What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-08-24 compared with 2020-08-25 · 367 added, 558 removed, 240 unchanged (79% of the section changed)

Statements and Supplementary Data.

to Financial Statements

Financial Statements and Supplementary Data.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

4 unchanged sentences

Notes to Financial Statements

of Independent Registered Public Accounting Firm

the Shareholders and the Board of Directors of Electromed, Inc.

on the Financial Statements

have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2020 and 2019, the related statements

of operations, shareholders’

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Electromed, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2021 and 2020, the related statements of operations, shareholders’

equity and cash flows for the years then ended, and the related notes to the financial statements.

(collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

in Accounting Principle

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.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but

not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

have served as the Company’s auditor since 2010.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement of Customer Revenue

Net of Adjustments

As discussed in Note 2 to the financial statements, revenues are recognized at a point in time when control passes to the customer upon product shipment or delivery.

Net patient revenues (patient revenue less estimated adjustments) are recognized at the estimated net realizable amounts from third-party payors and customers in exchange for the product.

The Company has agreements with third-party payors that provide for payments at amounts different from its established rates.

Each quarter, the Company estimates its adjustments for each sale based on the terms of third-party payor contracts and the historical collection and write-off experience and applies an estimate for an adjustment reserve percentage to the gross accounts receivable balances.

We identified the measurement of customer

revenue net of adjustments as a critical audit matter due to the audit effort, degree of auditor judgment, and subjectivity involved

in evaluating the audit evidence related to the adjustment reserves.

Our audit procedures related to the Company’s measurement of customer revenue net of adjustments included the following, among others.

a sample of product sales to inspect and compare to the underlying source documents and

final cash collections to test the reasonableness of contractual adjustment and collection

For a sample of product sales, we traced gross revenue and adjustments to net revenue recorded in the general ledger.

Evaluated the reasonableness of management’s estimate of contractual and collection reserves by:

Comparing the estimates of realization percentages to historical net collection percentages for portfolio groups

Recalculating the contractual and collection reserve estimates and compared them to the general ledger

Evaluating the quarterly trend analysis for portfolio groups for changes in historical realization percentages.

/s/ RSM US LLP

We have served as the Company’s auditor since 2010.

Duluth, Minnesota

August 24, 2021

Electromed, Inc.

Balance Sheets

June 30, 2021 and 2020

Current Assets

Cash and cash equivalents

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

19 unchanged sentences

Shareholders’

Common stock, $0.01 par value;

13,000,000 shares;

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

Common stock, $0.01 par value, 13,000,000 shares authorized;

8,533,209 and 8,567,834 issued and outstanding, as of June 30, 2021 and June 30, 2020, respectively

Additional paid-in capital

2 unchanged sentences

Total liabilities and shareholders’

Notes to Financial Statements.

of Operations

See Notes to Financial Statements.

Electromed, Inc.

Statements of Operations

Years Ended June 30, 2021 and 2020

8 unchanged sentences

Interest income, net

Other expense, net

Net income before income taxes

2 unchanged sentences

Weighted-average common shares outstanding:

Notes to Financial Statements.

See Notes to Financial Statements.

Electromed, Inc.

Statements of Shareholders’

1 unchanged sentence

Shareholders’

Balance at June 30, 2018

Balance as of 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, 2019

Balance as of June 30, 2020

Issuance of restricted stock

2 unchanged sentences

Share-based compensation expense

Balance at June 30, 2020

Notes to Financial Statements.

Repurchase of common stock

Balance as of June 30, 2021

See Notes to Financial Statements.

Electromed, Inc.

5 unchanged sentences

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:

8 unchanged sentences

Expenditures for property and equipment

Proceeds of sales of equipment

Expenditures for finite-life intangible assets

1 unchanged sentence

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

Issuance of common stock upon exercise of options

Repurchase of common stock

Net cash used in financing activities

Net increase in cash

Cash and cash equivalents

Beginning of period

1 unchanged sentence

Supplemental Disclosures of Cash Flow Information

Cash paid for interest

Cash paid for income taxes

2 unchanged sentences

Intangible asset acquisitions in accounts payable

Notes to Financial Statements.

Lease assets obtained in exchange for new operating lease

See Notes to Financial Statements.

Electromed, Inc.

Notes to Financial Statements

Nature of Business and Summary of Significant Accounting Policies

Nature of business:

Electromed, Inc.

(the “Company”) develops, manufactures and markets innovative airway clearance products

that apply High Frequency Chest Wall Oscillation (“HFCWO”) therapy in pulmonary care for patients of all ages.

Company markets its products in the U.S.

to the home health care and institutional markets for use by patients in personal residences,

hospitals and clinics.

