What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2023-02-14 · 357 added, 329 removed, 215 unchanged (76% of the section changed)

Balance Sheets

December 31, 2022

Financial Statements.

Electromed, Inc.

Condensed Balance Sheets

March 31, 2023

June 30, 2022

4 unchanged sentences

Prepaid expenses and other current assets

Income tax receivable

Total current assets

14 unchanged sentences

Shareholders' Equity

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

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

Common stock, $ 0.01 par value per share,

13,000,000 shares authorized;

8,556,600 and 8,475,438 shares issued and outstanding, as of March 31, 2023 and June 30, 2022,

Additional paid-in capital

2 unchanged sentences

Total liabilities and shareholders' equity

Notes to Condensed Financial Statements (Unaudited).

Statements of Operations (Unaudited)

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Operations

Cost of revenues

1 unchanged sentence

Selling, general and administrative

Research and development

Total operating expenses

Operating income

Interest income, net

Net income before income taxes

Income tax expense

and development

operating expenses

before income taxes

Income per share:

Weighted-average common shares outstanding:

Notes to Condensed Financial Statements (Unaudited).

Statements of Cash Flows (Unaudited)

Six Months Ended December 31,

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Cash

Flows (Unaudited)

Months Ended March 31,

Cash Flows From Operating Activities

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

Adjustments to reconcile net income to net

cash provided by operating activities:

Amortization of finite-life intangible assets

4 unchanged sentences

( 1,293,000 )

( 2,582,000 )

Contract assets

Prepaid expenses and other assets

Income tax payable, net

Income tax receivable, net

Accounts payable and accrued liabilities

Accrued compensation

Net cash used in operating activities

cash provided by operating activities

Cash Flows From Investing Activities

Expenditures for property and equipment

Expenditures for finite-life intangible assets

Net cash used in investing activities

( 1,221,000 )

Expenditures for finite-life

intangible assets

cash used in investing activities

( 1,275,000 )

( 1,066,000 )

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

Issuance of common stock upon exercise of

Taxes paid on net share settlement of stock

option exercises

Repurchase of common

cash used in financing activities

( 1,032,000 )

Net decrease in cash

7 unchanged sentences

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

Property and equipment acquisitions in accounts

Intangible asset acquisitions in accounts

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)

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

Condensed Statements of Shareholders’

Equity (Unaudited)

Additional Paid-

12 unchanged sentences

Balance at December 31, 2021

Share-based compensation expense

Repurchase of common stock

Balance at March 31, 2022

Additional Paid-

4 unchanged sentences

Issuance of common stock upon exercise of options

Taxes paid on stock option exercised on a net basis

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

6 unchanged sentences

Balance at December 31, 2022

Notes to Condensed Financial Statements (Unaudited).

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

Balance at March 31, 2023

See Notes to Condensed Financial Statements (Unaudited).

Electromed, Inc.

3 unchanged sentences

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 $ 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

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 markets its products in

to the home health care and institutional markets for use by patients in personal residences, hospitals and clinics.

Company also sells internationally, primarily through distributors.

International sales were $ 309,000 and $ 432,000

for the nine months ended March 31, 2023 and 2022, respectively.

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

developing, manufacturing and marketing medical equipment.

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.

The potential impact of the COVID-19 pandemic

and its effects on our operational and financial performance will depend in large part on future developments, which cannot be

reasonably estimated at this time.

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:

34 unchanged sentences

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.

179,992 and 102,435 for the three months ended March 31, 2023 and 2022, respectively, and were 200,140 and 112,427 for the nine

months ended March 31, 2023 and 2022, respectively.

Recently Issued Accounting Standards

6 unchanged sentences

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

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

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

and financial condition.

Revenue is measured based on consideration specified

25 unchanged sentences

table, net revenues are disaggregated by market:

Schedule of disaggregated revenue

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Institutional

3 unchanged sentences

disaggregated by payer type:

Three Months Ended December 31,

Six Months Ended December 31,

Months Ended March 31,

Revenues in the Company’s home care, home

3 unchanged sentences

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

obligations and transaction price.

A performance obligation is a promise in a contract to transfer a distinct good or service

to the customer and is the unit of account under ASC 606, “Revenue From Contracts With Customers” (“ASC 606”).

A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling

price for each and recognized as revenue when, or as, the performance obligation is satisfied.

