As of August 31, 2017,20, 2021, there were 8965 registered holders of our common stock.

Dividends

We have never paid cash dividends on any of our shares of common stock. We currently intend to retain any earnings for use in operations and do not anticipate paying cash dividends to our shareholders in the foreseeable future. Currently, theThe agreement governing our credit facility restricts our ability to pay dividends.

Recent Sales of Unregistered Equity Securities

None.

PurchasePurchases of Equity Securities by the Company and Affiliated Purchasers

None.On May 26, 2021, our Board of Directors approved a stock repurchase authorization. Under the authorization, we may repurchase up to $3.0 million of outstanding shares of our common stock through May 26, 2022. The shares of our common stock may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. The following table sets forth information concerning purchases of shares of our common stock for three months ended June 30, 2021:

Item 6.      Selected Financial Data.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes included elsewhere in this Report.Annual Report on Form 10-K. The forward-looking statements include statements that reflect management’s good faith beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our future development plans, capital resources and requirements, results of operations, and future business performance. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled “Information Regarding Forward-Looking Statements” immediately preceding Part I of this Report.Annual Report on Form 10-K.

Overview

Electromed Inc. (“we,” “our,” “us,” “Electromed” or the “Company”) develops and provides innovative airway clearance products applying High Frequency Chest Wall Oscillation (“HFCWO”)HFCWO technologies in pulmonary care for patients of all ages.

We manufacture, market and sell products that provide HFCWO, including the SmartVest^®Airway Clearance System (“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 (the SmartVest SV2100), with enhanced programmability, and ease of use.use, wireless technology, and a personalized HFCWO therapy management portal for patients with compromised pulmonary function. 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 the fiscal quarter ended March 31, 2014. In the fourth quarter of our fiscal 2015,2017, we launched the SmartVest SQL into the institutional and certain international markets. In June 2017, we announced the launch of the SmartVest SQL with SmartVest Connect™ wireless technology and entry into an agreement with Monaghan Medical Corporation to distribute and sell the Aerobika^® Oscillating Positive Expiratory Pressure (OPEP) Device in the U.S. home care market. The SmartVest SQL with SmartVest Connect allows data connection between physicians and patients to track therapy performance and collaborate in treatment decisions. 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, amyotrophic lateral sclerosis (“ALS”), the combination of emphysema and chronic bronchitis commonly known as chronic obstructive pulmonary disease (“COPD”), and patients with post-surgical complications or who are ventilator dependent or have other conditions involving excess secretion and impaired mucus transport.wireless technology.

The SmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations (“HMOs”), state Medicaid systems, and the federal Medicare system, which is an important consideration for patients considering an HFCWO course of therapy. For domestic sales, the SmartVest System may be reimbursed under the Medicare-assigned billing code for HFCWO devices if the patient has cystic fibrosis, bronchiectasis (including chronic bronchitis or COPDchronic obstructive pulmonary disease that has resulted in a diagnosis of bronchiectasis), or any one of certain enumerated neuromuscular diseases, and can demonstrate that another less expensive physical or mechanical treatment did not adequately mobilize retained secretions. Private payers consider a variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts.

We employ a direct-to-patient and provider model, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions to patients and train them on proper use in their homes. This model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment channel and capture both the manufacturer and distributor margins. We have engaged a limited number of regional durable medical equipment distributors focused on respiratory therapies as an alternate sales channel. Revenue through this channel was less than 2% of our total revenues in fiscal 2021.

Our primary goals for the fiscal year ending June 30, 2018, include:

Our key growth strategies for fiscal 2022 include the fiscal year ending June 30, 2018 include:following:

Grow faster than the overall home care HFCWO market by taking market share and expanding the pool of physicians who prescribe the SmartVest System in the largest and fastest growing segments of the market: adult pulmonology/bronchiectasis;

Critical Accounting Policies and Estimates

During the preparation of our financial statements, we are required to make estimates, assumptions and judgments that affect reported amounts. Those estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities, and our reported revenues and expenses. We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly. We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies. While we believe the estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates. The following is a summary of our primary critical accounting policies and estimates. See also Note 1 to the Financial Statements, included in Part II, Item 8, of this Report.Annual Report on Form 10-K.

COVID-19 Pandemic and CARES Act Funding

In March 2020, the World Health Organization designated COVID-19 as a global pandemic. The COVID-19 pandemic created significant volatility, uncertainty and economic disruption that negatively impacted business in our industry starting in March 2020 and continuing to varying degrees throughout fiscal 2021. 

We consider our business to be essential under applicable governmental orders due primarily to our role in manufacturing and supplying needed medical devices to patients with respiratory related issues and remained fully operational for the duration of fiscal 2021. 

We also took measures to ensure the safety of our employees and to comply with applicable governmental orders, including transitioning employees to remote work where possible, adhering to Centers for Disease Control (“CDC”) guidelines for mask wearing and social distancing, and implementing enhanced cleaning practices in the office. During the fourth quarter of fiscal 2021, as COVID-19 vaccines became more widely available in the United States, we reviewed our guidelines for corporate offices and manufacturing and adjusted our safety guidelines to align with CDC guidelines for mask wearing and social distancing. Additionally, we provided direction to employees on their work schedules, balancing business productivity and flexibility for employees and maintaining the highest level of safety in the workplace.

