What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-05-10 · 241 added, 192 removed, 284 unchanged (60% of the section changed)

Balance Sheets

and cash equivalents

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

expenses and other current assets

tax receivable

September 30, 2022

June 30, 2022

Current Assets

and equipment, net

intangible assets, net

and Shareholders’ Equity

accrued liabilities

Cash and cash equivalents

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

Contract assets

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

Property and equipment, net

Finite-life intangible assets, net

Deferred income taxes

Liabilities and Shareholders’ Equity

Current Liabilities

long-term liabilities

and Contingencies

Shareholders’

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

8,508,788 and 8,533,209 shares issued and outstanding, respectively

paid-in capital

Accounts payable

Accrued compensation

Income tax payable

Warranty reserve

Other accrued liabilities

Total current liabilities

Other long-term liabilities

Total liabilities

Commitments and Contingencies

Shareholders’ Equity

liabilities and shareholders’ equity

Common stock, $ 0.01 par value per share, 13,000,000 shares authorized;

8,485,864 and 8,475,438 shares issued and outstanding, as of September 30, 2022 and June 30, 2022, respectively

Additional paid-in capital

Retained earnings

Total shareholders’ equity

Total liabilities and shareholders’ equity

Notes to Condensed Financial Statements (Unaudited).

Statements of Operations (Unaudited)

general and administrative

and development

Three Months Ended

September 30,

Cost of revenues

Operating expenses

income before income taxes

Weighted-average

common shares outstanding:

Selling, general and administrative

Research and development

Total operating expenses

Operating income

Interest income, net

Net income before income taxes

Income tax (benefit) expense

Income per share:

Weighted-average common shares outstanding:

Notes to Condensed Financial Statements (Unaudited).

Statements of Cash Flows (Unaudited)

Flows From Operating Activities

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

of finite-life intangible assets

compensation expense

in operating assets and liabilities:

( 2,582,000 )

Three Months Ended September 30,

Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash provided

by (used in) operating activities:

Amortization of finite-life intangible assets

Share-based compensation expense

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

( 1,331,000 )

expenses and other current assets

tax receivable

payable and accrued liabilities

cash provided by operating activities

Flows From Investing Activities

in property and equipment

in finite-life intangible assets

cash used in investing activities

Contract assets

Prepaid expenses and other assets

Income tax payable, net

Accounts payable and accrued liabilities

Accrued compensation

( 1,132,000 )

Flows From Financing Activities

of common stock upon exercise of options

paid on stock options exercised on a net basis

of common stock

cash used in financing activities

Net cash used in operating activities

( 1,694,000 )

(decrease) increase in cash

Cash Flows From Investing Activities

Expenditures for property and equipment

Expenditures for finite-life intangible assets

Net cash used in investing activities

Cash Flows From Financing Activities

Issuance of common stock upon exercise of options

Taxes paid on net share settlement of stock option exercises

Repurchase of common stock

Net cash used in financing activities

Net decrease in cash

( 2,155,000 )

And Cash Equivalents

Beginning of period

End of period

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment acquisitions in accounts payable

Intangible asset acquisitions in accounts payable

Lease assets obtained in exchange for new operating lease liabilities

Demonstration equipment returned to inventory

Notes to Condensed Financial Statements (Unaudited).

Statements of Shareholders’ Equity (Unaudited)

Additional Paid-

Shareholders’

at June 30, 2020

of restricted stock

of common stock upon exercise of options

paid on stock options exercised on a net basis

compensation expense

at September 30, 2020

of restricted stock

of common stock upon exercise of options

paid on stock options exercised on a net basis

compensation expense

at December 31, 2020

of restricted stock

of common stock upon exercise of options

paid on stock options exercised on a net basis

compensation expense

at March 31, 2021

Balance at June 30, 2021

Issuance of restricted stock

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

Balance at September 30, 2021

Additional Paid-

Shareholders’

at June 30, 2021

of restricted stock

of common stock upon exercise of options

paid on stock options

exercised on a net basis

compensation expense

at September 30, 2021

of restricted stock

of common stock upon

exercise of options

paid on stock options exercised on a net basis

compensation expense

of common stock

at December 31, 2021

of restricted stock

of common stock upon

exercise of options

paid on stock options exercised on a net basis

compensation expense

of common stock

at March 31, 2022

Balance at June 30, 2022

Issuance of restricted stock

Forfeiture of restricted stock

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

Repurchase of common stock

Balance at September 30, 2022

Notes to Condensed Financial Statements (Unaudited).

1 unchanged sentence

Interim Financial Reporting

of presentation:

Electromed, Inc.

2 unchanged sentences

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.

