What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-05-10 · 168 added, 254 removed, 154 unchanged (73% of the section changed)

29 unchanged sentences

SmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations

(“HMOs”), state Medicaid systems and the federal Medicare system, which we believe is an important consideration for

patients considering an HFCWO course of therapy.

(“HMOs”), state Medicaid systems, and the federal Medicare system, which we believe is an important consideration

for patients considering an HFCWO course of therapy.

For domestic sales, the SmartVest System may be reimbursed under the Medicare-assigned

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financial statements.

Such judgments are subject to an inherent degree of uncertainty.

Among other factors, these judgments are

based upon our historical experience, known trends in our industry, terms of existing contracts and other information from outside

sources, as appropriate.

We believe the critical accounting policies that require the most significant assumptions and judgments

in the preparation of our financial statements, including the unaudited Condensed Financial Statements contained in this Quarterly

Report on Form 10-Q, include:

revenue recognition and the estimation of variable consideration, inventory valuation, share-based

compensation and warranty reserve.

Such judgments are subject to an inherent degree of uncertainty and are based upon our historical experience,

known trends in our industry, terms of existing contracts, other information from outside sources, as appropriate and other factors.

Therefore, management discusses the development, selection and disclosures with the audit committee.

Among other factors, these

judgments are based upon our historical experience, known trends in our industry, terms of existing contracts and other information

from outside sources, as appropriate.

We believe the critical accounting policies that require the most significant assumptions

and judgments in the preparation of our financial statements, including the unaudited Condensed Financial Statements contained

in this Quarterly Report on Form 10-Q, include:

revenue recognition and the estimation of variable consideration, inventory valuation,

share-based compensation and warranty reserve.

of COVID-19 on Our Business and Operations

11 unchanged sentences

unable to predict with confidence the likely impact of the COVID-19 pandemic on our future operations.

the third quarter of our fiscal year ending June 30, 2022 (“fiscal 2022”), we continued to experience a reduction

in the number of clinics allowing face-to-face access by our sales team as the number of infections relating to the Omicron variant

of COVID-19 increased throughout most regions of the United States, and hospitals implemented additional safety protocols.

sales team continued to utilize a hybrid sales process of virtual and face-to-face clinician interaction with strict adherence

to specific clinic and healthcare system safety protocols, which we believe allowed them to drive stronger referral growth compared

to the prior year period.

During March 2022, we observed an improvement in clinic access and patient flow compared to earlier

in the quarter, which we believe is likely a result of Omicron-related case reductions throughout most of the United States, resulting

in a record high number of monthly referrals for our company.

believe that the impact of the COVID-19 pandemic on our home care and institutional business will likely continue during the remainder

of fiscal 2022.

Our home care revenue for the three months ended March 31, 2022 has increased as compared to the three months

ended March 31,2021;

however, if COVID-19 infection rates increase and federal, state and local restrictions on commerce, stay-at-home

orders or other restrictions on businesses are reinstated, we believe that such measures could have a material adverse effect

on our business.

observed increased changes to our supply chain timelines and increased raw material and shipping costs during the third quarter

of fiscal 2022, but we have not experienced any disruptions that materially impacted product availability for our customers.

anticipate that raw material costs will increase in future quarters primarily relating to electronic components but may extend

to other components as well.

In certain instances, we have purchased key electronic materials in advance to ensure adequate future

supply and mitigate the risk of supply chain disruption.

It is possible that the COVID-19 pandemic could have a greater adverse

impact on our supply chain in the future, including impacts associated with preventative and precautionary measures taken by other

businesses and applicable governments.

A reduction or interruption in any of our manufacturing processes could have a material

adverse effect on our business.

Any significant increases to our raw material or shipping costs could reduce our gross margins.

have also taken measures to ensure the safety of our employees and to comply with applicable governmental orders.

our business to be essential under applicable governmental orders, primarily due to our role in manufacturing and supplying needed

medical devices to patients with respiratory-related issues and have therefore continued to operate during the government restrictions

put in place in response to the pandemic.

believe that the impact of the COVID-19 pandemic on our home care and institutional business will likely continue during the first

half of our fiscal year ending June 30, 2023 (“fiscal 2023”).

