What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-08-25 compared with 2019-08-27 · 308 added, 312 removed, 490 unchanged (56% of the section changed)

19 unchanged sentences

in Accounting Principle

discussed in Note 1 to the financial statements, the Company has changed the manner in which it accounts for revenues from contracts

with customers in fiscal year 2019.

discussed in Note 1 to the financial statements, the Company has changed the manner in which it accounts for leases in fiscal

year 2020, due to the adoption of Accounting Standards Codification Topic 842, Leases .

financial statements are the responsibility of the Company’s management.

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June 30, 2020 and 2019

receivable (net of allowances for doubtful accounts of $45,000)

expenses and other current assets

Current Assets

and equipment, net

intangible assets, net

and Shareholders’

maturities of long-term debt

accrued liabilities

Accounts receivable (net of allowances for doubtful accounts of $45,000)

Contract assets

Prepaid expenses and other current assets

Income tax receivable

Total current assets

Property and equipment, net

Finite-life intangible assets, net

Deferred income taxes

Liabilities and Shareholders’

Current Liabilities

and Contingencies

Current maturities of other long-term liabilities

Accounts payable

Accrued compensation

Income tax payable

Warranty reserve

Other accrued liabilities

Total current liabilities

Other long-term liabilities

Total liabilities

Commitments and Contingencies

Shareholders’

stock, $0.01 par value;

Common stock, $0.01 par value;

13,000,000 shares;

8,408,351 and 8,288,659 issued and outstanding at June 30, 2019 and

June 30, 2018, respectively

paid-in capital

shareholders’

liabilities and shareholders’

8,567,834 and 8,408,351 issued and outstanding at June 30, 2020 and June 30, 2019, respectively

Additional paid-in capital

Retained earnings

Total shareholders’

Total liabilities and shareholders’

Notes to Financial Statements.

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Ended June 30,

general and administrative

and development

operating expenses

income before income taxes

Weighted-average

common shares outstanding:

Cost of revenues

Operating expenses (income)

Selling, general and administrative

Research and development

Government stimulus income

Total operating expenses

Operating income

Interest income, net

Net income before income taxes

Income tax expense

Income per share:

Weighted-average common shares outstanding:

Notes to Financial Statements.

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Shareholders’

at June 30, 2017

of restricted stock

of common stock upon exercise of options

compensation expense

at June 30, 2018

of restricted stock

of common stock upon exercise of options

compensation expense

at June 30, 2019

Balance at June 30, 2018

Issuance of restricted stock

Issuance of common stock upon exercise of options

Share-based compensation expense

Balance at June 30, 2019

Issuance of restricted stock

Issuance of common stock upon exercise of options

Taxes paid on stock option exercised on a net basis

Share-based compensation expense

Balance at June 30, 2020

Notes to Financial Statements.

Electromed, Inc.

Statements of Cash Flows

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Ended June 30,

Flows From Operating Activities

to reconcile net income to net cash provided by operating activities:

of finite-life intangible assets

of debt issuance costs

compensation expense

on disposal of property and equipment

on disposal of intangible assets

in operating assets and liabilities:

expenses and other assets

payable and accrued liabilities

cash provided by operating activities

Flows From Investing Activities

for property and equipment

of sales of fixed assets

for finite-life intangible assets

cash used in investing activities

Flows From Financing Activities

payments on long-term debt including capital lease obligations

of common stock upon exercise of options

cash provided by (used in) financing activities

increase in cash

Disclosures of Cash Flow Information

paid for interest

paid for income taxes

Disclosures of Noncash Investing and Financing Activities Property

and equipment acquisitions in accounts payable

Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of finite-life intangible assets

Amortization of debt issuance costs

Share-based compensation expense

Deferred income taxes

Loss on disposal of property and equipment

Loss on disposal of intangible assets

Changes in operating assets and liabilities:

Accounts receivable

Contract assets

Prepaid expenses and other assets

Income tax receivable

Income tax payable

Accounts payable and accrued liabilities

Net cash provided by operating activities

Cash Flows From Investing Activities

Expenditures for property and equipment

Proceeds of sales of equipment

Expenditures for finite-life intangible assets

Net cash used in investing activities

Cash Flows From Financing Activities

Principal payments on long-term debt including capital lease obligations

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Net cash used in financing activities

Net increase in cash

Beginning of period

End of period

Supplemental Disclosures of Cash Flow Information

Cash paid for interest

Cash paid for income taxes

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment acquisitions in accounts payable

Intangible asset acquisitions in accounts payable

Notes to Financial Statements.

