| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a)
Basis of presentation and use of estimates The
financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America
(“U.S. GAAP”). The preparation of financial statements in conformity with Generally Accepted Accounting Principles
in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Such estimates and assumptions also include the valuations of certain financial instruments,
stock-based compensation, deferred tax assets, the outcome of litigation and tax matters, and other matters that affect the statements
of financial condition and related disclosures. Actual results could differ materially from these estimates. These
unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year
ended June 30, 2020, contained in our General Form for Registration of Securities of Form 10-K as filed with the Securities and
Exchange Commission (the “Commission”) on September 28, 2020. The results of operations for the three months ended
September 30, 2020, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending
June 30, 2021. (b)
Revenue recognition As
of July 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The Company sells
medical imaging products, parts, and services where permitted to independent distributors and in certain unrepresented territories
directly to end-users. The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied.
Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration
the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue
the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Any
discounts, sales incentives or similar arrangements with the customer are estimated at time of sale and deducted from revenue.
Sales taxes and other similar taxes are excluded from revenue. The
Company also receives royalties pursuant to a licensing relationship with Trifoil Imaging. Revenue is recognized in the reporting
periods in which royalties are due to the Company. (c)
Allowance for doubtful accounts In
the event that management determines that a receivable becomes uncollectible, or events or circumstances change, which result
in a temporary cessation of payments from the distributor, we will make our best estimate of probable or potential losses in our
accounts receivable balance using the allowance method for each quarterly period. Management will review the receivables at the
end of each fiscal year and the appropriate allowance will be made based on current available evidence and historical experience. Our
allowance for doubtful accounts was $0 as of September 30, 2020 and June 30, 2020. (d)
Cash and cash equivalents Holdings
of highly liquid investments with original maturities of three months or less and investment in money market funds are considered
to be cash equivalents by the Company. There were no cash equivalents at September 30, 2020 and June 30, 2020. (e)
Concentration of Risk Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The
Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s
cash accounts may exceed the Federal Deposit Insurance Corporation limit of $250,000. At September 30, 2020 and June 30, 2020,
the Company had $0 in excess of the federally insured limit. The
Company did not have any revenue for the three months ended September 30, 2020 and 2019. (f)
Inventory Inventories,
consisting principally of raw materials, work-in-process (including completed units under testing), finished goods and units placed
on consignment, are carried at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (FIFO)
method. Raw materials consist of purchased parts, components and supplies. Work-in-process includes completed units undergoing
final inspection and testing. The Company periodically reviews the value of items in inventory and records write-downs or write-offs
based on its assessment of slow moving or obsolete inventory. The Company maintains a reserve for obsolete inventory and generally
makes inventory value adjustments against the reserve. (g)
Property and equipment Property
and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using
straight-line methods over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase
the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed when
incurred. (h)
Research and development Research
and development expenses consist principally of expenditures for equipment and outside third-party consultants, raw materials
which are used in testing and the development of the Company’s CTLM® device or other products and product software.
The non-payroll related expenses include testing at outside laboratories, parts associated with the design of initial components
and tooling costs, and other costs which do not remain with the developed CTLM® device. (i)
Net loss per share The
Company relies on the guidance provided by ASC 260, (“Earnings per Share”), which requires the reporting of both basic
and diluted earnings per share. Basic net loss per share is determined by dividing loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that
could occur if options or other contracts to issue common stock were exercised or converted into common stock, as long as the
effect of their inclusion is not anti-dilutive. The
Company had 10,972,661 and 10,972,662 options vested as of September 30, 2020 and June 30, 2020, respectively and 4,280,286 and
4,123,184 options not yet vested as of September 30, 2020 and June 30, 2020, respectively. (j)
Stock-based compensation In
July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, an accounting standard update to improve non-employee share-based payment accounting. The accounting standard
update more closely aligns the accounting for employee and non-employee share-based payments. The accounting standards update
is effective as of the beginning of 2019 with early adoption permitted. We have elected to adopt this standard. The
Company has elected to use the Black-Scholes-Merton, or BSM, option-pricing model to estimate the fair value of its options and
similar awards, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life,
and dividend yield to calculate the fair value of outstanding and vested stock option awards. Compensation expense recognized
in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. The
assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but
these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and
the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in
the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those
shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate,
the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture
rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current
period. During the three months ended September 30, 2020, the Board granted options to purchase 157,102 shares with an exercise
price of $.51 per share to an employee. No stock options were granted during the three months ended September 30, 2019. Stock
options are being expensed pursuant to ASC 718. The
fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option
to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option
pricing model and expense the options as compensation over the requisite vesting period of the grant. We will reconsider use of
the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate,
or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. See Note (16)
Stock Options. (k)
Long-lived assets The
Company relies on the guidance provided by ASC 360 (“Property, Plant & Equipment”). ASC 360 requires companies
to write down to estimated fair value long-lived assets that are impaired. The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In performing
the review of recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment
loss is recognized. The
Company has determined that no impairment losses need to be recognized through the three months ended September 30, 2020 and 2019. (l)
Income taxes The
Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The
Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns
are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount
measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along
with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes
its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for
uncertain tax positions. The
Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether
a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a
tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished.
For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position
is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open. As of the date these financials were available to be issued, tax years ended June 30, 2017 to 2020 are still potentially
subject to audit by the taxing authorities. (m)
Warranty reserve The
Company warrants all products and parts supplied for a period of 12 months from the date of installation or 15 months from the
date the products was/were shipped from IDSI, whichever occurs first. Although the Company tests its product in accordance with
its quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred
in correcting a product failure. Based on the Company’s experience, the warranty reserve was estimated based on the replacement
cost of the laser and certain electronic parts. Should actual product failure rates or service costs differ from the Company’s
estimates, which are based on limited historical data, where applicable, revisions to the estimated warranty liability would be
required. The Company had no warranty reserve balance as of September 30, 2020 or June 30, 2020. (n)
Impact of recently issued accounting pronouncements In
June 2016, the FASB issued ASU No. 2016-13 and updated in Nov 2018 ASU 2018-19, Financial Instruments – Credit Losses (Topic
326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected
credit losses. ASU 2016-13 is effective for fiscal years and interim reporting periods within those years beginning after December
15, 2019. The Company adopted this ASU on July 1, 2020 and the adoption had no material impact on the Company’s financial
position or result of operations. In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements
in Topic 820. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods
therein. The Company adopted this ASU on July 1, 2020 and the adoption had no material impact on the Company’s financial
position or result of operations. Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption. (o)
Fair Value of Financial Instruments The
carrying values of cash and cash equivalents, receivables, accounts payable, short-term debt and accrued liabilities approximated
their fair values due to the short maturity of these instruments. After a review of our accounts receivable, the Company has not
recorded an allowance for doubtful accounts. The fair value of the Company’s debt obligations is estimated based on the
quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining
maturities. At September 30, 2020 and June 30, 2020, the aggregate fair value of the Company’s debt obligations approximated
its carrying value. The Company relies upon the guidance of ASC 820 (“Fair Value Measurements and Disclosures”). ASC
820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly,
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions and risk of nonperformance. ASC 820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes
three levels of inputs that may be used to measure fair value: Level
1 - Quoted prices in active markets for identical assets or liabilities Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities. Level
3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement. |