(the “Company”) develops, manufactures and markets innovative airway clearance products that apply High Frequency Chest Wall Oscillation (“HFCWO”) therapy in pulmonary care for patients of all ages.

The Company markets its products in the U.S.

to the home health care and institutional markets for use by patients in personal residences, hospitals and clinics.

The Company also sells internationally both directly and through distributors.

International sales were

approximately $718,000 and $747,000 for the fiscal years ended June 30, 2020 (“fiscal 2020”) and 2019 (“fiscal

2019”), respectively.

International sales were approximately $658,000 and $718,000 for the fiscal years ended June 30, 2021 (“fiscal 2021 and June 30, 2020 (“fiscal 2020”), respectively.

Since its inception, the Company has operated in a single industry segment:

developing, manufacturing

and marketing medical equipment.

summary of the Company’s significant accounting policies follows:

of estimates:

developing, manufacturing and marketing medical equipment.

A summary of the Company’s significant accounting policies follows:

Use of estimates:

Management uses estimates and assumptions in preparing the financial statements in accordance with U.S.

accepted accounting principles (“U.S.

generally accepted accounting principles (“U.S.

GAAP”).

Those estimates and assumptions affect the reported amounts of assets

and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.

Actual results could

vary from the estimates that were used.

The Company believes the critical accounting policies that require the most significant

assumptions and judgments in the preparation of its financial statements include revenue recognition and the related estimation

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

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).

Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.

Actual results could vary from the estimates that were used.

The Company believes the critical accounting policies that require the most significant assumptions and judgments in the preparation of its financial statements include revenue recognition and the related estimation of variable consideration, allowance for doubtful accounts, the potential impairment of intangible and long-lived assets, inventory obsolescence, share-based compensation and the warranty reserve.

COVID-19 Pandemic and CARES Act Funding

The Company did not receive any direct financial assistance from any government program during fiscal 2021.

The Company received a one-time $913,000 payment under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the fourth quarter of fiscal 2020, which partially offset lower profitability related to the revenue decline caused by the COVID-19 pandemic during the period.

The amount received from the CARES Act is subject to compliance with certain terms and conditions and reporting requirements, and such report may be audited by a federal agency for compliance with the program’s terms and conditions.

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

federal government’s declaration of a public health emergency, the Centers for Medicare and Medicaid Services implemented a number of temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public health emergency.

These waivers were made retroactively effective to March 1, 2020 and were in place for the duration of fiscal 2021.

Clinical indications and documentation typically required were not enforced for respiratory related products including the Company’s SmartVest®

Airway Clearance System (“SmartVest System”) (solely with respect to direct Medicare covered patients) applicable for the Company’s home care prescriptions.

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

estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration

paid or payable to customers and significant financing components.

Revenue from all customers is recognized when a performance

obligation is satisfied by transferring control of a distinct good or service to a customer.

Face-to-face and in-person requirements for replacement respiratory devices are being waived during such period, both of which are currently scheduled to expire in October 2021.

A temporary suspension of a 2% tax on Medicare payments was also initiated in May 2020 and has been extended through December 2021.

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 deployment 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 operations.

Revenue recognition:

Revenue 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 to customers and significant financing components.

Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer.

See Note 2 for information on revenue.

and handling expense:

Shipping and handling charges incurred by the Company are included in cost of revenues and were $515,000

and $454,000 for fiscal 2020 and 2019, respectively.

The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits.

The Company has

not experienced any losses in these accounts.

The Company’s accounts receivable balance is comprised of amounts due from individuals, institutions and

distributors.

Balances due from individuals are typically remitted to the Company by third-party reimbursement agencies such as

Medicare, Medicaid and private insurance companies.

Accounts receivable are carried at amounts estimated to be received from patients

under reimbursement arrangements with third-party payers.

Shipping and handling expense:

Shipping and handling charges incurred by the Company are included in cost of revenues and were $530,000 and $515,000 for fiscal 2021 and 2020, respectively.

Cash and cash equivalents:

Cash and cash equivalents consist of cash in bank deposits and money market funds with original maturities of three months or less at the time of purchase.

The Company has not experienced any losses in these accounts.

Accounts receivable:

The Company’s accounts receivable balance is comprised of amounts due from individuals, institutions and distributors.

Balances due from individuals are typically remitted to the Company by third-party reimbursement agencies such as Medicare, Medicaid and private insurance companies.

Accounts receivable are carried at amounts estimated to be received from patients under reimbursement arrangements with third-party payers.

Accounts receivable are also net of an allowance for doubtful accounts.

Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering

a customer’s financial condition and credit history.

Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history.

Receivables are written off when deemed uncollectible.

Recoveries of

receivables previously written off are recorded when received.

The allowance for doubtful accounts was approximately $45,000 as

of June 30, 2020 and 2019.

Contract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals

where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration

due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim

being processed by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and be collected

during the Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable when the right

to receive payment is unconditional.

Recoveries of receivables previously written off are recorded when received.

The allowance for doubtful accounts was approximately $45,000 as of June 30, 2021 and 2020.

Contract assets:

Contract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim being processed by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and be collected during the Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable when the right to receive payment is unconditional.

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value.

Work in process and finished

goods are carried at standard cost, which approximates actual cost, and includes materials, labor and allocated overhead.

costs are reviewed at least quarterly by management, or more often in the event circumstances indicate a change in cost has occurred.

Work in process and finished goods are carried at standard cost, which approximates actual cost, and includes materials, labor and allocated overhead.

Standard costs are reviewed at least quarterly by management, or more often in the event circumstances indicate a change in cost has occurred.

The reserve for obsolescence is determined by analyzing the inventory on hand and comparing it to expected future sales.

inventory to be returned is based on how many devices that have shipped that are expected to be returned prior to completion of

the insurance reimbursement process.

and equipment:

Estimated inventory to be returned is based on how many devices that have shipped that are expected to be returned prior to completion of the insurance reimbursement process.

Property and equipment:

Property and equipment are stated at cost less accumulated depreciation.

Depreciation is computed using the

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

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:

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

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.

Finite-life intangible assets:

Finite-life intangible assets include patents and trademarks.

These intangible assets are amortized on

a straight-line basis over their estimated useful lives, as described in Note 5.

Long-lived assets, primarily property and equipment and finite-life intangible assets, are evaluated for impairment

whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable.

evaluating recoverability, the following factors, among others, are considered:

a significant change in the circumstances used

to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product

or service strategy, a significant change in customer base, and a realization of failed marketing efforts.

The recoverability

of an asset or asset group is measured by a comparison of the carrying value of the asset to future undiscounted cash flows.

the Company believes the carrying value is unrecoverable, then it recognizes an impairment charge necessary to reduce the unamortized

balance to the estimated fair value of the asset or asset group.

The amount of such impairment is charged to operations in the

current period.

These intangible assets are amortized on a straight-line basis over their estimated useful lives, as described in Note 5.

Long-lived assets:

Long-lived assets, primarily property and equipment and finite-life intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable.

In evaluating recoverability, the following factors, among others, are considered:

a significant change in the circumstances used to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product or service strategy, a significant change in customer base, and a realization of failed marketing efforts.

The recoverability of an asset or asset group is measured by a comparison of the carrying value of the asset to future undiscounted cash flows.

If the Company believes the carrying value is unrecoverable, then it recognizes an impairment charge necessary to reduce the unamortized balance to the estimated fair value of the asset or asset group.

The amount of such impairment is charged to operations in the current period.

Warranty liability:

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

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:

Years Ended June 30,

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

(except for Canadian home care).

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.

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

Ended June 30,

Beginning warranty reserve

2 unchanged sentences

Ending warranty reserve

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

differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary

Income taxes:

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some

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

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

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

Deferred tax assets and liabilities are adjusted for the effects

of changes in tax laws and rates on the date of enactment.

Company recognizes tax liabilities when the Company believes that certain positions may not be fully sustained upon review by

tax authorities.

Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely

of being realized upon settlement.

To the extent that the final tax outcome of these matters is different than the amounts recorded,

such differences impact income tax expense in the period in which such determination is made.

Interest and penalties, if any,

related to accrued liabilities for potential tax assessments are included in income tax expense.

and development:

Research and development costs include costs of research activities as well as engineering and technical

efforts required to develop new products or make improvements to existing products.

Research and development costs are expensed

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company recognizes tax liabilities when the Company believes that certain positions may not be fully sustained upon review by tax authorities.

Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences impact income tax expense in the period in which such determination is made.

Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

Research and development:

Research and development costs include costs of research activities as well as engineering and technical efforts required to develop new products or make improvements to existing products.

Research and development costs are expensed as incurred.

Advertising costs:

Advertising costs are charged to expense when incurred.

Advertising, marketing and trade show costs for the fiscal

years 2020 and 2019, were approximately $781,000 and $576,000, respectively.

Share-based payment awards consist of options and restricted stock issued to employees for services, and to non-employees

in lieu of payment 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.

Expense is recognized on a straight-line

basis over the requisite service or vesting period of the award, or at the time services are provided for non-employee awards.

value of financial instruments:

The carrying values of cash, accounts receivable, accounts payable and accrued expenses approximate

their fair value due to the short-term nature of these instruments.

