement assets associated with the property

in the amount of approximately $151,000 during the prior fiscal year.

and Development Expenses.

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fiscal 2020 and 2019, respectively.

We expect spending on research and development to remain consistent during fiscal 2020 as

compared to fiscal 2019 as we work on enhancements to our SmartVest Connect wireless patient monitoring feature, initiate early

stage design work on next generation product enhancements and evaluate other market opportunities, including the anticipated launch

of SmartVest Connect with Bluetooth™

technology and supporting mobile applications.

Certain expenses related to our innovation

investments are not always captured in R&D expenses.

These expenses may be included in cost of revenue as in the case of depreciation

of tooling, or for SG&A, in the case of professional fees or higher labor expense, as we improve our internal processes or

enhance our customer service.

As a percentage of sales, we expect spending on R&D expenses to increase slightly during

the fiscal year ended June 30, 2021 as compared with fiscal 2020 with engineering resources focusing on next generation product

enhancements.

Certain expenses related to our innovation investments are not always captured in R&D expenses.

These expenses

may be included in cost of revenue as in the case of depreciation of tooling, or for SG&A, in the case of professional fees

or higher labor expense, as we improve our internal processes or enhance our customer service.

Stimulus Income.

In fiscal 2020, we recorded $913,000 of government stimulus income related to general distribution funds

received from the Provider Relief Fund established by the CARES Act for Medicare fee-for-service providers due to lost revenues

resulting from the COVID-19 pandemic.

interest income was approximately $121,000 during fiscal 2020 compared to net interest income of $91,000 during the prior fiscal

Increases in net interest income was primarily driven by higher rates earned on our cash deposits and the payoff of our

term loan of approximately $1,103,000 on December 18, 2018.

Increases in net interest income was primarily driven by the payoff of our term loan of approximately $1,103,000 on December

fiscal 2020, we recorded a current income tax expense of $1,078,000.

Estimated income tax expense during fiscal 2020 includes

a current tax expense of $1,204,000 and a deferred benefit of $126,000.

Estimated income tax expense for fiscal 2020 includes

a discrete current tax benefit of approximately $358,000 related to the excess tax benefit of non-qualified stock options exercised.

fiscal 2019, we recorded a current income tax expense of $940,000.

Estimated income tax expense during fiscal 2019 includes a

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current tax benefit of approximately $14,000 related to the excess tax benefit of non-qualified stock options exercised.

income tax expense during fiscal 2018 includes a current tax expense of $1,260,000 and a deferred benefit of $359,000.

income tax expense during fiscal 2018 includes a discrete deferred tax expense of approximately $48,000 as a result of re-measuring

certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in future periods under the

Tax Cuts and Jobs Act of 2017.

Additionally, a discrete tax benefit of approximately $27,000 was recognized during fiscal 2018

as a result of greater federal and state research and development tax credits than what was originally estimated in our tax provision

for the fiscal year ended June 30, 2017.

effective tax rates were 20.6% and 32.3% for fiscal 2020 and 2019, respectively.

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income for fiscal 2020 was approximately $4,161,000, compared to net income of approximately $1,980,000 in fiscal 2019.

The year-over-year increase in net income was driven primarily by an increase in gross profit on higher revenue, lower

recruiting costs and lower professional and legal fees.

These increases in net income was partially offset by higher

compensation, higher R&D expenses, a discrete tax expense of $157,000 related to unexercised fully-vested stock options

and higher depreciation and amortization expense related to the termination of leased office space of approximately $151,000.

Additionally, net income during fiscal 2018 included a medical device excise tax refund of approximately $406,000.

The year-over-year

increase in net income was driven primarily by an increase in gross profit on higher revenue, government stimulus income related

to the COVID-19 pandemic and lower payroll and compensation expenses, which was partially offset by an increase in investments

in R&D and higher professional fees.

Fiscal 2020 net income also benefited by a discrete current tax benefit of approximately

$358,000 related to the excess tax benefit of non-qualified stock options exercised.

and Capital Resources

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Cash flows from operating activities

consisted of net income of approximately $1,969,000, non-cash expenses of approximately $1,602,000 and a decrease in prepaid expenses

and other assets of $404,000.

These cash flows from operating activities were partially offset by increases in accounts receivable

of approximately $949,000, an increase in contract assets of $219,000, a decrease in income taxes payable of $109,000, an increase

in inventory of $106,000 and a decrease in accounts payable and other current liabilities of $2,000.

consisted of net income of approximately $4,161,000, non-cash expenses of approximately $1,517,000, a decrease in contract assets

of $93,000 and a decrease in prepaid expenses and other assets of $78,000.

These cash flows from operating activities were partially

offset by an increase in inventory of $449,000, a decrease in accounts payable and other current liabilities of approximately

$472,000, a decrease in income taxes payable of $289,000, an increase in income taxes receivable of $262,000 and an increase in

accounts receivable of $181,000.

Flows from Investing Activities

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of approximately $844,000 in expenditures for property and equipment and $133,000 in payments for patent and trademark costs.

These cash flows were partially offset by $2,000 in proceeds received from the sales of fixed assets.

Flows from Financing Activities

fiscal 2019, cash used in financing activities was approximately $851,000, consisting of $1,103,000 of principal payments on long-term

debt and $252,000 in proceeds received from stock options that were exercised.

fiscal 2020, cash used in financing activities was approximately $548,000, consisting of $628,000 for taxes paid on behalf of

employees for stock options that were exercised on a net basis, which was partially offset by $80,000 of proceeds received from

stock options exercised.

of Capital Resources

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under the line of credit are secured by a security interest in substantially all of our tangible and intangible assets.

connection with the credit facility, we also had a term loan, which had an outstanding principal balance of approximately $1,103,000

as of June 30, 2018 and an interest rate of 3.88%.

The unamortized debt issuance cost associated with this debt was approximately

$2,000 as of June 30, 2018.

The term loan matured on December 18, 2018, and we utilized cash to repay the required balloon payment

of approximately $1,085,000.

Payment obligations under the term loan were secured by a mortgage on our real property, which security

interest was released upon payoff.

We no longer have any obligation under the term loan.

documents governing our line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net

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fiscal 2020 and 2019, we spent approximately $844,000 and $1,331,000, respectively, on property and equipment.

In April 2019,

we entered into an agreement for a building expansion project at our New Prague, Minnesota facility.

This building expansion commenced

in April 2019, and we anticipate it will be complete in the first quarter of fiscal 2020.

We estimate the total cost of the project

to range between $1,500,000 and $1,700,000, will save us over $130,000 in annual lease expense and provide us with sufficient

infrastructure to support our long-term growth.

currently expect to finance planned equipment purchases and the completion of our building expansion with cash flows from operations

or borrowings under our credit facility.

We may need to incur additional debt if we have an unforeseen need for additional capital

equipment or if our operating performance does not generate adequate cash flows.

We currently expect

to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility.

We may need to

incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not

generate adequate cash flows.

Sheet Arrangements

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Accounting Pronouncements

accounting pronouncements:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance creating

ASC 606, “Revenue from Contracts with Customers.”

The new section replaces ASC 605, “Revenue Recognition,”

and replaces all revenue guidance for specialized transactions and industries.

The new section is intended to conform revenue

accounting principles to concurrently issued International Financial Reporting Standards with previously differing treatment between

practice and that of much of the rest of the world, as well as to enhance disclosures related to disaggregated revenue information.

adopted the new standard effective July 1, 2018, utilizing the full retrospective method, which required us to recast each prior

reporting period presented and included adjustments with the cumulative impact of increasing retained earnings by $0.8 million

as of July 1, 2017.

We updated our control framework for new internal controls and made changes to existing controls related to

the new revenue recognition standard.

changes resulting from the adoption of ASC 606:

adoption of ASC 606 resulted in a change to the timing of revenue recognition, primarily driven by the following:

of our SmartVest ®

Airway Clearance Systems (“SmartVest Systems”)

are sold to customers (patients) who have coverage with certain third-party insurance

providers from which we receive reimbursements on a monthly installment basis over a

specific term.

The ultimate amount of consideration received can be significantly less

than expected if the applicable third-party insurance provider discontinues payments

due to changes in the patient’s status, including insurance coverage, hospitalization,

death, or otherwise becoming unable to use the SmartVest System.

As the transaction price

was not deemed to be fixed and determinable, we previously deferred revenue recognition

at the time of sale and recognized revenue as each installment became billable and other

criteria were met.

Under ASC 606, we estimate variable consideration in the transaction

price at contract inception and through the duration of the contract based on historical

experience and other relevant factors and recognize revenue when control of the SmartVest

System is transferred to the patient, which occurs at the time of shipment.

in an acceleration of the timing of revenue recognition relative to prior accounting

sell the SmartVest Systems to patients under circumstances where we believe the criteria

for reimbursement under government or commercial payer contracts has been met;

coverage is unconfirmed or payments are under appeal, leading to uncertainty as to the

amount of the transaction price that will be collected.

Additionally, amounts due directly

from patients for deductibles, coinsurance and copays may be subject to implicit price

concessions if the patient becomes unable to pay due to hospitalization or death.

we fully deferred revenue at the time of sale until the transaction price for these contracts

was deemed to be fixed and determinable (i.e., when the appeal was settled, or payment

was received).

Under ASC 606, we estimate variable consideration in the transaction price

at contract inception and reassess throughout the contract period based on historical

experience and other relevant factors and recognizes revenue when control of the SmartVest

System is transferred to the patient, which occurs at the time of shipment or delivery.

February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-02, “Leases (Topic 842)”

(“ASU 2016-02”).

This standard requires the recognition of all lease transactions

on the balance sheet as a lease liability and a right-of-use asset (as defined in ASU 2016-02).

ASU 2016-02 to Topic 842 –

Leases (“ASC 842”) became effective on July 1, 2019 and was applied retrospectively to all periods presented.

the practical expedient to calculate the present value of the fixed payments without having to perform an allocation to lease

and non-lease components.

on Previously Reported Results:

following tables present a recast of selected statement of operations line items after giving effect to the adoption of ASC 606:

following table presents a recast of selected unaudited statement of operations line items after giving effect to the adoption

the twelve months ended June 30, 2019

Previously Reported

general and administrative

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operating expenses

income (expense), net

income before income taxes

following table presents a recast of selected balance sheet line items after giving effect to the adoption of ASC 606:

receivable, net of allowances for doubtful accounts

expenses and other current assets

and Shareholders’

following table presents a recast of selected statement of cash flow line items after giving effect to the adoption of ASC 606:

following table presents a recast of selected unaudited balance sheet line items after giving effect to the adoption of ASC 842:

Previously Reported

and Shareholder’s Equity

maturities of other long-term liabilities

long-term liabilities

following table presents a recast of selected unaudited statement of cash flow line items after giving effect to the adoption

the Twelve months ended June 30, 2019

Flows From Operating Activities

Previously Reported

Flow from Operating Activities

in operating assets and liabilities:

expenses and other assets

payable and accrued liabilities

February 2016, FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).”

This standard

requires the recognition of all lease transactions with terms in excess of 12 months on the balance sheet as a lease liability

and a right-of-use asset (as defined in the standard).

ASU 2016-02 will be effective for fiscal years beginning after December

15, 2018, including interim periods within those fiscal years, with earlier application permitted.

Upon adoption, the lessee will

apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the

year of adoption.

We have evaluated ASU 2016-02 and expect it will have no material impact on our financial statements or financial

statement disclosures upon adoption based on current facts and circumstances.

and Qualitative Disclosures About Market Risk.

1 unchanged sentence

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 5. Market for Registrant’s Common Equity