What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2021-02-09 · 467 added, 428 removed, 444 unchanged (67% of the section changed)

Financial Statements.

Electromed, Inc.

Condensed Balance Sheets

December 31, 2020

Balance Sheets

March 31, 2021

June 30, 2020

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Total liabilities and shareholders’

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Operations (Unaudited)

Notes to Condensed Financial Statements (Unaudited).

Statements of Operations (Unaudited)

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

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Weighted-average common shares outstanding:

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Cash Flows

Six Months Ended December 31,

Notes to Condensed Financial Statements (Unaudited).

Statements of Cash Flows (Unaudited)

Nine Months Ended March 31,

Cash Flows From Operating Activities

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Taxes paid on net share settlement of stock option exercises

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Net increase in cash

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End of period

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Shareholders’

Notes to Condensed Financial Statements (Unaudited).

Statements of Shareholders’

Equity (Unaudited)

3 unchanged sentences

of restricted stock

of common stock upon exercise

of common stock upon exercise of options

compensation expense

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of restricted stock

of common stock upon exercise

of common stock upon exercise of options

compensation expense

at December 31, 2019

of common stock upon exercise of options

compensation expense

at March 31, 2020

Paid- in Capital

Shareholders’

Balance at June 30, 2020

Issuance of restricted

stock, net of forfeitures

Issuance of common

stock upon exercise of options

Taxes paid on net share

settlement of stock option exercises

Share-based compensation

Balance at September 30, 2020

Issuance of restricted

Issuance of common

stock upon exercise of options

Taxes paid on net share

settlement of stock option exercises

Share-based compensation

Balance at December 31, 2020

See Notes to Condensed Financial

Statements (Unaudited).

Electromed, Inc.

Notes to Condensed Financial Statements

at June 30, 2020

(forfeiture) of restricted stock

of common stock upon exercise of options

paid on stock option exercised on a net basis

compensation expense

at September 30, 2020

(forfeiture) of restricted stock

of common stock upon exercise of options

paid on net share settlement of stock option exercises

compensation expense

at December 31, 2020

of common stock upon exercise of options

Taxes paid on net share settlement

of stock option exercises

compensation expense

Balance at March 31, 2021

Notes to Condensed Financial Statements (Unaudited).

to Condensed Financial Statements

Interim Financial Reporting

Basis of presentation:

of presentation:

Electromed, Inc.

(the “Company”)

develops, manufactures and markets innovative airway clearance products that apply High Frequency Chest Wall Oscillation (“HFCWO”)

therapy in pulmonary care for patients of all ages.

(the “Company”) develops, manufactures and markets innovative airway clearance

products that apply High Frequency Chest Wall Oscillation (“HFCWO”) therapy in pulmonary care for patients of all

The Company markets its products in the U.S.

to the home health care and institutional

markets for use by patients in personal residences, hospitals and clinics.

The Company also sells internationally both directly

and through distributors.

International sales were approximately $221,000 and $319,000 for the six months ended December 31, 2020

and 2019, respectively.

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

developing, manufacturing and

marketing medical equipment.

The accompanying unaudited Condensed Financial Statements of

the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

GAAP”) for interim

financial statements and pursuant to the rules and regulations of the U.S.

to the home health care and institutional markets for use by patients in personal

residences, hospitals and clinics.

The Company also sells internationally both directly and through distributors.

International

sales were approximately $297,000 and $455,000 for the nine months ended March 31, 2021 and 2020, respectively.

Since its inception,

the Company has operated in a single industry segment:

developing, manufacturing and marketing medical equipment.

accompanying unaudited Condensed Financial Statements of the Company have been prepared in accordance with U.S.

generally accepted

accounting principles (“U.S.

GAAP”) for interim financial statements and pursuant to the rules and regulations of

Securities and Exchange Commission.

In the opinion of

management, the accompanying unaudited Condensed Financial Statements reflect all adjustments consisting of normal recurring adjustments

necessary for a fair presentation of the Company’s financial position and results of operations as required by Regulation

Interim results of operations are not necessarily indicative of the results that may be achieved for the full year.

The financial

statements and related notes do not include all information and footnotes required by U.S.

In the opinion of management, the accompanying unaudited Condensed Financial Statements

reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial

position and results of operations as required by Regulation S-X.

Interim results of operations are not necessarily indicative

of the results that may be achieved for the full year.

The financial statements and related notes do not include all information

and footnotes required by U.S.

GAAP for annual reports.

report should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for

the fiscal year ended June 30, 2020 (“fiscal 2020”).

Potential impacts of COVID-19 on the Company’s business:

The impact of the COVID-19 pandemic on the Company’s business

remains uncertain and its effects on its operational and financial performance will depend in large part on future developments,

which cannot be reasonably estimated at this time.

Such future developments include, but are not limited to, the duration, scope

and severity of the COVID-19 pandemic in geographic areas the Company operates or in which its patients live, actions taken to

contain or mitigate its impact, the impact on governmental healthcare programs and budgets, the development and distribution of

treatments or vaccines, and the resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented

and rapidly evolving situation, the Company is unable to predict with confidence the likely impact of the COVID-19 pandemic on

its future operations.

For a more detailed discussion see “Management’s Discussion and Analysis of Financial Condition

and Results of Operations”

in Part I, Item 2 of this Quarterly Report on Form 10-Q.

A summary of the Company’s significant accounting policies

Use of estimates.

Management uses estimates and assumptions

in preparing the unaudited Condensed Financial Statements in accordance with U.S.

Those estimates and assumptions affect

the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues

and expenses.

This interim report should be read in conjunction with the financial statements

included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (“fiscal 2020”).

of COVID-19 on the Company’s business:

impact of the COVID-19 pandemic on the Company’s business remains uncertain and its effects on its operational and financial

performance will depend in large part on future developments, which cannot be reasonably estimated at this time.

Such future developments

include, but are not limited to, the duration, scope and severity of the COVID-19 pandemic in geographic areas the Company operates

or in which its patients live, actions taken to contain or mitigate its impact, the impact on governmental healthcare programs

and budgets, the development and distribution of treatments or vaccines, and the resumption of widespread economic activity.

to the inherent uncertainty of the unprecedented and rapidly evolving situation, the Company is unable to predict with confidence

the likely impact of the COVID-19 pandemic on its future operations.

For a more detailed discussion see “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”

in Part I, Item 2 of this Quarterly Report on

summary of the Company’s significant accounting policies follows:

of estimates.

Management uses estimates and assumptions in preparing the unaudited Condensed Financial Statements in accordance

Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent

assets and liabilities, and the reported revenues and expenses.

Actual results could vary from the estimates that were used.

The Company believes the critical accounting policies

that require the most significant assumptions and judgments in the preparation of its unaudited Condensed Financial Statements

include revenue recognition and the related estimation of variable consideration, allowance for doubtful accounts, inventory obsolescence,

share-based compensation and its warranty liability.

Net income per common share.

Net income is presented

on a per share basis for both basic and diluted common shares.

Basic net income per common share is computed using the weighted

average number of common shares outstanding during the period, excluding any restricted stock awards which have not vested.

diluted net income per common share calculation includes outstanding restricted stock grants and assumes that all stock options

were exercised and converted into common stock at the beginning of the period, unless their effect would be anti-dilutive.

stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive was 46,800

and 136,000 for the three months ended December 31, 2020 and 2019, respectively, and were 46,800 and 316,000 for the six months

ended December 31, 2020 and 2019, respectively.

Company believes the critical accounting policies that require the most significant assumptions and judgments in the preparation

of its unaudited Condensed Financial Statements include revenue recognition and the related estimation of variable consideration,

allowance for doubtful accounts, inventory obsolescence, share-based compensation and its warranty liability.

income per common share.

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

income per common share is computed using the weighted average number of common shares outstanding during the period, excluding

any restricted stock awards which have not vested.

The diluted net income per common share calculation includes outstanding restricted

stock grants and assumes that all stock options were exercised and converted into common stock at the beginning of the period,

unless their effect would be anti-dilutive.

Common stock equivalents excluded from the calculation of diluted earnings per share

because their impact was anti-dilutive was 52,017 and zero for the three months ended March 31, 2021 and 2020, respectively, and

were 52,017 and 134,100 for the nine months ended March 31, 2021 and 2020, respectively.

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

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In the following table, net revenues are disaggregated by market:

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Institutional

Care Distributor

Home Care Distributor

International

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

in the Company’s home care, home care distributor, and international markets are recognized at a point in time when control

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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.

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

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timing of payments:

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

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

or negotiated price.

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treated as operating leases and revenue is recognized ratably over the applicable rental

Lease revenue recognized during the six months ended December 31, 2020 and 2019

Lease revenue recognized during the nine months ended March 31, 2021 and 2020

was zero and approximately $6,000, respectively.

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costs to obtain a contract.

Sales incentives paid to sales representatives are eligible for capitalization as they are incremental

costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected

margin on the transaction.

However, the recovery period is less than one year as the performance obligation is satisfied upon

shipment or delivery.

Consequently, the Company applies the practical expedient provided by ASC 340 and expenses sales incentives

These costs are included in selling, general and administrative expenses in the Condensed Statements of Operations.

Sales incentives paid to sales representatives are eligible for capitalization as they are

incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable

through the expected margin on the transaction.

However, the recovery period is less than one year as the performance

obligation is satisfied upon shipment or delivery.

Consequently, the Company applies the practical expedient provided by ASC

340 and expenses sales incentives as incurred.

These costs are included in selling, general and administrative expenses in

the Condensed Statements of Operations.

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

included in "Accounts receivable, net of allowance for doubtful accounts"

March 31, 2021

June 30, 2020

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

Contract assets

changes in contract assets during the period are as follows:

Months Ended December 31, 2020

Year Ended June 30, 2020

Nine Months Ended March 31, 2021

Fiscal Year Ended June 30, 2020

Increase (decrease)

assets, beginning

Reclassification

of contract assets to accounts receivable

assets recognized

as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables

during the period

assets, ending

Contract assets, beginning

Reclassification of contract assets to accounts receivable

Contract assets recognized

Increase as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period

Contract assets, ending

components of inventory were as follows:

inventory to be returned

March 31, 2021

June 30, 2020

Parts inventory

Work in process

Finished goods

Estimated inventory to be returned

Reserve for obsolescence

Finite-life Intangible Assets

carrying value of patents and trademarks includes the original cost of obtaining the patents, periodic renewal fees and other

costs associated with maintaining and defending patent and trademark rights.

Patents and trademarks are amortized over their estimated

useful lives, generally 15 and 12 years, respectively.

Accumulated amortization was approximately $1,183,000 and $1,119,000 at

December 31, 2020 and June 30, 2020, respectively.

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

Months Ended December 31, 2020

Year Ended June 30, 2020

carrying value of patents and trademarks includes the original cost of obtaining the patents, periodic renewal fees and

other costs associated with maintaining and defending patent and trademark rights.

Patents and trademarks are amortized over

their estimated useful lives, generally 15 and 12 years, respectively.

Accumulated amortization was approximately $1,216,000

and $1,119,000 at March 31, 2021 and June 30, 2020, respectively.

