What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-08-23 compared with 2021-08-24 · 24 added, 253 removed, 1 unchanged (100% of the section changed)

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is listed on the NYSE American under the symbol “ELMD”.

As of August 20, 2021,

there were 65 registered holders of our common stock.

We have never paid cash dividends on any of our shares of common stock.

We currently intend to retain any earnings for use in operations and do not anticipate paying cash dividends to our shareholders in the foreseeable future.

The agreement governing our credit facility restricts our ability to pay dividends.

Recent Sales of Unregistered Equity Securities

Purchases of Equity Securities by the Company and Affiliated Purchasers

On May 26, 2021, our Board of Directors approved a stock repurchase authorization.

Under the authorization, we may repurchase up to $3.0 million of outstanding shares of our common stock through May 26, 2022.

The shares of our common stock may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations.

The following table sets forth information concerning purchases of shares of our common stock for three months ended June 30, 2021:

Shares Purchased

Shares Purchased as

Part of Publicly

Announced Plans or

Value of Shares that

Purchased Under the

Plans or Programs

April 1 to April 30, 2021

May 1 to May 30, 2021

For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities.

common stock is listed on the NYSE American under the symbol “ELMD”.

of August 23, 2022, there were 59 registered holders of our common stock.

have never paid cash dividends on any of our shares of common stock.

We currently intend to retain any earnings for use in operations

and do not anticipate paying cash dividends to our shareholders in the foreseeable future.

The agreement governing our credit

facility restricts our ability to pay dividends.

Sales of Unregistered Equity Securities

of Equity Securities by the Company and Affiliated Purchasers

On May 26, 2021,

our Board of Directors approved a stock repurchase authorization.

Under the authorization, we were originally able to repurchase up to $3.0 million of

outstanding shares of our common stock through May 26, 2022.

On May 26, 2022, our Board of Directors removed the date limitation.

The shares of our

common stock may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations.

following table sets forth information concerning purchases of shares of our common stock for the three months ended June 30, 2022:

Number of Shares Purchased

Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs

1 to April 30, 2022

1 to May 31, 2022

1 to June 30, 2022

Selected Financial Data.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

The forward-looking statements include statements that reflect management’s good faith beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our future development plans, capital resources and requirements, results of operations, and future business performance.

Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled “Information Regarding Forward-Looking Statements”

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

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

We manufacture, market and sell products that provide HFCWO, including the SmartVest System and related products, to patients with compromised pulmonary function.

The SmartVest SQL is smaller, quieter and lighter than our previous product (the SmartVest SV2100), with enhanced programmability, ease of use, wireless technology, and a personalized HFCWO therapy management portal for patients with compromised pulmonary function.

Our products are sold in both the home health care market and the institutional market for use by patients in hospitals, which we refer to as “institutional sales.”

The SmartVest SQL has been sold in the domestic home care market since 2014.

In 2017, we launched the SmartVest SQL with SmartVest Connect wireless technology.

The SmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations (“HMOs”), state Medicaid systems, and the federal Medicare system, which is an important consideration for patients considering an HFCWO course of therapy.

For domestic sales, the SmartVest System may be reimbursed under the Medicare-assigned billing code for HFCWO devices if the patient has cystic fibrosis, bronchiectasis (including chronic bronchitis or chronic obstructive pulmonary disease that has resulted in a diagnosis of bronchiectasis), or any one of certain enumerated neuromuscular diseases, and can demonstrate that another less expensive physical or mechanical treatment did not adequately mobilize retained secretions.

Private payers consider a variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts.

We employ a direct-to-patient and provider model, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions to patients and train them on proper use in their homes.

This model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment channel and capture both the manufacturer and distributor margins.

We have engaged a limited number of regional durable medical equipment distributors focused on respiratory therapies as an alternate sales channel.

Revenue through this channel was less than 2% of our total revenues in fiscal 2021.

Our key growth strategies for fiscal 2022 include the following:

Grow faster than the overall home care HFCWO market by taking market share and expanding the pool of physicians who prescribe the SmartVest System in the largest and fastest growing segments of the market:

adult pulmonology/bronchiectasis;

Expand our sales force in geographies with high incidence of bronchiectasis diagnosing physicians;

Increase revenue from direct-to-consumer marketing by expanding Electromed brand awareness;

Provide best-in-class customer care and support;

Develop and promulgate the body of bronchiectasis clinical evidence to increase physician adoption of the SmartVest System for patients;

Develop innovative device features in our next generation device that appeal

Critical Accounting Policies and Estimates

During the preparation of our financial statements, we are required to make estimates, assumptions and judgments that affect reported amounts.