Our home care and institutional revenue for the three

months ended September 30, 2022 increased as compared to the three months ended September 30, 2021;

however, if COVID-19 infection

rates increase and federal, state and local restrictions on commerce, stay-at-home orders or other restrictions on businesses

are reinstated, we believe that such measures could have a material adverse effect on our business.

observed increased changes to our supply chain timelines and increased material and shipping rates during the second half of fiscal

2022 and into the three months ended September 30, 2022.

The changes to our supply chain timelines resulted in a temporary

interruption that impacted product availability for certain customers in September 2022.

We do not anticipate this will have an

effect on our fiscal 2023 revenue.

We expect that material and shipping rates will remain elevated during fiscal 2023 relating to

supply chain availability and inflationary trends in electronic components and may extend to other components.

In certain instances,

we have purchased key electronic materials in advance to ensure adequate future supply and mitigate the risk of potential supply

chain disruptions.

It is possible that the COVID-19 pandemic could have a greater adverse impact on our supply chain in the future,

including impacts associated with preventative and precautionary measures taken by other businesses and applicable governments.

reduction or further interruption in any of our manufacturing processes could have a material adverse effect on our business.

significant increases to our raw material or shipping costs could reduce our gross margins.

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

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The CMS waiver was recently extended in conjunction with the extension of the federal public health emergency for

an additional 90-day period beginning April 16, 2022.

September 2021, President Joe Biden signed an executive order directing executive departments and agencies to include a clause

in all covered federal contracts to comply with guidance issued by the Safer Federal Workforce Task Force, which requires, among

other things, covered federal contractor employees, including employees working remotely related to federal contracts, to be fully

vaccinated, unless the employee is entitled to an accommodation.

As a federal contractor to the U.S.

Department of Veterans Affairs

Federal Supply Schedule (“Veterans Administration”), we are subject to this regulation.

In fiscal 2021, $557,000,

or 1.6% of our total revenues, were attributable to the Veterans Administration, and we intend to leverage that business as a

future growth opportunity;

approximately 19 million U.S.

veterans were served by the Veterans Administration healthcare system

in calendar year 2020.

During the three-month period ended December 31, 2021, we conducted a review process to ensure that we

fully comply with the Safer Federal Workforce Task Force regulations.

Through a concerted effort to increase vaccination rates

among our workforce, we were able to achieve compliance with such regulations with minimal disruption.

December 7, 2021, President Biden’s executive order was enjoined nationwide, and the federal government is appealing that

Due to the injunction, the federal government announced on December 9, 2021 that it is taking no action to enforce the

clause implementing the requirements of the executive order at this time.

Although it is unclear whether the executive order will

be upheld, we are well positioned to achieve compliance with the Safer Federal Workforce Task Force regulations if the executive

order becomes enforceable in the future.

an additional 90-day period beginning October 13, 2022.

of Operations

revenues for the three and nine months ended March 31, 2022 and 2021 are summarized in the table below.

Institutional

care distributor

International

revenues for the three months ended September 30, 2022 and 2021 are summarized in the table below.

Three Months Ended September 30,

Increase (Decrease)

Home Care Revenue

Home Care Distributor Revenue

Institutional Revenue

International Revenue

Total Revenue

care revenue .

Home care revenue for the three months ended March 31, 2022 was $9,033,000, representing an increase

of $870,000, or 10.7%, compared to the same period in fiscal 2021.

For the nine months ended March 31, 2022, home care revenue

was $27,721,000, representing an increase of $3,192,000, or 13.0%, compared to the same period in fiscal 2021.

The revenue increase

compared to the prior year periods was primarily due to increases in referrals and approvals.

The increase in referrals was primarily

due to increased sales representative productivity driven by increased clinic access and patient flow, our sales team adapting

to a hybrid virtual and face-to-face selling methodology, and benefits of the CMS waiver on the non-commercial Medicare portion

of our home care revenue.

Additionally, we also benefitted from a Medicare allowable rate increase that took effect on January

Annual Medicare rate increases for our device are linked closely to changes in the Urban Consumer Price Index.

CMS waiver benefited the non-commercial Medicare portion of our home care revenue by increasing the number of referrals and the

approval percentage for previously non-covered diagnoses.

Home care revenue increased by $348,000, or 3.7%, for the three months ended September 30, 2022 compared

to the same period in fiscal 2022.

The increase was primarily due to an increase in referrals and approvals.

The increase in referrals

was due to an increase in direct sales representatives.

The increase was slightly offset by

a temporary interruption in supply chain and associated operations in September 2022.

CMS waiver continues to benefit the non-commercial Medicare portion of our home care revenue by increasing the number of referrals

and the approval percentage for non-covered diagnoses.

We believe that our ongoing sales team execution, along with the expected

return to pre-COVID-19 levels of patient face-to-face engagement with physicians and clinic access for our sales team, has the

potential to mitigate the impact of a CMS waiver expiration, which is currently set to expire in July 2022.

Institutional

Institutional revenue for the three months ended March 31, 2022 was $392,000, representing a decrease of $51,000,

or 11.5%, compared to the same period in fiscal 2021.

For the nine months ended March 31, 2022, institutional revenue was $1,174,000,

an increase of $145,000, or 14.1%, compared to the same period in fiscal 2021.

For the three months ended March 31, 2022, the

revenue decline was driven by lower capital purchases.

Consumable volume growth during the period increased by 16.5% compared

to the prior year period, reflecting increased consumable wrap usage in hospitals.

The revenue increase for the nine months ended

March 31, 2022 was due to increased capital purchases and stronger consumable volumes compared to the corresponding prior year

periods, as hospitals resumed utilization of HFCWO protocols after reducing utilization early in the COVID-19 pandemic.

potential to mitigate the impact of a CMS waiver expiration, which is currently effective until January 2023.

care distributor revenue .

Home care distributor revenue for the three months ended March 31, 2022 was $520,000,

representing an increase of $415,000, or 395.2%, compared to the same period in fiscal 2021.

For the nine months ended March 31,

2022, home care distributor revenue was $1,063,000, an increase of $631,000, or 146.1%, compared to the same period in fiscal

The revenue increase in the current year periods was due to increased demand from one of our primary home care distribution

We began selling to a limited number of home medical equipment distributors during our fiscal year ended June 30, 2020,

who in turn sell our SmartVest System in the U.S.

home care market.

Home care distributor revenue increased by $398,000, or 255.1%, for the three months

ended September 30, 2022 compared to the same period in fiscal 2022.

The revenue increase was due to increased demand from one

of our primary home care distribution partners.

Institutional

Institutional revenue decreased by $58,000, or 12.9%, for the three months ended September 30, 2022 compared

to the same period in fiscal 2022.

International

International revenue for the three months ended March 31, 2022 was $196,000, representing an increase

of $120,000, or 157.9%, compared to the same period in fiscal 2021.

For the nine months ended March 31, 2022, international revenue

was $432,000, an increase of $135,000, or 45.5%, compared to the same period in fiscal 2021.

International sales are affected

by the timing of international distributor purchases that can cause significant fluctuations in reported revenue on a quarterly

profit increased to $7,743,000, or 76.4% of net revenues, for the three months ended March 31, 2022, from $6,701,000, or 76.3%

International revenue decreased by $31,000, or 27.7%, for the three months ended September 30, 2022 compared

to the same period in fiscal 2022.

profit increased to $8,331,000, or 78.2% of net revenues, for the three months ended September 30, 2022, from $7,701,000, or 77.0%

of net revenues, in the same period in fiscal 2022.

Gross profit increased to $23,324,000, or 76.7% of net revenues, for the nine

months ended March 31, 2022, from $20,374,000, or 77.5% of net revenues, in the same period in fiscal 2021.

For the nine months

ended March 31, 2022, the decrease in gross profit as a percentage of net revenues compared to the prior year period was primarily

due to higher raw material and shipping costs, partially offset by a Medicare allowable rate increase that took effect in January

2022, increased operational efficiencies and operating leverage on higher revenue.

The increase in gross profit dollars and percentage for the three months ended

September 30, 2022 was primarily due to increased revenue and operational efficiencies

partially offset by increased direct expenses and patient training related expenses due to increased face-to-face trainings.

general and administrative expenses.

Selling, general and administrative (“SG&A”) expenses were $7,989,000

and $19,806,000 for the three and nine months ended March 31, 2022, respectively, representing increases of $493,000 and $3,316,000,

or 8.1% and 20.1%, respectively, compared to the same periods in the prior year.

and compensation-related expenses were $3,990,000 and $12,013,000 for the three and nine months ended March 31, 2022, respectively,

representing increases of $152,000 and $1,444,000, or 4.0% and 13.7%, respectively, compared to the same periods in the prior

The increase in the current year periods was primarily due to a higher average number of sales, sales support and marketing

personnel, increased reimbursement personnel to process higher patient referrals, increased temporary resources to assist with

systems infrastructure investments and increased incentive payments on higher home care revenue .

We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation

ranges for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business.

sales employees totaled 51, of which 42 were direct sales, as of March 31, 2022, compared to 48 as of March 31, 2021, of which

39 were direct sales.

meals and entertainment expenses were $580,000 and $1,810,000 for the three and nine months ended March 31, 2022, respectively,

representing increases of $140,000 and $540,000, or 31.8% and 42.5%, respectively, compared to the same periods in the prior year.

The increase in the three months ended March 31, 2022 was primarily due to our sales team resuming closer-to-normal levels of

travel compared to the COVID-19 driven travel restrictions in the prior year periods and an increase in regional sales meetings

that were cancelled in the prior year due to COVID-19.

For the nine months ended March 31, 2022, we also held an in-person national

sales meeting in August 2021 whereas the national sales meeting was held virtually the prior fiscal year due to COVID-19.

discretionary marketing expenses were $241,000 and $605,000 for the three and nine months ended March 31, 2022, respectively,

representing decreases of $107,000 and $248,000, or 30.7% and 29.1%, respectively, compared to the same periods in the prior year.

The decrease in the current year periods was primarily due to a shift to more cost-effective direct-to-consumer marketing investments.

fees were $719,000 and $2,454,000 for the three and nine months ended March 31, 2022, respectively, representing increases of

$19,000 and $768,000, or 2.7% and 45.6%, respectively, compared to the same periods in the prior year.

Professional fees include

services related to legal costs, shareowner services and reporting requirements, information technology technical support and

consulting fees.

For the nine months ended March 31, 2022, the increase in professional fees was primarily due to a shareholder

activism matter, increased investment in our system infrastructure and increased clinical study costs.

Our shareholder activism

matter concluded with a cooperation agreement in September 2021, and we did not incur any shareholder activism costs during the

three months ended March 31, 2022.

We continue to make key investments in systems infrastructure including implementing a new

enterprise resource planning (“ERP”) system, enhancing our customer relationship management system and further optimizing

of the revenue cycle management system that was implemented in June 2021.

We expect these system infrastructure investments will

result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance.

expect to continue investing in our on-going clinical studies in order to continue building the body of evidence around positive

outcomes from bronchiectasis patients using HFCWO/SmartVest therapy.

fees were $207,000 and $569,000 for the three and nine months ended March 31, 2022, respectively, representing increases of $124,000

and $358,000, or 149.4% and 169.7%, respectively, compared to the same periods in the prior year.

The increase in recruiting fees

is primarily due to increased recruiting for senior leadership and direct sales representative positions.

expenses were $337,000 and $972,000 for the three and nine months ended March 31, 2022, respectively, representing increases of

$50,000 and $145,000, or 17.4% and 17.5%, respectively, compared to the same periods in the prior year.

The increase in insurance

expenses primarily relate to higher health insurance, director and officer insurance costs and cyber insurance costs.

for the three months ended September 30, 2022, representing an increase of $1,202,000 or 17.7%, compared to the same period in

the prior year.

and compensation-related expenses increased by $671,000, or 15.9%, to $4,884,000 for the three months ended September 30, 2022,

compared to the same period in the prior year.

The increase was primarily due salaries and incentive compensation related to the

higher average number of sales, sales support and marketing personnel, and reimbursement personnel to process higher patient

We have also continued to provide regular merit-based

increases for our employees and are regularly benchmarking our compensation ranges for new and existing employees to ensure we can

hire and retain the talent needed to drive growth in our business.

Field sales employees totaled 53 as of September 30, 2022, 44 of

which were direct sales representatives, compared to 51 field sales employees and 41 direct sales representatives as of September

meals and entertainment expenses increased $253,000, or 39.5%, to $894,000 for the three months ended September 30, 2022, compared

to the same period in the prior year.

The increase was primarily due to airfare, lodging and inflationary expenses for our annual

sales meeting as well a higher average number of direct sales representatives.

discretionary marketing expenses increased $80,000, or 46.2%, to $253,000 for the three months ended September 30, 2022, compared

to the same period in the prior year.

The increase was primarily due to an investment in direct-to-consumer and direct-to-physician

fees increased $75,000, or 5.5%, to $1,431,000 for the three months ended September 30, 2022, compared to the same period in the

Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements,

information technology technical support and consulting fees.

The increase was primarily due to nonrecurring legal compliance fees

of approximately $400,000 incurred for a reimbursement-related project offset by a reduction in expenses related to

shareholder activism incurred during the three months ended September 30, 2021, which concluded with a cooperation agreement that

became effective in September 2021.

and development expenses.

Research and development (“R&D”) expenses were $336,000 and $1,041,000 for the three

and nine months ended March 31, 2022, respectively, representing decreases of $71,000 and $355,000, or 17.4% and 25.4%, respectively,

compared to the same periods in the prior year.

The decrease in the current-year periods was primarily due to reduced professional

services costs associated with our next generation platform development.

R&D expenses were 3.3% and 3.4% of revenue for the

three and nine months ended March 31, 2022, respectively.

interest income for the three and nine months ended March 31, 2022 was $6,000 and $21,000, respectively, compared to $10,000 and

$29,000, respectively, in the comparable prior year periods.

The decrease in the current year periods was primarily due to lower

rates earned on our cash deposits and lower cash deposits in the bank compared to prior fiscal periods.

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

ended March 31, 2022, respectively.

Estimated income tax expense for the three and nine months ended March 31, 2022 each include

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

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

ended March 31, 2021, respectively.

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

tax benefit of $37,000 as a result of lower federal and state taxes than what was originally estimated in our fiscal year ended

June 30, 2020 tax provision.

Estimated income tax expense for the nine months ended March 31, 2021 included that $37,000 discrete

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

The net impact of these discrete

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

income for the three and nine months ended March 31, 2022 was $645,000 and $1,922,000, respectively, compared to $224,000 and

$1,962,000 for the same periods in the prior year.

The increase in net income for the three months ended March 31, 2022 was driven

by home care and distributor revenue growth, partially offset by increased strategic investments in SG&A and higher product

The decrease in net income for the nine months ended March 31, 2022 was due to increased strategic investments in SG&A,

shareholder activism costs and higher product costs, partially offset by stronger home care and distributor revenue growth.

Research and development (“R&D”) expenses decreased $78,000, or 20.7%, to

$298,000 for the three months ended September 30, 2022 compared to the same period in the prior year.

The decrease was

primarily due to reduced professional services costs associated with our next generation platform development.

expenses for the three months ended September 30, 2022 were 2.8% of revenue compared to 3.8% of revenue for the same period

in the prior year.

interest income decreased $5,000, or 55.6%, to $4,000 for the three months ended September 30, 2022, compared to the same period

in the prior year.

tax benefit was estimated at $33,000 for the three months ended September 30, 2022 and the income tax expense was estimated at

$108,000 for the three months ended September 30, 2021.

The effective tax rate was (68.8%) and 19.7% for the three months ended

September 30, 2022 and 2021, respectively.

Estimated income tax benefit for the three months ended September 30, 2022 included

a $44,000 discrete tax benefit related to the exercise of stock options.

The net impact of this discrete event created an income

The income tax expense for the three months ended September 30, 2021 included a discrete tax benefit of $20,000 related

to the exercise of stock options.

income for the three months ended September 30, 2022 was $81,000 compared to $439,000 for the same period in the prior year.

decrease in net income was primarily due to increased S&GA expenses related to our sales and reimbursement related investments

in revenue growth partially offset by increased gross profit.

and Capital Resources

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Flows from Operating Activities

the nine months ended March 31, 2022, net cash provided by operating activities was $53,000.

the three months ended September 30, 2022, net cash used in operating activities was $1,694,000.

Cash flows provided by operating

activities consisted of net income of $1,922,000, non-cash expenses of $1,191,000, a decrease in inventory of $9,000, a decrease

in contract assets of $98,000 and an increase in accounts payable and accrued liabilities of $550,000.

These cash flows from operating

activities were offset by an increase in accounts receivable of $2,582,000, an increase in prepaid expenses and other assets of

$519,000, an increase in income tax receivable of $443,000 and a decrease in accrued compensation of $173,000.

The increase in

accounts receivable was primarily due to continued growth in the Medicare portion of our home care business, which has a 13-month

payment cycle.

Three distinct items have negatively impacted our operating cash flow for the nine months ended March 31, 2022,

including tax payments on higher-than-expected fiscal 2021 net income, a one-time payout of accrued vacation balances as part

of an enhancement to our paid time off policy, and increased prepayments to secure adequate supply of key raw material components.

Our cash receipt collection remains strong, with the three months ended March 31, 2022 period having the highest cash receipt

collections in our company’s history, building upon the prior record that was set in the previous quarter.

activities consisted of net income of $81,000, an increase in non-cash expenses of $255,000, and a decrease in accounts receivable

These cash flows from operating activities were offset by a decrease in accrued compensation of $1,132,000, a decrease

in accounts payable and other accrued liabilities of $26,000, an increase in inventory of $500,000, an increase in contract assets

of $167,000, an increase in prepaid expenses and other assets of $125,000, and an increase in income tax receivable of $175,000.

decrease in accrued compensation was primarily due to the payment of annual incentives.

Flows from Investing Activities

the nine months ended March 31, 2022, cash used in investing activities was $1,066,000.

the three months ended September 30, 2022, cash used in investing activities was $256,000.

Cash used in investing activities consisted

of $980,000 in expenditures for property and equipment and $86,000 in expenditures for patent costs.

The investment in property

and equipment primarily relates to our system infrastructure investments in an ERP system, customer relationship management system

and revenue cycle management system, as well as tooling equipment for our next generation product.

of $241,000 primarily related to our enterprise resource planning infrastructure investments and $15,000 in expenditures for intangible

Flows from Financing Activities

the nine months ended March 31, 2022, cash used in financing activities was $1,032,000, which consisted of $962,000 used to repurchase

shares of common stock, and $70,000 of taxes paid on net share settlements of stock option exercises.

the three months ended September 30, 2022, cash used in financing activities was $205,000, which consisted of $145,000 used for

our share repurchase program and $60,000 for taxes paid on net share settlement of stock option exercises.

of Capital Resources

primary working capital requirements relate to adding employees to our sales force and support functions, continuing R&D efforts,

IT infrastructure projects, and supporting general corporate needs, including financing equipment purchases and other capital

expenditures incurred in the ordinary course of business.

Based on our current operational performance, we believe our working

capital of $28,022,000 and available borrowings under our existing credit facility will provide adequate liquidity during fiscal

December 17, 2021, we renewed our credit facility, which provides us with a revolving line of credit.

Interest on borrowings on

the line of credit accrues at the prime rate (3.5% at March 31, 2022) less 1.0% and is payable monthly.

There was no outstanding

principal balance on the line of credit as of March 31, 2022 or June 30, 2021.

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, 2023, if not renewed before such date.

At March 31, 2022, the maximum $2,500,000 was available under the line of credit.

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

primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure

investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred

in the ordinary course of business.

Based on our current operational performance, we believe our working capital of $27,267,000

and available borrowings under our existing credit facility will provide adequate liquidity during fiscal 2023.

credit facility provides us with a revolving line of credit.

Interest on borrowings on the line of credit accrues at the prime

rate (6.25% at September 30, 2022) less 1.00% and is payable monthly.

There was no outstanding principal balance on the line of

credit as of September 30, 2022 or June 30, 2022.

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, 2023, if not renewed.

As of September 30, 2022, the maximum $2,500,000 was available under the line of credit.

Payment obligations under the line of

credit are secured by a security interest in substantially all of our tangible and intangible assets.

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

7 unchanged sentences

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

the nine months ended March 31, 2022 and 2021, we spent $980,000 and $105,000, respectively, on property and equipment.

expect to finance planned equipment purchases with available working capital, cash flows from operations or borrowings under our

credit facility.

We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our

operating performance does not generate adequate cash flows.

Note Regarding Forward-Looking Statements

the three months ended September 30, 2022 and 2021, we spent $241,000 and $225,000, respectively, on property and equipment.

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

We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance

does not generate adequate cash flows.

the impact of the COVID-19 pandemic and other factors such as inflation are difficult to predict, we believe our cash, cash equivalents

and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash requirements for

fiscal 2023 and the foreseeable future.

We will continue to evaluate our projected expenditures relative to our available

cash and evaluate financing alternatives in order to satisfy our working capital and other cash requirements.

Regarding Forward-Looking Statements

contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking

32 unchanged sentences

“estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,”

“potential,” “project,” “should,” “will,” “would,” and similar expressions,

including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of

identifying such statements.

Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties

that may cause actual results to differ materially from those projected by such statements.

Such statements involve known and

unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels

of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking

“potential,” “project,” “goal,” “target,” “should,” “will,”

“would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking

statements but are not the exclusive means of identifying such statements.

Although we believe these forward-looking statements

are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by

such statements.

Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results

or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information

expressed or implied by the forward-looking statements.

that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited

3 unchanged sentences

channels and on economies and markets more generally;

competitive nature of our market;

to Medicare, Medicaid, or private insurance reimbursement policies;

chain disruptions that limit our ability to produce and deliver our products to patients;

to state and federal health care laws;

affecting the medical device industry;

to obtain reimbursement from Medicare, Medicaid, or private insurance payers for our

products including potential adverse impact with an expiration of the CMS waiver for

certain respiratory diseases;

or raw material shortages, changes to lead times or significant price increases;

changes to state and federal health care regulations;

ability to develop new sales channels for our products such as the home care distributor

need to maintain regulatory compliance and to gain future regulatory approvals and clearances;

drug or pharmaceutical discoveries;

economic and business conditions;

ability to maintain regulatory compliance and to gain future regulatory approvals and

of new competitors including new drug or pharmaceutical discoveries;

economic and business conditions or intense competition;

and component price inflation;

problems with our research and products;

affecting the medical device industry;

international health care regulation impacting current international business;

ability to renew our line of credit or obtain additional credit as necessary;

ability to protect and expand our intellectual property portfolio;

risks associated with expansion into international markets;

risks associated with cyberattacks, data breaches, computer viruses and other similar

17 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis