What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2022-02-08 · 169 added, 152 removed, 307 unchanged (51% of the section changed)

Balance Sheets

and cash equivalents

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

5 unchanged sentences

and Shareholders’ Equity

maturities of other long-term liabilities

accrued liabilities

18 unchanged sentences

Statements of Cash Flows (Unaudited)

Months Ended December 31,

Flows From Operating Activities

to reconcile net income to net cash (used in) provided by operating activities:

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

of finite-life intangible assets

3 unchanged sentences

( 3,296,000 )

expenses and other assets

expenses and other current assets

tax receivable

payable and accrued liabilities

cash (used in) provided by operating activities

cash provided by operating activities

Flows From Investing Activities

for property and equipment

for finite-life intangible assets

in property and equipment

in finite-life intangible assets

cash used in investing activities

( 1,066,000 )

Flows From Financing Activities

of common stock upon exercise of options

paid on net share settlement of stock option exercises

paid on stock options exercised on a net basis

of common stock

cash used in provided by financing activities

cash used in financing activities

( 1,032,000 )

(decrease) increase in cash

( 2,045,000 )

And Cash Equivalents

Notes to Condensed Financial Statements (Unaudited).

Statements of Shareholders’ Equity (Unaudited)

Total Shareholders’

Shareholders’

at June 30, 2020

9 unchanged sentences

at December 31, 2020

Total Shareholders’

at June 30, 2021

of restricted stock

2 unchanged sentences

compensation expense

at September 30, 2021

at March 31, 2021

Shareholders’

at June 30, 2021

of restricted stock

of common stock upon exercise of options

paid on stock options

exercised on a net basis

compensation expense

at September 30, 2021

of restricted stock

of common stock upon

exercise of options

paid on stock options exercised on a net basis

2 unchanged sentences

at December 31, 2021

of restricted stock

of common stock upon

exercise of options

paid on stock options exercised on a net basis

compensation expense

of common stock

at March 31, 2022

Notes to Condensed Financial Statements (Unaudited).

4 unchanged sentences

(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.

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

The Company markets its products in the U.S.

3 unchanged sentences

International

sales were $ 236,000 and

$ 221,000 for

the six months ended December 31, 2021 and 2020, respectively.

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

sales were $ 432,000 and $ 297,000 for the nine months ended March 31, 2022 and 2021, respectively.

Since its inception, the Company

has operated in a single industry segment:

developing, manufacturing and marketing medical equipment.

15 unchanged sentences

of COVID-19 on the Company’s business:

impact of the COVID-19 pandemic on the Company’s business remains uncertain, and its effects on its operational and financial

impact of the COVID-19 pandemic on the Company’s business remains uncertain, and its effects on our operational and financial

performance will depend in large part on future developments, which cannot be reasonably estimated at this time.

15 unchanged sentences

of its unaudited Condensed Financial Statements include revenue recognition and the related estimation of variable consideration,

allowance for doubtful accounts, inventory obsolescence, share-based compensation and warranty liability.

inventory valuation, share-based compensation and warranty reserve.

income per common share .

6 unchanged sentences

Common stock equivalents excluded from the calculation of diluted earnings per share

because their impact was anti-dilutive were 108,044 and 46,800 for the three months ended December 31, 2021 and 2020, respectively,

and were 112,170 and 46,800 for the six months ended December 31, 2021 and 2020, respectively.

because their impact was anti-dilutive were 102,435 and 52,017 for the three months ended March 31, 2022 and 2021, respectively,

and were 112,427 and 52,017 for the nine months ended March 31, 2022 and 2021, respectively.

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

from 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 .

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

15 unchanged sentences

In the following table, net revenues are disaggregated by market:

of disaggregated revenue

Months Ended December 31,

Six Months Ended December 31,

Schedule of disaggregated revenue

Institutional

Home care distributor

care distributor

International

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

Months Ended December 31,

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.

Revenues in the Company’s institutional market include revenue

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

obligations and transaction price.

115 unchanged sentences

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

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

and timing of payments:

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

timing of payments:

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

2 unchanged sentences

occurs at the time of shipment and payment is made within normal credit terms, usually

usage agreements – Under these transactions, the Company provides a generator device at no cost to the hospital in return for

a fixed annual commitment to purchase disposable wraps.

These agreements are cancellable upon at least sixty days prior written

notice by either party.

If cancelled, the generator is returned to the Company, where

it can be refurbished and used again at a later date.

Revenue for the disposable wraps is recognized when control transfers to the

– Under these transactions, the customer obtains a right to use the product for

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

Lease revenue recognized during the three months ended December 31, 2021 and

2020 was $ 2,000 and zero , respectively, and was $ 3,000 and zero for the six months ended

December 31, 2021 and 2020, respectively.

usage agreements – Under these transactions, the Company provides a generator device

at no cost to the hospital in return for a fixed annual commitment to purchase consumable

These agreements are cancellable upon at least sixty days prior written notice

by either party.

If cancelled, the generator is returned to the Company, where it can

be refurbished and used again at a later date.

Revenue for the consumable wraps is recognized

when control transfers to the customer.

International

9 unchanged sentences

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.

Amounts due are stated at their net estimated realizable value.

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.

Receivables are written off when

deemed uncollectible.

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

6 unchanged sentences

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

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 expenses

sales incentives as incurred.

These costs are included in selling, general and administrative expenses in the Condensed Statements

of Operations.

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

The following table provides significant changes in contract assets from contracts with customers:

Schedule of contract assets

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

changes in contract assets during the period are as follows:

December 31, 2021

March 31, 2022

June 30, 2021

7 unchanged sentences

assets, ending

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 expenses sales incentives

These costs are included in selling, general and administrative expenses in the Condensed Statements of Operations.

components of inventory were as follows:

2 unchanged sentences

Reserve for obsolescence

Warranty Liability

Warranty Reserve

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

4 unchanged sentences

Factors that affect the Company’s

warranty liability include the number of units shipped, historical and anticipated rates of warranty claims, the product’s

warranty reserve 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 as follows:

The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the

amounts as necessary.

in the Company’s warranty reserve were as follows:

Schedule of changes in warranty liability

Six Months Ended December 31, 2021

Fiscal Year Ended June 30, 2021

Warranty reserve, beginning

Accrual for products sold

Expenditures and costs incurred for warranty claims

Warranty reserve, ending

Income tax expense was estimated at $ 244,000

and $ 352,000 and the effective tax rate was 22.6 % and 21.6 % for the three and six months ended December 31, 2021, respectively.

Estimated income tax expense for the three and six months ended December 31, 2021 includes a discrete tax benefit of $ 1,000 and

$ 21,000 , respectively, related to the exercise of stock options.

Income tax expense was estimated at $ 389,000

and $ 526,000 and the effective tax rate was 24.4 % and 23.2 % for the three and six months ended December 31, 2020, respectively.

Estimated income tax expense for the three and six months ended December 31, 2020 includes a discrete tax expense of $ 7,000 and

a discrete tax benefit of $ 32,000 , respectively, related to the exercise of stock options.

March 31, 2022

June 30, 2021

reserve, beginning

for products sold

and costs incurred for warranty claims

reserve, ending

tax expense was estimated at $ 224,000 and $ 576,000 and the effective tax rate was 25.8 % and 23.1 % for the three and nine months

ended March 31, 2022, respectively.

Estimated income tax expense for the three and nine months ended March 31, 2022 includes a

discrete tax benefit of $ 22,000 and $ 43,000 , respectively, related to the exercise of stock options and other items.

tax expense was estimated at $ 29,000 and $ 555,000 and the effective tax rate was 11.5 % and 22.0 % for the three and nine months

ended March 31, 2021, respectively.

Estimated income tax expense for the three months ended March 31, 2021 included a discrete

tax benefit of $37,000 as a result of lower federal and state taxes than what was originally estimated in the Company’s

tax provision for its fiscal year ended June 30, 2020.

Estimated income tax expense for the nine months ended March 31, 2021 included

such $ 37,000 discrete tax benefit as well as a $ 32,000 discrete tax benefit related to the exercise of stock options.

impact of these discrete events decreased the estimated effective tax rates by 2.7 % during the nine months ended March 31, 2021.

Company is subject to U.S.

federal and state income tax in multiple jurisdictions.

With limited exceptions, years prior to the

Company’s fiscal year ended 2019 are no longer open to U.S.

federal, state or local examinations by taxing authorities.

The Company is currently under examination by the Internal Revenue Service (the “IRS”) for the fiscal year ended June

To date, the IRS is continuing its examination process and no formal assessments have been issued.

The Company is not

under any current income tax examinations by any other state or local taxing authority.

If any issues addressed in the Company’s

tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust

its provision for income taxes in the period such resolution occurs.

Financing Arrangements

The Company has a credit facility that provides

for a revolving line of credit.

Effective December 17, 2021 , the Company renewed its $ 2,500,000 revolving line of credit.

was no outstanding principal balance on the line of credit as of December 31, 2021, or June 30, 2021.

Interest on borrowings under

the line of credit, if any, accrues at the prime rate ( 3.25 % at December 31, 2021) less 1.00 % and is payable monthly.

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, 2023 , if not renewed.

At December 31, 2021, the maximum $ 2,500,000 was eligible for

Payment obligations under the line of credit, if any, are secured by a security interest in substantially all of the

tangible and intangible assets of the Company.

The documents governing

the line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net worth covenant of not

less than $ 10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness or pay dividends.

Company has a credit facility that provides for a revolving line of credit.

Effective December 17, 2021 , the Company renewed its

$ 2,500,000 revolving line of credit.

There was no outstanding principal balance on the line of credit as of March 31, 2022, or

June 30, 2021.

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 3.50 % at March 31, 2022) less

1.0 % and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to the lesser of $ 2,500,000 or

57.0 % of eligible accounts receivable and the line of credit expires on December 18, 2023 , if not renewed before such date.

March 31, 2022, the maximum $ 2,500,000 was eligible for borrowing.

Payment obligations under the line of credit, if any, are secured

by a security interest in substantially all of 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

worth covenant of not less than $ 10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness

or pay dividends.

Share-Based Compensation

The Company’s share-based compensation

plans are described in Note 8 to the financial statements included in the Company’s Annual Report on Form 10-K for fiscal

Share-based compensation expense was $ 526,000 and $ 430,000 for the six months ended December 31, 2021 and 2020, respectively.

This expense is included in selling, general and administrative expense in the Condensed Statements of Operations.

Stock Options

Stock option transactions during

the six months ended December 31, 2021 are summarized as follows:

Number of Shares

Average Exercise Price per Share

Outstanding at June 30, 2021

Cancelled or Forfeited

Outstanding at December 31, 2021

The following assumptions were

used to estimate the fair value of stock options granted:

December 31, 2021

Risk-free interest

Expected volatility

The intrinsic value of an option is the amount

by which the fair value of the underlying stock exceeds its exercise price.

At December 31, 2021, the weighted average remaining

contractual term for all outstanding stock options was 5.8 years and the aggregate intrinsic value of the options was $ 3,691,455 .

Outstanding at December 31, 2021 were 494,316 stock options issued to employees, of which 379,141 were vested and exercisable and

had an aggregate intrinsic value of $ 3,397,122 .

As of December 31, 2021, $ 709,000 of total unrecognized compensation expense related

to stock options is expected to be recognized over a weighted-average period of approximately 2.2 years.

Restricted Stock

During the six months ended December 31, 2021, the Company

issued restricted stock awards to employees totaling 25,900 shares of common stock, with a vesting term of three years and a

weighted average fair value of $ 11.35 per share and to directors totaling 18,000 shares of common stock, with a vesting

term of six months and a weighted average fair value of $ 12.09 per share.

As of December 31, 2021, there were 69,403 shares

of unvested restricted stock with a weighted average fair value of $ 11.87 per share outstanding.

As of December 31, 2021,

$ 498,000 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a

weighted-average period of approximately 1.5 years.

Company’s share-based compensation plans are described in Note 8 to the financial statements included in the Company’s

Annual Report on Form 10-K for fiscal 2021.

Share-based compensation expense was $ 703,000 and $ 756,000 for the nine months ended

March 31, 2022 and 2021, respectively.

This expense is included in selling, general and administrative expense in the Condensed

Statements of Operations.

option transactions during the nine months ended March 31, 2022 are summarized as follows:

Exercise Price per

at June 30, 2021

at March 31, 2022

following assumptions were used to estimate the fair value of stock options granted:

interest rate

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

31, 2022, the weighted average remaining contractual term for all outstanding stock options was 5.6 years and the aggregate intrinsic

value of the options was $ 3,437,000 .

Outstanding at March 31, 2022 were 504,842 stock options issued to employees, of which 380,881

were vested and exercisable and had an aggregate intrinsic value of $ 3,195,500 .

As of March 31, 2022, $ 364,900 of total unrecognized

compensation expense related to stock options is expected to be recognized over a weighted-average period of approximately 2.2

the nine months ended March 31, 2022, the Company issued restricted stock awards to employees totaling 25,900 shares of common

stock, with a vesting term of three years and a weighted average fair value of $ 11.35 per share, and to directors totaling 18,000

shares of common stock, with a vesting term of six months and a weighted average fair value of $ 12.09 per share.

As of March 31,

2022, there were 69,403 shares of unvested restricted stock with a weighted average fair value of $ 11.87 per share outstanding

As of March 31, 2022, $ 364,000 of total unrecognized compensation expense related to restricted stock awards is expected to

be recognized over a weighted-average period of approximately 1.4 years.

Commitments and Contingencies

The Company is occasionally involved in claims

and disputes arising in the ordinary course of business.

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

On September 8, 2021, a state court putative

class action lawsuit was filed in Minnesota against the Company asserting injury resulting from the previously announced data breach

that impacted the Company’s customer protected health information and employee personal information and seeking compensatory

damages, equitable relief and attorneys’ fees and costs.

On October 6, 2021, the proceeding was removed to the District of

The Company believes the plaintiff was not injured as a result of the data privacy incident, and, as a result, the claims

are without merit.

Accordingly, on November 11, 2021, the Company moved to dismiss the complaint in its entirety, and the hearing

on such motion is currently set for March 2022.

The Company expects to continue to vigorously defend the lawsuit;

however, it is

currently unable to determine the ultimate outcome or potential exposure to loss, if any.

Company is occasionally involved in claims and disputes arising in the ordinary course of business.

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.

September 8, 2021, a state court putative class action lawsuit was filed in Minnesota against the Company asserting injury resulting

from the previously announced data breach that impacted the Company’s customer protected health information and employee

personal information and seeking compensatory damages, equitable relief and attorneys’ fees and costs.

On October 6, 2021,

the proceeding was removed to the District of Minnesota.

The Company believes the plaintiff was not injured as a result of the

data privacy incident, and, as a result, the claims are without merit.

Accordingly, on November 11, 2021, the Company moved to

dismiss the complaint in its entirety, and the hearing on such motion is currently set for May 2022.

The Company expects to continue

to vigorously defend the lawsuit;

however, it is currently unable to determine the ultimate outcome or potential exposure to loss,

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-Q

Item 1. Financial Statements