What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-23 compared with 2021-08-24 · 631 added, 442 removed, 165 unchanged (87% of the section changed)

Financial Statements and Supplementary Data.

Index to Financial Statements

Statements and Supplementary Data.

to Financial Statements

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

Statements of Operations

Statements of Shareholders’

Statements of Shareholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

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.

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.

of Independent Registered Public Accounting Firm

and Board of Directors

on the Financial Statements

have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2022 and 2021, the related

statements of operations, shareholders’ equity and cash flows for the years then ended, and the related notes to the financial

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

as of June 30, 2022 and 2021, 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.

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

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

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.

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.

Accordingly, we express no such opinion.

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.

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.

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

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.

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

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

The Company has agreements with third-party payers 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 payer contracts and historical collections experience, then applies an estimate for an adjustment reserve percentage to the gross accounts receivable balances.

We identified the measurement of the adjustment reserve related to customer revenue as a critical audit matter due to the audit effort, degree of auditor judgment, and subjectivity involved in evaluating the audit evidence related to management's estimate.

Our audit procedures related to the Company's measurement of the adjustment reserve included the following, among others.

● Selected a sample of product sales to inspect and compare to the underlying source documents and final cash collections to test the reasonableness of the contractual adjustment and collection percentage assumptions used in management's estimate.

a sample of product sales, we traced gross revenue and adjustments to net revenue recorded

in the general ledger.

the reasonableness of management’s estimate of contractual and collection reserves

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.

the quarterly trend analysis for portfolio groups for changes in historical realization

have served as the Company’s auditor since 2010.

June 30, 2022 and 2021

and cash equivalents

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

expenses and other current assets

current assets

Cash and cash equivalents

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

Contract assets

Prepaid expenses and other current assets

Income tax receivable

Total current assets

Property and equipment, net

Finite-life intangible assets, net

Deferred income taxes

Liabilities and Shareholders’

and equipment, net

intangible assets, net

and Shareholders’ Equity

accrued liabilities

current liabilities

Current maturities of other long-term liabilities

Accounts payable

Accrued compensation

Income tax payable

Warranty reserve

Other accrued liabilities

Total current liabilities

Other long-term liabilities

Total liabilities

Commitments and Contingencies

Shareholders’

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

Retained earnings

Total shareholders’

Total liabilities and shareholders’

See Notes to Financial Statements.

Electromed, Inc.

Statements of Operations

long-term liabilities

and Contingencies

Shareholders’

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

8,475,438 and 8,533,209 issued and outstanding, as of June 30, 2022

and June 30, 2021, respectively

paid-in capital

shareholders’ equity

liabilities and shareholders’ equity

Notes to Financial Statements.

of Operations

Years Ended June 30, 2022 and 2021

Ended June 30,

Cost of revenues

Operating expenses (income)

Selling, general and administrative

Research and development

Government stimulus income

Total operating expenses

Operating income

Interest income, net

Other expense, net

Net income before income taxes

Income tax expense

Income per share:

Weighted-average common shares outstanding:

See Notes to Financial Statements.

Electromed, Inc.

Statements of Shareholders’

general and administrative

and development

operating expenses

income before income taxes

Weighted-average

common shares outstanding:

Notes to Financial Statements.

Statements of Shareholders’ Equity

Years Ended June 30, 2022 and 2021

Shareholders’

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 as of June 30, 2020

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

Repurchase of common stock

Balance as of June 30, 2021

See Notes to Financial Statements.

Shareholders’

as of June 30, 2020

of restricted stock

of common stock upon exercise of options

paid on stock option exercised on a net basis

compensation expense

of common stock

( 1,123,000 )

( 1,124,000 )

as of June 30, 2021

of restricted stock

of common stock upon exercise of options

paid on stock option exercised on a net basis

compensation expense

of common stock

( 1,447,000 )

( 1,448,000 )

as of June 30, 2022

Notes to Financial Statements.

Electromed, Inc.

2 unchanged sentences

Ended June 30,

Cash Flows From Operating Activities

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

Amortization of finite-life intangible assets

Share-based compensation expense

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Contract assets

Prepaid expenses and other assets

Income tax receivable

Income tax payable

Accounts payable and accrued liabilities

Net cash provided by operating activities

Cash Flows From Investing Activities

Expenditures for property and equipment

Expenditures for finite-life intangible assets

Net cash used in investing activities

Cash Flows From Financing Activities

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

End of period

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment acquisitions in accounts payable

Intangible asset acquisitions in accounts payable

Lease assets obtained in exchange for new operating lease

See Notes to Financial Statements.

Electromed, Inc.

Flows from Operating Activities

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

of finite-life intangible assets

compensation expense

in operating assets and liabilities:

( 4,020,000 )

( 4,091,000 )

( 1,072,000 )

expenses and other current assets

( 1,322,000 )

payable and accrued liabilities

cash (used in) provided by operating activities

Flows from Investing Activities

for property and equipment

( 1,425,000 )

for finite-life intangible assets

cash used in investing activities

( 1,525,000 )

Flows from Financing Activities

of common stock upon exercise of options

paid on stock options exercised on a net basis

of common stock

( 1,448,000 )

( 1,124,000 )

cash used in financing activities

( 1,525,000 )

( 1,219,000 )

(decrease) increase in cash

( 3,736,000 )

and cash equivalents

Disclosures of Cash Flow Information

paid for income taxes

Disclosures of Noncash Investing and Financing Activities

and equipment acquisitions in accounts payable

asset acquisitions in accounts payable

assets obtained in exchange for new operating lease liabilities

Notes to Financial Statements.

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.

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”) 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 also sells internationally both directly and through distributors.

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.

International sales were

$ 521,000 and $ 658,000 for the fiscal years ended June 30, 2022 (“fiscal 2022”) and June 30, 2021 (“fiscal 2021”),

respectively.

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

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.

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.

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.

developing, manufacturing and marketing

medical equipment.

of COVID-19 on the Company’s business

Company did not receive any direct financial assistance from any government program during fiscal 2021 or fiscal 2022 in connection

with COVID-19 relief measures.

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 (“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 and fiscal 2022.

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 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.

Face-to-face and in-person

requirements for respiratory devices are being waived while the waiver is in place.

The CMS waiver was recently extended in conjunction

with the extension of the federal public health emergency for an additional 90-day period beginning July 15, 2022.

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

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.

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.

summary of the Company’s significant accounting policies follows:

of estimates :

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

accepted accounting principles (“U.S.

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, inventory valuation, share-based compensation and warranty reserve.

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.

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.

and handling expense :

Shipping and handling charges incurred by the Company are included in cost of revenues and were $ 982,000

and $ 530,000 for fiscal 2022 and 2021, respectively.

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.

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, 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.

Recoveries of

receivables previously written off are recorded when received.

The allowance for doubtful accounts was $ 45,000 as of June 30,

2022 and 2021.

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 :

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.

Standard 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.

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.

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:

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 :

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.

Finite-life 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.

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:

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:

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.

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

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:

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

The Company estimates the costs that

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

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 as follows:

Schedule of changes in warranty liability

Ended June 30,

Beginning warranty reserve

Accrual for products sold

Expenditures and costs incurred for warranty claims

Ending warranty reserve

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.

warranty reserve

for products sold

and costs incurred for warranty claims

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

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.

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:

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

Advertising costs are charged to expense when incurred.

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:

Advertising, marketing and trade show costs for fiscal 2022

and 2021 were $ 936,000 and $ 1,062,000 , respectively.

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

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.

income per common share :

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

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.

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.

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 included in the calculation of diluted earnings per share

were 297,383 and 345,618 shares for fiscal 2022 and 2021, respectively.

Common stock equivalents excluded from the calculation

of diluted earnings per share because their impact was anti-dilutive were 113,646 and 48,617 shares for fiscal 2022 and 2021,

respectively.

Issued Accounting Standards

June 2016, the Financial Accounting Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments

-- Credit Losses:

Measurement of Credit Losses on Financial Instruments, which was subsequently amended by ASU 2018-19, ASU

2019-04, 2019-05, 2019-10, 2019-11, and 2020-02.

The standard introduces new accounting guidance for credit losses on financial

instruments within its scope, including trade receivables.

This new guidance adds an impairment model that is based on expected

losses rather than incurred losses.

It is effective for interim and annual reporting periods beginning after December 15, 2022,

with early adoption permitted.

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 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

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” (“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 in the Statements of Operations.

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

In the following table, revenue is disaggregated by market:

Year Ended June 30,

Schedule of disaggregated revenue

Ended June 30,

Institutional

Home Care Distributor

care distributor

International

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:

Home care market .

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

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

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” (“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 .

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 SmartVest System.

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

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.

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.

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 or delivery

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.

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.

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

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.

Institutional

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

centers and other clinics.

2 unchanged sentences

No insurance reimbursement is involved.

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

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:

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

or negotiated price.

2 unchanged sentences

within 30 days.

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 period.

Lease revenue recognized during fiscal 2021 and 2020 was approximately

$1,000 and $6,000, 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

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.

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.

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.

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

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

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 is expected to 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 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

The following table provides information about accounts receivable and contracts 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:

assets, beginning

Reclassification of

contract assets to accounts receivable

Contract assets recognized

Reclassification

of contract assets to accounts receivable

( 1,551,000 )

assets recognized

(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

Work in process

Finished goods

Estimated inventory

to be returned

assets, ending

components of inventory were as follows:

Schedule of components of inventories

inventory to be returned

Reserve for obsolescence

Property and Equipment

and equipment were approximately as follows:

and equipment were as follows:

Schedule of property and equipment, including assets under capital leases

and building improvements

Land improvements

Demonstration and rental

Construction in progress

Demonstration

and rental equipment

Accumulated depreciation

Net property and equipment

( 3,959,000 )

( 4,760,000 )

property and equipment

Finite-life Intangible Assets

3 unchanged sentences

useful lives, generally 15 and 12 years, 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:

Accumulated amortization was $ 433,000 and $ 1,248,000 as of June 30, 2022

and 2021, respectively.

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

Schedule of activity and balances of finite-life intangible assets

Ended June 30,

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

on the carrying value as of June 30, 2022, future amortization is expected to be as follows:

Schedule of future amortization of finite-life intangible assets

years ending June 30:

7 unchanged sentences

as of June 30, 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 57.00% 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.

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.

At June 30, 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

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

or pay dividends.

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

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

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.

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

Under the authorization, the Company was originally able to repurchase up to $ 3.0 million of shares of common stock through May 26, 2022.

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

30, 2022, a total of 120,416 shares have been repurchased and retired under this authorization for a total cost of $ 1,448,000 ,

or $ 12.02 per share.

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.

Share-Based Compensation

compensation expense for fiscal 2022 and 2021 was $ 976,000 and $ 1,024,000 , respectively, related to employee stock options and

restricted stock awards.

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

As of June 30, 2022, the Company had $460,000 of unrecognized compensation expense related to non-vested equity awards, which

is expected to be recognized over a weighted-average period of 1.5 to 2.0 years related to restricted stock awards and employee

stock options, respectively.

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

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

In November 2017, the Company’s shareholders approved

the 2017 Omnibus Incentive Plan (the “2017 Plan”) which supersedes the 2014 Equity Incentive Plan (the “2014

Plan”).

In November 2017, the Company’s shareholders approved

the 2017 Omnibus Incentive Plan (the “2017 Plan”) which supersedes the 2014 Equity Incentive Plan (the “2014

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

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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.

Upon vesting,

and the Company’s determination that any necessary conditions precedent to the exercise of shares (such as satisfaction

of tax withholding and compliance with applicable legal requirements) have been satisfied, shares purchased are delivered to the

participant in a manner prescribed or permitted by the Board.

The maximum number of shares of common stock available for issuance

under the 2017 Plan is 900,000 .

There were 248,500 options granted under the 2014 Plan and prior plans outstanding as of June

There were 253,584 options issued under the 2017 Plan outstanding and 370,789 shares available for grant under the 2017

Plan as of June 30, 2022.

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

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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.

are accounted for as they occur.

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

Schedule of assumptions used to estimate fair value of options granted

Ended June 30,

interest rate

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

0.89 - 2.52 %

0.31 - 0.59 %

the year ended June 30, 2022, the Company had a change in estimate related to its expected volatility used to estimate the fair

value of options granted.

The change had no impact on the Financial Statements.

The following table presents employee stock option

activity for fiscal 2022 and 2021:

Schedule of stock option transactions

Exercise Price

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outstanding as of June 30, 2021

exercisable as of June 30, 2021

outstanding as of June 30, 2022

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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

June 30, 2022, the weighted average remaining contractual term for all outstanding stock options was 5.4 years and their aggregate

intrinsic value was $ 2,244,000 .

Outstanding at June 30, 2022 were 502,084 stock options issued to employees, of which 429,888

were vested and exercisable and had an aggregate intrinsic value of $ 2,244,000 .

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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:

value of $ 12.09 and $ 9.94 per share for fiscal 2022 and 2021,respectively.

Restricted stock transactions during the years ended

June 30, 2022 and 2021 are summarized as follows:

Schedule of restricted stock transactions

Restricted Stock

1 unchanged sentence

Grant Date Fair

Value per Share

as of June 30, 2020

1 unchanged sentence

as of June 30, 2022

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

of the provision for income taxes were as follows:

Schedule of components of the provision for income taxes

Ended June 30,

Income Tax Expense

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

pretax income, as follows:

Schedule of effective income tax reconciliation

Ended June 30,

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significant components of deferred income taxes were as follows:

Schedule of significant components of deferred income taxes

tax assets (liabilities):

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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 has state tax credits of $ 152,000 , net of federal taxes, which if unused, will begin to expire in calendar year 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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With limited exceptions,

tax years prior to the Company’s fiscal year ended June 30, 2018 are no longer open to federal, state and local examination

tax years prior to the Company’s fiscal year ended June 30, 2019 are no longer open to federal, state and local examination

by taxing authorities.

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

These leases have escalating payments ranging

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

The Company’s examination by the Internal Revenue Service (the “IRS”) for the fiscal

year ended June 30, 2020 is complete and the IRS has no findings.

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.

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

These leases have payments

ranging from $ 200 to $ 4,700 per month which expire through December 2025 and are recognized on a straight-line basis over the

life of the lease.

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

The Company currently

does not have any short-term or variable lease costs.

The Company applied the practical expedient to calculate the present

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

Company has recognized right of use assets associated with its operating leases of approximately $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.

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.

The Company currently does

not have any short-term or variable lease costs.

The Company elected 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 $ 120,000 and $ 88,000 as of June 30, 2022 and

June 30, 2021, respectively, which is included in other assets on the Company’s balance sheet.

Operating lease liabilities

were $ 120,000 and $ 87,000 as of June 30, 2022 and June 30, 2021, respectively, which are included in other accrued liabilities

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

of June 30, 2022, the Company has a weighted-average lease term of 1.1 years for its operating leases, which have a weighted-average

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Operating lease payments of $ 94,000 are included in operating cash flows in fiscal 2022.

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

Company’s balance sheet, are as follows:

of lease liabilities, which are included in other accrued liabilities and other long-term liabilities on the Balance Sheet, are

Schedule of maturities of lease liabilities

years ending June 30:

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Commitments and Contingencies

The Company may occasionally be party to actions, proceedings, claims or 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.

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 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.

Prior to the hearing on the motion to dismiss, the parties agreed in principal to settle

The parties are continuing to negotiate the settlement agreement and expect to submit a motion to settle the class

action in the near future.

If the parties are unable to agree to the settlement terms or, if the Court does not grant the

motion for settlement, the Company will continue to vigorously defend the lawsuit;

however, at this time, the Company is unable

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

Profit Sharing Plan:

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The Company matches each

employee’s salary reduction contribution, not to exceed four percent of annual compensation.

Total employer contributions

to this plan for fiscal 2021 and 2020 were approximately $399,000 and $329,000, respectively.

The Company has entered into formal employment agreements with its President and Chief Executive Officer and its

Chief Financial Officer, as amended from time to time.

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

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

or in the event the employee resigns for “Good

Reason”

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

as such terms are defined in the respective employment

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

to this plan for fiscal 2022 and 2021 were $ 461,000 and $ 399,000 , respectively.

The Company has entered into formal employment agreements with its President and Chief Executive Officer, its

Interim Chief Financial Officer, and its Chief Commercial Officer, as amended from time to time.

These agreements provide these

officers with, among other things, twelve to eighteen months of base salary upon a termination without “Cause” or

in the event the employee resigns for “Good Reason” or within twelve months of a “Change in Control,”

as such terms are defined in the respective employment agreements.

Related Parties

Company uses a parts supplier whose founder and president was a director of the Company through November 12, 2021.

made payments to the supplier of $ 360,000 and $ 1,000 during fiscal year 2022 and 2021, respectively.

Amounts due to the supplier

at June 30, 2022 were $ 160,000 , which were included in accounts payable on the Balance Sheets.

There was no amount due to the

supplier at June 30, 2021.

Subsequent Events

Company evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date

the financial statements are issued for either disclosure or adjustment to the Company’s financial results.

Except as described

below, there have been no events subsequent to June 30, 2022 which would require recognition in the Financial Statements or Notes

to the Financial Statements.

MacCourt, the Company’s former Chief Financial Officer, Treasurer and Secretary, ceased to serve in those positions effective

July 1, 2022 at which time the Company terminated its formal employment agreement with Mr.

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