The home care market was impacted by COVID-19 primarily due to certain healthcare facilities and clinics restricting access to their clinicians, and patients reducing in-person visits to clinics for consultations and treatments. The degree of clinic access limitations and in-person patient visit reductions varied throughout fiscal 2021 based on multiple variables, including the number of daily COVID-19 cases occurring in key geographies, the degree of state and local government restrictions, and the availability and deployment of vaccines. During fiscal 2021, our sales team developed and utilized a hybrid selling approach that combined virtual and face-to-face clinician interactions, which helped mitigate the market disruption caused by COVID-19.

Our institutional business was negatively impacted by COVID-19 through fiscal 2021 as     hospitals and long-term care facilities adjusted their operating protocols and procurement management in response to the pandemic.  Limiting the spread of airborne particles was a priority in institutional settings during fiscal 2021, and airway clearance therapies usage, including HFCWO, induces coughing in patients.

In response to the negative impacts of the COVID-19 pandemic on our business, in April 2020 we initiated cost-containment measures, which included reducing discretionary and variable spend, such as travel, and the use of contractors, consultants, temporary help and employee furloughs in our manufacturing and general and administrative functions due to lower near-term demand for our products.  As our referral volumes returned to near pre-pandemic levels in July 2020, all furloughed employees returned to work by August 2020, and we continued to make all planned strategic investments in our business throughout fiscal 2021 in both selling, general and administrative (“SG&A”) and R&D.  

We did not receive any direct financial assistance from any government program during fiscal 2021. We received a one-time $913,000 payment under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the fourth quarter of fiscal 2020, which partially offset lower profitability related to the revenue decline caused by the COVID-19 pandemic during the period. The amount received from the CARES Act is subject to compliance with certain terms and conditions and reporting requirements, and such report may be audited by a federal agency for compliance with the program’s terms and conditions.

Overall, we believe that these and other responses by healthcare systems had a negative impact on our operating results and cash flows during the fourth quarter of fiscal 2020 and the first quarter of fiscal 2021, and then again in the third quarter of fiscal 2021 as Covid-19 cases and hospitalization spiked during that time period. We believe that we benefited during the most recent fiscal year from our sales organization adapting to innovations in contacting physicians, such as through virtual meetings, and from the waiver implemented by CMS in response to the public health emergency.

In response to the COVID-19 pandemic and the U.S. federal government’s declaration of a public health emergency, CMS implemented a number of temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public health emergency. These waivers were made retroactively effective to March 1, 2020 and were in place for the duration of fiscal 2021. Clinical indications and documentation typically required were not enforced for respiratory related products including the SmartVest System (solely with respect to direct Medicare covered patients) applicable for our home care prescriptions. The minimum documentation now requires a valid order and documentation of a respiratory related diagnosis. Face-to-face and in-person requirements for replacement respiratory devices are being waived during such period, both of which are currently scheduled to expire in October 2021. A temporary suspension of a 2% tax on Medicare payments was also initiated in May 2020 and has been extended through December 2021. 

The impact of the COVID-19 pandemic on our business remains uncertain and its effects on 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 deployment 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.

Revenue Recognition and Allowance for Doubtful Accounts

Revenues are primarilyWe measure revenue 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 noncash consideration, consideration paid or payable to customers and significant financing components. Revenue from all customers is recognized upon shipment when evidencea performance obligation is satisfied by transferring control of a sales arrangement exists, delivery has occurreddistinct good or service to a customer. 

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 determinable with collectability reasonably assured. Revenues from direct patient salesattributable to one or more but not all the performance obligations. Costs related to products delivered are recorded atrecognized in the amount to be received from patientsperiod incurred, unless criteria for capitalization of costs under their arrangements with third-party payers, including private insurers, prepaid health plans, MedicareAccounting Standards Codification (“ASC”) 340-40, “Other Assets and Medicaid. In addition, we record an estimate for selling price adjustments that often arise from changes in a patient’s insurance coverage, changes in a patient’s state of domicile, insurance company coverage limitationsDeferred Costs,” or patient death. We periodically review originally billed amounts and our collection history and make changes to the estimation process by considering any changes in recent collection or sales allowance experience, but have not made material adjustments to previously recorded revenues and receivables.requirements under other applicable accounting guidance are met.

Other than the installment sales as discussed below, we expect to receive payment on the vast majority of accounts receivable within one yearWe include shipping and therefore classify all receivables as current assets. However,handling fees in some instances, payment for direct patient sales can be delayed or interrupted resulting in a portion of collections occurring later than one year. In the event receivables are expected to be paid over longer intervals than one year, we recognize revenue under the installment method.

Certain third-party reimbursement agencies pay us on a monthly installment basis, which can span from 18 to 60 months. Californianet revenues. Shipping and New York Medicaid constitute the majority of our installment method sales. Due to the length of time over which reimbursement is received, we believe that the inherent uncertainty of collection due to external factors noted above precludes us from making a reasonable estimate of revenue at the time the product is shipped. In certain circumstances, the patient must periodically attest that the unit continues to be utilized as a prerequisite to continued reimbursement coverage. Therefore, we believe the installment method is appropriate for these sales. If the third-party reimbursement agency discontinues payment and we determine no further payments will be made from the patient, the carrying value of the account receivable is written off as a period adjustment against the previously recognized sales. Under the installment method, we do not record accounts receivable or revenue at the time of product shipment. We defer the revenue associated with the sale and, as each installment is received, that amount is recognized as revenue. Deferredhandling costs associated with the saleshipment of each SmartVest System after control has transferred to a customer are amortized toaccounted for as a fulfillment cost and are included in cost of revenue ratably over the estimated period in which collections are scheduled to occur.revenues.