The carrying value of long-term debt is the remaining amount

due to debtors under borrowing arrangements.

To estimate the fair value of debt, the Company estimates the interest rate necessary

to secure financing to replace its debt.

and diluted earnings per share:

Advertising, marketing and trade show costs for fiscal 2021 and 2020 were approximately $1,062,000 and $781,000, respectively.

Share-based payments:

Share-based payment awards consist of options to purchase shares of common stock and restricted shares of common stock issued to employees 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.

Expense is recognized on a straight-line basis over the requisite service or vesting period of the award, or at the time services are provided for non-employee awards.

Fair value of financial instruments:

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these instruments.

The carrying value of long-term debt is the remaining amount due to debtors under borrowing arrangements.

To estimate the fair value of debt, the Company estimates the interest rate necessary to secure financing to replace its debt.

Basic and diluted earnings per share:

Net income is presented on a per share basis for both basic and diluted common shares.

net income per common share is computed using the weighted-average number of common shares outstanding during the period, excluding

any restricted stock awards which have not vested.

The diluted net income per common share calculation includes outstanding restricted

stock grants and assumes that all stock options were exercised and converted into common stock at the beginning of the period,

unless their effect is anti-dilutive.

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.

See Note 8 for information

on stock options.

accounting pronouncements:

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 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

Selling, general and administrative

Research and development

Total operating expenses

Operating income

Interest income, net

Net income before income taxes

Income tax expense

Income per share:

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

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 non-cash consideration, consideration paid or payable

to customers and significant financing components.

Revenue from all customers is recognized when a performance obligation is satisfied

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

good or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are

readily available to the customer and the good or service is separately identifiable from other promises in the arrangement).

If an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations

in proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or

more but not all the performance obligations.

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

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

and Deferred Costs”

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period, excluding any restricted stock awards which have not vested.

The diluted net income per common share calculation includes outstanding restricted stock grants and assumes that all stock options were exercised and converted into shares of common stock at the beginning of the period, unless their effect is anti-dilutive.

Common stock equivalents of 48,617 and zero shares were excluded from the calculation of diluted earnings per share for fiscal 2021 and 2020, respectively, as their impact was antidilutive.

See Note 8 for information on share-based payments.

Revenue 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 non-cash consideration, consideration paid or payable to customers and significant financing components.

Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under Performance obligations and transaction price .

Individual promised goods and services in a contract are considered a performance obligation and accounted for separately if the individual good or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement).

If an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations in proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or more but not all the performance obligations.

Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs under Financial Accounting Standards Board 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 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

The Company includes shipping and handling fees in net revenues.

Shipping and handling costs associated with the shipment of the SmartVest System after control has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues.

The 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 of revenues.

In the following table, revenue is disaggregated by market:

the twelve months ended June 30,

Year Ended June 30,

Institutional

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International

the following table, home care revenue is disaggregated by payer type:

the twelve months ended June 30,

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, “Revenue From Contracts With Customers”

In the following table, home care revenue is disaggregated by payer type:

Year Ended June 30,

Revenues 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.

Performance 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, “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 .

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:

Home care market .

In the Company’s home care market, its customers are patients who use the SmartVest System.

models of the SmartVest System are comprised of three main components - a generator, a vest and a connecting hose - that are sold

together as an integrated unit.

Accordingly, in contracts within the home care market, the Company regards the SmartVest System

to be a single performance obligation.

Company makes available to its home care patients limited post-sale services that are not material in the context of the contracts,

either individually or taken together, and therefore does not consider them to be performance obligations.

The costs associated

with the services are accrued and expensed when the related revenues are recognized.

As such, transactions in the home care market

consist of a single performance obligation:

The various models of the SmartVest System are comprised of three main components - a generator, a vest and a connecting hose - that are sold together as an integrated unit.

Accordingly, in contracts within the home care market, the Company regards the SmartVest System to be a single performance obligation.

The Company makes available to its home care patients limited post-sale services that are not material in the context of the contracts, either individually or taken together, and therefore does not consider them to be performance obligations.

The costs associated with the services are accrued and expensed when the related revenues are recognized.

As such, transactions in the home care market 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 U.S.

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

For home care sales that feature installment payments, the ultimate amount of consideration received from Medicare, Medicaid or

commercial payers can be significantly less than expected if the contract is terminated due to changes in the patient’s

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

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

negotiated with insurance companies or by government programs.

The transaction price for the Company’s products may be further

impacted by variable consideration.