The Company’s performance

obligations and the timing or method of revenue recognition in each of the Company’s markets are discussed below:

care market .

In the Company’s home care market, its customers are patients who use the SmartVest System.

models of the SmartVest System are comprised of three main components – a generator, a vest and a connecting hose –

that are sold together as an integrated unit.

Accordingly, in contracts within the home care market, the Company regards the SmartVest

System to be a single performance obligation.

Company makes available to its home care patients limited post-sale services that are not material in the context of the contracts,

either individually or taken together, and therefore does not consider them to be performance obligations.

The costs associated

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

As such, transactions in the home care market

consist of a single performance obligation:

Performance obligations and transaction price.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account

under ASC 606, “Revenue From Contracts With Customers” (“ASC 606”).

A contract’s transaction price

is allocated to each distinct performance obligation in proportion to the standalone selling price for each and recognized as revenue

when, or as, the performance obligation is satisfied.

The Company’s performance obligations and the timing or method of revenue

recognition in each of the Company’s markets are discussed below:

Home care market .

In the Company’s

home care market, its customers are patients who use the SmartVest System.

The various models of the SmartVest System are comprised

of three main components – a generator, a vest and a connecting hose – that are sold together as an integrated unit.

Accordingly, in contracts within the home care market, the Company regards the SmartVest System to be a single performance obligation.

The Company makes available to its home care

patients limited post-sale services that are not material in the context of the contracts, either individually or taken together,

and therefore does not consider them to be performance obligations.

The costs associated with the services are accrued and expensed

when the related revenues are recognized.

As such, transactions in the home care market consist of a single performance obligation:

the SmartVest System.

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

Medicaid and the U.S.

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

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

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

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

or negotiated amount over a period of time or (iii) installment sale, under which the SmartVest System is paid for over a period

of several months as long as the patient continues to use the SmartVest System.

of the type of transaction, provided criteria for an enforceable contract are met, it is the Company’s long- standing business

practice to regard all home care agreements as transferring control to the patient upon shipment or delivery, in spite of possible

payment cancellation under government or commercial programs where the payer is controlling the payment over specified time periods.

For home care sales that feature installment payments, the ultimate amount of consideration received from Medicare, Medicaid or

commercial payers can be significantly less than expected if the contract is terminated due to changes in the patient’s

status, including insurance coverage, hospitalization, death or otherwise becoming unable to use the SmartVest System.

once delivered to a patient who needs the SmartVest System, the patient is under no obligation to return the SmartVest System

should payments be terminated as a result of the described contingencies.

As a result, the Company’s product sales qualify

for point in time revenue recognition.

Control transfers to the patient, and revenue is recognized, upon shipment of the SmartVest

At this point, physical possession and the significant risks and rewards of ownership are transferred to the patient and

either a current or future right to payment is triggered, as further discussed under Accounts receivable and Contract

assets below.

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

negotiated with insurance companies or by government programs.

The transaction price for the Company’s products may be further

impacted by variable consideration.

ASC 606 requires the Company to adjust the transaction price at contract inception and throughout

the contract duration for the estimated value of payments to be received from insurance payers based on historical experience

and other available information, subject to the constraint on estimates of variable consideration.

Transactions requiring estimates

of variable consideration primarily include (i) capped installment payments, which are subject to the third-party payer’s

termination due to changes in insurance coverage, death or the patient’s discontinued use of the SmartVest System, (ii)

contracts under appeal and (iii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.

estimates may be made on a contract-by-contract basis, whenever possible, the Company uses all available information, including

historical collection patterns, to estimate variable consideration for portfolios of contracts.

The Company’s estimates

of variable consideration consist of amounts it may receive from insurance providers in excess of its initial revenue estimate

due to patients meeting deductibles or coinsurance during the payment duration, changes to a patient’s insurance status,

changes in an insurance allowable, claims in appeals with Medicare and amounts received directly from patients for their allowable

or coinsurance.

The Company believes it has representative historical information to estimate the amount of variable consideration

in relevant portfolios considering the significant experience it has with each portfolio and the similarity of patient accounts

within a portfolio.

The analysis includes steps to ensure that revenue recognized on a portfolio basis does not result in a material

difference when compared with an individual contract approach.

The Company also leverages its historical experience and all available

relevant information for each portfolio of contracts to minimize the risk its estimates used to arrive at the transaction price

will result in a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the

variable consideration is subsequently resolved.

Variable consideration is included in the transaction price if, in the Company’s

judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

example, for contracts in which the Company believes the criteria for reimbursement under government or commercial payer contracts

have been met but for which coverage is unconfirmed or payments are under appeal, the Company has significant observable evidence

of relatively consistent claims recovery experience over the prior three to five years.

The Company believes the low volatility

in historical claims approval rates for populations of patients whose demographics are similar to those of current patients provides

reliable predictive value in arriving at estimates of variable consideration in such contracts.

Similarly, historical payment

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

the past five years.

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

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

As a result, the Company believes

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

each type of variable consideration discussed above, there are a large number of contracts with similar characteristics with a

wide range of possible transaction prices.

For that reason, the Company uses the probability-weighted expected value method provided

under ASC 606 to estimate variable consideration.

Company often receives payment from third-party payers for SmartVest System sales over a period of time that may exceed one year.

Despite these extended payment terms, no significant financing component is deemed to exist because the purpose of such terms

is not to provide financing to the patient, the payer or the Company.

Rather, the extended payment terms are mandated by the government

or commercial insurance programs;

the fundamental purpose of which is to avoid paying the full purchase price of equipment that

may potentially be used by the patient for only a short period of time.

care distributors.

Sales to distributors, who sell direct to patients, are made at fixed contract prices and may include

tiered pricing structures or volume-based rebates which offer more favorable pricing once certain volumes are achieved per the

negotiated contract.

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

in excess of the specified level within the contract period.

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

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

annual volume and sales revenue.

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

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

Transfer of control of

the products occurs upon shipment or delivery to the distributor, as applicable.

Institutional

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

centers and other clinics.

Sales to these institutions are negotiated with the individual institution or with group purchasing

organizations, with payments received directly from the institution.

Home care patients generally will rely on third-party

payers, including commercial payers and governmental payers such as Medicare, Medicaid and the U.S.

Department of Veterans Affairs

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

The third-party payers’ reimbursement programs fall

into three types, distinguished by the differences in the timing of payments from the payer, consisting of either (i) outright

sale, in which payment is received from the payer based on standard terms, (ii) capped installment sale, under which the SmartVest

System is sold for a series of payments that are capped not to exceed a prescribed or negotiated amount over a period of time or

(iii) installment sale, under which the SmartVest System is paid for over a period of several months as long as the patient continues

to use the SmartVest System.

Regardless of the type of transaction, provided

criteria for an enforceable contract are met, it is the Company’s long- standing business practice to regard all home care

agreements as transferring control to the patient upon shipment or delivery, in spite of possible payment cancellation under government

or commercial programs where the payer is controlling the payment over specified time periods.

For home care sales that feature

installment payments, the ultimate amount of consideration received from Medicare, Medicaid or commercial payers can be significantly

less than expected if the contract is terminated due to changes in the patient’s status, including insurance coverage, hospitalization,

death or otherwise becoming unable to use the SmartVest System.

However, once delivered to a patient who needs the SmartVest System,

the patient is under no obligation to return the SmartVest System should payments be terminated as a result of the described contingencies.

As a result, the Company’s product sales qualify for point in time revenue recognition.

Control transfers to the patient,

and revenue is recognized, upon shipment of the SmartVest System.

At this point, physical possession and the significant risks

and rewards of ownership are transferred to the patient and either a current or future right to payment is triggered, as further

discussed under Accounts receivable and Contract assets below.

The Company’s contractually stated transaction

prices in the home care market are generally set by the terms of the contracts negotiated with insurance companies or by government

The transaction price for the Company’s products may be further impacted by variable consideration.

ASC 606 requires

the Company to adjust the transaction price at contract inception and throughout the contract duration for the estimated value

of payments to be received from insurance payers based on historical experience and other available information, subject to the

constraint on estimates of variable consideration.

Transactions requiring estimates of variable consideration primarily include

(i) capped installment payments, which are subject to the third-party payer’s termination due to changes in insurance coverage,

death or the patient’s discontinued use of the SmartVest System, (ii) contracts under appeal and (iii) patient responsibility

amounts for deductibles, coinsurance, copays and other similar payments.

Although estimates may be made on a contract-by-contract

basis, whenever possible, the Company uses all available information, including historical collection patterns, to estimate variable

consideration for portfolios of contracts.

The Company’s estimates of variable consideration consist of amounts it may receive

from insurance providers in excess of its initial revenue estimate due to patients meeting deductibles or coinsurance during the

payment duration, changes to a patient’s insurance status, changes in an insurance allowable, claims in appeals with Medicare

and amounts received directly from patients for their allowable or coinsurance.

The Company believes it has representative historical

information to estimate the amount of variable consideration in relevant portfolios considering the significant experience it has

with each portfolio and the similarity of patient accounts within a portfolio.

The analysis includes steps to ensure that revenue

recognized on a portfolio basis does not result in a material difference when compared with an individual contract approach.

Company also leverages its historical experience and all available relevant information for each portfolio of contracts to minimize

the risk its estimates used to arrive at the transaction price will result in a significant reversal in the amount of cumulative

revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved.

Variable consideration

is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of

cumulative revenue under the contract will not occur.

For example, for contracts in which the Company

believes the criteria for reimbursement under government or commercial payer contracts have been met but for which coverage is

unconfirmed or payments are under appeal, the Company has significant observable evidence of relatively consistent claims recovery

experience over the prior three to five years.

The Company believes the low volatility in historical claims approval rates for

populations of patients whose demographics are similar to those of current patients provides reliable predictive value in arriving

at estimates of variable consideration in such contracts.

Similarly, historical payment trends for recovery of claims subject to

payer installments and payments from patients have remained relatively consistent over the past five years.

No significant changes

in patient demographics or other relevant factors have occurred that would limit the predictive value of such payment trends in

estimating variable consideration for current contracts.

As a result, the Company believes its estimates of variable consideration

are generally not subject to the risk of significant revenue reversal.

For each type of variable consideration discussed

above, there are a large number of contracts with similar characteristics with a wide range of possible transaction prices.

that reason, the Company uses the probability-weighted expected value method provided under ASC 606 to estimate variable consideration.

The Company often receives payment from third-party

payers for SmartVest System sales over a period of time that may exceed one year.

Despite these extended payment terms, no significant

financing component is deemed to exist because the purpose of such terms is not to provide financing to the patient, the payer

or the Company.

Rather, the extended payment terms are mandated by the government or commercial insurance programs;

the fundamental

purpose of which is to avoid paying the full purchase price of equipment that may potentially be used by the patient for only a

short period of time.

Home care distributors.

to distributors, who sell direct to patients, are made at fixed contract prices and may include tiered pricing structures or volume-based

rebates which offer more favorable pricing once certain volumes are achieved per the negotiated contract.

The distributor’s

purchases accumulate to give the distributor a right to a higher discount on purchases in excess of the specified level within

the contract period.

As a result, to the extent the Company expects the distributor to exceed the specified volume of purchases

in the annual period, it recognizes revenue at a blended rate based on estimated total annual volume and sales revenue.

This effectively

defers a portion of the transaction price on initial purchases below the specified volumes for recognition when the higher discount

is earned on purchases in excess of specified volumes.

Transfer of control of the products occurs upon shipment or delivery to

the distributor, as applicable.

Institutional market.

The Company’s

institutional sales are made to hospitals and home health care centers, pulmonary rehabilitation centers and other clinics.

to these institutions are negotiated with the individual institution or with group purchasing organizations, with payments received

directly from the institution.

No insurance reimbursement is involved.

Generators are either

sold or leased to the institutions and associated hoses and wraps (used in institutional settings rather than vests) are sold

Accordingly, each product is distinct and considered a separate performance obligation in sales to institutional customers.

The agreements with institutions fall into two main types, distinguished by differences in the timing of transfer of control and

timing of payments:

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

Generators are either sold or leased to the institutions

and associated hoses and wraps (used in institutional settings rather than vests) are sold separately.

Accordingly, each product

is distinct and considered a separate performance obligation in sales to institutional customers.

The agreements with institutions

fall into two main types, distinguished by differences in the timing of transfer of control and timing of payments:

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

or negotiated price.

Transfer of control of the product, and associated revenue recognition,

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

at no cost to the hospital in return for a fixed annual commitment to purchase consumable

These agreements are cancellable upon at least sixty days prior written notice

by either party.

If cancelled, the generator is returned to the Company, where it can

be refurbished and used again at a later date.

Revenue for the consumable wraps is recognized

when control transfers to the customer.

International

Sales to international markets are made directly to a number of independent distributors at fixed contract prices

that are not subject to further adjustments for variable consideration.

Transfer of control of the products occurs upon shipment

or delivery to the distributor, as applicable.

The Company offers warranties on its products.

These warranties are assurance-type warranties not sold on a standalone

basis or are otherwise considered immaterial in the context of the contract, and therefore are not considered distinct performance

obligations under ASC 606.

The Company estimates the costs that may be incurred under its warranties and records a liability in

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.

Transfer of control of the product, and associated revenue recognition, occurs at the time of shipment and

payment is made within normal credit terms, usually within thirty days.

● Wrap usage agreements – Under these transactions, the Company

provides a generator device at no cost to the hospital in return for a fixed annual commitment to purchase consumable wraps.

agreements are cancellable upon at least sixty days prior written notice by either party.

If cancelled, the generator is returned

to the Company, where it can be refurbished and used again at a later date.

Revenue for the consumable wraps is recognized when

control transfers to the customer.

International market.

Sales to international markets are made directly to a number of independent distributors at fixed contract prices that are not

subject to further adjustments for variable consideration.

Transfer of control of the products occurs upon shipment or delivery

to the distributor, as applicable.

Product warranty.

The Company offers warranties

on its products.

These warranties are assurance-type warranties not sold on a standalone basis or are otherwise considered immaterial

in the context of the contract, and therefore are not considered distinct performance obligations under ASC 606.

The Company estimates

the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product

Accounts receivable.

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.

Management determines

the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s

financial condition and credit history.

Receivables are written off when deemed uncollectible.

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

where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration

due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim

being processed by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and be collected

during the Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable when the right

to receive payment is unconditional.

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

Schedule of contract assets

Six Months Ended

December 31, 2022

Fiscal Year Ended

Contract assets.

assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals where the final

determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration due to the

Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim being processed

by the payer.

Contract assets are classified as current as amounts will turn into accounts receivable and be collected during the

Company’s normal business operating cycle.

Contract assets are reclassified to accounts receivable when the right to receive

payment is unconditional.

Contract balances.

The following table

provides information about contract assets from contracts with customers:

March 31, 2023

June 30, 2022

Increase (decrease)

Contract assets, beginning

Reclassification of contract assets to accounts receivable

( 1,107,000 )

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

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

Incremental 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

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.

components of inventory were as follows:

Schedule of components of inventories

December 31, 2022

June 30, 2022

The components of inventory were as follows :

Parts inventory

4 unchanged sentences

Warranty Reserve

Company provides a lifetime warranty on its products to the prescribed patient for sales within the U.S.

and a three-year warranty

for all institutional sales and sales to individuals outside the U.S.

The Company estimates the costs that may be incurred under

its warranty and records a liability in the amount of such costs at the time the product is shipped.

Factors that affect the Company’s

warranty reserve include the number of units shipped, historical and anticipated rates of warranty claims, the product’s

useful life and cost per claim.

The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the

amounts as necessary.

in the Company’s warranty reserve were as follows:

Schedule of changes in warranty liability

Six Months Ended

December 31, 2022

Fiscal Year Ended

The Company provides a lifetime warranty on

its products to the prescribed patient for sales within the U.S.

and a three-year warranty for all institutional sales and sales

to individuals outside the U.S.

The Company estimates the costs that may be incurred under its warranty and records a liability

in the amount of such costs at the time the product is shipped.

Factors that affect the Company’s warranty reserve include

the number of units shipped, historical and anticipated rates of warranty claims, the product’s useful life and cost per

The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts as necessary.

Changes in the Company’s warranty

reserve were as follows:

March 31, 2023

June 30, 2022

1 unchanged sentence

Accrual for products sold

Expenditures and costs incurred for warranty claims

Expenditures and costs

incurred for warranty claims

Warranty reserve, ending

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.

federal and state income tax in multiple jurisdictions.

With limited exceptions, years prior to the

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

Income tax expense was estimated at $ 147,000

and $ 418,000 , and the effective tax rate was 12.0 % and 16.4 % for the three and nine months ended March 31, 2023, respectively.

Estimated income tax expense for the three and nine months ended March 31, 2023 includes a discrete current tax benefit of $ 176,000

and $ 219,000 , respectively, related to the exercise of stock options.

Income 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 current tax benefit of $ 22,000

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

The Company is subject to U.S.

federal and state

income tax in multiple jurisdictions.