Accounts receivable are also net of an allowance for doubtful accounts, which are accounts from which payment is not expected to be received although product was provided and revenue was earned.received. 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. Recoveries of receivables previously written off are recorded when received.

We request that customers return previously-soldpreviously 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; however, we do reclaim the majority of previously sold units upon the discontinuance of patient usage. We obtained certificationare certified to recondition and resell returned units during fiscal 2015.SmartVest System units. Returned units can now beare typically reconditioned and resold and will continue to be used for demonstration equipment and warranty replacement parts.

Valuation of Long-Lived and Intangible Assets

Long-lived assets, primarily property and equipment and finite-life intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. In evaluating recoverability, the following factors, among others, are considered: a significant change in the circumstances used to determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product or service strategy, a significant change in customer base, and a realization of failed marketing efforts. The recoverability of an asset or asset group is measured by a comparison of the unamortized balance of the asset or asset group to future undiscounted cash flows. If we believe the unamortized balance is unrecoverable, we would recognize an impairment charge necessary to reduce the unamortized balance to the estimated fair value of the asset group. The amount of such impairment would be charged to operations at the time of determination.

Property and equipment are stated at cost less accumulated depreciation. We use the straight-line method for depreciating property and equipment over their estimated useful lives, which range from 3three to 39 years. Our finite-life intangibles consist of patents and trademarks and their carrying costs include the original cost of obtaining the patents, periodic renewal fees, and other costs associated with maintaining and defending patent and trademark rights. Patents and trademarks are amortized over their estimated useful lives, generally 15 and 12 years, respectively, using the straight-line method.

Allowance for Excess and Slow-Moving Inventory

An allowance for potentially slow-moving or excess inventories is made based on our analysis of inventory levels on hand and comparing it to expected future production requirements, sales forecasts and current estimated market values.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine, based on the weight of available evidence, that it is more likely than not that some or all of the deferred tax assets will not be realized. We would reverse a valuation allowance if we determine, based on the weight of all available evidence, including when cumulative losses become positive income, that it is more likely than not that some or all of the deferred tax assets will be realized.

Warranty Reserve

We provide a warranty on the SmartVest System that covers the cost of replacement parts and labor, or a new SmartVest System in the event we determine a full replacement is necessary. For each home care SmartVest SystemsSystem initially purchased and currently located in the U.S. andor Canada, we provide a lifetime warranty to the individual patient for whom the SmartVest System is prescribed. For sales to institutions within the U.S., and for all international sales, except Canadian home care, we provide a three-year warranty. We estimate, based upon a review of historical warranty claim experience, the costs that may be incurred under our warranty policies and record a liability in the amount of such estimate at the time a product is sold. The warranty cost is based uponon future product performance and durability and is estimated largely based uponon historical experience. We estimate the average useful life of our products to beis approximately five years. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims, the product’s useful life, and cost per claim. At our discretion, based upon the cost to either repair or replace a product, we have occasionally replaced such products covered under warranty with a new or refurbished model. We periodically assess the adequacy of our recorded warranty liability and make adjustments toadjust the accrual as claims data and historical experience warrant.

Share-Based Compensation

Share-based payment awards consist of options and restrictedto purchase shares of our common stock issued to employees and directors for services.employees. Expense for options is estimated using the Black-Scholes pricing model at the date of grant and expense for restricted stock is determined by the closing price on the day the grant is made.grant. The portion of the option award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or vesting period of the award.award and adjusted upon completion of the vesting period. In determining the fair value of our share-based payment awards, we make various assumptions using the Black-Scholes pricing model, including expected risk-free interest rate, stock price volatility, life and forfeitures. See Note 78 to the Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for a description of these assumptions.

Results of Operations

Fiscal Year Ended June 30, 20172021 Compared to Fiscal Year Ended June 30, 20162020

Revenues

Revenue for the twelve-month periodsfiscal years ended June 30, 2021 and 2020 are summarized in the table below (dollar amounts in thousands).

Home Care Revenue. Our home Home care revenue increased by 14.1%12.5%, or approximately $2,877,000,$3,663,000, for fiscal 2021 compared to fiscal 2020.. The growth versus prior year ended June 30, 2017 (“fiscal 2017”),was primarily driven by an increase in referrals and approvals. The increase in referrals compared to the fiscalprior year ended June 30, 2016 (“fiscal 2016”). Home care revenue increased year-over-year primarilyperiods was due to an increase in approvalsthe sales team adapting to a hybrid virtual and referralsface-to-face selling model implemented to combat clinic access limitations due to the COVID-19 pandemic, benefits of the CMS waiver on the non-commercial Medicare portion of our home care revenue, and an increase in direct sales representatives.

The CMS waiver benefited the average ratenon-commercial Medicare portion of reimbursement per approval. The increase in referrals was primarily due to growth inour home care revenue by increasing the number of fieldreferrals and the approval percentage for non-covered diagnoses. We believe that our ongoing sales employeesteam 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 higher referral per field sales employee as compared to the comparable prior year period.CMS waiver expiration, which is currently effective until October 2021.

During fiscal 2017, we entered into a settlement agreement with the Centers for Medicare and Medicaid Services with respect to approximately 700 Medicare fee-for-service claims submitted between calendar years 2012 through 2015, resulting in approximately $703,000 of net recognized revenue. This benefit was partially offset by the retroactive repayment of previously collected and recognized revenue to a state Medicaid program totaling approximately $212,000. The repayment resulted from the state Medicaid program’s reinterpretation of its reimbursement process and a reduction in its allowable payments. We believe the repayment is a one-time event and is not reflective of other state Medicaid reimbursement processes. Our fiscal 2016 home care revenue benefited by approximately $250,000 from processing a backlog of referrals from the prior fiscal year in a certain state. The backlog accumulated while we reapplied for a state home medical equipment license until we met a newly imposed requirement to have an approved in-state presence. The license was reinstated in October 2015.

Institutional Revenue. Institutional revenue decreased by 1.1%22.6%, or approximately $20,000,$451,000, in fiscal 20172021 compared to fiscal 2016.2020. Institutional revenue includes sales to distributors, group purchasing organization (“GPO”) members,organizations, rental companies and other institutions. The decrease in the current year periods was primarily due to the continued impact of COVID-19 on hospital purchasing activity. Our institutional revenue increased each quarter throughout fiscal 2021 as hospital purchasing activity began returning to more standard operating procedures as were in place prior to COVID-19.

Home Care Distributor Revenue. Home care distributor revenue increased 30.9%, or approximately $133,000, for fiscal 2021 compared to fiscal 2020. The growth versus the prior year was driven by a decreaseadditional capital sales with our primary distributor. We began selling to home medical equipment distributors during fiscal 2020, who in turn sell our SmartVest System in the number of units sold compared to the prior year, which was partially offset by an increase in the sales of single patient use garments.U.S. home care market. 

International Revenue. International revenue wasdecreased by 8.4%, or approximately $716,000$60,000, in fiscal 20172021 compared to $713,000 in fiscal 2016.2020. International revenue growth is not currently a primary focus for us, and our corporate resources are only focused on supporting and maintaining our current distributors.

Gross Profit

Gross profit increased to $20,568,000,$27,305,000 during fiscal 2021, or 79.5%76.4% of net revenues, for fiscal 2017, from approximately $17,876,000,$25,200,000, or 77.7%77.6% of net revenues, forduring fiscal 2016.2020. The increase in gross profit was primarily related to increases in domestic home care revenues and arevenue. The decrease in our manufacturinggross profit as a percentage of net revenue was driven by a higher warranty reserve adjustment, costs associated with discontinuing shipments of the SmartVest SQL as comparedSV2100 in the United States, and limited cost increases to both raw materials and shipping costs, which was partially offset by a higher mix of home care revenue and a favorable mix of Medicare within the prior year.

During fiscal years 2017home care channel. The increase in the warranty reserve was driven by a combination of an increase in components included in the warranty calculation and 2016, we lowered the cost of our SmartVest SQL to a cost significantly lower than our previous products. This has shortened the time period in which we expect to phase out sales ofhigher repair costs for our SV2100 product. Because of this, we recordeddevice repairs. There has not been an additional reserve on certain SV2100 parts that may no longer be utilizedincrease in production, of $30,000 and $10,000 during fiscal 2017 and 2016, respectively.product warranty returns for either our generators or vests.

We believe that as we continue to grow salesrevenue, we will be able to continue to leverage manufacturing costs, and that gross margins, over the long-term, will continue to be in a range slightly above 75%, although there canmay be fluctuations on a short-term basis related to 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), and whether an individual patient meets prerequisite medical criteria for reimbursement, may have an effect on average reimbursement received on a short-term basis.

Operating Expensesbasis 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.

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”)&A expenses forincreased by approximately $2,498,000, or 12.5%, to approximately $22,443,00 in fiscal 2017 were approximately $16,402,000,2021, compared to approximately $14,387,000$19,945,000 in fiscal 2020. During fiscal 2021, we invested in strategic SG&A investments that we believe will position the company for sustainable, long-term growth. Key strategic SG&A investments in fiscal 2021 included increased direct-to-consumer marketing, implementation of a new revenue cycle management system, strategic market analytics and commercial planning and new headcount positions in product marketing and clinical field support. We believe that these investments will provide the prior year, an increase of approximately $1,988,000, or 14.0%.support to drive a successful sales force expansion plan beginning in fiscal 2022.

SG&A payroll and compensation-related expenses increased by approximately $1,148,000,$1,973,000, or 14.2%15.8%, to approximately $9,251,000.$14,434,000 in fiscal 2021, compared to $12,461,000 in fiscal 2020. The increase iswas primarily due to additional employees ina higher average number of sales and administration, additional sales incentives on highermarketing personnel, increased temporary resources to assist with systems infrastructure investments, increased compensation payments related to stronger home care revenue higher share-based equity compensation expense, annual salary increases and the replacement of certain employees at a higher rate of compensation in our sales department, which were partially offset by lower management bonus accruals. For fiscal 2017, we had 6.3 net additional field sales full time equivalents (“FTEs”) and 2.9 net additional general and administrative FTEs, an increase of 22.6% and 5.1%, respectively, as compared to the prior fiscal year.performance.

Professional and legal fees increased by approximately $176,000$431,000, or 21.5%, to approximately $1,455,000$2,433,000 in fiscal 2017,2021, compared to approximately $1,279,000$2,002,000 in fiscal 2016.2020. These fees wereare primarily for services related to legal costs, shareholdershareowner services and investor relations consulting,reporting requirements, information technology technical support, and consulting fees reporting requirements and information technology (“IT”) security and backup.for enhancing our market development strategy. The year-over-year increase in professional feesthe current year periods was primarily due to increases in reimbursement consulting, shareholder and investor relations services andhigher legal fees, annual fees associated with   a new human resources consulting, which were partially offset by a decreaseplatform, increased investment in IT costsleadership development training, and sales consulting.fees associated with the implementation of our new revenue cycle management software.  We expect to make continued investments in our systems infrastructure over the next year, including an enterprise resource planning software implementation.

Recruiting fees were approximately $479,000Total discretionary marketing expenses increased by $281,000, or 36.0% to $1,062,,000 in fiscal 2017, representing an increase of approximately $150,000, or 45.4%, as2021, compared to the same period$781,000 in the prior year.fiscal 2020. The increase in recruiting feesthe current year period was primarily due primarily to adding more employeesa direct-to-consumer marketing campaign that began in salesMay 2020 and administrative roles as compared to the prior year.investment in strategic market analytics and commercial planning activities.

Travel, meals and entertainment expenses were approximately $1,759,000decreased $164,000, or 8.4%, to $1,780,000 for fiscal 20172021 compared to $1,513,000$1,944,000 in fiscal 2020. The decrease in the priorcurrent year an increaseperiod was primarily due to travel reductions in connection with COVID-19, primarily in the first half of approximately $247,000, or 16.2%. The increase was due primarilythe fiscal year. Travel, meals and entertainment expenses returned to additional sales personnel, which was partially offsetnear pre-COVID-19 levels by an overall decrease in travel expense per salesperson.the fourth quarter of fiscal 2021.

SG&A expenses included a loss on the abandonment of certain domestic and foreign patents with net values of approximately $133,000 during fiscal 2017 as compared to $18,000 recognized in fiscal 2016. The majority of the pending patents that were abandoned related to the initial development of our SQL SmartVest technology. During a review of our patent portfolio it was determined that certain patents proved redundant to a subsequent SQL patent filing and were therefore abandoned. A smaller portion of expense was related to patents that covered technology that we considered outdated and are no longer in use.

In addition, SG&A expenses did not include medical device excise tax for all of fiscal 2017, a decrease of approximately $132,000 compared to the prior year. Beginning January 1, 2016, we realized a positive impact to operating profit with the Federal Consolidated Appropriations Act, 2016, which included a two-year moratorium on the U.S. Federal medical device excise tax.

Research and Development Expenses.Research and development (“R&D”)&D expenses increased by $672,000, or 64.0%, to $1,722,000 in fiscal 2021 compared to $1,050,000 in fiscal 2020. R&D expenses were approximately $597,0004.8% of revenue in fiscal 2021 compared to 3.2% of revenue in fiscal 2020. The increase in the current year period was primarily due to professional consulting fees associated with our next generation platform development activities. We expect R&D spending to remain between 3.0% and $380,000, or 2.3%5.0% of revenue during fiscal 2022, as we look to finalize our development and 1.7%product testing work in preparation for an anticipated fiscal year 2023 next generation product launch.

Government Stimulus Income. We did not record any government stimulus income in fiscal 2021. In fiscal 2020, we recorded $913,000 of net revenues, for fiscal 2017 and 2016, respectively. During fiscal 2016, we began developing the SmartVest Connect wireless technology. We believe this innovation will strengthen our patient and clinician partnerships, leading to greater therapy adherence and improved quality of life for individuals with compromised pulmonary function. We launched this new feature during June of 2017. During fiscal 2017, we capitalized approximately $223,000government stimulus income related to software developmentgeneral distribution funds received from the Provider Relief Fund established by the CARES Act for Medicare fee-for-service providers due to lost revenues resulting from the COVID-19 pandemic. 

Interest Income, net

Net interest income was approximately $39,000 during fiscal 2021 compared to net interest income of $121,000 in conjunction with this project. As a percentagefiscal 2020. The decrease in net interest income was primarily driven by lower interest rates in fiscal 2021 as compared to fiscal 2020.

Other Expense, net

Net other expense was approximately $12,000 during fiscal 2021 compared to net other expense of net revenues, we expect spending on R&Dzero in fiscal 2020.  Net other expenses to remain relatively consistent over the next twelve months with engineering resources focusing on product enhancements and other market opportunities. Certain expensesrepresent costs related to our innovation investments are not always captured in R&D expenses. These expenses may be included in costJune 2021 data security incident of sales as in the case$187,000, net of depreciationrelated insurance reimbursement of tooling, or for SG&A, in the case of professional fees or higher labor expense, as we improve our internal processes or enhance our customer service.

Interest Expense$175,000.  

Interest expense, net, decreased to approximately $50,000 in fiscal 2017, compared to $67,000 in fiscal 2016, a decrease of approximately $17,000. The decrease in interestIncome Tax Expense

Income tax expense during fiscal 2017 as compared2021 was $805,000, which includes a current tax expense of $1,099,000 and a deferred benefit of $294,000. Estimated income tax expense includes 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 prior year was driven by a lower effective interest rate on outstanding borrowings, a lower levelexcess tax benefit of debt as compared tonon-qualified stock options that were exercised during the prior year, and an increase in interest income.period. 

Income Tax Expense

ForIn fiscal 2017, the Company2020, we recorded a current income tax expense of $1,290,000. Estimated income tax expense during fiscal 2017$1,078,000, which includes a current tax expense of $1,439,000,$1,204,000 and a deferred benefit of $117,000 and$126,000. Estimated income tax expense for fiscal 2021 included a discrete current tax benefit of $32,000 as a result ofapproximately $358,000 related to the lapse of the statute of limitations on uncertain tax positions. For fiscal 2016, the Company recorded a current income tax expense of $830,000. Income tax expense during fiscal 2016 includes a current tax expense of $1,173,000 and a deferredexcess tax benefit of $343,000, primarily from a discrete tax benefit caused bynon-qualified stock options that were exercised during the Company’s release of the full valuation allowance against all of its net U.S. federal and state deferred tax assets.period.

The effective tax rates were 36.7%25.4% and 27.3%20.6% for fiscal 20172021 and 2016,2020, respectively. The effective tax rates differ from the statutory federal rate due to the effect of state income taxes, R&D tax credits, the domestic production activities deduction and other permanent items that are non-deductible for tax purposes relative to the amount of taxable income.

Net Income/LossIncome

Net income for fiscal 20172021 was approximately $2,229,000,$2,362,000, compared to net income of approximately $2,213,000$4,161,000 in fiscal 2016.2020. The year-over-year increasedecrease in net incomethe current year period was driven primarily by an increaseincreased strategic investments in SG&A and R&D and a lower gross profit, which wasmargin percentage, partially offset by increased payroll and compensation expensesstronger home care revenue performance. Fiscal year 2021 does not include any government stimulus income, compared to $913,000 of government income received under the CARES Act in sales and administrative departments, increased travel, meals and entertainment driven by additional sales personnel, increased R&D costs, increased professional fees and a higher level of recruiting costs. Additionally, the prior year benefited by a discrete tax benefit of $294,000.fiscal 2020.  

Liquidity and Capital Resources

Cash Flows and Sources of Liquidity

Cash Flows from Operating Activities

For fiscal 2017, our netNet cash provided by operating activities in fiscal 2021 was approximately $1,191,000. Our$3,077,000. Cash flows from operating activities consisted of net income of approximately $2,229,000 was adjusted for$2,362,000, non-cash expenses of approximately $1,267,000,$1,340,000, a decrease in income tax receivable of $192,000, an$1,284,000 increase in income tax payable of $157,000, and a decrease in prepaid expenses and other assets of $50,000. It also was offset by increases in accounts receivable, accounts payable and accrued liabilities, a decrease in inventory of $971,000, a decrease in contract assets of $510,000 and inventories of approximately $2,338,000, $338,000 and $28,000, respectively.

For fiscal 2016, our neta $151,000 decrease in prepaid expenses. These cash provided byflows from operating activities were partially offset by a $4,091,000 increase in accounts receivable. The increase in accounts receivable was approximately $2,167,000. Our net income of approximately $2,213,000 was adjusted for non-cash expenses of approximately $695,000,primarily due to an increase in other accrued liabilitiesthe Medicare portion of $996,000 andour home care business, which has a decrease in prepaid expenses and other assets of $19,000. It also was offset by increases in accounts receivable, inventories and income tax receivable of approximately $1,093,000, $348,000 and $192,000, respectively, and a decrease in income taxes payable of $123,000.13-month payment cycle.

Cash Flows from Investing Activities

For fiscal 2017,Net cash used in investing activities in fiscal 2021 was approximately $687,000.$448,000. Cash used in investing activities primarily consisted of approximately $619,000$287,000 in expenditures for property and equipment and $68,000$161,000 in payments for patent and trademark costs.

For fiscal 2016, cash used in investing activities was approximately $580,000. Cash used in investing activities primarily consisted of approximately $535,000 in expenditures for property and equipment and $45,000 in payments for patent and trademark costs.

Cash Flows from Financing Activities

For fiscal 2017,Net cash used in financing activities in fiscal 2021 was approximately $54,000,$1,219,000, consisting of $49,000 in principal payments$1,124,000 used for our share repurchase program and $141,000 for taxes paid on long-term debt and $5,000 in payments for deferred financing fees.behalf of employees stock options that were exercised on a net basis during the period, partially offset by $46,000 of proceeds received from stock options exercised during the period.

For fiscal 2016, cash used in financing activities was approximately $62,000, consisting of $49,000 in principal payments on long-term debt and $13,000 in payments for deferred financing fees.

Adequacy of Capital Resources

Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing R&D efforts, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business. Based on our current operational performance, we believe our working capital of approximately $15,580,000$27,065,000 and available borrowings under our existing credit facility will provide adequate liquidity for our fiscal year ending June 30, 2018.2022.

Effective December 18, 2016,16, 2020, we renewed our credit facility, which provides us with a revolving line of credit and a term loan.credit. Interest on borrowings on the line of credit accrues at the prime rate (3.25% as of June 30, 2021) less 1.00% and is payable monthly. There was no outstanding principal balance on the line of credit as of June 30, 2021 or June 30, 2020. 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, 2017,2021, if not renewed. AtAs of June 30, 2017,2021, the maximum $2,500,000 was available under the line of credit and the applicable interest rate (the prime rate) was 4.25%.credit. Payment obligations under the line of credit are secured by a security interest in substantially all of our tangible and intangible assets.

In connection with the credit facility, we also have a term loan, which had an outstanding principal balance of approximately $1,154,000 at June 30, 2017 and $1,200,000 as of June 30, 2016. The term loan was refinanced effective December 18, 2016, reducing the interest rate from 5.00% to 3.88%. The unamortized debt issuance cost associated with this debt was approximately $6,000 and $10,000 as of June 30, 2017 and June 30, 2016, respectively. The term loan bears interest at 3.88%, with monthly payments of principal and interest of approximately $7,900 and a final payment of principal and interest of approximately $1,085,000 due on the maturity date of December 18, 2018. Payment obligations under the term loan are secured by a mortgage on the Company’s real property.

The documents governing our line of credit and term loan contain certain financial and nonfinancial covenants that include a minimum tangible net worth of not less than $10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends. We were in compliance with these covenants as of June 30, 2017.

Any failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, and/or term loan, requiring prepayment of outstanding indebtedness, under either arrangement, or refusing to renew the line of credit. If the maturity of the indebtedness is accelerated or the line of credit is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may not be able to continue operations as planned. The indebtedness under the line of credit and term loan are secured by a security interest in substantially all of our tangible and intangible assets and a mortgage on our real property, respectively. If we are unable to repay such indebtedness, the lender could foreclose on these assets.

WeDuring fiscal 2021 and 2020, we spent approximately $619,000$299,000 and $535,000$844,000, respectively, on property and equipment during fiscal 2017 and 2016, respectively.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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

New Accounting PronouncementsStandards Recently Issued But Not Yet Adopted by the Company

In May 2014,December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers.” The new section will replace ASC Section 605, “Revenue Recognition,” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between U.S. practice and that of much of the rest of the world, as well as to enhance disclosures related to disaggregated revenue information. Entities will have the option to apply the standard retrospectively to all prior periods presented (“full retrospective”), or to apply it retrospectively only to contracts existing at the effective date (“modified retrospective”), with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings. In August 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-14, which delayedNo. 2019-12, Income Taxes (Topic 740): Simplifying the effective date of the new revenue recognition guidance by one year. The Company is currently evaluating which of the alternative approaches it will apply and the potential impact of adoption of the revised revenue standards on its financial statements. The Company intends to complete its evaluation during its fiscal year ending June 30, 2018.

In April 2015, FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This standard became effective on July 1, 2016Accounting for the Company and requires that debt issuance costs be presented as a direct deduction from the carrying amount of long-term debt on the balance sheet. Income Taxes. The new guidance alignssimplifies the presentation of debt issuance costs with debt discounts and premiums. The Company adopted this guidance retrospectively effective as of July 1, 2016. As a result,accounting for income taxes by removing certain exceptions to the Company presented $10,000 of unamortized debt issuance costs that had been includedgeneral principles in “Other assets” on its condensed balance sheet as of June 30, 2016 as a direct deduction from the carrying amounts of the related long-term debt liability.

In July 2015, FASB issued ASU 2015-11, “Inventory (Topic 330) Related to Simplifying the Measurement of Inventory,” which applies to all inventory except that which is measured using last-in, first-out (“LIFO”) or the retail inventory method. Inventory measured using first-in, first-out (“FIFO”) or average cost is within the scope of the new guidance and should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will be effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.Topic 740. The new guidance should be applied prospectively,also improves consistent application of and earlier applicationsimplifies U.S. generally accepted accounting principles for other areas of Topic 740 by clarifying and amending the existing guidance. The guidance is permitted as of the beginning of an interim or annual reporting period. The Company has evaluated that ASU 2015-11 will have no material impact on its consolidated financial statements or financial statement disclosures upon adoption.

In February 2016, FASB issued ASU 2016-02, “Leases.” This standard requires the recognition of all lease transactions with terms in excess of 12 months on the balance sheet as a lease liability and a right-of-use asset (as defined in the standard). ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,2020, with earlier applicationearly adoption permitted. Upon adoption,The Company is currently evaluating the lessee will applyeffect of the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company has evaluated that ASU 2016-02 will have no material impact on its financial statements or financial statement disclosures upon adoption based on current facts and circumstances.guidance.

In March 2016, FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which reduces complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements. ASU 2016-09 will be effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Company has evaluated that ASU 2016-09 will have no material impact on its financial statements or financial statement disclosures upon adoption.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 8.      Financial Statements and Supplementary Data.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

To theShareholders and Board of Directors and Shareholders

Electromed, Inc.

Opinion on the Financial Statements 

We have audited the accompanying balance sheets of Electromed, Inc. (the Company) as of June 30, 20172021 and 2016, and2020, the related statements of operations, shareholders’ equity and cash flows for the years then ended. ended, and the related notes to the financial statements. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,Critical Audit Matter 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects,to the financial positionstatements and (2) involved our especially challenging, subjective or complex judgments. The communication of Electromed, Inc.the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement of June 30, 2017Customer Revenue Net of Adjustments

As discussed in Note 2 to the financial statements, revenues are recognized at a point in time when control passes to the customer upon product shipment or delivery. Net patient revenues (patient revenue less estimated adjustments) are recognized at the estimated net realizable amounts from third-party payors and 2016,customers in exchange for the product. The Company has agreements with third-party payors that provide for payments at amounts different from its established rates. Each quarter, the Company estimates its adjustments for each sale based on the terms of third-party payor contracts and the resultshistorical collection and write-off experience and applies an estimate for an adjustment reserve percentage to the gross accounts receivable balances.

We identified the measurement of its operationscustomer revenue net of adjustments as a critical audit matter due to the audit effort, degree of auditor judgment, and its cash flows forsubjectivity involved in evaluating the years then ended, in conformity with U.S. generally accepted accounting principles.audit evidence related to the adjustment reserves.

Our audit procedures related to the Company’s measurement of customer revenue net of adjustments included the following, among others.

/s/ RSM US LLP

We have served as the Company’s auditor since 2010.

Duluth, Minnesota

September 5, 2017

August 24, 2021

Electromed, Inc.

Balance Sheets
June 30, 20172021 and 20162020

See Notes to Financial Statements.

Electromed, Inc.

Statements of Operations

Years Ended June 30, 20172021 and 20162020

See Notes to Financial Statements.

Electromed, Inc.
Statements of Shareholders’ Equity
Years Ended June 30, 20172021 and 20162020

See Notes to Financial Statements.

Electromed, Inc.
Statements of Cash Flows
Years Ended June 30, 20172021 and 20162020

See Notes to Financial Statements.

Electromed, Inc.
Notes to Financial Statements

Note 1.        Nature of Business and Summary of Significant Accounting Policies

Nature of business: 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 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 approximately $716,000$658,000 and $713,000$718,000 for the fiscal years ended June 30, 20172021 (“fiscal 2021 and 2016,June 30, 2020 (“fiscal 2020”), respectively. Since its inception, the Company has operated in a single industry segment: developing, manufacturing and marketing medical equipment.

A summary of the Company’s significant accounting policies follows:

Use of estimates: Management uses estimates and assumptions in preparing the financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). 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 financial statements include revenue recognition and the related estimation of selling price adjustments,variable consideration, allowance for doubtful accounts, the potential impairment of intangible and long-lived assets, inventory obsolescence, share-based compensation income taxes and the warranty reserve.

Revenue recognition: The Company recognizes revenue when persuasive evidence of a sales arrangement exists, delivery of goods occurs through the transfer of titleCOVID-19 Pandemic and risks and rewards of ownership, the selling price is fixed or determinable, and collectability is reasonably assured. Revenues are primarily recognized upon shipment.CARES Act Funding

Direct patient sales are recorded at amountsThe Company did not receive any direct financial assistance from any government program during fiscal 2021. The Company received a one-time $913,000 payment under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the fourth quarter of fiscal 2020, which partially offset lower profitability related to bethe revenue decline caused by the COVID-19 pandemic during the period. The amount received from patients under reimbursement arrangementsthe CARES Act is subject to compliance with third-party payers, including private insurers, prepaid health plans, Medicarecertain terms and Medicaid. In addition,conditions and reporting requirements, and such report may be audited by a federal agency for compliance with the Company records an estimate for selling price adjustments that often arise from changes in a patient’s insurance coverage, changes in a patient’s domicile, insurance company coverage limitations or patient death. Other than the installment sales as discussed below, the Company expects to receive payment on the vast majority of accounts receivable within one yearprogram’s terms and therefore has classified all accounts receivable as current. However, in some instances, payment for direct patient sales can be delayed or interrupted, resulting in a portion of collections occurring later than one year.conditions.

During fiscal 2017,In response to the Company entered intoCOVID-19 pandemic and the U.S. federal government’s declaration of a settlement agreement withpublic health emergency, the Centers for Medicare and Medicaid Services implemented a number of temporary rule changes and waivers to allow prescribers to best treat patients during the period of the public health emergency. These waivers were made retroactively effective to March 1, 2020 and were in place for the duration of fiscal 2021. Clinical indications and documentation typically required were not enforced for respiratory related products including the Company’s SmartVest® Airway Clearance System (“SmartVest System”) (solely with respect to approximately 700direct Medicare fee-for-service claims submitted between calendar years 2012covered patients) applicable for the Company’s home care prescriptions. The minimum documentation now requires a valid order and documentation of a respiratory related diagnosis. Face-to-face and in-person requirements for replacement respiratory devices are being waived during such period, both of which are currently scheduled to expire in October 2021. A temporary suspension of a 2% tax on Medicare payments was also initiated in May 2020 and has been extended through 2015, resulting in approximately $703,000 of net recognized revenue.December 2021.

Certain third-party reimbursement agencies payThe impact of the COVID-19 pandemic on the Company’s business remains uncertain and its effects on 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 the Company operates or in which its patients live, actions taken to contain or mitigate its impact, the impact on a monthly installment basis, which can span over several years.governmental healthcare programs and budgets, the deployment of treatments or vaccines, and the resumption of widespread economic activity. Due to the length of time over which cash is collected and the inherent uncertainty of collectability with these installment sales,the unprecedented and evolving situation, the Company cannot makeis unable to predict with confidence the likely impact of the COVID-19 pandemic on its future operations.

Revenue recognition: Revenue is measured based on consideration specified in the contract with a reasonable estimatecustomer, adjusted for any applicable estimates of revenue atvariable consideration and other factors affecting the time of saletransaction price, including noncash consideration, consideration paid or payable to customers and does not record accounts receivable or revenue at the time of product shipment. Under the installment method, the Company defers the revenue associated with the sale and, as each installment is received, that amountsignificant financing components. Revenue from all customers is recognized aswhen a performance obligation is satisfied by transferring control of a distinct good or service to a customer. See Note 2 for information on revenue. Deferred costs associated with the sale are amortized to cost of revenue ratably over the estimated period in which collections are scheduled to occur.

Sales made under the installment method were approximately as follows: