What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-08-27 compared with 2023-08-22 · 333 added, 335 removed, 496 unchanged (57% of the section changed)

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to Financial Statements

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Shareholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

of Independent Registered Public Accounting Firm

of Operations

of Shareholders’ Equity

of Cash Flows

to Financial Statements

of Independent Registered Public Accounting Firm

and Board of Directors

on the Financial Statements

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

(the Company) as of June 30, 2023 and 2022, 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, 2023 and 2022, 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.

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.

have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2024 and 2023, 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, 2024 and 2023, 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.

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.

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 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.

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 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.

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.

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

● Recalculated

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

samples of product sales, additional revenue collections and writeoffs, to inspect and

compare to the underlying source documents and to test the reasonableness of the contractual

adjustment and collection percentage assumptions used in management’s estimate.

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

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portfolio groups.

o Recalculating

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

o Evaluating whether quarterly historical realization percentages were reasonable and qualitatively consistent with internal and external independent data

whether quarterly historical realization percentages were reasonable and qualitatively

consistent with internal and external independent data.

have served as the Company’s auditor since 2010.

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Cash and cash equivalents

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

Accounts receivable (net of allowances for credit losses of $ 45,000 )

Contract assets

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Total liabilities

Commitments and Contingencies (Note 11)

Shareholders’ Equity

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Years Ended June 30, 2024 and 2023

Ended June 30,

Years Ended June 30,

Cost of revenues

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Shareholders’

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

of restricted stock, net

of common stock upon exercise of options

paid on stock option exercised on a net basis

compensation expense

of common stock

as of June 30, 2023

Paid-in Capital

Balance as of June 30, 2022

Issuance of restricted stock, net

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, 2023

Issuance of restricted stock, net

Issuance of common stock upon exercise of options

Share-based compensation expense

Repurchase of common stock

Balance as of June 30, 2024

Notes to Financial Statements.

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Years Ended June 30, 2024 and 2023

Ended June 30,

Years Ended June 30,

Cash Flows from Operating Activities

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

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

Amortization of finite-life intangible assets

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( 3,078,000 )

( 4,020,000 )

Contract assets

( 1,033,000 )

( 1,072,000 )

Prepaid expenses and other current assets

( 1,322,000 )

Prepaid expenses and other assets

Income tax payable

Accounts payable and accrued liabilities

( 1,206,000 )

Accrued compensation

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities

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( 1,648,000 )

( 1,425,000 )

Expenditures for finite-life intangible assets

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( 1,716,000 )

( 1,525,000 )

Cash Flows from Financing Activities

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Repurchase of common stock

( 1,448,000 )

Net cash used in financing activities

( 1,525,000 )

Net decrease in cash

( 3,736,000 )

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

Cash and cash equivalents

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Lease assets obtained in exchange for new operating lease liabilities

Demonstration equipment returned to inventory

Demonstration equipment transferred from inventory to property and equipment

Notes to Financial Statements.

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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

$ 424,000 and $ 521,000 for the fiscal years ended June 30, 2023 (“fiscal 2023”) and June 30, 2022 (“fiscal 2022”),

respectively.

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

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 2022 or fiscal 2023 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 and through May 11, 2023.

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.

potential impact of the COVID-19 pandemic and its effects on our operational and financial performance will depend in large part

on future developments, which cannot be reasonably estimated at this time.

to the homecare and hospital markets.

The Company also sells internationally through

distributors.

International sales were $ 470,000 and $ 424,000 for the fiscal years ended June 30, 2024 (“fiscal 2024”)

and June 30, 2023 (“fiscal 2023”), respectively.

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

developing, manufacturing, and marketing medical equipment.

summary of the Company’s significant accounting policies follows:

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The Company has not experienced any losses in these accounts.

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

distributors.

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

Medicare, Medicaid and private insurance companies.

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

under reimbursement arrangements with third-party payers.

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.

The Company’s accounts receivable balance is comprised of amounts due from individuals, hospitals 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 credit losses.

Management determines

the allowance for credit losses by regularly evaluating individual customer accounts and separately considering macroeconomic

trends in determining expected losses.

Receivables are written off when deemed uncollectible.

Recoveries of

receivables previously written off are recorded when received.

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

2023 and 2022.

Recoveries of receivables previously

written off are recorded when received.

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

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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.

costs are reviewed at least annually 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.

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right of use (“ROU”) asset.

Lease liabilities represent the present value of our future lease payments over the expected lease term,

which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised.

value of the Company’s lease liability is determined using its incremental collateralized borrowing rate at lease inception.

ROU assets represent the Company’s right to control the use of the leased assets during the lease and are recognized in

an amount equal to the lease liability for leases with an initial term greater than 12 months.

Over the lease term (operating

leases only), the Company uses the effective interest rate method to account for the lease liability as lease payments are made

and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight line expense recognition.

Lease liabilities represent the present value of our future lease payments over the expected

lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised.

The present value of the Company’s lease liability is determined using its incremental collateralized borrowing rate at

lease inception.

ROU assets represent the Company’s right to control the use of the leased assets during the lease and are

recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months.

Over the lease term

(operating leases only), the Company uses the effective interest rate method to account for the lease liability as lease payments

are made and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight line expense

intangible assets :

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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:

when significant 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

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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.

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

amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s or assets group’s

carrying amount over its estimated fair value.

addition, we periodically reassess the estimated remaining useful lives of our long-lived and finite-life intangible assets.

to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings.

We have experienced

no significant changes in the carrying amount or estimated remaining useful lives of our long-lived or amortizable intangible

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

and a one to five-year warranty for all homecare distributor, hospital and other sales.

The Company estimates the costs that

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Schedule of changes in warranty liability

Ended June 30,

Years Ended June 30,

Beginning warranty reserve

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and development :

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

Research and development costs include the 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 2023

and 2022 were $ 1,244,000 and $ 936,000 , 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 graded vesting basis over the requisite service or vesting period of the award, or at the time services are provided for

non-employee awards.

Advertising costs are expensed when incurred.

Advertising, marketing and trade show costs for fiscal 2024 and 2023

were $ 1,487,000 and $ 1,244,000 , respectively.

Share-based payment awards consist of options to purchase shares of common stock, performance-based share awards

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, expenses for performance-based awards with market conditions is estimated using the Monte-Carlo

pricing model at the date of grant and expense for restricted stock is determined by the closing price on the day the grant is

Expense is recognized on a graded vesting basis over the requisite service or vesting period of the award, on a straight-line

basis for performance-based awards, or at the time services are provided for non-employee awards.

value of financial instruments :

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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.

Adoption of the standard is not expected to have a material impact on the financial statements.

Standards Update (“ASU”) 2016-13 – Credit Losses:

Measurement of Credit Losses on Financial Instruments (subsequently

amended by ASU 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, and 2020-02)

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.

This standard was adopted

July 1, 2023 and does not have a material impact on the financial statements.

2023-07 - Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

standard introduces increased disclosure requirements primarily related to significant segment expenses, along with disclosure

of key criteria and metrics utilized by the Chief Operating Decision Maker (“CODM”).

It is effective for annual periods

beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating the impact of adoption and

additional disclosure requirements.

2023-09 - Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

standard introduces increased transparency about income tax information through the requirement of increased disclosures around

specific categories in the rate reconciliation and requiring additional information on reconciling items.

It is effective for

annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact

of adoption and additional disclosure requirements.

is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable

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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 .

above under Accounts receivable and Contract assets in Note 1.

Disaggregation

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Schedule of disaggregated revenue

Ended June 30,

Institutional

Home care distributor

International

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

Ended June 30,

Years Ended June 30,

Homecare distributor

the following table, homecare revenue is disaggregated by payer type:

Years Ended June 30,

Medicare Supplemental

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.

are recognized at a point in time when control passes to the customer upon product shipment or delivery.

obligations and transaction price.

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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,

In the Company’s homecare 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 homecare market, the Company regards the SmartVest System to be a

single performance obligation.

Company makes available to its homecare 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.

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

As such, transactions in the home care market

As such, transactions in the homecare market

consist of a single performance obligation:

the SmartVest System.

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

Medicaid and the U.S.

patients generally will rely on third-party payers, including commercial payers and governmental payers such as Medicare, Medicaid

Department of Veterans Affairs to cover and reimburse all or part of the cost of the SmartVest System.

third-party payers’ reimbursement programs fall into three types, distinguished by the differences in the timing of payments

from the payer, consisting of either (i) outright sale, in which payment is received from the payer based on standard terms, (ii)

capped installment sale, under which the SmartVest System is sold for a series of payments that are capped not to exceed a prescribed

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

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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

practice to regard all homecare agreements as transferring control to the patient upon shipment or delivery, despite 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

For homecare 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

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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

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

Company’s contractually stated transaction prices in the homecare market are generally set by the terms of the contracts

negotiated with insurance companies or by government programs.

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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

in an insurance allowable, 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.

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

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.

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

over the past five years.

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

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

As a result, the Company

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

each type of variable consideration discussed above, there are many 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 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.

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

The distributor’s purchases accumulate to give the distributor a right to a higher discount on purchases in excess

of the specified level within the contract period.

As a result, to the extent the Company expects the distributor to exceed the

specified volume of purchases in the annual period, it recognizes revenue at a blended rate based on estimated total annual volume

and sales revenue.

This effectively defers a portion of the transaction price on initial purchases below the specified volumes

for recognition when the higher discount is earned on purchases in excess of specified volumes.

Transfer of control of the products

occurs upon shipment or delivery to the distributor as applicable.

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

centers and other clinics.

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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.

be refurbished and used again later.

Revenue for the consumable wraps is recognized when

control transfers to the customer.

Sales to international or other customers are 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 customer as applicable.

The Company offers warranties on its products.

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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.

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

Schedule of contract assets

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

Receivables, included in “Accounts receivable, net of allowance for credit losses”

Contract Assets

Accounts receivable, net of allowances for credit losses, as of June 30, 2022 were $21,052,000.

changes in contract assets during the period are as follows:

June 30, 2024

June 30, 2023

Increase (decrease)

Contract assets, beginning

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( 2,325,000 )

( 1,220,000 )

Contract assets recognized

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Schedule of property and equipment, including assets under capital leases

and building improvements

Estimated Useful

Lives (Years)

Building and building improvements

Land improvements

Demonstration and rental

Demonstration and rental equipment

Construction in progress

Accumulated depreciation

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( 4,416,000 )

property and equipment

Net property and equipment

Finite-life Intangible Assets

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Schedule of activity and balances of finite-life intangible assets

Ended June 30,

Years Ended June 30,

Balance, beginning

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Schedule of future amortization of finite-life intangible assets

years ending June 30:

Fiscal years ending June 30:

Financing Arrangements

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Share-Based Compensation

compensation expense for fiscal 2023 and 2022 was $ 708,000 and $ 976,000 , 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.

30, 2023, the Company had $ 296,000 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 1.84 years related to restricted stock awards and employee stock options,

respectively.

compensation expense for fiscal 2024 and 2023 was $ 1,692,000 and $ 708,000 , respectively, related to employee stock options, performance-based

restricted stock units and restricted stock awards.

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

the Statements of Operations.

As of June 30, 2024, the Company had $ 1,659,000 of unrecognized compensation expense related to

non-vested equity awards, which is expected to be recognized over a weighted-average period of 3.0 , 1.99 and 2.59 years related

to performance-based restricted stock units, 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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In November 2023, the Company’s shareholders approved

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

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

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

consultants of the Company.

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

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 163,500 options granted under the 2014 Plan and prior plans outstanding as of June

There were 288,070 options issued under the 2017 Plan outstanding and 291,245 shares available for grant under the 2017

Plan as of June 30, 2023.

the 2023 Equity Incentive Plan (the “2023 Plan”) which superseded the 2017 Omnibus Incentive Plan (the “2017

Plan”) and the 2014 Equity Incentive Plan (the “2014 Plan”).

The 2023 Plan allows the Board to grant stock options,

stock appreciation rights, restricted stock, restricted stock units and other stock-based awards, as well as cash incentive awards

to all employees, non-employee directors, and advisors or consultants of the Company.

The vesting schedule and term for each award

are determined by the Board upon each grant.

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.

number of shares of common stock available for issuance under the 2023 Plan is (i) 850,000 new shares of common stock, (ii) up

to 192,018 shares of common stock that remained available for issuance under the 2017 Plan as of the approval date of the 2023

Plan, and (iii) up to 360,856 shares of common stock that were subject to outstanding awards under the 2017 Plan as of the approval

date of the 2023 Plan, which shares will be available for future grants under the 2023 Plan to the extent that, on or after the

approval date of the 2023 Plan, such awards expire, are cancelled, are forfeited or are settled for cash.

There were 458,973 options

granted under the 2017 Plan and prior plans outstanding as of June 30, 2024.

There were 1,100 options issued under the 2023 Plan

outstanding and 1,031,734 shares available for grant under the 2023 Plan as of June 30, 2024.

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

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Ended June 30,

Risk-free interest rate

interest rate

3.85 - 4.64 %

2.88 - 4.23 %

Expected term (years)

Expected volatility

following table presents employee stock option activity for fiscal 2024 and 2023:

Schedule of stock option transactions

Weighted-Average

Grant Date Fair Value

Weighted-Average

Exercise Price

Weighted-Average

Contractual Life (in Years)

Life (in Years)

Options outstanding as of June 30, 2022

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Company issued restricted stock awards to employees totaling 23,428 and 32,400 during fiscal 2024 and 2023, respectively, with

a vesting term of one to three years and a fair value of $ 9.92 and $ 11.48 per share, respectively.

The Company issued restricted

stock awards to directors totaling 21,000 and 18,000 during fiscal 2023 and 2022, respectively, with a vesting term of six months

and a fair value of $ 9.86 and $ 12.09 per share for fiscal 2023 and 2022, respectively.

Restricted stock transactions during the

years ended June 30, 2023 and 2022 are summarized as follows:

a vesting term of three years and a fair value of $ 10.74 and $ 9.92 per share, respectively.

The Company issued restricted stock

awards to directors totaling 21,000 and 21,000 during fiscal 2024 and 2023, respectively, with a vesting term of six months and

a fair value of $ 10.44 and $ 9.86 per share for fiscal 2024 and 2023, respectively.

Restricted stock transactions during the years

ended June 30, 2024 and 2023 are summarized as follows:

Schedule of restricted stock transactions

of Restricted Stock

Restricted Stock

Weighted-Average

Grant Date Fair Value per Share

Outstanding as of June 30, 2021

Outstanding as of June 30, 2022

Grant Date Fair

Value per Share

Unvested awards outstanding as of June 30, 2022

Canceled or forfeited

Outstanding as of June 30, 2023

Unvested awards outstanding as of June 30, 2023

Canceled or forfeited

Unvested awards outstanding as of June 30, 2024

Performance-Based

Restricted Stock Units

Company granted 175,000 performance-based restricted stock units (“PSUs”) to our President and Chief Executive Officer

in connection with his appointment as CEO on July 1, 2023.

The PSUs are to be earned based on the extent to which performance

goals tied to Total Shareholder Return (“TSR”) are achieved.

The performance-based restricted stock units will be

eligible to vest and settle into shares of common stock on a 1-for-1 basis with respect to one-half of the shares upon achieving

a total shareholder return of 50% and the remaining shares upon a total shareholder return of 100%, in each case within four years

of the date of grant.

The grant date fair value of the awards was determined using a Monte Carlo valuation model with an expected

term of four years.

weighted average grant date fair value per unit was $ 6.58 per unit and as of June 30, 2024, there are 175,000 PSUs outstanding.

On June 30, 2024, there was approximately $ 863,000 of total unrecognized compensation expense related to outstanding PSUs that

is expected to be recognized over a period of 3.00 years.

of the provision for income taxes were as follows:

Schedule of components of the provision for income taxes

Ended June 30,

Years Ended June 30,

Current Federal

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Schedule of effective income tax reconciliation

Ended June 30,

Years Ended June 30,

Tax expense at statutory federal rate

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Share based compensation

Disallowed meal expenses

Change in valuation allowance on deferred tax assets

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Finite-life intangible assets

Stock options

Stock based compensation

Valuation allowance

1 unchanged sentence

Deferred tax liabilities:

Finite-life intangible assets

Property and equipment

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Based on the historical use of the credits, management believes it is more likely than not these credits will

begin to expire between fiscal years 2025 and 2038.

As of June 30, 2023 and June 30, 2022, the Company had a valuation allowance

of $ 221,000 and $ 152,000 , respectively, related to its research and development state tax carryforwards.

begin to expire unused between fiscal years 2025 and 2038.

As of June 30, 2024, and June 30, 2023, the Company had a valuation

allowance of $ 258,000 and $ 221,000 , respectively, related to its research and development state tax carryforwards.

Company applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized

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not have any 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.

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 $ 87,000 and $ 161,000 as of June 30, 2024, and

June 30, 2023, respectively, which is included in other assets on the Company’s balance sheet.

Operating lease liabilities were

and $ 120,000

as of June 30, 2023 and June 30, 2022, respectively, which are included in other accrued liabilities and other long-term liabilities

on the Company’s balance sheet.

of June 30, 2023, the Company has a weighted-average lease term of 1.5 years for its operating leases, which have a weighted-average

discount rate of 4.0 %.Operating lease payments of $ 82,000

Operating lease liabilities

were $87,000 and $161,000 as of June 30, 2024, and June 30, 2023, respectively, which are included in other accrued liabilities

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

of June 30, 2024, and June 30, 2023, the Company had a weighted-average lease term of 1.1 and 1.5 years, respectively, for its

operating leases, which had a weighted-average discount rate of 4.0 % and 4.0 %, respectively.

Operating lease payments of $ 78,000

are included in operating cash flows in fiscal 2024.

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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 principle to settle

The parties have executed a settlement agreement and submitted a motion to settle the class action.

During January 2023,

the settlement was preliminarily approved.

The hearing for final approval took place on June 5, 2023.

Following the final approval

hearing, the court issued a judgment on July 10, 2023 granting a motion for final approval of the settlement.

As a result of the

judgement, there was no additional impact on the financial statements as of or for the year ended June 30, 2023.

Profit Sharing Plan:

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respectively.

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

Chief Financial Officer, as may be amended from time to time.

These agreements provide these officers with, among other things,

twelve and eighteen months, respectively, 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.

The Company is party to employment agreements with its President and Chief Executive Officer and its Chief Financial

Officer, as may be amended from time to time.

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

of base salary upon a termination of employment 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

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 $ 1,857,000 and $ 360,000 during fiscal year 2023 and 2022, respectively.

Amounts due to the supplier

were $ 247,000 and $ 160,000 on June 30, 2023 and June 30 2022 respectively, which were included in accounts payable on the Balance

director has remained a beneficial owner of greater than 5% of the Company’s outstanding common stock through June 30, 2024.

The Company made payments to the supplier of $ 2,051,000 and $ 1,857,000 during fiscal years 2024 and 2023, respectively.

due to the supplier were $ 18,000 and $ 247,000 on June 30, 2024, and June 30, 2023 respectively, which were included in accounts

payable and other accrued liabilities on the Balance Sheets.

Segment Reporting

President and Chief Executive Officer is our chief operating decision maker (“CODM”).

The CODM reviews financial information,

including long-lived assets, presented on a consolidated basis, accompanied by information about revenue by market, for purposes

of allocating resources and evaluating financial performance.

We have a single active product and engage in the single business

activity of [selling and supporting that single product].

There are no segment managers who are held accountable for operations,

operating results or plans for levels or components below the consolidated level.

Accordingly, we have determined that we have

a single reportable and operating segment structure.

We and our CODM evaluate performance based on revenue from our single product

in the markets in which the Company operates.

Revenue by market is described above in Note 2.

Subsequent Events

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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