Notes to Financial Statements

of Business and Summary of Significant Accounting Policies

Nature of Business and Summary of Significant Accounting Policies

Electromed, Inc.

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of variable consideration, allowance for doubtful accounts, the potential impairment of intangible and long-lived assets, inventory

obsolescence, share-based compensation, income taxes and the warranty reserve.

obsolescence, share-based compensation and the warranty reserve.

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 the

Company’s business remains uncertain and its effects on 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 the Company operates or in which its 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, the Company is unable to predict with confidence the likely impact of the COVID-19 pandemic on its future

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

in the Company’s 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.

The Company believes that these and other responses

by healthcare systems had a negative impact on the Company’s operating results and cash flows during the fourth quarter

of fiscal 2020.

response to the negative impacts of the COVID-19 pandemic on the Company’s business, in April 2020 the Company 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 its manufacturing and general and administrative functions due to lower

near-term demand for its products.

Company has also taken measures to ensure the safety of its employees and to comply with applicable governmental orders.

considers its business to be essential under applicable orders due primarily to its 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, the Company 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.

The Company, a Medicare fee-for-service provider, 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.

Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable

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straight-line method over the estimated useful lives of the assets.

Leasehold improvements and assets acquired under capital leases

are depreciated over the shorter of their estimated useful lives or the remaining lease term.

The Company retains ownership of

demonstration equipment in the possession of both inside and outside sales representatives, who use the equipment in the sales

Leasehold improvements are depreciated over the shorter of

their estimated useful lives or the remaining lease term.

The Company retains ownership of demonstration equipment in the possession

of both inside and outside sales representatives, who use the equipment in the sales process.

intangible assets:

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The Company provides a lifetime warranty on its products to the prescribed patient for sales within the U.S.

a three-year warranty for all institutional sales and sales to individuals outside the U.S.

The Company estimates the costs that

may be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped.

that affect the Company’s warranty liability include the number of units shipped, historical and anticipated rates of warranty

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

The Company periodically assesses the adequacy of its recorded warranty

liability and adjusts the amounts as necessary.

Canada, and a three-year warranty for all institutional sales and sales to individuals outside the U.S.

(except for Canadian home

The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs

at the time the product is shipped.

Factors that affect the Company’s warranty liability include the number of units shipped,

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

The Company periodically

assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.

in the Company’s warranty liability were approximately as follows:

Ended June 30,

warranty reserve

for products sold

and costs incurred for warranty claims

Ending warranty

Years Ended June 30,

Beginning warranty reserve

Accrual for products sold

Expenditures and costs incurred for warranty claims

Ending warranty reserve

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary

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portion or all of the deferred tax assets will not be realized.

The Company reverses a valuation allowance if it determined, based

The Company reverses a valuation allowance if it determines, based

on the weight of all available evidence, including when cumulative losses become positive income, that it is more likely than

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to secure financing to replace its debt.

At June 30, 2018, the fair value of long-term debt, which was paid in full during fiscal

2019, was not significantly different than its carrying value.

and diluted earnings per share:

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unless their effect is anti-dilutive.

Common stock equivalents of 318,000 shares and 187,834 shares were excluded from the calculation

Common stock equivalents of zero shares and 318,000 shares were excluded from the calculation

of diluted earnings per share for fiscal 2020 and 2019, respectively, as their impact was antidilutive.

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accounting pronouncements:

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

Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”

(“ASC 606”).

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 U.S.

practice and that of much of the rest of the world, as well

as to enhance disclosures related to disaggregated revenue information.