The activity and balances of finite-life intangible assets

were as follows:

Nine Months Ended

Fiscal Year Ended

March 31, 2021

June 30, 2020

Balance, beginning

Amortization expense

Balance, ending

Warranty Liability

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in the Company’s warranty liability were approximately as follows:

Months Ended December 31, 2020

Year Ended June 30, 2020

warranty reserve

for products sold

and costs incurred for warranty claims

warranty reserve

a quarterly basis, the Company estimates its effective tax rate for the full fiscal year and records a quarterly income tax provision

based on the anticipated rate.

As the year progresses, the Company refines its estimate based on the facts and circumstances by

each applicable tax jurisdiction.

Income tax expense was estimated at approximately $389,000 and $526,000 and the effective tax

rate was 24.4% and 23.2% for the three and six months ended December 31, 2020, respectively.

Estimated income tax expense for

the three and six months ended December 31, 2020 includes a discrete current tax (expense) benefit of approximately $(7,000) and

$32,000, respectively, related to the excess tax (expense) benefit of non-qualified stock options exercised.

Income tax expense

was estimated at approximately $419,000 and $793,000 and the effective tax rate was 26.1% and 26.5% for the three and six months

ended December 31, 2019, respectively.

Nine Months Ended March 31, 2021

Fiscal Year Ended June 30, 2020

Warranty reserve, beginning

Accrual for products sold

Expenditures and costs incurred for warranty claims

Warranty reserve, ending

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 $37,000

discrete tax benefit as a result of lower federal and state taxes than what was originally estimated in the Company’s fiscal

2020 tax provision.

The net impact of this discrete event decreased the estimated effective tax rates by 14.6% during the three

months ended March 31, 2021.

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

tax benefit as a result of lower federal and state taxes than what was originally estimated in the Company’s fiscal 2020

tax provision and 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.

tax expense was estimated at $294,000 and $1,087,000, and the effective tax rate was 31.0% and 27.6%, for the three and nine months

ended March 31, 2020, respectively.

Estimated income tax expense for the nine months ended March 31, 2020 included a $30,000 discrete

tax expense as a result of higher federal and state taxes than what was originally estimated in the Company’s tax provision

for its fiscal year ended June 30, 2019, and a $13,000 discrete tax benefit related to the exercise of stock options.

impact of these discrete events increased the estimated effective tax rates by 0.4% during the nine months ended March 31, 2020.

Financing Arrangements

Company has a credit facility that provides for a revolving line of credit and a term loan.

Effective December 18,

2020, the Company renewed its $2,500,000 revolving line of credit.

There was no outstanding principal balance on the line of credit

as of December 31, 2020 or June 30, 2020.

Interest on borrowings under the line of credit, if any, accrues at the prime rate (3.25%

at December 31, 2020) less 1.00% and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to

the lesser of $2,500,000 or 57.00% of eligible accounts receivable and the line of credit expires on December 18, 2021, if not

At December 31, 2020, the maximum $2,500,000 was eligible for borrowing.

Payment obligations under the line of credit,

if any, are secured by a security interest in substantially all of the tangible and intangible assets of the Company.

Effective December 18, 2020, the Company

renewed its $2,500,000 revolving line of credit.

There was no outstanding principal balance on the line of credit as of March

31, 2021 or June 30, 2020.

Interest on borrowings under the line of credit, if any, accrues at the prime rate (3.25% at March

31, 2021) less 1.00% and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to the lesser

of $2,500,000 or 57.00% of eligible accounts receivable and the line of credit expires on December 18, 2021, if not renewed.

March 31, 2021, the maximum $2,500,000 was eligible for borrowing.

Payment obligations under the line of credit, if any, are secured

by a security interest in substantially all of the tangible and intangible assets of the Company.

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

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Share-Based Compensation

Company’s share-based compensation plans are described in Note 8 of our annual report on Form 10-K for fiscal 2020.

compensation expense was approximately $430,000 and $444,000 for the six months ended December 31, 2020 and 2019, respectively.

Company’s share-based compensation plans are described in Note 8 of the Company’s Annual Report on Form 10-K for fiscal

Share-based compensation expense was approximately $756,000 and $677,000 for the nine months ended March 31, 2021 and 2020,

respectively.

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

As of December

31, 2020, approximately $1,192,000 of total unrecognized compensation expense related to non-vested equity awards was expected

to be recognized over a weighted-average period of approximately 0.8 years.

option transactions during the six months ended December 31, 2020 are summarized as follows:

As of March 31, 2021, approximately $921,000 of total unrecognized compensation expense related to non- vested equity awards was

expected to be recognized over a weighted-average period of approximately 0.8 years.

option transactions during the nine months ended March 31, 2021 are summarized as follows:

Number of Shares

Weighted Average Exercise Price per Share

Average Exercise Price per Share

Outstanding at June 30, 2020

Cancelled or Forfeited

Outstanding at December 31, 2020

Outstanding at March 31, 2021

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

Six Months Ended December 31, 2020

Year Ended June 30, 2020

Risk-free interest rate

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31, 2021, the weighted average remaining contractual term for all outstanding stock options was 6.1 years and their aggregate

intrinsic value was approximately $2,489,000.

Outstanding at December 31, 2020 were 472,898 stock options issued to employees,

of which 341,104 were exercisable and had an aggregate intrinsic value of approximately $2,112,000.

the six months ended December 31, 2020, the Company issued restricted stock awards to employees totaling 30,756 shares of common

intrinsic value was $2,771,858.

Outstanding at March 31, 2021 were 471,449 stock options issued to employees, of which 334,438

were vested and exercisable and had an aggregate intrinsic value of $2,326,959.

the nine months ended March 31, 2021, the Company issued restricted stock awards to employees totaling 30,756 shares of common

stock, with a vesting term of two to three years and a weighted average fair value of $12.93 per share and to directors totaling

18,000 shares of common stock, with a vesting term of six months and a weighted average fair value of $9.94 per share.

71,255 shares of unvested restricted stock with a weighted average fair value of $10.80 per share as of December 31, 2020.

71,255 shares of unvested restricted stock with a weighted average fair value of $10.80 per share as of March 31, 2021.

Commitments and Contingencies

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unaudited Condensed Financial Statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form

10-Q, and our audited financial statements and related notes thereto included in Part I, Item 8 and Part II, Item 7 of our Annual

Report on Form 10-K for the fiscal year ended June 30, 2020 (“fiscal 2020”).

10-Q, and our audited financial statements and related notes thereto included in Part II, Item 8 of our Annual Report on Form

10-K for the fiscal year ended June 30, 2020 (“fiscal 2020”).

(“we,”

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inventory obsolescence, share-based compensation and warranty liability.

Impacts of COVID-19 on Our Business and Operations

of COVID-19 on Our Business and Operations

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

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estimated at this time.

Such future developments include, but are not limited to, the duration, scope and severity of the

COVID-19 pandemic in geographic areas in which we operate or in which our patients live, actions taken to contain or mitigate

its impact, the impact on governmental healthcare programs and budgets, the development of treatments or vaccines, and the resumption

of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and evolving situation, we are unable

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

Such future developments include, but are not limited to, the duration, scope and severity of the COVID-19

pandemic in geographic areas in which we operate or in which our patients live, actions taken to contain or mitigate its impact,

the impact on governmental healthcare programs and budgets, the development and distribution of treatments or vaccines, and the

resumption of widespread economic activity.

Due to the inherent uncertainty of the unprecedented and evolving situation, we are

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

COVID-19 pandemic has created significant volatility, uncertainty and economic disruption and has negatively impacted business

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We believe that these and other responses by healthcare systems

have had a negative impact on our operating results and cash flows during the second quarter of our fiscal year ending June 30,

2021 (“fiscal 2021”), although to a lesser extent as compared to the prior two fiscal quarters.

During the first

half of fiscal 2021, as state and local government restrictions began to ease in jurisdictions in which we operate, we observed

increased patient face-to-face re-engagement with clinicians and an increased number of clinics allowing face-to-face access by

our sales team.

Our sales team continues 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.

have had a negative impact on our operating results and cash flows during the third quarter of our fiscal year ending June 30,

2021 (“fiscal 2021”).

During the first half of fiscal 2021, as state and local government restrictions began to ease

in jurisdictions in which we operate, we observed increased patient face-to-face re-engagement with clinicians and an increased

number of clinics allowing face-to-face access by our sales team.

During the three months ended March 31, 2021, referrals declined

early in the quarter compared to prior period due to reduced patient face-to-face interactions with clinicians, likely due to

COVID-19 cases increasing as well as a desire for patients to be vaccinated before visiting healthcare facilities.

Referral growth

increased significantly in March compared to prior year, as we benefited from increased patient visits to clinics and greater

access for our sales representatives, restrictions were further lifted, and vaccines started to become more widely administered

throughout the country.

Our sales team continues 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.

estimate that institutional revenue has been negatively impacted since the onset of the COVID-19 pandemic as hospitals and long-term

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of fiscal 2021.

We have experienced improvement in our home care referrals for the three months ended December 31, 2020 as compared

to the three months ended September 30, 2020;

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, then such measures could have a material

adverse effect on our business.

We have experienced improvement in our home care referrals and approvals for the three months ended March 31,

2021 as compared to the three months ended March 31, 2020;

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, then such measures could

have a material adverse effect on our business.

believe that the COVID-19 pandemic’s adverse impact on our operating results, cash flows and financial condition will be

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governmental responses to the pandemic.

we have not experienced adverse impacts on our supply chain, it is possible the COVID-19 pandemic could have an adverse impact

on our supply chain in the future, including impacts associated with preventive and precautionary measures that other businesses

have observed some minor changes to our supply chain timelines and increased product costs, but we have not experienced any material

adverse impacts on our supply chain or product costs at this time.

It is possible the COVID-19 pandemic could have an adverse

impact on our supply chain in the future, including impacts associated with preventive and precautionary measures that other businesses

and applicable governments are taking.

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adverse effect on our business.

response to the negative impacts of the COVID-19 pandemic on our business, in April 2020, we initiated cost-containment measures,

which included reducing discretionary and variable spend, such as travel, and the use of contractors, consultants, temporary help

and employee furloughs in our manufacturing and general and administrative functions due to lower near-term demand for our products.

Employee furloughs continued through early August 2020, at which time we returned to full employment in both our manufacturing

and general and administrative functions.

Any significant increases to our product costs could reduce our gross margins.

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

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

federal government’s declaration of a public health emergency, the Center

federal government’s declaration of a public health emergency, the Centers

for Medicare & Medicaid Services (“CMS”) implemented a number of temporary rule changes and waivers to allow prescribers

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Face-to-face and in-person requirements for respiratory devices are being waived during such

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

90-day period beginning on January 21, 2021.

of Operations

revenues for the three and six months ended December 31, 2020 and 2019 are summarized in the table below (dollar amounts in thousands).

Months Ended December 31,

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

90-day period beginning on April 21, 2021.

Results of Operations

Net revenues for the

three and nine months ended March 31, 2021 and 2020 are summarized in the table below (dollar amounts in thousands).

Institutional

care distributor

Home care distributor

International

care revenue.

Home care revenue for the three months ended December 31, 2020 was approximately $8,903,000,

representing an increase of approximately $1,234,000, or 16.1%, compared to the same period in fiscal 2020.

months ended December 31, 2020, home care revenue was approximately $16,366,000, representing an increase of approximately $1,205,000, or

7.9%, compared to the same period in fiscal 2020.

The revenue increase compared to the prior year periods was primarily due to

an increase in referrals and approvals.

The increase in referrals compared to the prior year was due to the sales team

adapting to a hybrid virtual and face-to-face selling model implemented to combat clinic access limitations due to the

COVID-19 pandemic, benefits of the CMS waiver on the non-commercial Medicare portion of our home care revenue, and an increase

in direct sales representatives.

Home care revenue for the three months ended December 31, 2020 increased approximately $1,439,000, or 19.3%, compared to the

period ended September 30, 2020.

The increase in revenue was also due to an increase in referrals and approvals.

The increase in

referrals compared to the prior quarter was primarily due to the success of our hybrid model, supplemented by increased patient

face-to-face re-engagement with physicians, improved access to clinics for our sales staff, temporary pent up demand for SmartVest

and an increase in direct sales reps.

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

and the approval percentage for non-covered diagnoses.

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

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

potential to mitigate the impact of a CMS waiver expiration, which is currently effective until April 2021.

Institutional

Institutional revenue for the three months ended December 31, 2020 was approximately $309,000, representing a

decrease of approximately $185,000, or 37.4%, compared to the same period in fiscal 2020.

For the six months ended December 31,

2020, institutional revenue was approximately $587,000, a decrease of approximately $531,000, or 47.5%, compared to the same period

in fiscal 2020.

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

care distributor revenue .

Home care distributor revenue for the three months ended December 31, 2020 was approximately

$149,000, representing an increase of approximately $18,000, or 13.7%, compared to the same period in fiscal 2020.

months ended December 31, 2020, home care distributor revenue was approximately $327,000, an increase of approximately $76,000,

Home care revenue .

Home care revenue for the three months ended March 31, 2021 was approximately $8,163,000, representing an increase of approximately

$329,000, or 4.2%, compared to the same period in fiscal 2020.

We began selling to home medical equipment distributors during the three

months ended September 30, 2019, who in turn sell our SmartVest System in the U.S.

For the nine months ended March 31, 2021, home care revenue was

approximately $24,529,000, representing an increase of approximately $1,534,000, or 6.7%, compared to the same period in fiscal

The revenue increase compared to the prior year periods was primarily due to an increase in referrals and approvals.

increase in referrals compared to the prior year periods was due to the sales team adapting to a hybrid virtual and face-to-face

selling model implemented to combat clinic access limitations due to the COVID-19 pandemic, benefits of the CMS waiver on the non-commercial

Medicare portion of our home care revenue, and an increase in direct sales representatives.

The CMS waiver benefited

the non-commercial Medicare portion of our home care revenue by increasing the number of referrals and the approval percentage

for non-covered diagnoses.

We believe that our ongoing sales team execution, along with the expected return to pre-COVID-19 levels

of patient face-to-face engagement with physicians and clinic access for our sales team, has the potential to mitigate the impact

of a CMS waiver expiration, which is currently effective until July 2021.

Institutional revenue.

Institutional revenue for the three months ended March 31, 2021 was approximately $443,000, representing a decrease of

approximately $166,000, or 27.3%, compared to the same period in fiscal 2020.

For the nine months ended March 31, 2021, institutional

revenue was approximately $1,029,000, a decrease of approximately $698,000, or 40.4%, compared to the same period in fiscal 2020.

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

Home care distributor

Home care distributor revenue for the three months ended March 31, 2021 was approximately $105,000, representing

a decrease of approximately $59,000, or 36.0%, compared to the same period in fiscal 2020.

For the nine months ended March 31,

2021, home care distributor revenue was approximately $432,000, an increase of approximately $16,000, or 3.8%, compared to the

same period in fiscal 2020.

We began selling to home medical equipment distributors during the three months ended September 30,

2019, who in turn sell our SmartVest System in the U.S.

home care market.

International revenue .

International revenue for the three months ended March 31, 2021 was approximately $76,000, representing a decrease of approximately

$61,000, or 44.5%, compared to the same period in fiscal 2020.

For the nine months ended March 31, 2021, international revenue

was approximately $297,000, a decrease of approximately $158,000, or 34.7%, compared to the same period in fiscal 2020.

International

International revenue for the three months ended December 31, 2020 was approximately $135,000, representing

a decrease of approximately $118,000, or 46.6%, compared to the same period in fiscal 2020.

For the six months ended December

31, 2020, international revenue was approximately $220,000, a decrease of approximately $99,000, or 31.0%, compared to the same

period in fiscal 2020.

International sales are affected by the timing of distributor purchases that can cause significant fluctuations

in reported revenue on a quarterly basis.

profit increased to approximately $7,525,000, or 79.2% of net revenues, for the three months ended December 31, 2020, from approximately

sales are affected by the timing of international distributor purchases that can cause significant fluctuations in reported revenue

on a quarterly basis.

Gross profit increased to

approximately $6,701,000, or 76.3% of net revenues, for the three months ended March 31, 2021, from approximately $6,594,000,

or 75.4% of net revenues, in the same period in fiscal 2020.

Gross profit increased to approximately $13,673,000,

or 78.1% of net revenues, for the six months ended December 31, 2020, from approximately $13,018,000, or 77.3% of net revenues,

in the same period in fiscal 2020.

The increase in gross profit percentage compared to the prior year periods was primarily due

to a higher mix of home care revenue and a favorable mix of Medicare within the home care channel.

general and administrative expenses.

Gross profit increased to approximately $20,374,000, or 77.5% of

net revenues, for the nine months ended March 31, 2021, from approximately $19,611,000, or 76.6% of net revenues, in the same

period in fiscal 2020.

The increase in gross profit percentage compared to the prior year periods was primarily due to a

higher mix of home care revenue and a favorable mix of Medicare within the home care channel.

Operating expenses

Selling, general and

administrative expenses.

Selling, general and administrative (“SG&A”) expenses were approximately $6,051,000

$5,435,000 and $10,439,000 for the three and six months ended December 31, 2020, respectively, representing increases of approximately

and $16,490,000 for the three and nine months ended March 31, 2021, respectively, representing increases of approximately $763,000

and $1,342,000, or 14.4% and 8.9%, respectively, compared to the same periods in the prior year.

and compensation-related expenses were approximately $3,432,000 and $6,732,000 for the three and six months ended December 31,

2020, respectively, representing increases of approximately $396,000 and $557,000, or 13.0% and 9.0%, respectively, compared to

the same periods in the prior year.

The increase in the current year periods was primarily due to higher incentive payments on

stronger home care revenue, a higher average number of sales and marketing personnel, and increased temporary resources to assist

with systems infrastructure investments.

meals and entertainment expenses were approximately $466,000 and $830,000 for the three and six months ended December 31, 2020,

respectively, representing decreases of approximately $91,000 and $312,000, or 16.3% and 27.3%, respectively, compared to the

same periods in the prior year.

The decrease in the current year periods was primarily due to travel reductions in connection

with COVID-19.

discretionary marketing expenses were approximately $317,000 and $506,000 for the three and six months ended December 31, 2020,

respectively, representing an increase of approximately $188,000 and $261,000, or 145.7% and 106.5%, respectively, compared to

the same periods in the prior year.

The increase in the current year periods was primarily due to a direct-to-consumer marketing

campaign that began in May 2020.

fees were approximately $533,000 and $987,000 for the three and six months ended December 31, 2020, respectively, representing

an increase of approximately $47,000 and $90,000, or 9.7% and 10.0%, respectively, compared to the same periods in the prior year.

The increase in the current year periods was primarily due to annual fees associated with a new human resources platform.

fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees.

and development expenses.

Research and development (“R&D”) expenses were approximately $507,000 and $989,000

for the three and six months ended December 31, 2020, respectively, representing increases of approximately $364,000 and $747,000,

or 254.5% and 308.7%, respectively, compared to the same periods in the prior year.

Payroll and compensation-related

expenses were approximately $3,838,000 and $10,569,000 for the three and nine months ended March 31, 2021, respectively,

representing increases of approximately $561,000 and $1,118,000, or 17.1% and 11.8%, respectively, compared to the same

periods in the prior year.

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

marketing personnel, increased temporary resources to assist with systems infrastructure investments, and increased incentive

payments on higher home care revenue .

Field sales employees totaled 48, of which 39 were

direct sales, as of March 31, 2021, compared to 44 as of March 31, 2020, of which 37 were direct sales.

We commenced recruiting

for four additional direct field sales employees in April 2021.

Travel, meals and entertainment

expenses were approximately $440,000 and $1,270,000 for the three and nine months ended March 31, 2021, respectively, representing

decreases of approximately $85,000 and $397,000, or 16.2% and 23.8%, respectively, compared to the same periods in the prior year.

The decrease in the current year periods was primarily due to travel reductions in connection with COVID-19.

Total discretionary marketing

expenses were approximately $348,000 and $853,000 for the three and nine months ended March 31, 2021, respectively, representing

an increase of approximately $126,000 and $385,000, or 56.8% and 82.3%, respectively, compared to the same periods in the prior

The increase in the current year periods was primarily due to a direct-to-consumer marketing campaign that began in May 2020

and a comprehensive market research project.

Professional fees were

approximately $700,000 and $1,686,000 for the three and nine months ended March 31, 2021, respectively, representing an increase

of approximately $124,000 and $212,000, or 21.5% and 14.4%, respectively, compared to the same periods in the prior year.

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

technical support and consulting fees.

The increase in the current year periods was primarily due to higher legal fees, annual

fees associated with a new human resources platform, increased investment in leadership development training, and fees associated

with the implementation of our new revenue cycle management software.

We expect to make continued investments in our systems

infrastructure over the next year, including an enterprise resources planning software implementation.

Research and development

Research and development (“R&D”) expenses were approximately $407,000 and $1,396,000 for the

three and nine months ended March 31, 2021, respectively, representing increases of approximately $15,000 and $762,000, or

3.8% and 120.2%, respectively, compared to the same periods in the prior year.

The increase in the current year periods was

primarily due to next generation platform development activities.

R&D expenses were approximately 5.3% and 5.7% of revenue

for the three and six months ended December 31, 2020, respectively, and we expect R&D investment to remain in a similar range

for the duration of fiscal 2021.

interest income for the three and six months ended December 31, 2020 was approximately $10,000 and $19,000, respectively, compared

R&D expenses were approximately 4.6% and 5.3% of

revenue for the three and nine months ended March 31, 2021, respectively, and we expect R&D investment to remain in a

similar range through calendar 2021.

Interest income, net

interest income for the three and nine months ended March 31, 2021 was approximately $10,000 and $29,000, respectively, compared

to approximately $34,000 and $111,000, 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.

tax expense was estimated at approximately $389,000 and $419,000 and the effective tax rate was 24.4% and 26.1% for the three

months ended December 31, 2020 and 2019, respectively.

Income tax expense was estimated at approximately $526,000 and $793,000

and the effective tax rate was 23.2% and 26.5% for the six months ended December 31, 2020 and 2019, respectively.

Estimated income

tax expense for the three and six months ended December 31, 2020 includes a discrete current tax (expense) benefit of approximately

$(7,000) and $32,000, respectively, related to the excess tax (expense) benefit of non-qualified stock options exercised.

income for the three and six months ended December 31, 2020 was approximately $1,203,000 and $1,739,000, respectively, compared

to $1,185,000 and $2,200,000 for the same periods in the prior year.

For the three months ended December 31, 2020, the increase

was driven by stronger home care revenue, offset by increased strategic investments in SG&A and R&D.

For the six months

ended December 31, 2020, the decrease was primarily due to increased strategic investments in both R&D and SG&A, partially

offset by stronger home care revenue performance.

and Capital Resources

Flows and Sources of Liquidity

Flows from Operating Activities

the six months ended December 31, 2020, net cash provided by operating activities was approximately $1,491,000.

Cash flows provided

by operating activities consisted of net income of approximately $1,739,000, an increase in accounts payable and accrued liabilities

of $494,000, non-cash expenses of $822,000, a decrease in contract assets of $206,000, a decrease in income tax receivable of

$186,000, a decrease in inventory of $490,000 and a decrease in prepaid expenses and other assets of $8,000.

These cash flows

from operating activities were partially offset by an increase in accounts receivable of $2,454,000.

The increase in accounts

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

Flows from Investing Activities

the six months ended December 31, 2020, cash used in investing activities was approximately $144,000.

Cash used in investing activities

consisted of approximately $54,000 in expenditures for property and equipment and approximately $90,000 in payments for patent

Flows from Financing Activities

the six months ended December 31, 2020, cash used in financing activities was approximately $84,000, which consisted of approximately

$46,000 of cash provided from stock option exercises offset by approximately $130,000 of taxes paid on net share settlements 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,

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

ordinary course of business.

The decrease in the current year periods

was primarily due to lower rates earned on our cash deposits.

Income tax expense

Income 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 $37,000 discrete tax benefit

as a result of lower federal and state taxes than what was originally estimated in our fiscal 2020 tax provision.

The net impact

of this discrete event decreased the estimated effective tax rates by 14.6% during the three months ended March 31, 2021.

Estimated income tax expense

for the nine months ended March 31, 2021 included a $37,000 discrete tax benefit as a result of lower federal and state taxes than

what was originally estimated in our fiscal 2020 tax provision and a $32,000 discrete tax benefit related to the exercise of stock

The net impact of these discrete events decreased the estimated effective tax rates by 2.7% during the nine months ended

March 31, 2021.

Estimated income tax expense

for the nine months ended March 31, 2020 included a $30,000 discrete tax expense as a result of higher federal and state taxes

than what was originally estimated in our fiscal 2019 tax provision and a $13,000 discrete tax benefit related to the exercise

of stock options.

The net impact of these discrete events increased the estimated effective tax rates by 0.4% during the nine months

ended March 31, 2020.

Net income for the three

and nine months ended March 31, 2021 was approximately $224,000 and $1,962,000, respectively, compared to $653,000 and $2,853,000

for the same periods in the prior year.

The decrease in the current year periods was driven by increased strategic investments

in SG&A and R&D, partially offset by stronger home care revenue performance and higher gross margin percentage.

Liquidity and Capital Resources

Cash Flows and Sources of Liquidity

Cash Flows from Operating Activities

For the nine months ended

March 31, 2021, net cash provided by operating activities was approximately $2,325,000.

Cash flows provided by operating activities

consisted of net income of approximately $1,962,000, an increase in accounts payable and accrued liabilities of $1,219,000, non-cash

expenses of $1,315,000, a decrease in contract assets of $345,000, and a decrease in inventory of $839,000.

These cash flows from

operating activities were partially offset by an increase in accounts receivable of $3,296,000 and an increase in prepaid expenses

and other assets of $69,000.

The increase in accounts receivable was primarily due to an increase in the Medicare portion of our

home care business, which has a 13-month payment cycle.

Cash Flows from Investing Activities

For the nine months ended March 31, 2021,

cash used in investing activities was approximately $208,000.

Cash used in investing activities consisted of approximately $105,000

in expenditures for property and equipment and approximately $103,000 in expenditures for patent costs.

Cash Flows from Financing Activities

For the nine months ended

March 31, 2021, cash used in financing activities was approximately $95,000, which consisted of approximately $46,000 of cash provided

from stock option exercises offset by approximately $141,000 of taxes paid on net share settlements of stock option exercises.

Adequacy of Capital Resources

Our 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 approximately

$28,050,000 and available borrowings under our existing credit facility will provide adequate liquidity during fiscal 2021.

December 18, 2020, we renewed our credit facility, which provides us with a revolving line of credit.

Interest on borrowings on

the line of credit accrues at the prime rate (3.25% at December 31, 2020) less 1.00% and is payable monthly.

There was no outstanding

principal balance on the line of credit as of December 31, 2020 or June 30, 2020.

The amount eligible for borrowing on the line

of credit is limited to the lesser of $2,500,000 or 57.00% of eligible accounts receivable, and the line of credit expires on

December 18, 2021, if not renewed.

At December 31, 2020, 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.

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

worth of not less than $10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends.

failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result

in the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring

prepayment of outstanding indebtedness, or refusing to renew the line of credit.

If the maturity of the indebtedness is accelerated

or the line of credit is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may

not be able to continue operations as planned.

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

the six months ended December 31, 2020 and 2019, we spent approximately $54,000 and $670,000, respectively, on property and equipment.

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

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

does not generate adequate cash flows.

Sheet Arrangements

of December 31, 2020, we had no off-balance sheet arrangements.

Note 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

statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section

21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include, but

are not limited to, statements regarding:

Effective December 18,

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

Interest on borrowings on the line of

credit accrues at the prime rate (3.25% at March 31, 2021) less 1.00% and is payable monthly.

There was no outstanding principal

balance on the line of credit as of March 31, 2021 or June 30, 2020.

The amount eligible for borrowing on the line of credit is

limited to the lesser of $2,500,000 or 57.00% of eligible accounts receivable, and the line of credit expires on December 18, 2021,

if not renewed.

At March 31, 2021, the maximum $2,500,000 was available under the line of credit.

Payment obligations under the

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

The documents governing

our line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net worth of not less than

$10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends.

Any failure to comply with

these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating

the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring prepayment of outstanding

indebtedness, or refusing to renew the line of credit.

If the maturity of the indebtedness is accelerated or the line of credit

is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may not be able to continue

operations as planned.

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

For the nine months ended March

31, 2021 and 2020, we spent approximately $105,000 and $753,000, respectively, on property and equipment.

We currently expect to

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

We may need to incur

additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate

adequate cash flows.

Off-Balance Sheet Arrangements

As of March 31, 2021, we had no off-balance sheet

arrangements.

Cautionary Note Regarding Forward-Looking Statements

Statements contained in

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

the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include, but are not limited to,

statements regarding:

the expected impact of the COVID-19 pandemic on our business;

our business strategy,

including our intended level of investment in R&D and marketing activities;

our expectations with respect to earnings, gross

margins and sales growth, industry relationships, marketing strategies and international sales;

estimated sizes of markets into

which our products are or may be sold;

our business strategy, including our intended

level of investment in R&D and marketing activities;

our expectations with respect to earnings, gross margins and sales growth,

industry relationships, marketing strategies and international sales;

estimated sizes of markets into which our products are or

our business strengths and competitive advantages;

our ability to grow additional sales

distribution channels;

our intent to retain any earnings for use in operations rather than paying dividends;

our expectation that

our products will continue to qualify for reimbursement and payment under government and private insurance programs;

our intellectual

property plans and practices;

our ability to grow additional sales distribution channels;

intent to retain any earnings for use in operations rather than paying dividends;

our expectation that our products will continue

to qualify for reimbursement and payment under government and private insurance programs;

our intellectual property plans and practices;

the expected impact of applicable regulations on our business;

our beliefs about our manufacturing

our expectations and beliefs with respect to our employees and our relationships with them;

our belief that our current

facilities are adequate to support our growth plans;

our expectations with respect to ongoing compliance with the terms of our

credit facility;

our expectations regarding the ongoing availability of credit and our ability to renew our line of credit;

to our products and services;

our beliefs about our manufacturing processes;

our expectations

and beliefs with respect to our employees and our relationships with them;

our belief that our current facilities are adequate

to support our growth plans;

our expectations with respect to ongoing compliance with the terms of our credit facility;

our expectations

regarding the ongoing availability of credit and our ability to renew our line of credit;

enhancements to our products and services;

expected excise tax exemption for the SmartVest System;

and our anticipated revenues, expenses,

capital requirements and liquidity.

and our anticipated revenues, expenses, capital requirements and liquidity.

Words such as “anticipate,”

15 unchanged sentences

“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

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.

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

to, the following:

duration, extent and severity of the COVID-19 pandemic, including its effects on our

business, operations and employees as well as its impact on our customers and distribution

channels and on economies and markets more generally;

competitive nature of our market;

to Medicare, Medicaid, or private insurance reimbursement policies;

to state and federal health care laws;

affecting the medical device industry;

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 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.

list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a

material adverse effect on us and our results of operations.

Therefore, you should consider these risk factors with caution and

form your own critical and independent conclusions about the likely effect of these risk factors on our future performance.

Forward-looking

statements speak only as of the date on which the statements are made, and we undertake no obligation, and expressly disclaim

any such obligation, to update any forward-looking statement for any reason other than as required by law, even if new information

becomes available or other events occur in the future.

You should carefully review the disclosures and the risk factors described

in this and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including

our Annual Report on Form 10-K for fiscal 2020.

All forward-looking statements attributable to us or persons acting on our behalf

are expressly qualified in their entirety by the cautionary statements set forth herein.

and Qualitative Disclosures About Market Risk.

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

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.

Factors that could cause

actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the following:

● the duration, extent and severity of the COVID-19 pandemic,

including its effects on our business, operations and employees as well as its impact on our customers and distribution channels

and on economies and markets more generally;

● the competitive nature of our market;

● changes to Medicare, Medicaid, or private insurance reimbursement policies;

● changes to state and federal health care laws;

● changes affecting the medical device industry;

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

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

● new drug or pharmaceutical discoveries;

● general economic and business conditions;

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

● our ability to protect and expand our intellectual property portfolio;

● the risks associated with expansion into international markets;

● the risks associated with our planned sales force expansion.

This list of factors is

not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect

on us and our results of operations.

Therefore, you should consider these risk factors with caution and form your own critical

and independent conclusions about the likely effect of these risk factors on our future performance.

Forward-looking statements

speak only as of the date on which the statements are made, and we undertake no obligation, and expressly disclaim any such obligation,

to update any forward-looking statement for any reason other than as required by law, even if new information becomes available

or other events occur in the future.

You should carefully review the disclosures and the risk factors described in this and other

documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including our Annual Report

on Form 10-K for fiscal 2020.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified

in their entirety by the cautionary statements set forth herein.

Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required

to provide disclosure pursuant to this Item.

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

What changed 10-Q

Item 1. Financial Statements