With limited exceptions, years prior to the 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 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.

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.

There was no outstanding principal balance

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 ( 7.50 % at December 31, 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 December 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.

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

worth covenant of not less than $ 10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness

or pay dividends.

The Company has a credit facility that provides

for a $ 2,500,000 revolving line of credit.

There was no outstanding principal balance on the line of credit as of March 31, 2023

or June 30, 2022.

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 8.00 % at March 31, 2023)

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 March 31, 2023, 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.

The documents governing

the line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net worth covenant of not

less than $ 10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness or pay dividends.

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

5 unchanged sentences

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

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

As of March 31, 2023, 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.

1 unchanged sentence

Share-Based Compensation

Company’s share-based compensation plans are described in Note 8 to the financial statements included in the Company’s

Annual Report on Form 10-K for fiscal 2022.

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 six months ended December 31, 2022 are summarized as follows:

Number of Shares

Weighted-Average Exercise Price per Share

The Company’s share-based compensation

plans are described in Note 8 to the financial statements included in the Company’s Annual Report on Form 10-K for fiscal

Share-based compensation expense was $ 506,000 and $ 703,000 for the nine months ended March 31, 2023 and 2022, respectively.

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

Stock Options

Stock option transactions during

the nine months ended March 31, 2023 are summarized as follows:

Weighted-Average

Exercise Price per

Outstanding at June 30, 2022

Cancelled or Forfeited

Outstanding at December 31, 2022

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

Six Months Ended

December 31, 2022

Outstanding at March 31, 2023

The following assumptions were

used to estimate the fair value of stock options granted:

Nine Months Ended

March 31, 2023

Fiscal Year Ended

5 unchanged sentences

Expected volatility

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

31 2022, the weighted average remaining contractual term for all outstanding stock options was 5.7 years and the aggregate intrinsic

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

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 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

The intrinsic value of an option is the amount

by which the fair value of the underlying stock exceeds its exercise price.

At March 31 2023, the weighted average remaining contractual

term for all outstanding stock options was 5.9 years and the aggregate intrinsic value of the options was $ 1,802,672 .

at March 31, 2023 were 468,128 stock options issued to employees, of which 339,342 were vested and exercisable and had an aggregate

intrinsic value of $ 1,762,445 .

As of March 31, 2023, $ 328,218 of total unrecognized compensation expense related to stock options

is expected to be recognized over a weighted-average period of approximately 2.0 years.

Restricted Stock

During the nine months ended March 31, 2023,

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 57,818 shares of unvested restricted

stock with a weighted average fair value of $ 10.32 per share outstanding as of March 31, 2023.

As of March 31, 2023, $ 244,063 of

total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average

period of approximately 1.3 years.

Commitments and Contingencies

Company is occasionally involved in claims and disputes arising in the ordinary course of business.

The Company insures certain

business risks where possible to mitigate the financial impact of individual claims and establishes reserves for an estimate of

any probable cost of settlement or other disposition.

September 8, 2021, a state court putative class action lawsuit was filed in Minnesota against the Company asserting injury resulting

from the previously announced data breach that impacted the Company’s customer protected health information and employee

personal information and seeking compensatory damages, equitable relief, and attorneys’ fees and costs.

On October 6, 2021,

the proceeding was removed to the District of Minnesota.

The Company believes the plaintiff was not injured as a result of the

data privacy incident and, as a result, the claims are without merit.

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

dismiss the complaint in its entirety.

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

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

During January 2023, the settlement was preliminarily approved.

The Company is occasionally involved in claims

and disputes arising in the ordinary course of business.

The Company insures certain business risks where possible to mitigate

the financial impact of individual claims and establishes reserves for an estimate of any probable cost of settlement or other

On September 8, 2021, a state court putative

class action lawsuit was filed in Minnesota against the Company asserting injury resulting from the previously announced data breach

that impacted the Company’s customer protected health information and employee personal information and seeking compensatory

damages, equitable relief, and attorneys’ fees and costs.

On October 6, 2021, the proceeding was removed to the District

of Minnesota.

The Company believes the plaintiff was not injured as a result of the data privacy incident and, as a result, the

claims are without merit.

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

the complaint in its entirety.

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

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

During January

2023, the settlement was preliminarily approved.

The hearing for final approval is scheduled for June 5, 2023.

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.

If the court does

not grant the approval 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