Company adopted the new standard effective July 1, 2018, utilizing the full retrospective method, which required the Company 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.

The Company has updated its 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:

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

of the Company’s SmartVest ®

Airway Clearance Systems (“SmartVest

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

insurance providers from which the Company receives 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, the Company 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, the Company estimates 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 recognizes revenue when

control of the SmartVest System is transferred to the patient, which occurs at the time

This results in an acceleration of the timing of revenue recognition relative

to prior accounting treatment.

Company sells the SmartVest Systems to patients under circumstances where it believes

the criteria for reimbursement under government or commercial payer contracts has been

however, 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

Previously, the Company 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, the Company estimates

variable consideration in the transaction price at contract inception and reassesses

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.

In 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

ASU 2016-02 to Topic 842 –

Leases (“ASC 842”) became effective on July 1, 2019 and was applied retrospectively

to all periods presented.

The Company applied the practical expedient to calculate the present value of the fixed payments without

having to perform an allocation to lease and non-lease components.

Additional information and required disclosures are included

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:

the twelve months ended June 30, 2018

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

For the twelve months ended June 30, 2019

As Previously Reported

Cost of revenues

Operating expenses

general and administrative

and development

operating expenses

Selling, general and administrative

Research and development

Total operating expenses

Operating income

income (expense), net

Net income before

Interest income, net

Net income before income taxes

Income tax expense

Income per share:

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

Current Assets

receivable, net of allowances for doubtful accounts

expenses and other current assets

Liabilities and

Shareholders’

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

June 30, 2019

As Previously

Liabilities and Shareholder’s Equity

Current maturities of other long-term liabilities

Other long-term liabilities

Retained earnings

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, 2018

Cash Flows From

Operating Activities

Deferred taxes

Accounts receivable

Contract assets

Prepaid expenses and

Accounts 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.

The Company has evaluated ASU 2016-02 which will have no material impact on its financial statements or

financial statement disclosures upon adoption based on current facts and circumstances.

Reclassifications:

items in the Company’s financial statements for fiscal 2018 have been reclassified to be consistent with the classifications

adopted for the Company’s fiscal 2019.

The fiscal 2019 reclassifications had no impact on previously reported net income

For the Twelve months ended June 30, 2019

As Previously

Cash Flow from Operating Activities

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Accounts payable and accrued liabilities

is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable

consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable

consideration and other factors affecting the transaction price, including non-cash consideration, consideration paid or payable

to customers and significant financing components.

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by transferring control of a distinct good or service to a customer, as further described below under Performance obligations

and transaction price .

promised goods and services in a contract are considered a performance obligation and accounted for separately if the individual

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Costs related to products delivered are recognized in the period incurred, unless

criteria for capitalization of costs under ASC 340-40, “Other Assets and Deferred Costs”, or other applicable guidance

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

and Deferred Costs”

(“ASC 340”), or other applicable guidance are met.

Company includes shipping and handling fees in net revenues.

Shipping and handling costs associated with the shipment of SmartVest

Systems are accounted for as a fulfillment cost and are included in cost of revenues.

timing of revenue recognition, billings and cash collections results in accounts receivable on the condensed balance sheets as

further described below under Accounts receivable and Contract assets .

Shipping and handling costs associated with the shipment of the Company’s

SmartVest®

Airway Clearance System (“SmartVest System”) after control has transferred to a customer are accounted

for as a fulfillment cost and are included in cost of revenues.

timing of revenue recognition, billings and cash collections results in accounts receivable on the balance sheets as further described

below under Accounts receivable and Contract assets .

Disaggregation

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Institutional

Home Care Distributor

International

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the twelve months ended June 30,

in the Company’s home care and international markets are recognized at a point in time when control passes to the customer

upon product shipment or delivery.

Revenues in the Company’s institutional market include sales recognized at a point in

time upon shipment or delivery as well as revenues recognized over time under operating leases.

in the Company’s home care, home care distributor and international markets are recognized at a point in time when control

passes to the customer upon product shipment or delivery.

Revenues in the Company’s institutional market include sales recognized

at a point in time upon shipment or delivery as well as revenues recognized over time under operating leases.

obligations and transaction price.

A performance obligation is a promise in a contract to transfer a distinct good or service

to the customer and is the unit of account under ASC 606.

A contract’s transaction price is allocated to each distinct performance

obligation in proportion to the standalone selling price for each and recognized as revenue when, or as, the performance obligation

is satisfied.

The Company’s performance obligations and the timing or method of revenue recognition in each of the Company’s

markets are discussed below:

to the customer and is the unit of account under ASC 606, “Revenue From Contracts With Customers”

(“ASC 606”).

A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling

price for each and recognized as revenue when, or as, the performance obligation is satisfied.

The Company’s performance

obligations and the timing or method of revenue recognition in each of the Company’s markets are discussed below:

care market .

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As such, transactions in the home care market

consist of a single performance obligation, the SmartVest System.

consist of a single performance obligation:

the SmartVest System.

care patients generally will rely on third-party payers, including commercial payers and governmental payers such as Medicare,

Medicaid, and the Veteran’s Administration, to cover and reimburse all or part of the cost of the SmartVest System.

Medicaid and the U.S.

Department of Veterans Affairs to cover and reimburse all or part of the cost of the SmartVest System.

third-party payers’

reimbursement programs fall into three types, distinguished by the differences in the timing of payments

from the payer, consisting of either (1) outright sale, in which payment is received from the payer based on standard terms, (2)

from the payer, consisting of either (i) outright sale, in which payment is received from the payer based on standard terms, (ii)

capped installment sale, under which the SmartVest System is sold for a series of payments that are capped not to exceed a prescribed

or negotiated amount over a period of time or (3) installment sale under which the SmartVest Systems are paid for over a period

or negotiated amount over a period of time or (iii) installment sale, under which the SmartVest System is paid for over a period

of several months as long as the patient continues to use the SmartVest System.

of type of transaction, provided criteria for an enforceable contract are met, it is the Company’s long-standing business

practice to regard all home care agreements as transferring control to the patient upon shipment or delivery, despite possible

of the type of transaction, provided criteria for an enforceable contract are met, it is the Company’s long-standing business

practice to regard all home care agreements as transferring control to the patient upon shipment or delivery, in spite of possible

payment cancellation under government or commercial programs where the payer is controlling the payment over specified time periods.

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status, including insurance coverage, hospitalization, death or otherwise becoming unable to use the SmartVest System.

once delivered to a patient who needs the system, the patient is under no obligation to return the SmartVest System should payments

be terminated as a result of the described contingencies.

As a result, the Company’s product sales qualify for point in

time revenue recognition.

Control transfers to the patient, and revenue is recognized upon shipment of the SmartVest System.

this point, physical possession and the significant risks and rewards of ownership are transferred to the patient and either a

current or future right to payment is triggered (see additional discussion under Accounts receivable and Contract assets

once delivered to a patient who needs the SmartVest System, the patient is under no obligation to return the SmartVest System

should payments be terminated as a result of the described contingencies.

As a result, the Company’s product sales qualify

for point in time revenue recognition.

Control transfers to the patient, and revenue is recognized, upon shipment of the SmartVest

At this point, physical possession and the significant risks and rewards of ownership are transferred to the patient and

either a current or future right to payment is triggered, as further discussed under Accounts receivable and Contract

assets below.

Company’s contractually stated transaction prices in the home care market are generally set by the terms of the contracts

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Rather, the extended payment terms are mandated by

the government or commercial insurance programs, the fundamental purpose of which is to avoid paying the full purchase price of

the government or commercial insurance programs;

the fundamental purpose of which is to avoid paying the full purchase price of

equipment that may potentially be used by the patient for only a short period of time.

Care Distributors.

Sales to distributors, who sell direct to patients, are made at fixed contract prices and may include

tiered pricing structures or volume-based rebates which offer more favorable pricing once certain volumes are achieved per the

negotiated contract.

The distributor’s purchases accumulate to give the distributor a right to a higher discount on purchases

in excess of the specified level within the contract period.

As a result, to the extent the Company expects the distributor to

exceed the specified volume of purchases in the annual period, it recognizes revenue at a blended rate based on estimated total

annual volume and sales revenue.

This effectively defers a portion of the transaction price on initial purchases below the specified

volumes for recognition when the higher discount is earned on purchases in excess of specified volumes.

Transfer of control of

the products occurs upon shipment or delivery to the distributor as applicable.

Institutional

The Company’s institutional sales are made to adult pulmonology clinics, cystic fibrosis centers, neuromuscular

clinics, pulmonary rehabilitation centers, hospitals and home health care centers.

Sales to these institutions are negotiated

with the individual institution or with group purchasing organizations, with payments received directly from the institution.

The Company’s institutional sales are made to hospitals and home health care centers, pulmonary rehabilitation

centers and other clinics.

Sales to these institutions are negotiated with the individual institution or with group purchasing

organizations, with payments received directly from the institution.

No insurance reimbursement is involved.

Generators are either sold or leased to the institutions and associated hoses and wraps

(used in institutional settings rather than vests) are sold separately.

Accordingly, each product is distinct and considered a

separate performance obligation in sales to institutional customers.

The agreements with institutions fall into two main types,

distinguished by differences in the timing of transfer of control and timing of payments:

Generators are either

sold or leased to the institutions and associated hoses and wraps (used in institutional settings rather than vests) are sold

Accordingly, each product is distinct and considered a separate performance obligation in sales to institutional customers.

The agreements with institutions fall into two main types, distinguished by differences in the timing of transfer of control and

timing of payments:

Under these transactions, the Company sells its products for a prescribed

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treated as operating leases and revenue is recognized ratably over the applicable rental

Lease revenue recognized during fiscal 2019 and 2018 were approximately $38,000

Lease revenue recognized during fiscal 2020 and 2019 was approximately $6,000

and $38,000, respectively.

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upon shipment or delivery.

Consequently, the Company will apply the practical expedient provided by ASC 340-40-25-4 and expense

sales incentives as incurred.

These costs are included in selling, general and administrative expenses in the Company’s

condensed statements of operations.

practical expedients .

The Company did not elect to apply any of the four optional practical expedients that provide relief

from applying the requirements of ASC 606 to certain types of contracts in the comparative periods presented when the full retrospective

method of adoption is applied.

Consequently, the Company applies the practical expedient provided by ASC 340 and expense sales incentives

These costs are included in selling, general and administrative expenses in the Company’s statements of operations.

The following table provides information about accounts receivable and contracts assets from contracts with customers:

included in “Accounts receivable, net of allowance for doubtful accounts”

Contract assets, included

in other current assets

Receivables, included in “Accounts receivable, net of allowance for doubtful accounts”

Contract assets

changes in contract assets during the period are as follows:

the twelve months

ended June 30, 2019

the twelve months

ended June 30, 2018

Contract assets, June 30,

Reclassification contract

assets to accounts receivable

Contract assets, beginning

Reclassification of contract assets to accounts receivable

Contract assets recognized

Increaase (decrease) as a result of changes

in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period

Contract assets,

June 30, 2019

Increase as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period

Contract assets, ending

components of inventories at June 30, 2020 and 2019 were approximately as follows:

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Finished goods

Estimated Inventory

to be returned

Estimated inventory to be returned

Reserve for obsolescence

Property and Equipment

and equipment, including assets under capital leases, were approximately as follows:

and Equipment

and equipment were approximately as follows:

Useful Lives (Years)

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fiscal 2020 and 2019, the Company impaired or disposed of certain property and equipment, no longer in use, with a net value of

approximately $11,000 and $26,000, respectively, which was included as an expense in cost of revenues or selling, general and

administrative expense on the statements of operations.

approximately $3,000 and $11,000, respectively, which was included as an expense in cost of revenues or selling, general and administrative

expense on the statements of operations.

Intangible Assets

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useful lives, generally 15 and 12 years, respectively.

During fiscal 2019 and 2018, the Company abandoned certain domestic and

foreign patents with a net value of approximately $5,000 and $4,000, respectively, which was included as an expense in selling,

general and administrative expense on the statements of operations.

Accumulated amortization was approximately $1,010,000 and

$902,000 at June 30, 2019 and 2018, respectively.

During fiscal 2019, the Company abandoned certain domestic and foreign

patents with a net value of approximately $5,000 which was included as an expense in selling, general and administrative expense

on the statements of operations.

Accumulated amortization was approximately $1,119,000 and $1,010,000 at June 30, 2020 and 2019,

respectively.

activity and net balances of finite-life intangible assets were approximately as follows:

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all the tangible and intangible assets of the Company.

connection with the credit facility, the Company 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 the Company 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 the

Company’s real property, which security interest was released upon payoff.

The Company no longer has any obligations under

the term loan.

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

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or pay dividends.

debt consisted of approximately the following as of June 30, 2019 and 2018:

Mortgage note payable with bank

Current portion

Debt issuance costs, net

Long-term debt

The Company’s Articles of Incorporation, as amended, have established 15,000,000 authorized shares of capital

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Ended June 30,

Risk-free interest rate

Expected term (years)

Expected volatility

182.4-192.0 %

interest rate

182.4-192.0 %

following table presents employee option activity for fiscal 2020 and 2019:

Exercise Price

Life (in Years)

Options outstanding at June 30, 2018

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that vest over six months to three years following the applicable grant date.

Company issued restricted stock awards to employees totaling 30,000 during each of fiscal 2019 and 2018, with a vesting term of

one to three years and a fair value of $5.42 and $5.53 per share, respectively.

During fiscal 2019 and 2018, the Company issued

restricted stock awards to directors totaling 10,000 shares of common stock, respectively, with a vesting term of six months and

a fair value of $5.70 and $5.77 per share, respectively.

Restricted stock transactions during the years ended June 30, 2019 and

2018 are summarized as follows:

Restricted Stock

Company issued restricted stock awards to employees totaling 35,000 and 30,000 during fiscal 2020 and 2019, respectively, with

a vesting term of one to three years and a fair value of $5.84 and $5.42 per share, respectively.

During fiscal 2020 and 2019,

the Company issued restricted stock awards to directors totaling 18,000 and 10,000, respectively, with a vesting term of six months

and a fair value of $9.74 and $5.70 per share, respectively.

Restricted stock transactions during the years ended June 30, 2020

and 2019 are summarized as follows:

Weighted-Average

Grant Date Fair Value per Share

Outstanding at June 30, 2018

15 unchanged sentences

State income tax expense, net of federal tax effect

Remeasurement of deferred taxes under U.S.

Change in valuation allowance on deferred tax assets

Change in uncertain tax positions

2 unchanged sentences

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

December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act

(the “Tax Act”).

The Tax Act significantly revised future and ongoing U.S.

corporate tax obligations by, among other

things, lowering U.S.

corporate income tax rates.

Since the Company has a June 30 fiscal year-end, the lower corporate income

tax rate was phased in, resulting in a blended U.S.

statutory federal rate of approximately 28% for fiscal 2018, and 21% for subsequent

fiscal years.

The Tax Act also eliminated the domestic production manufacturing deduction effective for the Company’s tax

year beginning July 1, 2018.

significant components of deferred income taxes were as follows:

7 unchanged sentences

Accounting method change

Valuation allowance on deferred taxes

Net deferred tax assets

Company has net state tax credit carryforwards of $82,000 and which if unused, will begin to expire in years 2025 and 2033.

Company has state tax credit carryforwards of $91,000, net of federal taxes, which if unused, will begin to expire in years 2026

The Company has taken a full valuation allowance against these credits which relate to R&D tax credits in Minnesota,

a state in which the Company has a low state apportionment factor.

Company applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized

13 unchanged sentences

Beginning balance of unrecognized tax benefits

Increase in unrecognized tax expense

Increase (decrease) in unrecognized tax expense

Lapse of statute of limitations

2 unchanged sentences

During fiscal 2020

the amount of recognized interest expense, net of tax benefit, and accrued interest on a gross basis was insignificant.

is subject to U.S.

and 2019 the amount of recognized interest expense, net of tax benefit, and accrued interest on a gross basis was insignificant.

The Company is subject to U.S.

federal income tax as well as income tax of multiple state jurisdictions.

With limited exceptions, tax years

prior to the Company’s fiscal year ended June 30, 2016 are no longer open to federal, state and local examination by taxing

and Contingencies and Subsequent Events

The Company has four leases for office and warehouse space that require monthly payments that include base rent and

the Company’s share of common expenses, including property taxes.

These leases have escalating payments ranging from approximately

$450 to $4,400 per month and expire through July 2023.

The Company has a lease for office equipment that requires payments of

approximately $1,500 per month through December 2022.

Rent expense for fiscal 2019 and 2018, was approximately $203,000 and $190,000,

respectively.

future minimum operating lease payments as of June 30, 2019, were as follows:

With limited exceptions,

tax years prior to the Company’s fiscal year ended June 30, 2017 are no longer open to federal, state and local examination

by taxing authorities.

Company has four leases for office and warehouse space that require monthly payments.

These leases have escalating payments ranging

from approximately $400 to $4,400 per month which expire through July 2022 and are recognized on a straight-line basis over the

life of the lease.

The Company has a lease for office equipment that requires payments of approximately $1,600 per month through

All leases are classified as operating leases which do not include renewal options.

The Company currently does not

have any short-term or variable lease costs.

The Company applied the practical expedient to calculate the present value of the

fixed payments without having to perform an allocation to lease and non-lease components.

Company has recognized right of use assets associated with its operating leases of approximately $80,000 and $45,000 as of June

30, 2020 and June 30, 2019, respectively, which is included in other assets on the Company’s balance sheet.

Operating lease

liabilities were $81,000 and $45,000 as of June 30, 2020 and June 30, 2019, respectively, which are included in current maturities

of long-term liabilities and other long-term liabilities on the Company’s balance sheet.

of June 30, 2020, the Company has a weighted-average lease term of 0.5 years for its operating leases, which have a weighted-average

discount rate of 4.0%.

Operating lease payments of $73,000 are included in operating cash flows in Fiscal 2020.

of lease liabilities, which are included in current maturities of long-term liabilities and other long-term liabilities on the

Company’s balance sheet, are as follows:

Fiscal years ending June 30:

Total lease payments

Present value of lease liabilities

and Contingencies

The Company may occasionally be party to actions, proceedings, claims or disputes arising in the ordinary course of business.

The Company insures its business risks where possible to mitigate the financial impact of individual claims and establishes reserves

for an estimate of any probable cost of settlement or other disposition.

The Company insures certain business risks where possible to mitigate the financial impact of individual claims and establishes

reserves for an estimate of any probable cost of settlement or other disposition.

Profit Sharing Plan:

7 unchanged sentences

Chief Financial Officer, as amended from time to time.

These agreements provide these officers with, among other things, one to

one and one half year of base salary upon a termination without “Cause”

These agreements provide these officers with, among other things, twelve

to eighteen months of base salary upon a termination without “Cause”

or in the event the employee resigns for “Good

Reason”

or within twelve months of a “Change in Control”, as such terms are defined in the employment agreements.

In April 2019, the Company entered into an agreement for a building expansion project at its New Prague, Minnesota

This building expansion commenced in April 2019, and the Company anticipates it will be complete in the first quarter

of fiscal 2020.

The Company estimates the total cost of the project to range between $1,500,000 and $1,700,000.

As of June 30,

2019, the Company has spent approximately $1,090,000 on the building expansion project.

or within twelve months of a “Change in Control,”

as such terms are defined in the respective employment

in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data