What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-22 compared with 2022-08-23 · 156 added, 205 removed, 172 unchanged (68% of the section changed)

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manufacture, market and sell products that provide HFCWO, including the SmartVest System that includes our newest generation SmartVest

SQL® and previous generation SV2100 and related products, to patients with compromised pulmonary function.

The SmartVest SQL

is smaller, quieter and lighter than our previous product with enhanced programmability, ease of use.

Our products are sold in

both the home health care market and the institutional market for use by patients in hospitals, which we refer to as “institutional

sales.” The SmartVest SQL has been sold in the domestic home care market since 2014.

In 2015, we launched the SmartVest

SQL into institutional and certain international markets.

In June 2017, we announced the launch of the SmartVest SQL with SmartVest

Connect™ wireless technology, which allows data connection between physicians and patients to track therapy performance

and collaborate in treatment decisions.

SmartVest Connect is currently available to pediatric and cystic fibrosis patients and

was made available to certain targeted adult pulmonary clinics starting in November 2017.

Since 2000, we have marketed the SmartVest

System and its predecessor products to patients suffering from cystic fibrosis, bronchiectasis and repeated episodes of pneumonia.

Additionally, we offer our products to a patient population that includes neuromuscular disorders such as cerebral palsy, muscular

dystrophies, ALS, the combination of emphysema and chronic bronchitis commonly known as COPD, and patients with post-surgical

complications or who are ventilator dependent or have other conditions involving excess secretion and impaired mucus transport.

Clearway ® , previous generation SmartVest SQL ® and related products, to patients with compromised

pulmonary function.

The SmartVest Clearway is an updated and modern approach to HFCWO focused on an enhanced patient experience

and proven patient outcomes.

The product delivers effective 360 o oscillatory pressure through our proprietary rapid

inflate-deflate technology which improves the patient’s ability to breathe deeply during therapy.

SmartVest Clearway is

the smallest, and lightest generator on the market, and is designed with an intuitive touchscreen to simplify programing and everyday

Our products are sold in both the home health care market and the institutional market for use by patients in hospitals,

which we refer to as “institutional sales.” The SmartVest SQL has been sold in the domestic home care market since

In 2015, we launched the SmartVest SQL into institutional and certain international markets.

In June 2017, we announced

the launch of the SmartVest SQL with SmartVest Connect™ wireless technology, which allows data connection between physicians

and patients to track therapy performance and collaborate in treatment decisions.

In 2022, we launched the SmartVest Clearway

with SmartVest Connect technology to adult pulmonary, pediatric and cystic fibrosis patients for use in the home.

We have marketed

the SmartVest System and its predecessor products since 2000 to patients suffering from cystic fibrosis, bronchiectasis and repeated

episodes of pneumonia.

Additionally, we offer our products to a patient population that includes neuromuscular disorders such

as cerebral palsy, muscular dystrophies, ALS, and patients with post-surgical complications or who are ventilator dependent or

have other conditions involving excess secretion and impaired mucus transport.

SmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations

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3% of our total revenues in fiscal 2023.

key growth strategies for fiscal 2023 are to:

accelerate our revenue growth by taking market share and expanding the addressable population for the largest and fastest growing

segments of the market:

key growth strategies for fiscal 2024 are to accelerate our revenue growth by taking market share and expanding the addressable

population for the largest and fastest growing segments of the market:

adult pulmonology/bronchiectasis.

Actions to support accelerating our growth include the following:

● Expand our sales force in targeted geographies with high potential, adding an additional five territories and direct sales reps;

Actions to support accelerating

our growth include the following:

our sales force in targets geographies with high potential, adding an additional five

territories and direct sales reps;

Electromed brand awareness through direct-to-consumer and physician marketing, and peer

to peer education;

● Provide best-in-class customer care and support;

● Develop and promulgate the body of bronchiectasis clinical

evidence to increase physician adoption of the SmartVest System for patients;

our innovative next generation device that appeals to patients.

best-in-class customer care and support;

and promulgate the body of bronchiectasis clinical evidence to increase physician adoption

of the SmartVest System for patients.

of COVID-19 on Our Business and Operations

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

Department of Health and Human

Services designated COVID-19 as a public health emergency (“PHE”).

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

federal government’s declaration of a PHE, the Centers for Medicare & Medicaid Services (“CMS”) implemented

several temporary rule changes and waivers to allow prescribers to best treat patients during the period of the PHE.

These waivers

became effective on March 1, 2020.

Clinical indications and documentation typically required were not enforced for respiratory-related

products, including the SmartVest System (solely with respect to Medicare patients).

January 30, 2023, the Biden administration announced that the COVID-19 national and PHE declarations will end on May 11, 2023.

The CMS waiver was not extended and expired on May 11, 2023.

We believe that we were able to mitigate the potential effects on

our net revenue resulting from the expiration of the CMS waiver by hiring additional employees to increase capacity and minimize

the average timeframe to convert a Medicare patient referral to approval and re-educating clinicians on Medicare requirements

for reimbursement of HFCWO.

did not receive any direct financial assistance from any government program during fiscal 2022 or fiscal 2023 in connection with

COVID-19 relief measures.

of Certain Macro-Economic Conditions and the Supply Chain on Our Business and Operations

observed increased lead times for certain components in our supply chain and increased material costs and shipping rates during

the second half of fiscal 2022 and all of fiscal 2023.

The changes to our supply chain lead times resulted in a temporary interruption

that impacted product availability for certain customers beginning in September 2022 and continuing through June 2023.

We anticipate

that these increased lead times and temporary interruption of supply have the potential to continue through the first half of

If we are unable to procure components to meet our demand or if we extend delivery lead-times to our customers, there

may be an adverse impact to our revenue and, longer term, the potential of market share losses.

We are taking actions to expedite

components and to identify and qualify alternate suppliers for certain components to minimize any impact to our revenue and customer

We expect that material costs and shipping rates will remain elevated during the first half of fiscal 2024 relating

to supply chain availability and inflationary trends in electronic components and may extend to other components.

In certain instances,

we have purchased key electronic materials in advance to ensure adequate future supply and mitigate the risk of potential supply

chain disruptions.

It is possible that these macro-economic conditions could have a greater adverse impact on our supply chain

in the future, including impacts associated with preventative and precautionary measures taken by other businesses and applicable

A reduction or further interruption in any of our manufacturing processes could have a material adverse effect on

our business.

Any significant increases to our raw material or shipping costs could reduce our gross margins.

Accounting Estimates

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also Note 1 to the Financial Statements, included in Part II, Item 8, of this Annual Report on Form 10-K.

of COVID-19 on Our Business and Operations

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

Department of Health and Human

Services designated COVID-19 as a public health emergency.

The impact of the COVID-19 pandemic on our business remains uncertain,

and its effects on our operational and financial performance will depend in 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 in which we operate or in which our patients live, actions taken to contain or mitigate its impact,

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

resumption of widespread economic activity.

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

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

fiscal 2022, we experienced a reduction in the number of clinics allowing face-to-face access by our sales team although

not to the extent experienced in fiscal 2021 as the number of infections relating to the Omicron variant and related

subvariants of COVID-19 increased throughout most regions of the United States, and hospitals implemented additional

safety protocols.

Our sales team continued to utilize a hybrid sales process of virtual and face-to-face clinician

interaction with strict adherence to specific clinic and healthcare system safety protocols, which we believe

allowed them to drive stronger referral growth compared to fiscal 2021.

During the second half of fiscal 2022,

we observed an improvement in clinic access and patient flow compared to earlier in the fiscal year, which we

believe is likely a result of Omicron-related case reductions throughout most of the United States, contributing

to a record high number of monthly referrals for our company.

believe that the impact of the COVID-19 pandemic on our home care and institutional business will continue during at least the

beginning of fiscal 2023.

Our home care revenue for fiscal 2022 has increased as compared to fiscal 2021;

however, if COVID-19

infection rates increase and federal, state and local restrictions on commerce, stay-at-home orders or other restrictions on businesses

are reinstated, we believe that such measures could have a material adverse effect on our business.

observed increased changes to our supply chain timelines and increased material and shipping costs during the second half of fiscal

2022, but we did not experience any disruptions that materially impacted product availability for our customers.

We anticipate

that increased material and shipping costs will continue during fiscal 2023 relating to supply chain availability and inflationary

trends in electronic components but may extend to other components as well.

In certain instances, we have purchased key electronic

materials in advance to ensure adequate future supply and mitigate the risk of supply chain disruption.

It is possible that the

COVID-19 pandemic could have a greater adverse impact on our supply chain in the future, including impacts associated with preventative

and precautionary measures taken by other businesses and applicable governments.

A reduction or interruption in any of our manufacturing

processes could have a material adverse effect on our business.

Any significant increases to our raw material or shipping costs

could reduce our gross margins.

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

our business to be essential under applicable governmental orders, primarily due to our role in manufacturing and supplying needed

medical devices to patients with respiratory-related issues and have therefore continued to operate during the government restrictions

put in place in response to the pandemic.

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

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

a number of temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public health

These waivers became effective on March 1, 2020.

Clinical indications and documentation typically required will not

be enforced for respiratory-related products including the SmartVest System (solely with respect to Medicare patients).

documentation now requires a valid order and documentation of a respiratory-related diagnosis.

Face-to-face and in-person requirements

for respiratory devices are being waived while the waiver is in place.

The CMS waiver was recently extended in conjunction with

the extension of the federal public health emergency for an additional 90-day period beginning July 15, 2022.

did not receive any direct financial assistance from any government program during fiscal 2021 or fiscal 2022 in connection with

COVID-19 relief measures.

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

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SmartVest System after control has transferred to a customer are accounted for as a fulfillment cost and are included in cost

request that customers return previously sold units that are no longer in use to us in order to limit the possibility that such

units would be resold by unauthorized parties or used by individuals without a prescription.

The customer is under no obligation

to return the product;

request that customers return previously sold units that are no longer in use to us to limit the possibility that such units would

be resold by unauthorized parties or used by individuals without a prescription.

The customer is under no obligation to return

however, we do reclaim the majority of previously sold units upon the discontinuance of patient usage.

We are certified to recondition and resell returned SmartVest System units.

Returned units are typically reconditioned and resold

and continue to be used for demonstration equipment and warranty replacement parts.

We are certified

to recondition and resell returned SmartVest System units.

Returned units are typically reconditioned and resold and continue

to be used for demonstration equipment and warranty replacement parts.

are stated at the lower of cost (first-in, first-out method) or net realizable value.

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Year Ended June 30, 2023 Compared to Fiscal Year Ended June 30, 2022

for the fiscal years ended June 30, 2022 and 2021 are summarized in the table below (dollar amounts in thousands).

for the fiscal years ended June 30, 2023 and 2022 are summarized in the table below.

Years Ended June 30,

Institutional

Care Distributor Revenue

International

Home Care Revenue

Institutional Revenue

Home Care Distributor Revenue

International Revenue

Total Revenue

Care Revenue.

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on the non-commercial Medicare portion of our home care revenue.

Additionally, we also benefitted from a Medicare allowable rate

increase that took effect on January 1, 2022.

Annual Medicare rate increases for our device are linked closely to changes in the

Urban Consumer Price Index.

Additionally, we benefitted from a Medicare allowable rate increase

that took effect on January 1, 2023.

Annual Medicare rate increases for our device are linked closely to changes in the Urban

Consumer Price Index.

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

approval percentage for previously non-covered diagnoses.

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

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

potential to mitigate the impact of a CMS waiver expiration, which is currently effective until October 2022.

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

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

quarter homecare revenue impact of the CMS waiver expiration on May 11, 2023.

Institutional

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growth is not currently a primary focus for us, and our corporate resources are focused on supporting and maintaining our current

distributors.

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

fluctuations in reported revenue on a quarterly basis.

profit increased to $31,442,000 in fiscal 2022, or 75.5% of net revenues, from $27,305,000, or 76.4% of net revenues,

in fiscal 2021.

The increase in gross profit was primarily related to increases in domestic home care revenue

including the Medicare allowable rate increase that took effect in January 2022.

The decrease in gross profit

as a percentage of net revenue was driven by higher raw material and shipping costs as well as patient

training related expenses due to increase in face-to-face trainings.

believe as we continue to grow revenue, we will be able to leverage manufacturing costs, although there may be fluctuations on

a short-term basis related to increased material and shipping costs as well as average reimbursement based on the mix of referrals

during any given period.

Factors such as diagnoses that are not assured of reimbursement, insurance programs with lower allowable

reimbursement amounts (for example, state Medicaid programs), whether an individual patient meets prerequisite medical criteria

for reimbursement, and continuation of the Medicare waiver currently in place may have an effect on average reimbursement received

on a short-term basis.

We have a goal of improving our gross margin percentage over time due to lower product costs associated

with our next generation product, supplier optimization, and gaining operating leverage on higher volumes.

international distributors.

profit increased to $36,519,000 in fiscal 2023, or 76.0% of net revenues, from $31,442,000 or 75.5% of net revenues, in fiscal

The increase in gross profit was primarily related to increases in domestic home care revenue including the Medicare allowable

rate increase that took effect in January 2023.

have a goal of improving our gross margin percentage over time due to cost savings initiatives associated with Clearway, supplier

optimization, and gaining operating leverage on higher volumes.

General and Administrative Expenses.

Selling, general and administrative (“SG&A”) expenses were $27,114,000 in fiscal 2022, representing an increase of $4,671,000 or 20.8% from $22,443,000 in fiscal 2021.

payroll and compensation-related expenses increased by $2,206,000, or 15.3%, to $16,640,000 in fiscal 2022, compared to $14,434,000

in fiscal 2021.

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

personnel, increased reimbursement personnel to process higher patient referrals, increased temporary resources to assist with

systems infrastructure investments and increased incentive payments on higher home care revenue.

We have also continued to provide

regular merit-based increases for our employees and are regularly benchmarking our compensation ranges for new and existing employees

to ensure we can hire and retain the talent needed to drive growth in our business.

Field sales employees totaled 52, of which

43 were direct sales, as of June 30, 2022, compared to 46 as of June 30, 2021, of which 37 were direct sales.

and legal fees increased by $875,000, or 36.0%, to $3,308,000 in fiscal 2022, compared to $2,433,000 in fiscal 2021.

fees include services related to legal costs, shareowner services and reporting requirements, information technology technical

support and consulting fees.

The increase in the current year was primarily due to a shareholder activism matter, increased investment

in our system infrastructure and increased clinical study costs.

Our shareholder activism matter concluded with a cooperation

agreement in September 2021.

We continue to make key investments in systems infrastructure including implementing a new enterprise

resource planning (“ERP”) system, enhancing our customer relationship management system and further optimizing of

the revenue cycle management system that was implemented in June 2021.

We expect these system infrastructure investments will

result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance.

expect to continue investing in our on-going clinical studies in order to continue building the body of evidence around positive

outcomes from bronchiectasis patients using HFCWO and SmartVest therapy.

discretionary marketing expenses decreased by $238,000, or 22.4% to $824,000 in fiscal 2022, compared to $1,062,000 in fiscal

The decrease in the current year was primarily due to a shift to more cost-effective direct-to-consumer marketing investments.

Selling, general and administrative (“SG&A”) expenses were $31,595,000

in fiscal 2023, representing an increase of $4,481,000 or 16.5% from $27,114,000 in fiscal 2022.

payroll and compensation-related expenses including health insurance benefits and other compensation increased by $2,629,000,

or 14.7%, to $20,552,000 in fiscal 2023, compared to $17,923,000 in fiscal 2022.

The increase in the current year was primarily

due to a higher average number of sales, sales support and marketing personnel, increased reimbursement personnel to process higher

patient referrals, increased temporary resources to assist with systems infrastructure investments and increased incentive payments

on higher home care revenue.

We have also continued to provide regular merit-based increases for our employees and are regularly

benchmarking our compensation ranges for new and existing employees to ensure we can hire and retain the talent needed to drive

growth in our business.

Field sales employees totaled 55, of which 46 were direct sales, as of June 30, 2023, compared to 52 as

of June 30, 2022, of which 43 were direct sales.

We expect to continue to expand our salesforce to align with our revenue growth

and legal fees, including recruiting and insurance expenses, increased by $859,000, or 19.4%, to $5,284,000 in fiscal 2023, compared

to $4,425,000 in fiscal 2022.

Professional fees include services related to legal costs, shareowner services and reporting requirements,

information technology technical support and consulting fees.

The increase in the current year was primarily due to an increased

investment in our system infrastructure and increased clinical study costs.

We continue to make key investments in systems infrastructure

including implementing a new enterprise resource planning system, enhancing our customer relationship management system and further

optimizing of the revenue cycle management system that was implemented in June 2021.

We expect these system infrastructure investments

will result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance.

discretionary marketing expenses increased by $211,000, or 25.6% to $1,035,000 in fiscal 2023, compared to $824,000 in fiscal

The increase in the current year was primarily due to discretionary investment in market research, physician marketing,

and peer to peer education engagement strategies.

meals and entertainment expenses increased $422,000, or 16.4%, to $2,990,000 for fiscal 2023 compared to $2,568,000 in fiscal

The increase in the current year period was primarily due to our sales team resuming closer-to-normal levels of travel compared

to the COVID-19 driven travel restrictions in the prior year and an increase in regional sales meetings that were cancelled in

the prior year due to COVID-19.

The Company also held an in-person national sales meeting in August 2021 whereas the national

sales meeting was held virtually in fiscal 2021 due to COVID-19.

fees increased by $362,000 or 134.6% to $631,000 for fiscal 2022 compared to $269,000 in fiscal 2021.

The increase in recruiting

fees is primarily due to increased recruiting for senior leadership and direct sales representative positions.

expenses increased by $229,000 or 20.6% to $1,339,000 for fiscal 2022 compared to $1,110,000 in fiscal 2021.

The increase in the

current year is primarily due to higher health insurance, director and officer insurance costs and cyber insurance costs.

The increase in the current year period was primarily due to an increase in headcount and our annual sales meeting expenses.

and Development Expenses

expenses decreased by $440,000, or 32.4%, to $916,000 in fiscal 2023 compared to $1,356,000 in fiscal 2022.

The decrease in

the current year was primarily due to reduced professional consulting costs associated with our next generation platform development

The decrease in the

current year was primarily due to reduced professional consulting costs associated with our next generation platform development

R&D expenses were 1.9% of revenue in fiscal 2023 compared to 3.3% of revenue in fiscal 2022.

We expect R&D

spending to be between 2.0% and 3.0% of revenue during fiscal 2023, as we look to finalize our development and product testing

work in preparation for an anticipated fiscal year 2023 next generation product launch.

spending to be between 1.0% and 2.0% of revenue during fiscal 2024.

interest income was approximately $78,000 in fiscal 2023 compared to net interest income of $25,000 in fiscal 2022.

in the current year was primarily due to lower rates earned on our cash deposits and lower cash deposits in the bank compared

to prior fiscal periods.

in the current year was primarily due to higher interest rates earned on our cash deposits despite lower overall cash balances

in the current year.

tax expense in fiscal 2023 was $920,000, which includes a current tax expense of $963,000 and a deferred benefit of $43,000.

Estimated income tax expenses include a discrete current tax benefit of approximately $37,000 related to exercised fully vested

stock options and a discrete current benefit of approximately $21,000 related to the excess tax benefit of non-qualified stock

options that were exercised during the period.

income tax expense includes a current federal and state tax benefit of approximately $250,000 related to the excess tax benefit

for fully vested stock options and non-qualified stock options that were exercised during the period.

tax expense in fiscal 2022 was $692,000, which included a current tax expense of $1,181,000 and a deferred benefit of $489,000.

Estimated income tax expense included a discrete deferred tax expense of approximately $81,000 related to unexercised fully vested

stock options that expired and a discrete current tax benefit of approximately $33,000 related to the excess tax benefit of non-qualified

stock options that were exercised during the period.

Estimated income tax expense included a current federal and state tax benefit of approximately $12,000 related to excess tax benefit

for fully vested stock options and non-qualified stock options that were exercised during the period.

effective tax rates were 22.5% and 23.1% for fiscal 2023 and 2022, respectively.

The effective tax rates differ from the statutory

federal rate due to the effect of state income taxes, R&D tax credits, and other permanent items that are non-deductible for

tax purposes relative to the amount of taxable income.

for fiscal 2022 was $2,305,000, compared to net income of $2,362,000 in fiscal 2021.

The decrease in current year net income

was primarily due to increased strategic investments in SG&A, shareholder activism costs and higher product costs

partially offset by stronger home care and distributor revenue growth.

federal rate because of state income taxes, R&D tax credits, and other permanent items that are non-deductible for tax purposes

relative to the amount of taxable income.

income for fiscal 2023 was $3,166,000, compared to net income of $2,305,000 in fiscal 2022.

The increase in current year net income

was primarily due to stronger home care and distributor revenue growth.

and Capital Resources

1 unchanged sentence

Flows from Operating Activities

cash used in operating activities in fiscal 2022 was $686,000.

Cash flows from operating activities consisted of net income of $2,305,000,

non-cash expenses of approximately $1,115,000, a $2,170,000 increase in accounts payable and accrued liabilities and a decrease in

contract assets of $107,000.

These cash flows from operating activities were offset by a $4,020,000 increase in accounts receivable,

an increase in inventory of $1,072,000, and a $1,322,000 increase in prepaid expenses.

The increase in accounts receivable was

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

distinct items have negatively impacted our operating cash flow in fiscal 2022, including tax payments on higher-than-expected

fiscal 2021 net income, increased payments to secure adequate supply of key raw material components, and a one-time payout of

accrued vacation balances as part of an enhancement to our paid time off policy.

Our cash receipt collection remains strong,

with the three months ended June 30, 2022 period having the highest cash receipt collections in our company's history,

building upon the prior record that was set in the previous quarter.

Net cash provided by operating activities in fiscal 2023 was $1,315,000.

Cash flows from operating activities consisted of net income of $3,166,000, non-cash expenses of approximately $1,278,000, a decrease in prepaid expenses of $202,000 an increase in tax payable of approximately $285,000 and a $696,000 increase in accounts payable and accrued liabilities, and accrued compensation.

These cash flows from operating activities were offset by a $3,078,000 increase in accounts receivable, an increase in inventory of $1,033,000, and a $201,000 increase in contract assets.

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

The increase in inventory was primarily due to an increase in raw materials associated with the launch of Clearway.

Our cash receipt collection remains strong, with the three months ended June 30, 2023, period having the highest cash receipt collections in our company's history, building upon the prior record that was set in the previous quarter.

Flows from Investing Activities

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Cash used in investing activities consisted of

approximately $1,425,000 in expenditures for property and equipment, approximately $943,000 for software and $482,000 for

equipment, and $100,000 in payments for patent and trademark costs.

approximately $1,648,000 in expenditures for property and equipment, approximately $1,083,000 for software and $565,000 for equipment,

and $68,000 in payments for patent and trademark costs.

Flows from Financing Activities

cash used in financing activities in fiscal 2023 was approximately $380,000, consisting of $153,000 used for our share repurchase

program and $77,000 for taxes paid on net share settlements of stock option exercises.

program and $310,000 for taxes paid on net share settlements of stock option exercises offset by $83,000 of cash provided by the

issuance of common stock upon exercise of options.

of Capital Resources

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fiscal 2023 and 2022, we spent approximately $1,648,000 and $1,425,000, respectively, on property and equipment.

We currently expect

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

We may need to

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

generate adequate cash flows.

the impact of the COVID-19 pandemic and other factors such as inflation are difficult to predict, we believe our cash, cash equivalents

and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash requirements for

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

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

not generate adequate cash flows.

the impact of macroeconomic conditions and other factors such as inflation are difficult to predict, we believe our cash, cash

equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash

requirements for fiscal 2024.

Standards Recently Issued But Not Yet Adopted by the Company

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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-K

Item 7. Management’s Discussion and Analysis