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

We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly.

We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies.

While we believe the estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates.

The following is a summary of our primary critical accounting policies and estimates.

See also Note 1 to the Financial Statements, included in Part II, Item 8, of this Annual Report on Form 10-K.

COVID-19 Pandemic and CARES Act Funding

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

The COVID-19 pandemic created significant volatility, uncertainty and economic disruption that negatively impacted business in our industry starting in March 2020 and continuing to varying degrees throughout fiscal 2021.

We consider our business to be essential under applicable governmental orders due primarily to our role in manufacturing and supplying needed medical devices to patients with respiratory related issues and remained fully operational for the duration of fiscal 2021.

We also took measures to ensure the safety of our employees and to comply with applicable governmental orders, including transitioning employees to remote work where possible, adhering to Centers for Disease Control (“CDC”) guidelines for mask wearing and social distancing, and implementing enhanced cleaning practices in the office.

During the fourth quarter of fiscal 2021, as COVID-19 vaccines became more widely available in the United States, we reviewed our guidelines for corporate offices and manufacturing and adjusted our safety guidelines to align with CDC guidelines for mask wearing and social distancing.

Additionally, we provided direction to employees on their work schedules, balancing business productivity and flexibility for employees and maintaining the highest level of safety in the workplace.

The home care market was impacted by COVID-19 primarily due to certain healthcare facilities and clinics restricting access to their clinicians, and patients reducing in-person visits to clinics for consultations and treatments.

The degree of clinic access limitations and in-person patient visit reductions varied throughout fiscal 2021 based on multiple variables, including the number of daily COVID-19 cases occurring in key geographies, the degree of state and local government restrictions, and the availability and deployment of vaccines.

During fiscal 2021, our sales team developed and utilized a hybrid selling approach that combined virtual and face-to-face clinician interactions, which helped mitigate the market disruption caused by COVID-19.

Our institutional business was negatively impacted by COVID-19 through fiscal 2021 as hospitals and long-term care facilities adjusted their operating protocols and procurement management in response to the pandemic.

Limiting the spread of airborne particles was a priority in institutional settings during fiscal 2021, and airway clearance therapies usage, including HFCWO, induces coughing in patients.

In response to the negative impacts of the COVID-19 pandemic on our business, in April 2020 we initiated cost-containment measures, which included reducing discretionary and variable spend, such as travel, and the use of contractors, consultants, temporary help and employee furloughs in our manufacturing and general and administrative functions due to lower near-term demand for our products.

As our referral volumes returned to near pre-pandemic levels in July 2020, all furloughed employees returned to work by August 2020, and we continued to make all planned strategic investments in our business throughout fiscal 2021 in both selling, general and administrative (“SG&A”) and R&D.

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

We 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.

Overall, we believe that these and other responses by healthcare systems had a negative impact on our operating results and cash flows during the fourth quarter of fiscal 2020 and the first quarter of fiscal 2021, and then again in the third quarter of fiscal 2021 as Covid-19 cases and hospitalization spiked during that time period.

We believe that we benefited during the most recent fiscal year from our sales organization adapting to innovations in contacting physicians, such as through virtual meetings, and from the waiver implemented by CMS in response to the public health emergency.

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

federal government’s declaration of a public health emergency, CMS 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 SmartVest System (solely with respect to direct Medicare covered patients) applicable for our 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 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 our 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 we operate or in which our patients live, actions taken to contain or mitigate its impact, the impact on governmental healthcare programs and budgets, the deployment of treatments or vaccines, and the resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and evolving situation, we are unable to predict with confidence the likely impact of the COVID-19 pandemic on our future operations.

Revenue Recognition and Allowance for Doubtful Accounts

We measure revenue 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.

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 Accounting Standards Codification (“ASC”) 340-40, “Other Assets and Deferred Costs,”

or the requirements under other applicable accounting guidance are met.

We include shipping and handling fees in net revenues.

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

Accounts receivable are also net of an allowance for doubtful accounts, which are accounts from which payment is not expected to be received.

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.

We request that customers return previously sold units that are no longer in use to us in order to limit the possibility that such units would be resold by unauthorized parties or used by individuals without a prescription.

The customer is under no obligation to return the product;

however, we do reclaim the majority of previously sold units upon the discontinuance of patient usage.