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 $ 432,000 and $ 297,000 for the nine months ended March 31, 2022 and 2021, 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 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.

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, 2021 (“fiscal 2021”).

International sales were $ 81,000 and $ 112,000 for the three months ended September 30, 2022 and 2021, respectively.

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

developing, manufacturing and marketing medical

of COVID-19 on the Company’s business:

9 unchanged sentences

Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on

of presentation:

The accompanying unaudited Condensed Financial Statements of the Company have been prepared in accordance

generally accepted accounting principles (“U.S.

GAAP”) for interim financial statements and pursuant to

the rules and regulations of the U.S.

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 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.

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, 2022

(“fiscal 2022”).

summary of the Company’s significant accounting policies follows:

15 unchanged sentences

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

because their impact was anti-dilutive were 102,435 and 52,017 for the three months ended March 31, 2022 and 2021, respectively,

and were 112,427 and 52,017 for the nine months ended March 31, 2022 and 2021, respectively.

because their impact was anti-dilutive were 212,023 and 110,752 for the three months ended September 30, 2022 and 2021, respectively.

Issued Accounting Standards

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

-- Credit Losses:

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

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

The standard introduces new accounting guidance for credit losses on financial

instruments within its scope, including trade receivables.

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

losses rather than incurred losses.

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

with early adoption permitted.

The adoption of the standard is not expected to have an impact on the Company’s consolidated

results of operations and financial condition.

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

21 unchanged sentences

Schedule of disaggregated revenue

Three Months Ended September 30,

Institutional

care distributor

Home care distributor

International

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

Three Months Ended September 30,

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

11 unchanged sentences

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.

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,

108 unchanged sentences

occurs at the time of shipment and payment is made within normal credit terms, usually

within thirty days.

usage agreements – Under these transactions, the Company provides a generator device

17 unchanged sentences

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 accounts.

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.

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.

Receivables are written off when deemed uncollectible.

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

6 unchanged sentences

to receive payment is unconditional.

The following table provides significant changes in contract assets from contracts with customers:

The following table provides information about contract assets from contracts with customers:

Schedule of contract assets

March 31, 2022

Three Months Ended

September 30, 2022

Fiscal Year Ended

June 30, 2022

assets, beginning

Reclassification

of contract assets to accounts receivable

( 1,551,000 )

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

Increase (decrease)

Contract assets, beginning

Reclassification of contract assets to accounts receivable

Contract assets recognized

Increase (decrease) as a result of changes in the estimate of amounts to be realized from

payers, excluding amounts transferred to receivables during the period

Contract assets, ending

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.

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

2 unchanged sentences

Schedule of components of inventories

inventory to be returned

September 30, 2022

June 30, 2022

Parts inventory

Work in process

Finished goods

Estimated inventory to be returned

Reserve for obsolescence

12 unchanged sentences

Schedule of changes in warranty liability

March 31, 2022

Three Months Ended

September 30, 2022

Fiscal Year Ended

June 30, 2022

reserve, beginning

for products sold

and costs incurred for warranty claims

reserve, ending

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

ended March 31, 2022, respectively.

Estimated income tax expense for the three and nine months ended March 31, 2022 includes a

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

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

ended March 31, 2021, respectively.

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

tax benefit of $37,000 as a result of lower federal and state taxes than what was originally estimated in the Company’s

tax provision for its fiscal year ended June 30, 2020.

Estimated income tax expense for the nine months ended March 31, 2021 included

such $ 37,000 discrete tax benefit as well as a $ 32,000 discrete tax benefit related to the exercise of stock options.

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

Warranty reserve, beginning

Accrual for products sold

Expenditures and costs incurred for warranty claims

Warranty reserve, ending

tax benefit was estimated at $ 33,000 , and the effective tax rate was ( 68.8 %) for the three months ended September 30, 2022.

income tax expense for the three months ended September 30, 2022 includes a discrete current tax benefit of $ 44,000 related to

the exercise of stock options.

tax expense was estimated at $ 108,000 , and the effective tax rate was 19.7 % for the three months ended September 30, 2021.

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

the exercise of stock options.

Company is subject to U.S.

1 unchanged sentence

With limited exceptions, years prior to the

Company’s fiscal year ended 2019 are no longer open to U.S.

Company’s fiscal year ended June 30, 2019 are no longer open to U.S.

federal, state or local examinations by taxing authorities.

The Company is currently under examination by the Internal Revenue Service (the “IRS”) for the fiscal year ended June

To date, the IRS is continuing its examination process and no formal assessments have been issued.

The Company is not

under any current income tax examinations by any other state or local taxing authority.

If any issues addressed in the Company’s

tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust

its provision for income taxes in the period such resolution occurs.

The Company is not under any current income tax examinations by any federal, state or local taxing authority.

If any issues addressed

in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could

be required to adjust its provision for income taxes in the period such resolution occurs.

Financing Arrangements

Company has a credit facility that provides for a $ 2,500,000 revolving line of credit.

Effective December 17, 2021 , 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, 2022, or

June 30, 2021.

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 3.50 % at March 31, 2022) less

1.0 % and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to the lesser of $ 2,500,000 or

57.0 % of eligible accounts receivable and the line of credit expires on December 18, 2023 , if not renewed before such date.

March 31, 2022, the maximum $ 2,500,000 was eligible for borrowing.

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

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

There was no outstanding principal balance

on the line of credit as of September 30, 2022 or June 30, 2022.

Interest on borrowings under the line of credit, if any, accrues

at the prime rate ( 6.25 % at September 30, 2022) 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, 2023 , if not renewed before such date.

At September 30, 2022, the maximum $ 2,500,000 was eligible for borrowing.

Payment obligations

under the line of credit, if any, are secured by a security interest in substantially all of the tangible and intangible assets

of the Company.

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

1 unchanged sentence

or pay dividends.

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

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

of undesignated stock.

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

the authorization, the Company was originally able to repurchase up to $ 3.0 million of shares of common stock through

May 26, 2022.

On May 26, 2022, the Board removed the date limitation.

As of September 30, 2022, a total of 239,195 shares

have been repurchased and retired under this authorization for a total cost of $ 2,717,000 , or $ 11.36 per share.

shares have been retired and constitute authorized but unissued shares.

Share-Based Compensation

1 unchanged sentence

Annual Report on Form 10-K for fiscal 2022.

Share-based compensation expense was $ 703,000 and $ 756,000 for the nine months ended

March 31, 2022 and 2021, respectively.

Share-based compensation expense was $ 95,000 and $ 249,000 for the three months ended

September 30, 2022 and 2021, respectively.

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

Statements of Operations.

option transactions during the nine months ended March 31, 2022 are summarized as follows:

option transactions during the three months ended September 30, 2022 are summarized as follows:

Number of Shares

Weighted-Average

Exercise Price per

at June 30, 2021

at March 31, 2022

Outstanding at June 30, 2022

Cancelled or Forfeited

Outstanding at September 30, 2022

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

interest rate

Three Months Ended

September 30, 2022

Fiscal Year Ended

June 30, 2022

Risk-free interest rate

0.89 - 2.52 %

Expected term (years)

Expected volatility

intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

1 unchanged sentence

value of the options was $ 2,345,567 .

Outstanding at March 31, 2022 were 504,842 stock options issued to employees, of which 380,881

Outstanding at September 30, 2022 were 575,785 stock options issued to employees, of which

413,222 were vested and exercisable and had an aggregate intrinsic value of $ 2,309,189 .

As of March 31, 2022, $ 364,900 of total unrecognized

compensation expense related to stock options is expected to be recognized over a weighted-average period of approximately 2.2

the nine months ended March 31, 2022, the Company issued restricted stock awards to employees totaling 25,900 shares of common

stock, with a vesting term of three years and a weighted average fair value of $ 11.35 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 $ 12.09 per share.

As of March 31,

2022, there were 69,403 shares of unvested restricted stock with a weighted average fair value of $ 11.87 per share outstanding

As of March 31, 2022, $ 364,000 of total unrecognized compensation expense related to restricted stock awards is expected to

be recognized over a weighted-average period of approximately 1.4 years.

As of September 30, 2022, $ 643,858 of

total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of

approximately 2.5 years.

the three months ended September 30, 2022, the Company issued restricted stock awards to employees totaling 27,400 shares of common

stock, with a vesting term of three years and a weighted average fair value of $ 9.90 per share.

There were 42,918 shares of unvested

restricted stock with a weighted average fair value of $ 10.75 per share outstanding as of September 30, 2022.

As of September

30, 2022, $ 304,373 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized

over a weighted-average period of approximately 2.4 years.

Commitments and Contingencies

10 unchanged sentences

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, and the hearing on such motion is currently set for May 2022.

The Company expects to continue

to vigorously defend the lawsuit;

however, it is currently unable to determine the ultimate outcome or potential exposure to loss,

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 case.

The parties have executed a settlement agreement and submitted a motion to settle

the class action in the near future.

If the court does not grant the motion for settlement, the Company will continue to

vigorously defend the lawsuit.

At this time, the Company is unable to determine the ultimate outcome or potential exposure to

loss, if any.

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