What changed in this filing

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Item 1. Financial Statements

2023-02-14 compared with 2022-11-08 · 171 added, 152 removed, 373 unchanged (46% of the section changed)

Balance Sheets

September 30, 2022

December 31, 2022

June 30, 2022

4 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

15 unchanged sentences

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

8,514,164 and 8,475,438 shares issued and outstanding, as of December 31, 2022 and June 30, 2022, respectively

Additional paid-in capital

4 unchanged sentences

Statements of Operations (Unaudited)

Three Months Ended

September 30,

Cost of revenues

6 unchanged sentences

Net income before income taxes

Income tax (benefit) expense

Income tax expense

Income per share:

2 unchanged sentences

Statements of Cash Flows (Unaudited)

Three Months Ended September 30,

Six Months Ended December 31,

Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash provided

by (used in) operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of finite-life intangible assets

9 unchanged sentences

Accrued compensation

( 1,132,000 )

Net cash used in operating activities

( 1,694,000 )

Cash Flows From Investing Activities

9 unchanged sentences

( 1,244,000 )

( 1,419,000 )

Cash and cash equivalents

Beginning of period

17 unchanged sentences

Balance at September 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

Repurchase of common stock

Balance at December 31, 2021

Additional Paid-

4 unchanged sentences

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Taxes paid on stock option exercised on a net basis

Share-based compensation expense

1 unchanged sentence

Balance at September 30, 2022

Issuance of restricted stock

Issuance of common stock upon exercise of options

Share-based compensation expense

Repurchase of common stock

Balance at December 31, 2022

Notes to Condensed Financial Statements (Unaudited).

to Condensed Financial Statements

Interim Financial Reporting

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

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.

Notes to Condensed

Financial Statements

Interim Financial Reporting

Nature of business:

(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.

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

International sales were $ 153,000 and $ 236,000 for the six months ended December 31, 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:

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

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

Such future developments

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

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.

Impacts of COVID-19 on the Company’s

The impact of the COVID-19 pandemic on the

Company’s business remains uncertain, and its effects on our operational and financial performance will depend in large part

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

Such future developments include, but are not limited

to, the duration, scope and severity of the COVID-19 pandemic in geographic areas where 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.

Basis of presentation:

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.

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

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:

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.

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”).

A summary of the Company’s significant accounting

policies follows:

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.

Actual results could vary from the estimates that were used.

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,

inventory valuation, share-based compensation and warranty reserve.

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 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

consideration and other factors affecting the transaction price, including consideration paid or payable from customers and significant

financing components.

Revenue from all customers is recognized when a performance obligation is satisfied by transferring control

of a distinct good or service to a customer, as further described below under Performance obligations and transaction price .

promised goods and services in a contract are considered a performance obligation and accounted for separately if the individual

good or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are

readily available to the customer and the good or service is separately identifiable from other promises in the arrangement).

If an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations

in proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or

more but not all the performance obligations.

Costs related to products delivered are recognized in the period incurred, unless

criteria for capitalization of costs under Accounting Standards Codification (“ASC”) 340-40, “Other Assets and

Deferred Costs” (“ASC 340”), or other applicable guidance are met.

Company includes shipping and handling fees in net revenues.

Shipping and handling costs associated with the shipment of the Company’s

SmartVest® Airway Clearance System (“SmartVest System”) after control has transferred to a customer are accounted

for as a fulfillment cost and are included in cost of revenues in the Condensed Statements of Operations.

timing of revenue recognition, billings and cash collections results in accounts receivable on the Condensed Balance Sheets as

further described below under Accounts receivable and Contract assets .

Disaggregation

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

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, inventory valuation, share-based compensation

and warranty reserve.

Net income per common share .

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

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 were

200,499 and 108,044 for the three months ended December 31, 2022 and 2021, respectively, and were 206,261 and 112,170 for the six

months ended December 31, 2022 and 2021, respectively.

Recently Issued Accounting Standards

In 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,

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.

is effective for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted.

of the standard is not expected to have a significant impact on the Company’s consolidated results of operations and financial

Revenue is measured based on consideration specified

in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the

transaction price, including consideration paid or payable from customers and significant financing components.

Revenue from all

customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer,

as further described below under Performance obligations and transaction price .

Individual promised goods

and services in a contract are considered a performance obligation and accounted for separately if the individual good or service

is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are readily available

to the customer and the good or service is separately identifiable from other promises in the arrangement).

If an arrangement includes

multiple performance obligations, the consideration is allocated between the performance obligations in proportion to their estimated

standalone selling price, unless discounts or variable consideration is attributable to one or more but not all the performance

Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs

under Accounting Standards Codification (“ASC”) 340-40, “Other Assets and Deferred Costs” (“ASC 340”),

or other applicable guidance are met.

The Company includes shipping and handling

fees in net revenues.

Shipping and handling costs associated with the shipment of the Company’s SmartVest® Airway Clearance

System (“SmartVest System”) after control has transferred to a customer are accounted for as a fulfillment cost and

are included in cost of revenues in the Condensed Statements of Operations.

The timing of revenue recognition, billings and

cash collections results in accounts receivable on the Condensed Balance Sheets as further described below under Accounts receivable

and Contract assets .

Disaggregation of revenues.

In the following

table, net revenues are disaggregated by market:

Schedule of disaggregated revenue

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Institutional

1 unchanged sentence

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

passes to the customer upon product shipment or delivery.

Revenues in the Company’s institutional market include revenue

recognized at a point in time upon shipment or delivery as well as revenue recognized over time under operating leases.

In the following table, net home care revenue is

disaggregated by payer type:

Three Months Ended December 31,

Six Months Ended December 31,

Revenues in the Company’s home care, home

care distributor, and international markets are recognized at a point in time when control passes to the customer upon product

shipment or delivery.

Revenues in the Company’s institutional market include revenue recognized at a point in time upon shipment

or delivery as well as revenue recognized over time under operating leases.

obligations and transaction price.

161 unchanged sentences

Schedule of contract assets

Three Months Ended

September 30, 2022

Six Months Ended

December 31, 2022

Fiscal Year Ended

5 unchanged sentences

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

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

9 unchanged sentences

Schedule of components of inventories

September 30, 2022

December 31, 2022

June 30, 2022

17 unchanged sentences

Schedule of changes in warranty liability

Three Months Ended

September 30, 2022

Six Months Ended

December 31, 2022

Fiscal Year Ended

4 unchanged sentences

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.

tax expense was estimated at $ 304,000 and $ 271,000 , and the effective tax rate was 23.7 % and 20.4 % for the three and six months

ended December 31, 2022, respectively.

Estimated income tax expense for the three and six months ended December 31, 2022 includes

a discrete current tax expense of $ 1,000 and a discrete current tax benefit of $ 43,000 , respectively, related to the exercise

of stock options.

tax expense was estimated at $ 244,000 and $ 352,000 , and the effective tax rate was 22.6 % and 21.6 % for the three and six months

ended December 31, 2021, respectively.

Estimated income tax expense for the three and six months ended December 31, 2021 includes

a discrete current tax benefit of $ 1,000 and $ 21,000 , respectively, related to the exercise of stock options.

Company is subject to U.S.

10 unchanged sentences

There was no outstanding principal balance

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

on the line of credit as of December 31, 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.

at the prime rate ( 7.50 % at December 31, 2022) less 1.00 % and is payable monthly.

The amount eligible for borrowing on the line

1 unchanged sentence

18, 2023 , if not renewed before such date.

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

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

Payment obligations

11 unchanged sentences

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

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

As of December 31, 2022, a total of 239,995 shares

have been repurchased and retired under this authorization for a total cost of $ 2,725,000 , or $ 11.36 per share.

3 unchanged sentences

Annual Report on Form 10-K for fiscal 2022.

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

September 30, 2022 and 2021, respectively.

Share-based compensation expense was $ 316,000 and $ 526,000 for the six months ended

December 31, 2022 and 2021, respectively.

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

Statements of Operations.

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

option transactions during the six months ended December 31, 2022 are summarized as follows:

Number of Shares

Weighted-Average

Exercise Price per

Weighted-Average Exercise Price per Share

Outstanding at June 30, 2022

Cancelled or Forfeited

Outstanding at September 30, 2022

Outstanding at December 31, 2022

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

Three Months Ended

September 30, 2022

Six Months Ended

December 31, 2022

Fiscal Year Ended

2 unchanged sentences

2.88 - 4.23 %

0.89 - 2.52 %

Expected term (years)

3 unchanged sentences

value of the options was $ 2,440,949 .

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

Outstanding at December 31, 2022 were 560,694 stock options issued to employees, of which

404,121 were vested and exercisable and had an aggregate intrinsic value of $ 2,381,897 .

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.

As of December 31, 2022, $ 499,441 of total

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

the six months ended December 31, 2022, the Company issued restricted stock awards to employees totaling 32,400 shares of common

stock, with a weighted average vesting term of 2.7 years and a weighted average fair value of $ 9.92 per share, and to directors

totaling 21,000 shares of common stock, with a vesting term of six months and a weighted average fair value of $ 9.86 per share.

There were 68,918 shares of unvested restricted stock with a weighted average fair value of $ 10.43 per share outstanding as of

December 31, 2022.

As of December 31, 2022, $ 449,362 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.

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.

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.

Accordingly, on November 11, 2021, the Company moved to

dismiss the complaint in its entirety.

Prior to the hearing on the motion to dismiss, the parties agreed in principle to settle

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

During January 2023, the settlement was preliminarily approved.

The hearing for final approval is scheduled for June 5,

If the court does not grant the approval for settlement, the Company will continue to vigorously defend the lawsuit.

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