What changed in this filing

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Item 1. Financial Statements

2024-11-12 compared with 2024-05-07 · 270 added, 497 removed, 56 unchanged (93% of the section changed)

Financial Statements.

Condensed Balance Sheets

March 31, 2024

June 30, 2023

Balance Sheets

and cash equivalents

receivable (net of allowances for credit losses of $ 45,000 )

expenses and other current assets

current assets

Cash and cash equivalents

Accounts receivable (net of allowances for credit losses of $ 45,000 )

Contract assets

Prepaid expenses and other current assets

Income tax receivable

Total current assets

Property and equipment, net

Finite-life intangible assets, net

Deferred income taxes

Liabilities and Shareholders' Equity

and equipment, net

intangible assets, net

and Shareholders’ Equity

accrued liabilities

current liabilities

Accounts payable

Accrued compensation

Income tax payable

Warranty reserve

Other accrued liabilities

Total current liabilities

Other long-term liabilities

Total liabilities

Commitments and Contingencies

long-term liabilities

Shareholders’

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

8,457,071 and 8,637,883 shares issued and outstanding, as

of September 30, 2024 and June 30, 2024, respectively

paid-in capital

shareholders’ equity

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

8,655,727 and 8,555,238 shares issued and outstanding, as of March 31, 2024, and June 30, 2023, respectively

Additional paid-in capital

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity

See Notes to Condensed Financial Statements (Unaudited).

Condensed Statements of Operations

Three Months Ended

Nine Months Ended

liabilities and shareholders’ equity

Notes to Condensed Financial Statements (Unaudited).

Statements of Operations (Unaudited)

Months Ended September 30,

Cost of revenues

Operating expenses

Selling, general and administrative

Research and development

Total operating expenses

Operating income

Interest income, net

Net income before income taxes

general and administrative

and development

operating expenses

Interest income,

income before income taxes

Income tax expense

Income per share:

Weighted-average common shares outstanding:

See Notes to Condensed Financial Statements

Condensed Statements of Cash

Flows (Unaudited)

Nine Months Ended March 31,

Cash Flows From Operating Activities

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

Amortization of finite-life intangible assets

Share-based compensation expense

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Weighted-average

common shares outstanding:

Notes to Condensed Financial Statements (Unaudited).

Statements of Cash Flows (Unaudited)

Months Ended September 30,

Cash Flows From

Operating Activities

to reconcile net income to net cash provided by (used for) operating activities:

of finite-life intangible assets

compensation expense

in operating assets and liabilities:

expenses and other assets

tax payable, net

payable and accrued liabilities

( 1,743,000 )

Contract assets

Prepaid expenses and other assets

Income tax receivable, net

Accounts payable and accrued liabilities

( 1,174,000 )

Accrued compensation

Net cash provided by operating activities

Cash Flows From Investing Activities

Expenditures for property and equipment

cash provided by (used for) operating activities

Cash Flows From

Investing Activities

for property and equipment

for finite-life intangible assets

cash used for investing activities

Cash Flows From

Financing Activities

of common stock upon exercise of options

paid on net share settlement of stock awards

of common stock

( 4,536,000 )

Expenditures for finite-life intangible assets

Net cash used in investing activities

cash (used for) provided by financing activities

( 4,467,000 )

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 provided by (used in) financing activities

Net increase (decrease) in cash

decrease in cash

( 2,216,000 )

Cash and cash equivalents

Beginning of period

End of period

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment acquisitions in accounts payable

Intangible asset acquisitions in accounts payable

Option exercise proceeds in other assets

Demonstration equipment returned to inventory

See Notes to Condensed Financial Statements (Unaudited).

Condensed Statements of Shareholders’

Equity (Unaudited)

Additional Paid-

Total Shareholders’

Balance on June 30, 2022

Issuance of restricted stock

Forfeiture of restricted stock

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

Repurchase of common stock

Balance on 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

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

Share-based compensation expense

Balance on March 31, 2023

Supplemental Disclosures

of Cash Flow Information

paid for income taxes

Supplemental Disclosures

of Noncash Investing and Financing Activities

and equipment acquisitions in accounts payable

Demonstration

equipment returned to inventory

owed on net share settlement of stock awards in accrued liabilities

of common stock upon the vesting of performance-based stock units

Notes to Condensed Financial Statements (Unaudited).

Statements of Shareholders’ Equity (Unaudited)

Additional Paid-

Total Shareholders’

Balance on June 30, 2023

Issuance of restricted stock

Issuance of common stock upon exercise of options

Share-based compensation expense

Balance on September 30, 2023

Issuance of restricted stock

Issuance of common stock upon exercise of options

Share-based compensation expense

Balance on December 31, 2023

Issuance of restricted stock

Issuance of common stock upon exercise of options

Share-based compensation expense

Balance on March 31, 2024

See Notes to Condensed Financial Statements (Unaudited).

Notes to Condensed

Financial Statements (Unaudited)

Shareholders’

Balance at June 30, 2023

Exercise of common

stock options, vesting of performance stock units and issuance of restricted stock, net of cancellations and tax

Share-based compensation

September 30, 2023

Shareholders’

Balance at June 30, 2024

Exercise of common

stock options, vesting of performance stock units and issuance of restricted stock, net of cancellations and tax withholdings

Share-based compensation

Repurchase of common

( 4,555,000 )

( 4,558,000 )

September 30, 2024

Notes to Condensed Financial Statements (Unaudited).

to Condensed Financial Statements

Interim Financial Reporting

Nature of business:

Electromed, Inc.

(the “Company”) develops, manufactures, and markets innovative airway clearance products that apply High Frequency

Chest Wall Oscillation (“HFCWO”) therapy for pulmonary care patients.

The Company markets its products in the U.S.

(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.

Company markets its products in the U.S.

to the homecare and hospital markets.

The Company also sells internationally through distributors.

Since its inception, the Company has operated

in a single industry segment:

The Company also sells internationally through

distributors.

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

developing, manufacturing, and marketing medical equipment.

14 unchanged sentences

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, 2023 (“fiscal 2023”).

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.

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

289,362 and 179,992 for the three months ended March 31, 2024, and 2023, respectively, and were 400,639 and 200,140 for the nine

months ended March 31, 2024, and 2023, 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, 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.

The company adopted the

standard effective July 1, 2023.

The Company’s adoption of the standard did not have a material impact on the financial statements.

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:

Company’s Annual Report on

Form 10-K for the fiscal year ended June 30, 2024 (“fiscal 2024”).

summary of the Company’s significant accounting policies and estimates follows:

significant accounting policies are detailed in Note 1.

Nature of Business and Summary of Significant Accounting Policies of

the Annual Report on Form 10-K for the year ended June 30, 2024.

There have been no significant changes to these policies that

have had a material impact on the Unaudited Condensed Financial Statements and the accompanying disclosure notes for the three

months ended September 30, 2024.

Issued Accounting Standards

2023-07 - Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

standard introduces increased disclosure requirements primarily related to significant segment expenses, along with disclosure

of key criteria and metrics utilized by the Chief Operating Decision Maker (“CODM”).

It is effective for annual periods

beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption

The Company is currently evaluating the impact of adoption and additional disclosure requirements.

2023-09 - Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

standard introduces increased transparency about income tax information through the requirement of increased disclosures around

specific categories in the rate reconciliation and requiring additional information on reconciling items.

It is effective for

annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact

of adoption and additional disclosure requirements.

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.

When a contract with a customer has been established, revenue

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

typically upon shipment or delivery.

Disaggregation

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

Schedule of disaggregated revenue

Three Months Ended March 31,

Nine Months Ended March 31,

Months Ended September 30,

Homecare distributor

In the following table, net homecare revenue is

disaggregated by payer type:

Three Months Ended March 31,

Nine Months Ended March 31,

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

Months Ended September 30,

Medicare Supplemental

Other homecare

Revenues are recognized at a point in time when

control passes to the customer upon product shipment or delivery.

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:

Homecare market .

In the Company’s

homecare 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 homecare market, the Company regards the SmartVest System to be a single performance obligation.

The Company makes available to its homecare

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 homecare market consist of a single performance obligation:

the SmartVest System.

Homecare 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 homecare

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

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

For homecare 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 because 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 homecare 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 many 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.

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.

Homecare 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 the right to a higher discount on purchases more than 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.

Hospital market.

The Company’s

hospital sales are made to hospitals and other clinics.

Sales to these hospitals are negotiated with the individual hospital or

with group purchasing organizations, with payments received directly from the hospital.

No insurance reimbursement is involved.

Generators are either sold or leased to the hospitals and associated hoses and wraps (used in hospital settings rather than vests)

are sold separately.

Accordingly, each product is distinct and considered a separate performance obligation in sales to hospital

The agreements with hospitals 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.

● 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

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 later.

Revenue for the consumable wraps is recognized when

control transfers to the customer.

revenue consists of international sales which are made directly to several independent distributors at fixed contract prices that

are not subject to further adjustments for variable consideration or sales to other customers that do not fall into the markets

described above.

Transfer of control of the products occurs upon shipment or delivery to the distributor or customer, 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, -hospitals, 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 receivables are carried at amounts estimated to be received from patients under reimbursement

arrangements with third-party payers.

Accounts receivable is also net of an allowance for credit losses.

Management determines

the allowance for credit losses by regularly evaluating individual customer accounts and determining expected losses.

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:

The following tables provide information about accounts receivable and contract assets from contracts with customers:

Schedule of contract asset

Nine Months Ended March 31, 2024

Fiscal Year Ended June 30, 2023

Increase (decrease)

Contract assets, beginning

Reclassification of contract assets to accounts receivable

( 1,453,000 )

included in “Accounts receivable, net of allowance for credit losses”

Contract Assets

Accounts receivable, net of allowances for credit losses, as of June 30, 2023 were $24,130,000.

assets, beginning

Reclassification

of contract assets to accounts receivable

( 2,325,000 )

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

Contract assets, ending

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.

The components of inventory were as follows:

March 31, 2024

June 30, 2023

Parts inventory

Contract assets

(decrease) because of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables

during the period

Contract assets,

Selected Balance Sheet Information

consists of the following:

Schedule of components of inventories

Work in process

Finished goods

Estimated inventory to be returned

Estimated inventory

to be returned

Reserve for obsolescence

accrued liabilities consist of the following:

Schedule of components of other accrued liabilities

insurance recoupments

Accrued tax withholding

upon performance stock unit vesting

accrued expenses

Warranty Reserve

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 hospital 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.

Changes in the Company’s warranty

reserve were as follows:

Nine Months Ended March 31, 2024

Fiscal Year Ended June 30, 2023

Warranty reserve, beginning

Accrual for products sold

Expenditures and costs incurred for warranty claims

Warranty reserve, ending

Income tax expense was estimated at $ 468,000

and $ 1,217,000 , and the effective tax rate was 23.9 % and 26.8 % for the three and nine months ended March 31, 2024, respectively.

Estimated income tax expense for the three and nine months ended March 31, 2024, includes a discrete current tax benefit of $ 99,000

and $ 95,000 , respectively, primarily related to the exercise of stock options.

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.

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, 2020,

are no longer open to U.S.

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

and a one to five-year

warranty for all homecare distributor, hospital and other sales.

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:

reserve, beginning

for products sold

and costs incurred for warranty claims

Warranty reserve,

tax expense was estimated at $ 659,000 , and the effective tax rate was 30.9 % for the three months ended September 30, 2024, which

includes a discrete current tax benefit of $ 4,000 primarily related to the vesting of restricted stock awards.

tax expense was estimated at $ 64,000 , and the effective tax rate was 29.3 % for the three months ended September 30, 2023.

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, 2021, 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

The Company has a credit facility that provides

for a $ 2,500,000 revolving line of credit through December 18, 2025, if not renewed before such date.

There was no outstanding

principal balance on the line of credit as of March 31, 2024, or June 30, 2023.

Interest on borrowings under the line of credit,

if any, accrues at the prime rate ( 8.50 % on March 31, 2024) 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.

On March 31, 2024, 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 the tangible and intangible assets of the Company.

The documents governing

the line of credit contain certain financial and non-financial 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.

Company has a credit facility that provides for a $ 2,500,000 revolving line of credit through December 18, 2025, if not renewed

before such date.

There was no outstanding principal balance on the line of credit as of September 30, 2024 or June 30, 2024.

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 8.0 % on September 30, 2024) 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 57.0 % of

eligible accounts receivable.

On September 30, 2024, 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 the tangible and intangible assets of 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

1 unchanged sentence

of undesignated stock.

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

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

May 26, 2022.

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

As of March 31, 2024, 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.

shares have been retired and constitute authorized but unissued shares.

There were no share repurchases for the three and nine

months ended March 31, 2024.

September 11, 2024, the Company’s Board of Directors (the “Board”) approved a stock repurchase authorization.

Under the authorization, the Company can repurchase up to $ 5.0 million of shares of common stock.

The repurchase authorization

has no expiration date.

As of September 30, 2024, a total of 262,756 shares have been repurchased and retired under this

authorization for a total cost of $ 4,536,000 , or $ 17.26 per share.

Repurchased shares have been retired and constitute authorized

but unissued shares.

Share-Based Compensation

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 $ 1,250,000 and $ 506,000 for the nine months ended March 31, 2024, and 2023, 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, 2024, are summarized as follows:

Weighted-Average Exercise Price per

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 2024.

Share-based compensation expense was $ 697,000 and $ 371,000 for the three months ended

September 30, 2024, and 2023, respectively.

This expense is included in selling, general and administrative expense, cost of goods

sold, and research and development in the Condensed Statements of Operations.

option transactions during the three months ended September 30, 2024, are summarized as follows:

Number of Shares

Weighted-Average

Exercise Price per

Outstanding on June 30, 2024

Cancelled or Forfeited

Outstanding on March 31, 2024

The following assumptions were

used to estimate the fair value of stock options granted:

Nine Months Ended

March 31, 2024

Fiscal Year Ended

June 30, 2023

Outstanding on September 30, 2024

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

Three Months Ended September 30, 2024

Fiscal Year Ended June 30, 2024

Risk-free interest rate

3.85 - 4.64 %

2.88 - 4.23 %

Expected term (years)

Expected volatility

The intrinsic value of an option is the amount

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

On March 31, 2024, the weighted average remaining contractual

term for all outstanding stock options was 6.7 years and the aggregate intrinsic value of the options was $ 4,878,000 .

on March 31, 2024, were 637,590 stock options issued to employees, of which 319,088 were vested and exercisable and had an aggregate

intrinsic value of $ 3,118,000 .

As of March 31, 2024, $ 925,000 of total unrecognized compensation expense related to stock options

is expected to be recognized over a weighted-average period of approximately 2.8 years.

Restricted Stock

During the nine months ended March 31, 2024,

the Company issued restricted stock awards to employees totaling 23,428 shares of common stock, with a weighted average vesting

term of 3.0 years and a weighted average fair value of $ 10.74 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 $ 10.44 per share.

There were 57,661 shares of unvested restricted

stock with a weighted average fair value of $ 10.53 per share outstanding as of March 31, 2024.

As of March 31, 2024, $ 253,000 of

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

period of approximately 1.6 years.

Performance-Based Restricted Stock Units

The Company granted 175,000 performance-based

restricted stock units (“PSUs”) to our CEO in connection with his appointment as CEO on July 1, 2023.

to be earned based on the extent to which performance goals tied to Total Shareholder Return (“TSR”) are achieved.

The performance-based restricted stock units will be eligible to vest and settle into shares of common stock on a 1-for-1 basis

with respect to one-half of the shares upon achieving a total shareholder return of 50% and the remaining shares upon a total shareholder

return of 100%, in each case within four years of the date of grant.

The grant date fair value of the awards was determined using

a Monte Carlo valuation model with an expected term of four years.

Stock based compensation expense recognized for

PSUs was $ 217,000 and $ 0 for the nine months ended March 31, 2024, and 2023, respectively.

The weighted average grant date fair

value per unit was $ 6.58 and as of March 31, 2024, there are 175,000 PSUs outstanding.

On March 31, 2024, there was approximately

$ 935,000 of total unrecognized compensation expense related to outstanding PSUs that is expected to be recognized over a period

of 3.25 years.

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

30, 2024, the weighted average remaining contractual term for all outstanding stock options was 6.45 years and the aggregate intrinsic

value of the options was $ 8,331,000 .

Outstanding on September 30, 2024, were 678,856 stock options issued to employees, of which

414,855 were vested and exercisable and had an aggregate intrinsic value of $ 5,862,000 .

As of September 30, 2024, $ 1,057,000 of

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

approximately 2.65 years.

the three months ended September 30, 2024, the Company issued restricted stock awards to employees totaling 21,400 shares of common

stock, with a weighted-average vesting term of three years and a weighted average fair value of $ 17.25 per share.

There were 42,667

shares of unvested restricted stock with a weighted average grant date fair value of $ 13.91 per share outstanding as of September

As of September 30, 2024, $ 453,000 of total unrecognized compensation expense related to restricted stock awards is

expected to be recognized over a weighted-average period of approximately 2.66 years.

the three months ended September 30, 2024, the Company issued restricted stock units to employees totaling 63,700 , with a weighted-average

vesting term of three years and a weighted average fair value of $ 17.25 per unit.

There were 61,300 units of unvested restricted

stock with a weighted average grant date fair value of $ 17.25 per share outstanding as of September 30, 2024.

As of September

30, 2024, $ 1,008,000 of total unrecognized compensation expense related to restricted stock units is expected to be recognized

over a weighted-average period of approximately 2.92 years.

Performance-Based

Restricted Stock Units

Company granted 175,000 performance-based restricted stock units (“PSUs”) to our CEO in connection with his appointment

as CEO on July 1, 2023.

The PSUs are to be earned based on the extent to which performance goals tied to Total Shareholder Return

(“TSR”) are achieved.

The performance-based restricted stock units will be eligible to vest and settle into shares

of common stock on a 1-for-1 basis with respect to one-half of the shares upon achieving a total shareholder return of 50% and

the remaining shares upon a total shareholder return of 100%, in each case within four years of the date of grant.

The grant date

fair value of the awards was determined using a Monte Carlo valuation model with an expected term of four years.

As of September

30, 2024, the first TSR target was achieved, resulting in the vesting of 87,500 shares of common stock to our CEO.

stock-based compensation expense of $395,000 associated with the first TSR target, which was set to be recognized in future periods,

was recognized in the three months ended September 30, 2024.

based compensation expense recognized for PSUs was $ 468,000 and $ 73,000 for the three months ended September 30, 2024, and 2023,

respectively.

The weighted average grant date fair value per unit was $ 6.58 and as of September 30, 2024, 87,500 PSUs remained

On September 30, 2024, approximately $ 395,000 of unrecognized compensation expense related to outstanding PSUs remained,

which is scheduled to be recognized over a period of 2.75 years or upon attainment of total shareholder return of 100%.

Commitments and Contingencies

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

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

The Company ensures 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.

Segment Reporting

President and Chief Executive Officer is our chief operating decision maker (“CODM”).

The CODM reviews financial information,

including long-lived assets, presented on a consolidated basis, accompanied by information about revenue by market, for purposes

of allocating resources and evaluating financial performance.

We have a single active product and engage in the single business

activity of selling and supporting that single product.

There are no segment managers who are held accountable for operations,

operating results or plans for levels or components below the consolidated level.

Accordingly, we have determined that we have

a single reportable and operating segment structure.

We and our CODM evaluate performance based on revenue from our single product

in the markets in which the Company operates.

Revenue by market is described above in Note 2.

Earnings Per Common Share (“EPS”)

computations of the basic and diluted EPS amounts were as follows:

Three Months Ended September 30,

Weighted-average common shares outstanding:

Effect of dilutive common stock equivalents

Earnings per common share:

stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive were 44,026

and 403,944 for the three months ended September 30, 2024, and 2023, respectively.

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