We are certified to recondition and resell returned SmartVest System units.

Returned units are typically reconditioned and resold and continue to be used for demonstration equipment and warranty replacement parts.

Valuation of Long-Lived and Intangible 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 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 unamortized balance of the asset or asset group to future undiscounted cash flows.

If we believe the unamortized balance is unrecoverable, we would recognize an impairment charge necessary to reduce the unamortized balance to the estimated fair value of the asset group.

The amount of such impairment would be charged to operations at the time of determination.

Property and equipment are stated at cost less accumulated depreciation.

We use the straight-line method for depreciating property and equipment over their estimated useful lives, which range from three to 39 years.

Our finite-life intangibles consist of patents and trademarks and their carrying costs include the original cost of obtaining the patents, periodic renewal fees, and other costs associated with maintaining and defending patent and trademark rights.

Patents and trademarks are amortized over their estimated useful lives, generally 15 and 12 years, respectively, using the straight-line method.

Allowance for Excess and Slow-Moving Inventory

An allowance for potentially slow-moving or excess inventories is made based on our analysis of inventory levels on hand and comparing it to expected future production requirements, sales forecasts and current estimated market values.

Warranty Reserve

We provide a warranty on the SmartVest System that covers the cost of replacement parts and labor, or a new SmartVest System in the event we determine a full replacement is necessary.

For each home care SmartVest System initially purchased and currently located in the U.S.

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

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

We estimate, based upon a review of historical warranty claim experience, the costs that may be incurred under our warranty policies and record a liability in the amount of such estimate at the time a product is sold.

The warranty cost is based on future product performance and durability and is estimated largely based on historical experience.

We estimate the average useful life of our products is approximately five years.

Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims, the product’s useful life, and cost per claim.

At our discretion, based upon the cost to either repair or replace a product, we have occasionally replaced such products covered under warranty with a new or refurbished model.

We periodically assess the adequacy of our recorded warranty liability and adjust the accrual as claims data and historical experience warrant.

Share-Based Compensation

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

Expense for options is estimated using the Black-Scholes pricing model at the date of grant.

The portion of the option award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or vesting period of the award and adjusted upon completion of the vesting period.

In determining the fair value of our share-based payment awards, we make various assumptions using the Black-Scholes pricing model, including expected risk-free interest rate, stock price volatility, life and forfeitures.

See Note 8 to the Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for a description of these assumptions.

Results of Operations

Fiscal Year Ended June 30, 2021 Compared to Fiscal Year Ended June 30, 2020

Revenue for the fiscal years ended June 30, 2021 and 2020 are summarized in the table below (dollar amounts in thousands).

Years Ended June 30,

Home Care Revenue

Institutional Revenue

Home Care Distributor Revenue

International Revenue

Total Revenue

Home Care Revenue.

Home care revenue increased by 12.5%, or approximately $3,663,000, for fiscal 2021 compared to fiscal 2020..

The growth versus prior year was primarily driven by an increase in referrals and approvals.

The increase in referrals compared to the prior year periods was due to the sales team adapting to a hybrid virtual and face-to-face selling model implemented to combat clinic access limitations due to the COVID-19 pandemic, benefits of the CMS waiver on the non-commercial Medicare portion of our home care revenue, and an increase in direct sales representatives.

The CMS waiver benefited the non-commercial Medicare portion of our home care revenue by increasing the number of referrals and the approval percentage for non-covered diagnoses.

We believe that our ongoing sales team execution, along with the expected return to pre-COVID-19 levels of patient face-to-face engagement with physicians and clinic access for our sales team, has the potential to mitigate the impact of a CMS waiver expiration, which is currently effective until October 2021.

Institutional Revenue.

Institutional revenue decreased by 22.6%, or approximately $451,000, in fiscal 2021 compared to fiscal 2020.

Institutional revenue includes sales to group purchasing organizations, rental companies and other institutions.

The decrease in the current year periods was primarily due to the continued impact of COVID-19 on hospital purchasing activity.

Our institutional revenue increased each quarter throughout fiscal 2021 as hospital purchasing activity began returning to more standard operating procedures as were in place prior to COVID-19.

Home Care Distributor Revenue.

Home care distributor revenue increased 30.9%, or approximately $133,000, for fiscal 2021 compared to fiscal 2020.

The growth versus the prior year was driven by additional capital sales with our primary distributor.

We began selling to home medical equipment distributors during fiscal 2020, who in turn sell our SmartVest System in the U.S.

home care market.

International Revenue.

International revenue decreased by 8.4%, or approximately $60,000, in fiscal 2021 compared to fiscal 2020.

International revenue growth is not currently a primary focus for us, and our corporate resources are only focused on supporting and maintaining our current distributors.

Gross profit increased to $27,305,000 during fiscal 2021, or 76.4% of net revenues, from $25,200,000, or 77.6% of net revenues, during fiscal 2020.

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

The decrease in gross profit as a percentage of net revenue was driven by a higher warranty reserve adjustment, costs associated with discontinuing shipments of the SmartVest SV2100 in the United States, and limited cost increases to both raw materials and shipping costs, which was partially offset by a higher mix of home care revenue and a favorable mix of Medicare within the home care channel.

The increase in the warranty reserve was driven by a combination of an increase in components included in the warranty calculation and higher repair costs for our SV2100 device repairs.

There has not been an increase in product warranty returns for either our generators or vests.

We believe as we continue to grow revenue, we will be able to leverage manufacturing costs, although there may be fluctuations on a short-term basis related to average reimbursement based on the mix of referrals during any given period.

Factors such as diagnoses that are not assured of reimbursement, insurance programs with lower allowable reimbursement amounts (for example, state Medicaid programs), and whether an individual patient meets prerequisite medical criteria for reimbursement, may have an effect on average reimbursement received on a short-term basis We have a goal of improving our gross margin percentage over time due to lower product costs associated with our next generation product, supplier optimization, and gaining operating leverage on higher volumes.

Operating Expenses

Selling, General and Administrative Expenses.

SG&A expenses increased by approximately $2,498,000, or 12.5%, to approximately $22,443,00 in fiscal 2021, compared to approximately $19,945,000 in fiscal 2020.

During fiscal 2021, we invested in strategic SG&A investments that we believe will position the company for sustainable, long-term growth.

Key strategic SG&A investments in fiscal 2021 included increased direct-to-consumer marketing, implementation of a new revenue cycle management system, strategic market analytics and commercial planning and new headcount positions in product marketing and clinical field support.

We believe that these investments will provide the support to drive a successful sales force expansion plan beginning in fiscal 2022.

SG&A payroll and compensation-related expenses increased by $1,973,000, or 15.8%, to $14,434,000 in fiscal 2021, compared to $12,461,000 in fiscal 2020.

The increase was primarily due to a higher average number of sales and marketing personnel, increased temporary resources to assist with systems infrastructure investments, increased compensation payments related to stronger home care revenue performance.

Professional and legal fees increased by $431,000, or 21.5%, to $2,433,000 in fiscal 2021, compared to $2,002,000 in fiscal 2020.

These fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support, and consulting fees for enhancing our market development strategy.

The increase in the current year periods was primarily due to higher legal fees, annual fees associated with a new human resources platform, increased investment in leadership development training, and fees associated with the implementation of our new revenue cycle management software.

We expect to make continued investments in our systems infrastructure over the next year, including an enterprise resource planning software implementation.

Total discretionary marketing expenses increased by $281,000, or 36.0% to $1,062,,000 in fiscal 2021, compared to $781,000 in fiscal 2020.

The increase in the current year period was primarily due to a direct-to-consumer marketing campaign that began in May 2020 and investment in strategic market analytics and commercial planning activities.

Travel, meals and entertainment expenses decreased $164,000, or 8.4%, to $1,780,000 for fiscal 2021 compared to $1,944,000 in fiscal 2020.

The decrease in the current year period was primarily due to travel reductions in connection with COVID-19, primarily in the first half of the fiscal year.

Travel, meals and entertainment expenses returned to near pre-COVID-19 levels by the fourth quarter of fiscal 2021.

Research and Development Expenses.

R&D expenses increased by $672,000, or 64.0%, to $1,722,000 in fiscal 2021 compared to $1,050,000 in fiscal 2020.

R&D expenses were 4.8% of revenue in fiscal 2021 compared to 3.2% of revenue in fiscal 2020.

The increase in the current year period was primarily due to professional consulting fees associated with our next generation platform development activities.

We expect R&D spending to remain between 3.0% and 5.0% of revenue during fiscal 2022, as we look to finalize our development and product testing work in preparation for an anticipated fiscal year 2023 next generation product launch.

Government Stimulus Income.

We did not record any government stimulus income in fiscal 2021.

In fiscal 2020, we recorded $913,000 of government stimulus income related to general distribution funds received from the Provider Relief Fund established by the CARES Act for Medicare fee-for-service providers due to lost revenues resulting from the COVID-19 pandemic.