ASC 606 requires the Company to adjust the transaction price at contract inception and throughout

the contract duration for the estimated value of payments to be received from insurance payers based on historical experience

and other available information, subject to the constraint on estimates of variable consideration.

Transactions requiring estimates

of variable consideration primarily include (i) capped installment payments, which are subject to the third-party payer’s

termination due to changes in insurance coverage, death or the patient’s discontinued use of the SmartVest System, (ii)

contracts under appeal and (iii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.

estimates may be made on a contract-by-contract basis, whenever possible, the Company uses all available information including

historical collection patterns to estimate variable consideration for portfolios of contracts.

The Company’s estimates of

variable consideration consist of amounts it may receive from insurance providers in excess of its initial revenue estimate due

to patients meeting deductibles or coinsurance during the payment duration, changes to a patient’s insurance status, changes

in an insurance allowable, claims in appeals with Medicare and amounts received directly from patients for their allowable or

The Company believes it has representative historical information to estimate the amount of variable consideration

in relevant portfolios considering the significant experience it has with each portfolio and the similarity of patient accounts

within a portfolio.

The analysis includes steps to ensure that revenue recognized on a portfolio basis does not result in a material

difference when compared with an individual contract approach.

The Company also leverages its historical experience and all available

relevant information for each portfolio of contracts to minimize the risk its estimates used to arrive at the transaction price

will result in a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the

variable consideration is subsequently resolved.

Variable consideration is included in the transaction price if, in the Company’s

judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

example, for contracts in which the Company believes the criteria for reimbursement under government or commercial payer contracts

have been met but for which coverage is unconfirmed or payments are under appeal, the Company has significant observable evidence

of relatively consistent claims recovery experience over the prior three to five years.

The Company believes the low volatility

in historical claims approval rates for populations of patients whose demographics are similar to those of current patients provides

reliable predictive value in arriving at estimates of variable consideration in such contracts.

Similarly, historical payment

trends for recovery of claims subject to payer installments and payments from patients have remained relatively consistent over

the past five years.

No significant changes in patient demographics or other relevant factors have occurred that would limit the

predictive value of such payment trends in estimating variable consideration for current contracts.

As a result, the Company believes

its estimates of variable consideration are generally not subject to the risk of significant revenue reversal.

each type of variable consideration discussed above, there are a large number of contracts with similar characteristics with a

wide range of possible transaction prices.

For that reason, the Company uses the probability-weighted expected value method provided

under ASC 606 to estimate variable consideration.

Company often receives payment from third-party payers for the SmartVest System sales over a period of time that may exceed one

Despite these extended payment terms, no significant financing component is deemed to exist because the purpose of such

terms is not to provide financing to the patient, the payer or the Company.

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

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.

The third-party payers’

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

Regardless 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.

For home care sales that feature installment payments, the ultimate amount of consideration received from Medicare, Medicaid or commercial payers can be significantly less than expected if the contract is terminated due to changes in the patient’s status, including insurance coverage, hospitalization, death or otherwise becoming unable to use the SmartVest System.

However, 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 System.

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.

The Company’s contractually stated transaction prices in the home care market are generally set by the terms of the contracts negotiated with insurance companies or by government programs.

The transaction price for the Company’s products may be further impacted by variable consideration.

ASC 606 requires the Company to adjust the transaction price at contract inception and throughout the contract duration for the estimated value of payments to be received from insurance payers based on historical experience and other available information, subject to the constraint on estimates of variable consideration.

Transactions requiring estimates of variable consideration primarily include (i) capped installment payments, which are subject to the third-party payer’s termination due to changes in insurance coverage, death or the patient’s discontinued use of the SmartVest System, (ii) contracts under appeal and (iii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.

Although estimates may be made on a contract-by-contract basis, whenever possible, the Company uses all available information including historical collection patterns to estimate variable consideration for portfolios of contracts.

The Company’s estimates of variable consideration consist of amounts it may receive from insurance providers in excess of its initial revenue estimate due to patients meeting deductibles or coinsurance during the payment duration, changes to a patient’s insurance status, changes in an insurance allowable, claims in appeals with Medicare and amounts received directly from patients for their allowable or coinsurance.

The Company believes it has representative historical information to estimate the amount of variable consideration in relevant portfolios considering the significant experience it has with each portfolio and the similarity of patient accounts within a portfolio.

The analysis includes steps to ensure that revenue recognized on a portfolio basis does not result in a material difference when compared with an individual contract approach.

The Company also leverages its historical experience and all available relevant information for each portfolio of contracts to minimize the risk its estimates used to arrive at the transaction price will result in a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

For example, for contracts in which the Company believes the criteria for reimbursement under government or commercial payer contracts have been met but for which coverage is unconfirmed or payments are under appeal, the Company has significant observable evidence of relatively consistent claims recovery experience over the prior three to five years.

The Company believes the low volatility in historical claims approval rates for populations of patients whose demographics are similar to those of current patients provides reliable predictive value in arriving at estimates of variable consideration in such contracts.

Similarly, historical payment trends for recovery of claims subject to payer installments and payments from patients have remained relatively consistent over the past five years.

No significant changes in patient demographics or other relevant factors have occurred that would limit the predictive value of such payment trends in estimating variable consideration for current contracts.

As a result, the Company believes its estimates of variable consideration are generally not subject to the risk of significant revenue reversal.

For each type of variable consideration discussed above, there are a large number of contracts with similar characteristics with a wide range of possible transaction prices.

For that reason, the Company uses the probability-weighted expected value method provided under ASC 606 to estimate variable consideration.

The Company often receives payment from third-party payers for the SmartVest System sales over a period of time that may exceed one year.

Despite these extended payment terms, no significant financing component is deemed to exist because the purpose of such terms is not to provide financing to the patient, the payer or the Company.

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

Home 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

4 unchanged sentences

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

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:

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

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

5 unchanged sentences

a period of time in exchange for consideration as usage occurs.

These transactions are

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

These transactions

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

rental period.

Lease revenue recognized during fiscal 2021 and 2020 was approximately

1 unchanged sentence

International

Sales to international markets are made directly to a number of independent distributors at fixed contract prices

that are not subject to further adjustments for variable consideration.

Transfer of control of the products occurs upon shipment

or delivery to the distributor as applicable.

Sales to international markets are made directly to a number of independent distributors at fixed contract

prices that are not subject to further adjustments for variable consideration.

Transfer of control of the products occurs

upon shipment or delivery to the distributor as applicable.

The Company offers warranties on its products.

These warranties are assurance type warranties not sold on a standalone

basis or are otherwise considered immaterial in the context of the contract, and therefore are not considered distinct performance

obligations under ASC 606.

The Company estimates the costs that may be incurred under its warranties and records a liability in

the amount of such costs at the time the product is sold.

Accounts receivable include amounts billed to customers and third-party payers, for which only the passage of

time is required before payment of consideration is due.

These warranties are assurance type warranties not sold on a

standalone basis or are otherwise considered immaterial in the context of the contract, and therefore are not considered distinct

performance obligations under ASC 606.

The Company estimates the costs that may be incurred under its warranties and records

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

From time to time the Company will provide accessory

parts at its discretion at no cost to the customer.

Accounts receivable include amounts billed to customers and third-party payers, for which only the passage

of time is required before payment of consideration is due.

Amounts due are stated at their net estimated realizable value.

Contract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals

where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration

due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim

being processed by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and be collected

during the Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable when the right

to receive payment is unconditional.

Contract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare

appeals where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the

consideration due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s

claim being processed by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and

be collected during the Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable

when the right to receive payment is unconditional.

costs to obtain a contract.

Sales incentives paid to sales representatives are eligible for capitalization as they are incremental

costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected

margin on the transaction .

However, the recovery period is less than one year as the performance obligation is satisfied

upon shipment or delivery.

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:

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

Sales incentives paid to sales representatives are eligible for capitalization as they are

incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through

the expected margin on the transaction .

However, the recovery period is less than one year as the performance obligation

is satisfied upon shipment or delivery.

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

expense sales incentives as incurred.

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

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

Contract assets

changes in contract assets during the period are as follows:

Contract assets, beginning

Reclassification of contract assets to accounts receivable

assets, beginning

Reclassification of

contract assets to accounts receivable

Contract assets recognized

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:

(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,

components of inventories as of June 30, 2021 and 2020 were approximately as follows:

Parts inventory

1 unchanged sentence

Finished goods

Estimated inventory to be returned

Estimated inventory

to be returned

Reserve for obsolescence

and Equipment

Property and Equipment

and equipment were approximately as follows:

Useful Lives (Years)

Building and building improvements

and building improvements

Land improvements

Demonstration and rental equipment

Demonstration and rental

Construction in progress

1 unchanged sentence

Net property and equipment

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

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

Finite-life Intangible Assets

carrying value of patents and trademarks includes the original cost of obtaining the patents, periodic renewal fees, and other

2 unchanged sentences

useful lives, generally 15 and 12 years, 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.

Accumulated amortization was approximately $1,248,000 and $1,119,000 as

of June 30, 2021 and 2020, respectively.

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

Ended June 30,

Balance, beginning

Amortization expense

Balance, ending

on the carrying value as of June 30, 2021, future amortization is expected to be approximately as follows:

Fiscal years ending June 30:

years ending June 30:

Financing Arrangements

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Interest on borrowings under the line of credit, if any, accrues at the prime rate

at June 30, 2020) less 1.00% and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to the

lesser of $2,500,000 or 57.00% of eligible accounts receivable and the line of credit expires on December 18, 2020, if not renewed.

At June 30, 2020, the maximum $2,500,000 was eligible for borrowing.

The line of credit is secured by a security interest in substantially

all the tangible and intangible assets of the Company.

(3.25% as of June 30, 2021) less 1.00% and is payable monthly.

The amount eligible for borrowing on the line of credit is limited

to the lesser of $2,500,000 or 57.00% of eligible accounts receivable and the line of credit expires on December 18, 2021, if

As of June 30, 2021, the maximum $2,500,000 was eligible for borrowing.

The line of credit is secured by a security

interest in substantially all the tangible and intangible assets of the Company.

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

3 unchanged sentences

stock consisting of 13,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of undesignated stock.

compensation expense for fiscal 2020 and 2019 was approximately $902,000 and $924,000, respectively, related to employee options

and restricted stock awards.

At June 30, 2020, the Company had approximately $409,000 of unrecognized compensation expense related

to non-vested equity awards, which is expected to be recognized over a weighted-average period of 0.8 years.

May 26, 2021 the Company’s Board of Directors (the “Board”) approved a stock repurchase authorization.

the authorization, the Company may repurchase up to $3.0 million of shares of common stock through May 26, 2022.

As of June 30,

2021, a total of 104,211 shares have been repurchased and retired under this authorization for a total cost of $1,124,000, or

$10.79 per share.

As of June 30, 2021, there were an additional $1,876,000 of shares of common stock available to be repurchased

by the Company under the authorization.

Repurchased shares have been retired and constitute authorized but unissued shares.

Share-Based Payments

compensation expense for fiscal 2021 and 2020 was approximately $1,024,000 and $902,000, respectively, related to employee stock

options and restricted stock awards.

As of June 30, 2021, the Company had approximately $553,000 of unrecognized compensation

expense related to non-vested equity awards, which is expected to be recognized over a weighted-average period of 0.9 years.

The Company has historically granted stock options to employees as long-term incentive compensation.

Options expire

ten years from the grant date and vest over a period of up to five years.

ten years from the grant date and vest over a period of three years.

In November 2017, the Company’s shareholders approved

1 unchanged sentence

Plan”).

The 2017 Plan allows the Company’s Board of Directors to grant stock options, stock appreciation rights, restricted

stock, restricted stock units and other stock-based awards, as well as cash incentive awards to all employees, non-employee directors,

and advisors or consultants of the Company.

The vesting schedule and term for each award are determined by the Board upon each

The maximum number of shares of common stock available for issuance under the 2017 Plan is 900,000.

There were 316,249

options granted under the 2014 Plan and prior plans outstanding as of June 30, 2020.

There were 274,531 options issued under the

2017 Plan outstanding and 505,800 shares available for grant under the 2017 Plan as of June 30, 2020.

The 2017 Plan allows the Board to grant stock options, stock appreciation rights, restricted stock, restricted stock

units and other stock-based awards, as well as cash incentive awards to all employees, non-employee directors, and advisors or

consultants of the Company.

The vesting schedule and term for each award are determined by the Board upon each grant.

number of shares of common stock available for issuance under the 2017 Plan is 900,000.

There were 258,500 options granted under

the 2014 Plan and prior plans outstanding as of June 30, 2021.

There were 209,549 options issued under the 2017 Plan outstanding

and 476,224 shares available for grant under the 2017 Plan as of June 30, 2021.

Company recognizes compensation expense related to share-based payment transactions in the financial statements based on the estimated

4 unchanged sentences

Treasury interest rates for the expected term of the options.

makes assumptions with respect to expected stock price volatility based upon the volatility of its stock price.

Forfeitures are

estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates.

makes assumptions with respect to expected stock price volatility based upon the historical volatility of its stock price.

are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates.

are estimated based on the percentage of awards expected to vest, taking into consideration the seniority level of the award recipient.

2 unchanged sentences

interest rate

182.4-192.0 %

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

Options outstanding at June 30, 2018

Canceled or Forfeited

Options outstanding at June 30, 2019

Canceled or Forfeited

Options outstanding at June 30, 2020

Options exercisable at June 30, 2020

aggregate intrinsic value of options outstanding was $6,529,000 and options exercisable were $5,079,000 at June 30, 2020.

were 194,670 and 79,692 options exercised during the fiscal years ended June 30, 2020 and June 30, 2019, respectively.

The 2014 Plan permitted, and the 2017 Plan permits the Personnel and Compensation Committee of the Board to grant other

stock-based awards, including restricted stock.

The Company makes restricted stock grants to key employees and non-employee directors

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

following table presents employee stock option activity for fiscal 2021 and 2020:

Exercise Price

Life (in Years)

outstanding as of June 30, 2019

outstanding as of June 30, 2020

outstanding as of June 30, 2021

exercisable as of June 30, 2021

intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds its exercise price.

of June 30, 2021, the weighted average remaining contractual term for all outstanding stock options was 5.8 years and their

aggregate intrinsic value was $3,094,000.

Outstanding as of June 30, 2021 were 468,049 stock options issued to employees, of which

442,437 were vested and exercisable and had an aggregate intrinsic value of $3,074,000.

The 2017 Plan permits the Personnel and Compensation Committee of the Board to grant other stock-based awards, including

shares of restricted stock.

The Company makes restricted stock grants to key employees and non-employee directors that vest over

six months to three years following the applicable grant date.

Company issued restricted stock awards to employees totaling 30,756 and 35,000 during fiscal 2021 and 2020, respectively, with

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During fiscal 2021 and 2020,

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:

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

value of $9.94 and $9.74 per share, respectively.

Restricted stock transactions during the years ended June 30, 2021 and 2020

are summarized as follows:

Restricted Stock

Weighted-Average

Outstanding at June 30, 2018

Outstanding at June 30, 2019

Outstanding at June 30, 2020

Grant Date Fair

as of June 30, 2019

as of June 30, 2020

as of June 30, 2021

of the provision for income taxes for fiscal 2021 and 2020 were as follows:

Ended June 30,

Current Federal

Current State

Total Current

Deferred Federal

Deferred State

Total Deferred

Total Income Tax Expense

Income Tax Expense

total income tax expense differed from the expected tax expense, computed by applying the federal statutory rate to the Company’s

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Ended June 30,

Tax expense at statutory federal rate

State income tax expense, net of federal tax effect

Change in valuation allowance on deferred tax assets

Change in uncertain tax positions

Other permanent items

Income tax expense

expense at statutory federal rate

income tax expense, net of federal tax effect

in valuation allowance on deferred tax assets

permanent items

effective tax rates for fiscal 2021 and 2020 were 25.4% and 20.6%, respectively.

significant components of deferred income taxes were as follows:

Deferred tax assets (liabilities):

Revenue recognition and accounts receivable reserves

Accrued liabilities

Property and equipment

Finite-life intangible assets

Stock options

Tax credits and net operating loss carryforwards

Accounting method change

Valuation allowance on deferred taxes

Net deferred tax assets

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.

tax assets (liabilities):

recognition and accounts receivable reserves

and equipment

intangible assets

method change

allowance on deferred taxes

deferred tax assets

Company has state tax credits of $125,000, net of federal taxes, which if unused, will begin to expire in calendar years 2026

The Company has taken a full valuation allowance against these credits which relate to research and development

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

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tax positions be recognized in earnings in the period of such a change.

The Company does not believe there will be significant

changes to the estimates in the next 12-month period.

Due to the complexity of some of these uncertainties, the ultimate settlement

may result in payments that are different from the Company’s current estimate of tax liabilities, resulting in the recognition

of additional charges or benefits to income tax expense.

in the Company’s unrecognized tax expense were approximately as follows:

Ended June 30,

Beginning balance of unrecognized tax benefits

Increase (decrease) in unrecognized tax expense

Lapse of statute of limitations

Ending balance of unrecognized tax benefits

Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

During fiscal 2020

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.

The Company does not have any uncertain tax positions

as of June 30, 2021 and June 30, 2020.

Company is subject to U.S.

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

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by taxing authorities.

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

Company has six 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.

from approximately $200 to $4,400 per month which expire through January 2026 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.

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 $88,000 and $81,000 as of June

30, 2021 and June 30, 2020, 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.

lease liabilities were $87,000 and $81,000 as of June 30, 2021 and June 30, 2020, 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, 2021, the Company has a weighted-average lease term of 2.8 years for its operating leases, which have a weighted-average

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Company’s balance sheet, are as follows:

Fiscal years ending June 30:

Total lease payments

Present value of lease liabilities

and Contingencies

years ending June 30:

lease payments

value of lease liabilities

Commitments and Contingencies

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

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as such terms are defined in the respective employment

in and Disagreements With Accountants on Accounting and Financial Disclosure.

Changes 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