Interest Income, net

Net interest income was approximately $39,000 during fiscal 2021 compared to net interest income of $121,000 in fiscal 2020.

The decrease in net interest income was primarily driven by lower interest rates in fiscal 2021 as compared to fiscal 2020.

Other Expense, net

Net other expense was approximately $12,000 during fiscal 2021 compared to net other expense of zero in fiscal 2020.

Net other expenses represent costs related to our June 2021 data security incident of $187,000, net of related insurance reimbursement of $175,000.

Income Tax Expense

Income tax expense during fiscal 2021 was $805,000, which includes a current tax expense of $1,099,000 and a deferred benefit of $294,000.

Estimated income tax expense includes a discrete deferred tax expense of approximately $81,000 related to unexercised fully vested stock options that expired and a discrete current tax benefit of approximately $33,000 related to the excess tax benefit of non-qualified stock options that were exercised during the period.

In fiscal 2020, we recorded a current income tax expense of $1,078,000, which includes a current tax expense of $1,204,000 and a deferred benefit of $126,000.

Estimated income tax expense for fiscal 2021 included a discrete current tax benefit of approximately $358,000 related to the excess tax benefit of non-qualified stock options that were exercised during the period.

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

The effective tax rates differ from the statutory federal rate due to the effect of state income taxes, R&D tax credits, and other permanent items that are non-deductible for tax purposes relative to the amount of taxable income.

Net income for fiscal 2021 was $2,362,000, compared to net income of $4,161,000 in fiscal 2020.

The decrease in the current year period was driven by increased strategic investments in SG&A and R&D and a lower gross margin percentage, partially offset by stronger home care revenue performance.

Fiscal year 2021 does not include any government stimulus income, compared to $913,000 of government income received under the CARES Act in fiscal 2020.

Liquidity and Capital Resources

Cash Flows and Sources of Liquidity

Cash Flows from Operating Activities

Net cash provided by operating activities in fiscal 2021 was $3,077,000.

Cash flows from operating activities consisted of net income of $2,362,000, non-cash expenses of approximately $1,340,000, a $1,284,000 increase in accounts payable and accrued liabilities, a decrease in inventory of $971,000, a decrease in contract assets of $510,000 and a $151,000 decrease in prepaid expenses.

These cash flows from operating activities were partially offset by a $4,091,000 increase in accounts receivable.

The increase in accounts receivable was primarily due to an increase in the Medicare portion of our home care business, which has a 13-month payment cycle.

Cash Flows from Investing Activities

Net cash used in investing activities in fiscal 2021 was approximately $448,000.

Cash used in investing activities consisted of approximately $287,000 in expenditures for property and equipment and $161,000 in payments for patent and trademark costs.

Cash Flows from Financing Activities

Net cash used in financing activities in fiscal 2021 was approximately $1,219,000, consisting of $1,124,000 used for our share repurchase program and $141,000 for taxes paid on behalf of employees stock options that were exercised on a net basis during the period, partially offset by $46,000 of proceeds received from stock options exercised during the period.

Adequacy of Capital Resources

Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing R&D efforts, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business.

Based on our current operational performance, we believe our working capital of approximately $27,065,000 and available borrowings under our existing credit facility will provide adequate liquidity for fiscal 2022.

Effective December 16, 2020, we renewed our credit facility, which provides us with a revolving line of credit.

Interest on borrowings on the line of credit accrues at the prime rate (3.25% as of June 30, 2021) less 1.00% and is payable monthly.

There was no outstanding principal balance on the line of credit as of June 30, 2021 or June 30, 2020.

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 not renewed.

As of June 30, 2021, the maximum $2,500,000 was available under the line of credit.

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

The documents governing our line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net worth of not less than $10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends.

Any failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring prepayment of outstanding indebtedness, or refusing to renew the line of credit.

If the maturity of the indebtedness is accelerated or the line of credit is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may not be able to continue operations as planned.

If we are unable to repay such indebtedness, the lender could foreclose on these assets.

During fiscal 2021 and 2020, we spent approximately $299,000 and $844,000, respectively, on property and equipment.

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

We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flows.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Accounting Standards Recently Issued But Not Yet Adopted by the Company

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The new guidance also improves consistent application of and simplifies U.S.

generally accepted accounting principles for other areas of Topic 740 by clarifying and amending the existing guidance.

The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the effect of the new guidance.

Quan titative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity