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What changed in Electromed, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Electromed, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+129 added−153 removedSource: 10-K (2024-08-27) vs 10-K (2023-08-22)

Top changes in Electromed, Inc.'s 2024 10-K

129 paragraphs added · 153 removed · 112 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

61 edited+4 added−19 removed84 unchanged
Biggest changeWe have also shared data from our bronchiectasis quality of life trial at the 2023 World Bronchiectasis and NTM Conference highlight effects of HFCWO on clinical symptoms of patients with bronchiectasis Generating additional clinical evidence to further support the SmartVest System as a preferred treatment for bronchiectasis patients will remain a focus in fiscal 2024. 3 We believe that bronchiectasis is under recognized and underdiagnosed but is experiencing a surge in clinical interest and awareness, including the relationship to COPD, commonly referred to as bronchiectasis COPD overlap syndrome.
Biggest changeWe have also shared data from our bronchiectasis quality of life trial at the 2023 World Bronchiectasis and NTM Conference, highlighting the effects of HFCWO with SmartVest on clinical symptoms of patients with bronchiectasis.
The reimbursement department includes the payer relations function working directly with all payer types to increase the covered lives for the SmartVest System with national and regional private insurers and applicable state and federal government entities as well as to maintain the current licenses with state and federal government and payer contracts. 6 Our SmartVest System is reimbursed under HCPCS code E0483.
The reimbursement department includes our payer relations function working directly with all payer types to increase the covered lives for the SmartVest System with national and regional private insurers and applicable state and federal government entities as well as to maintain the current licenses with state and federal government and payer contracts. 6 Our SmartVest System is reimbursed under HCPCS code E0483.
The study also observed that patients with dual diagnosis of bronchiectasis and COPD were in poorer health, with more office visits, more inpatient admissions and more acute respiratory infections. 8 ● Seitz (2012) estimated that 190,000 unique cases of bronchiectasis were diagnosed in Medicare patients in 2007 and bronchiectasis prevalence increased 8.7% annually between 2000 and 2007. 9 Based on historic growth in prevalence and assuming a constant growth rate, the estimated number of bronchiectasis diagnoses in Medicare patients in 2021 exceeded 608,000. ● Aksamit (2017) found 20% (n=350) of patients with bronchiectasis enrolled in the U.S.
The study also observed that patients with dual diagnosis of bronchiectasis and COPD were in poorer health, with more office visits, more inpatient admissions and more acute respiratory infections. 8 3 ● Seitz (2012) estimated that 190,000 unique cases of bronchiectasis were diagnosed in Medicare patients in 2007 and bronchiectasis prevalence increased 8.7% annually between 2000 and 2007. 9 Based on historic growth in prevalence and assuming a constant growth rate, the estimated number of bronchiectasis diagnoses in Medicare patients in 2021 exceeded 608,000. ● Aksamit (2017) found 20% (n=350) of patients with bronchiectasis enrolled in the U.S.
Our principal distributors are located in Europe, the Arab states of the Persian Gulf, Southeast Asia, South America and Central America. Units are sold at a fixed contract price with payments made directly from the distributor, rather than being tied to reimbursement rates of a patient’s insurance provider as is the case for domestic sales.
Our principal distributors are located in Europe, the Arab states of the Persian Gulf, Southeast Asia, and Central America. Units are sold at a fixed contract price with payments made directly from the distributor, rather than being tied to reimbursement rates of a patient’s insurance provider as is the case for domestic sales.
If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions. Environmental Laws We are subject to various environmental laws and regulations both within and outside the U.S. Like other medical device companies, our operations involve the use of substances regulated under environmental laws, primarily manufacturing, sterilization, and disposal processes.
If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions. 10 Environmental Laws We are subject to various environmental laws and regulations both within and outside the U.S. Like other medical device companies, our operations involve the use of substances regulated under environmental laws, primarily manufacturing, sterilization, and disposal processes.
Item 1. Business. Overview Electromed, Inc. (“we,” “our,” “us,” “Electromed” or the “Company”) develops, manufactures, markets and sells innovative products that provide airway clearance therapy, including the SmartVest ® Airway Clearance System (“SmartVest System”) and related products, to patients with compromised pulmonary function with a commitment to excellence and compassionate service.
Item 1. Business. Overview Electromed, Inc. (“we,” “our,” “us,” “Electromed” or the “Company”) develops, manufactures, markets and sells innovative products that provide airway clearance therapy, including the SmartVest ® Airway Clearance System (“SmartVest System”) to patients with compromised pulmonary function with a commitment to excellence and compassionate service.
Technology innovations and enhancements to the patient experience such as size, weight of the generator, and optimized user interaction increase product reputation and patient satisfaction. We believe we distinguish ourselves in these areas with competitive advantages over alternative treatments ultimately improving the patient comfort, ease of use, and the effectiveness of HFCWO treatment.
Technology innovations and enhancements to the patient experience such as size and weight of the generator, as well as optimized user interaction increase product reputation and patient satisfaction. We believe we distinguish ourselves in these areas with competitive advantages over alternative treatments ultimately improving the patient comfort, ease of use, and the effectiveness of HFCWO treatment.
We continue to evaluate opportunities to offer the SmartVest System through selected Home Medical Equipment (“HME”) distributors. We maintain agreements with a limited number of HME distributors to distribute and sell the SmartVest System in the United States home care market. We expect to continue our direct sales channel as our primary homecare revenue source.
We continue to evaluate opportunities to offer the SmartVest System through selected Home Medical Equipment (“HME”) distributors. We maintain agreements with a limited number of HME distributors to distribute and sell the SmartVest System in the United States homecare market. We expect to continue our direct sales channel as our primary homecare revenue source.
In response to out-of-state businesses winning the competitive bidding process, which had a significant impact on small local DME businesses, many states have enacted regulations that require a DME provider to have an in-state business presence, specifically through state HME licensing boards or through state Medicaid programs.
In response to out-of-state businesses winning the competitive bidding process, which had a significant impact on small local HME businesses, many states have enacted regulations that require a HME provider to have an in-state business presence, specifically through state HME licensing boards or through state Medicaid programs.
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 deliver the SmartVest System to patients, training them on proper use in their homes.
We primarily 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 deliver the SmartVest System to patients, training them on proper use in their homes.
Results show that at one-year: exacerbations requiring hospitalization and antibiotic use were significantly reduced and mean forced expiratory volume remained stable post enrollment, suggesting early initiation of HFCWO therapy may slow the otherwise normal progression of the disease. ● In 2022, the American Journal of Respiratory and Crucial Care Medicine published the results of a third-party retrospective cohort analysis of 101 qualifying NCFBE patients who received HFCWO.
Results show that at one-year: exacerbations requiring hospitalization and antibiotic use were significantly reduced and mean forced expiratory volume remained stable post enrollment, suggesting early initiation of HFCWO therapy with SmartVest may slow the otherwise normal progression of the disease. ● In 2022, the American Journal of Respiratory and Crucial Care Medicine published the results of a third-party retrospective cohort analysis of 101 qualifying NCFBE patients who received HFCWO.
In addition, every employee is eligible to participate in our incentive plan, which allows for us to share the rewards of the company with the people who significantly contribute to our success.
In addition, every employee is eligible to participate in our incentive plan, which allows us to share the rewards of the company with the people who significantly contribute to our success.
The SEC also maintains an Internet site that contains our reports, proxy and information statements, and other information we file or furnish with the SEC, available at www.sec.gov. 12
The SEC also maintains an Internet site that contains our reports, proxy and information statements, and other information we file or furnish with the SEC, available at www.sec.gov.
The SmartVest Clearway is designed for maximum comfort and lifestyle convenience, so patients can readily fit therapy into their daily routines. The SmartVest Clearway was designed with the patient experience in mind continuing our history of offering the smallest, lightest weight generator on the market and introduces an intuitive touch screen to simplify use.
The SmartVest Clearway is designed for maximum comfort and lifestyle convenience, so patients can readily fit therapy into their daily routines. The SmartVest Clearway was designed with patient experience in mind, continuing our history of offering the smallest, lightest weight generator on the market and featuring an intuitive touch screen to simplify use.
We are committed to ensuring a diverse workforce in a safe environment by maintaining compliance with applicable employment laws and governmental regulations. Treating employees with dignity and equality is of utmost importance in everything we do. We take pride in the fact that women represent 50% of our total managerial roles..
We are committed to ensuring a diverse workforce in a safe environment by maintaining compliance with applicable employment laws and governmental regulations. Treating employees with dignity and equality is of utmost importance in everything we do. We take pride in the fact that women represent 54% of our total managerial roles.
One factor of respiratory health is the ability to clear secretions from airways. Impaired airway clearance, when mucus cannot be expectorated, may result in labored breathing and/or inflammatory and immune systems boosting mucus production that invites bacteria trapped in stagnant secretions to cause infections.
One important factor of respiratory health is the ability to clear secretions from airways. Impaired airway clearance, when mucus cannot be expectorated, may result in labored breathing, inflammatory response and/or immune systems boosting mucus production that invites bacteria trapped in stagnant secretions to cause infections.
These initiatives have created an increasing level of price sensitivity among our customers. Home Medical Equipment Licensing Although we do not fall under competitive bidding for Medicare, we often must satisfy the same licensing requirements as other DME providers that qualify for competitive bidding.
These initiatives have created an increasing level of price sensitivity among our customers. Home Medical Equipment Licensing Although we do not fall under competitive bidding for Medicare, we often must satisfy the same licensing requirements as other HME providers that qualify for competitive bidding.
Third-Party Reimbursement In the U.S., individuals who use the SmartVest System generally rely on third-party payers, including private payers and governmental payers such as Medicare and Medicaid, to cover and reimburse all or part of the cost of using the SmartVest System. Our home care revenue comes from reimbursement from commercial payers, Medicare, Medicaid, Veterans Affairs and direct patient payments.
Third-Party Reimbursement In the U.S., individuals who use the SmartVest System generally rely on third-party payers, including private payers and governmental payers such as Medicare and Medicaid, to cover and reimburse all or part of the cost of using the SmartVest System. Our homecare revenue comes from reimbursement from commercial payers, Medicare, Medicaid, Veterans Affairs and direct patient payments.
We believe the market for HFCWO is under recognized and underdiagnosed and is continuing to expand due to an aging population, higher incidence of chronic lung disease, growing awareness by physicians of diseases and conditions for which patients can benefit from using HFCWO therapy, and treatments moving to lower cost home care settings.
We believe the market for HFCWO is under recognized and underdiagnosed and is continuing to expand due to an aging population, higher incidence of chronic lung disease, growing awareness by physicians of diseases and conditions for which patients can benefit from using HFCWO therapy, and treatments moving to lower cost homecare settings.
Effects of High Frequency Chest Wall Oscillation (HFCWO) on Clinical Symptoms in COPD. American Journal of Respiratory and Critical Care Medicine. 2023. Vol 207:C96 17 C. Cheng, M. Bruner, C. Bazan, B. Liu, C. Marion, L. Edwards, G. Solomon. Effects of High Frequency Chest Wall Oscillation (HFCWO) on Quality of Life in Bronchiectasis. 6th World Bronchiectasis & NTM Conference. 2023.
American Journal of Respiratory and Critical Care Medicine. 2023. Vol 207:C96 17 C. Cheng, M. Bruner, C. Bazan, B. Liu, C. Marion, L. Edwards, G. Solomon. Effects of High Frequency Chest Wall Oscillation (HFCWO) on Quality of Life in Bronchiectasis. 6th World Bronchiectasis & NTM Conference. 2023.
The SmartVest System is currently available in two models, The SmartVest SQL ® and SmartVest Clearway ® – which are sold into home care and hospital markets. In November 2022, we announced the introduction of SmartVest Clearway ® , our next generation HFCWO system designed around an enhanced patient experience and modern design.
The SmartVest System is currently available in two models, The SmartVest SQL ® and SmartVest Clearway ® – which are sold into homecare and hospital markets. In November 2022, we announced the introduction of SmartVest Clearway ® , our next generation HFCWO system designed around an enhanced patient experience and modern design.
We will continue to support and service earlier SmartVest models pursuant to the applicable product warranty. As part of our growth strategies, we periodically evaluate opportunities involving products and services, especially those that may provide value to the respiratory homecare and institutional market.
We will continue to support and service earlier SmartVest models pursuant to the applicable product warranty. As part of our growth strategies, we evaluate opportunities involving products and services, especially those that may provide value to the respiratory homecare and hospital market.
Our sales strategy outside of the U.S. is to maintain our current distributors with less emphasis on contracting with new distributors.
Our sales strategy outside of the U.S. is to support our current distributors with less emphasis on contracting with new distributors.
The improved user interface enhances device programming and simplifies every-day use. The system features multiple operating modes, including ramp, favorite settings designations, and options for saving, locking and restoring protocols.
The improved user interface enhances device programming and simplifies everyday use. The system features multiple operating modes, including ramp, favorite settings designations, and options for saving, locking and restoring protocols.
Our site has been audited regularly by the FDA and ISO, in accordance with their practices, and we maintain our operations in a manner consistent with their requirements for a medical device manufacturer.
Our site has been audited regularly by the FDA and Notified Body, in accordance with their practices, and we maintain our operations in a manner consistent with their requirements for a medical device manufacturer.
(“Tactile Medical”) also participates in the same market as our SmartVest System. Tactile Medical primarily sells its device through DME companies who distribute home care medical devices and supplies. Alternative products for administering pulmonary therapy include: Positive Expiratory Pressure, Intrapulmonary Percussive Ventilation, CPT and breathing techniques.
(“Tactile Medical”) also participates in the same market as our SmartVest System. Tactile Medical primarily sells its device through HME companies who distribute homecare medical devices and supplies. Alternative products for administering pulmonary therapy include: Positive Expiratory Pressure, Intrapulmonary Percussive Ventilation, CPT and breathing techniques.
In order to do business with any patients in the state or to be a provider for the state Medicaid program, a DME provider must have an in-state presence. In addition to Minnesota, the location of our corporate headquarters, we have a licensed in-state presence in three other states.
In order to do business with any patients in the state or to be a provider for the state Medicaid program, a HME provider must have an in-state presence. In addition to Minnesota, the location of our corporate headquarters, we have a licensed in-state presence in seven other states.
The light design takes weight off of the patients shoulders and torso enhancing the therapy experience. Quick fit Velcro ® -like closures allow for a secure, comfortable fit without bulky straps and buckles.
The garment’s design takes weight off of the patient’s shoulders and torso, enhancing the therapy experience. Quick fit Velcro ® -like closures allow for a secure, comfortable fit without bulky straps and buckles.
We expect to achieve future sales, earnings, and overall market share growth through a continued focus on product innovation, differentiation and improved patient experiences and outcomes in the home care segment.
We expect to achieve future sales, earnings, and overall market share growth through a continued focus on product innovation, differentiation and improved patient experiences and outcomes in the homecare market.
Poster Abstract 310-B 4 Estimated HFCWO Market Opportunity - Bronchiectasis Patients (U.S.) – Figure 1 The heightened awareness of bronchiectasis speaks to the growing body of clinical evidence supporting treatments to improve symptoms and manage disease progression. ● In 2019, an observational comparative retrospective cohort study published in BMC Pulmonary Medicine evaluated the efficacy of a treatment algorithm in 65 patients with radiographic and symptom confirmed bronchiectasis, centered on initiation of HFCWO therapy with the SmartVest System. 5 Patients were treated per the algorithm if they reported greater than two exacerbations in the previous year and symptoms, including chronic cough, sputum production, or dyspnea.
Poster Abstract 310-B 18 Internal company estimates derived from Guidehouse 2023 literature review and 2023 CDC NHANES data 4 Estimated HFCWO Market Opportunity - Bronchiectasis Patients (U.S.) – Figure 1 The heightened awareness of bronchiectasis speaks to the growing body of clinical evidence supporting treatments to improve symptoms and manage disease progression. ● In 2019, an observational comparative retrospective cohort study published in BMC Pulmonary Medicine evaluated the efficacy of a treatment algorithm in 65 patients with radiographic and symptom confirmed bronchiectasis, centered on initiation of HFCWO therapy with the SmartVest System. 5 Patients were treated per the algorithm if they reported greater than two exacerbations in the previous year and symptoms, including chronic cough, sputum production, or dyspnea.
Available Information Our Internet address is www.smartvest.com. We have made available on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the SEC.
We have made available on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the SEC.
We are licensed to do business in all states except for Alaska and Hawaii. 8 Product Regulations Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable foreign regulatory agencies.
We are licensed to do business in all 50 states. 8 Product Regulations Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable foreign regulatory agencies.
International Marketing Approximately 1% of our net revenues were from sales outside of the U.S. in both of our fiscal 2023 and our fiscal year ended June 30, 2022 (“fiscal 2022”), respectively. We sell our products outside of the U.S. primarily through independent distributors specializing in respiratory products. Through June 30, 2023, most of our distributors operated in exclusive territories.
Approximately 1.0% of our net revenues were from sales outside of the U.S. in both of our fiscal 2024 and our fiscal year ended June 30, 2023 (“fiscal 2023”), respectively. We sell our products outside of the U.S. primarily through independent distributors specializing in respiratory products. Through June 30, 2024, most of our distributors operated in exclusive territories.
As of June 30, 2023, we had 55 field sales employees, including six regional sales managers, 46 clinical area managers (“CAMs”) and three clinical educators. We also have developed a network of approximately 170 respiratory therapists and health care professionals across the U.S. to assist with in-home SmartVest System patient training on a non-exclusive, independent contractor basis.
As of June 30, 2024, we had 62 field sales employees, including six regional sales managers, 53 clinical area managers (“CAMs”) and three clinical educators. We also have developed a network of approximately 170 respiratory therapists across the U.S. to assist with in-home SmartVest System patient training on a non-exclusive, independent contractor basis.
Manufacturing Our headquarters in New Prague, Minnesota includes a dedicated manufacturing and engineering facility of more than 14,000 square feet, and we are certified on an annual basis to be compliant with International Organization for Standardization (“ISO”) 13485 quality system standards.
We have 13 U.S. trademark registrations along with 111 foreign trademark registrations. Manufacturing Our headquarters in New Prague, Minnesota includes a dedicated manufacturing and engineering facility of more than 14,000 square feet, and we are certified on an annual basis to be compliant with International Organization for Standardization (“ISO”) 13485 quality system standards.
We understand that our success and growth depend on attracting, retaining, and developing talent across all levels of the organization. Our recruitment strategies are continuously reviewed with leadership and partners to ensure our practices align with our mission, purpose, and values.
These serve as the pillars to our human capital management framework. We understand that our success and growth depend on attracting, retaining, and developing talent across all levels of the organization. Our recruitment strategies are continuously reviewed with leadership and partners to ensure our practices align with our mission, purpose, and values.
Indications for when HFCWO may be prescribed are not specific to any one disease. A physician may elect to prescribe HFCWO when such individual believes the patient will benefit from improved airway clearance and external chest manipulation is the treatment of choice to enhance mucus transport and improve bronchial drainage.
Indications for when HFCWO may be prescribed are not specific to any one disease. A physician may elect to prescribe HFCWO when they believe the patient will benefit from improved airway clearance and external chest manipulation as the best treatment to enhance mucus transport and improve bronchial drainage.
We generate sales interest through multiple channels that include visits to pulmonology clinics and medical centers, participation in medical conferences, maintenance of industry contacts to increase the visibility and acceptance of our products by physicians and health care professionals, support of industry events such as the Cystic Fibrosis Foundation World Bronchiectasis Day and American Lung Association Fight for Air Climb, as well as through a focus on increasing patients by word of mouth and traffic to our website and social media channels.
We generate sales interest through multiple channels that include visits to pulmonology clinics and medical centers, participation in medical conferences, maintenance of industry contacts to increase the visibility and acceptance of our products by physicians and health care professionals, support of industry through the COPD Foundation, as well as through a focus on increasing patients by word of mouth and traffic to our website and social media channels.
For each homecare SmartVest System initially purchased and currently located in the U.S. and Canada, we provide a lifetime warranty to the individual patient for whom the SmartVest System is prescribed. For sales to institutions and HME distributors within the U.S., and for all international sales, except Canadian home care, we provide a three-year warranty.
For each homecare SmartVest System initially purchased and currently located in the U.S., we provide a lifetime warranty to the individual patient for whom the SmartVest System is prescribed. For sales to hospitals and HME distributors within the U.S., and for all international sales, we provide a one to five year warranty.
Raising awareness of bronchiectasis in primary care: overview of diagnosis and management strategies in adults. NPJ Prim Care Respir Med . 2017;27:18. 15 Internal company estimates derived from IQVIA 2018 PharMetrics Plus Database 16 M. Bruner, C. Bazan, B. Liu, C. Marion, K.S. Skarvan, L. Edwards, G. Solomon.
Raising awareness of bronchiectasis in primary care: overview of diagnosis and management strategies in adults. NPJ Prim Care Respir Med . 2017;27:18. 15 Internal company estimates derived from VGM claims database 16 M. Bruner, C. Bazan, B. Liu, C. Marion, K.S. Skarvan, L. Edwards, G. Solomon. Effects of High Frequency Chest Wall Oscillation (HFCWO) on Clinical Symptoms in COPD.
Both SPU products provide full coverage oscillation and facilitate continuity of care when the SmartVest System is prescribed for patients with a chronic condition upon discharge for use in the home.
Hospitals issue the SPU SmartVest or SmartVest Wrap to an individual patient for managing airway clearance while inpatient. Both SPU products provide full coverage oscillation and facilitate continuity of care when the SmartVest System is prescribed for patients with a chronic condition upon discharge for use in the home.
A HCPCS code is assigned to services and products by the Centers for Medicare and Medicaid Services (“CMS”). Of the $47.6 million of our revenue derived from the U.S. in fiscal 2023, approximately 92% represented home care and 4% represented hospital sales.
A HCPCS code is assigned to services and products by the Centers for Medicare and Medicaid Services (“CMS”). Of the $54.2 million of our revenue derived from the U.S. in fiscal 2024, approximately 94.7% represented homecare, inclusive of homecare distributor sales, and 4.7% represented hospital sales.
The SmartVest System is primarily prescribed for patients with bronchiectasis, cystic fibrosis, and neuromuscular conditions such as cerebral palsy and ALS. We believe that bronchiectasis represents the fastest growing diagnostic category and greatest potential for HFCWO growth in the United States exhibiting an 8.7% increase in patients diagnosed between 2000 and 2007 9 .
The SmartVest System is primarily prescribed for patients with bronchiectasis, cystic fibrosis, and neuromuscular conditions such as cerebral palsy and ALS. We believe that bronchiectasis represents the fastest growing diagnostic category and greatest potential for HFCWO growth in the United States growing at 12% annually in recent years 15 .
We pride ourselves on accepting, hearing, and celebrating multiple approaches and points of view and building on an inclusive and diverse culture. Safety is a vital aspect to the success of our people and business.
We pride ourselves on accepting, hearing, and celebrating multiple approaches and points of view and building on an inclusive and diverse culture. 11 Safety is a vital aspect of the success of our people and business. We are proud of our employees’ collective commitment to secure and maintain safe work practices within our manufacturing operations.
If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties and disbarment from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid. 10 Health care fraud and false statement statutes, such as the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”), also prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payers, and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for health care benefits, items or services.
Health care fraud and false statement statutes, such as the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”), also prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payers, and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for health care benefits, items or services.
The SmartVest System is designed for patient comfort and ease of use which promotes adherence to prescribed treatment schedules, leading to improved airway clearance, patient outcomes and quality of life, and a reduction in healthcare utilization. We offer a broad range of garments, referred to as vests and wraps, in sizes for children and adults that allow for tailored fit.
The SmartVest System is designed for patient comfort and ease of use which promotes adherence to prescribed treatment schedules, leading to improved airway clearance, patient outcomes and quality of life, and a reduction in healthcare utilization.
Our Market We estimate the total served U.S. market for HFCWO is approximately $250 million in 2022 growing at a 9% compound annual growth rate based on independent third-party market research.
Our Market We estimate the U.S. market for HFCWO was approximately $235 million in 2023 growing at an 8% compound annual growth rate based on independent third-party market research 15 .
We do not expect that compliance with environmental protection laws will have a material impact on our results of operations, financial position, or cash flows.
We do not expect that compliance with environmental protection laws will have a material impact on our results of operations, financial position, or cash flows. Human Capital We believe that our dedicated, talented employees are our most valuable resource and a key strength in accomplishing our collective mission and goals.
We are committed to attracting, retaining, and developing diverse and high-performing talent that includes a strong focus on performance and development, total rewards, diversity, inclusion and equity, and employee safety. These serve as the pillars to our human capital management framework.
None of our employees are covered by a collective bargaining agreement. We believe our relations with our employees are good. We are committed to attracting, retaining, and developing diverse and high-performing talent that includes a strong focus on performance and development, total rewards, diversity, inclusion and equity, and employee safety.
We also had approximately 170 respiratory therapists and health care professionals retained on a non-exclusive, independent contractor basis to provide training to our customers in the U.S. None of our employees are covered by a collective bargaining agreement. We believe our relations with our employees are good.
As of June 30, 2024, we had 174 employees, who are in 31 states throughout the United States. 18 of our employees were respiratory therapists licensed by appropriate state professional organizations. We also had approximately 170 respiratory therapists and health care professionals retained on a non-exclusive, independent contractor basis to provide training to our customers in the U.S.
We have received clearance from the U.S. Food and Drug Administration (“FDA”) to market the SmartVest System to promote airway clearance and improve bronchial drainage.
We have received clearance from the U.S. Food and Drug Administration (“FDA”) to market the SmartVest System to promote airway clearance and improve bronchial drainage. In addition, Electromed is approved for HFCWO device sales in other, select international countries. The SmartVest System is available only with a physician’s prescription.
We generally pursue patent protection for patentable subject matter in our proprietary devices in foreign countries that we have identified as key markets for our products. These markets include the European Union, Japan, and other countries. We also have received 13 U.S. and 111 foreign trademark and service mark registrations.
These patents and patent applications offer coverage in the field of air pressure pulse delivery to a human in support of airway clearance. We generally pursue patent protection for patentable subject matter in our proprietary devices in foreign countries that we have identified as key markets for our products. These markets include the European Union, Japan, and other countries.
Federal Physician Payments Sunshine Act The Federal Physician Payments Sunshine Act (Section 6002 of the PPACA) (the “Sunshine Act”) was adopted on February 1, 2013, to create transparency for the financial relationship between medical device companies and physicians and/or teaching hospitals (covered recipients).
Other federal, state or foreign enforcement authorities could also take similar action if they were to determine that our promotional or training materials constitute promotion of an unapproved use, which could result in significant fines or penalties. 9 Federal Physician Payments Sunshine Act The Federal Physician Payments Sunshine Act (Section 6002 of the PPACA) (the “Sunshine Act”) was adopted on February 1, 2013, to create transparency for the financial relationship between medical device companies and physicians and/or teaching hospitals (covered recipients).
Our common stock is listed on the NYSE American under the ticker symbol “ELMD.” The SmartVest System features a programmable air pulse generator, a therapy garment worn over the upper body and a connecting hose, which together provide safe, comfortable, and effective airway clearance therapy. The SmartVest System generates HFCWO, an airway clearance therapy.
Our common stock is listed on the NYSE American under the ticker symbol “ELMD.” The SmartVest System generates HFCWO, an airway clearance therapy.
The lightweight design, ergonomic carrying handle and compact storage case make it easier for patients to move throughout their home, store and integrate HFCWO therapy into their daily lives. SmartVest Connect In June 2017, we launched SmartVest Connect ® wireless technology, a personalized HFCWO therapy management portal for patients with compromised pulmonary function.
The lightweight design, ergonomic carrying handle and compact storage case make it easier for patients to move throughout their home as well as store and integrate HFCWO therapy into their daily lives. Other Products We market the Single Patient Use (“SPU”) SmartVest and SmartVest Wrap ® to health care providers in the acute care setting.
User-friendly controls allow patients to administer their daily therapy with minimal or no assistance. Our direct product support services provide patient and clinician education, training, and follow-up to ensure that the product is integrated into each patient’s daily treatment regimen.
Our direct product support services provide patient and clinician education, training, and follow-up to ensure that the product is integrated into each patient’s daily treatment regimen. Additionally, our reimbursement department works on behalf of the patient by processing their physician paperwork, providing clinical support and billing the applicable insurance provider.
We are proud of our employees’ collective commitment to secure and maintain safe work practices that have resulted in zero lost time injuries within our manufacturing operations. We also provide wellbeing services to support each employee’s physical and mental health and will continue to emphasize the importance of the safety and health of our employees in all we do.
We also provide wellbeing services to support each employee’s physical and mental health and will continue to emphasize the importance of the safety and health of our employees in all we do. Available Information Our Internet address is www.smartvest.com.
During fiscal 2022 and 2023, we experienced longer lead times for critical electronic components related to worldwide supply shortages due to COVID-19 and the related U.S. and global economic recovery. 7 Product Warranties 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.
We continually review our suppliers and component sources to ensure adequate availability of critical components and we maintain established inventory levels for critical components and finished goods to assure continuity of supply. 7 Product Warranties 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.
We also believe that it is difficult to estimate from these studies which patients will need or benefit from HFCWO.
We also believe that it is difficult to estimate from these studies which patients will need or benefit from HFCWO. Internal company estimates derived from a 2023 analysis of claims data indicate a 15% penetration of HFCWO within the 824,000 diagnosed Bronchiectasis population (see Figure 1 below).
During fiscal 2023 and 2022, we incurred R&D expenses of approximately $916,000 and $1,356,000, or 1.9% and 3.3% of our net revenues, respectively. As a percentage of sales, we expect spending on R&D expenses to remain within a range of 1-2% of net revenues for fiscal 2024.
During fiscal 2024 and 2023, we incurred R&D expenses of approximately $656,000 and $916,000, or 1.2% and 1.9% of our net revenues, respectively. Intellectual Property As of June 30, 2024, we held 12 United States and 44 foreign-issued patents covering the SmartVest System and its underlying technology.
The overlap of bronchiectasis and COPD increases exacerbations and hospitalizations, reduces pulmonary function, and increases mortality.
We believe that bronchiectasis is underrecognized and under-diagnosed but is experiencing a surge in clinical interest and awareness, including the relationship to COPD, commonly referred to as bronchiectasis COPD overlap syndrome. The overlap of bronchiectasis and COPD increases exacerbations and hospitalizations, reduces pulmonary function, and increases mortality.
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Additionally, our reimbursement department assures we are working on behalf of the patient by processing their physician paperwork, providing clinical support and billing the applicable insurance provider.
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The SmartVest System features a programmable air pulse generator, a therapy garment worn over the upper body and a connecting hose, which together provide safe, comfortable, and effective therapy to clear the lung and airway from retained secretions and mucus which can harbor bacteria and lead to infection.
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In addition, Electromed is certified to apply the Conformité Européenne (“European Conformity” or “CE”) marking for HFCWO device sales in all European Union member countries and approved for HFCWO device sales in other, select international countries. The SmartVest System is available only with a physician’s prescription.
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We offer a broad range of garments, referred to as vests and wraps, in sizes for children and adults that allow for a tailored fit. User-friendly controls allow patients to administer their daily therapy with minimal or no assistance.
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In March 2020, we launched the SmartVest Connect app for both the iOS and Android operating systems. The SmartVest Connect app securely connects to the SmartVest System through Bluetooth™ technology. This interface allows patients and healthcare teams to track therapy in real-time and collaborate on care decisions to improve therapy adherence and patient outcomes.
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Generating additional clinical evidence to further support the SmartVest System as a preferred treatment for bronchiectasis patients will remain a focus in the fiscal year ended June 30, 2025 (“fiscal 2025”).
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Other Products We market the Single Patient Use (“SPU”) SmartVest and SmartVest Wrap ® to health care providers in the acute care setting. Hospitals issue the SPU SmartVest or SmartVest Wrap to an individual patient for managing airway clearance while inpatient.
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If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties and disbarment from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.
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Internal company estimates derived from 2020 analysis of the IQVIA PharMetrics Plus database, one of the largest US health plan databases of adjudicated integrated medical and pharmacy claims, indicate a 15% to 20% penetration of HFCWO within the diagnosed Bronchiectasis population 15 .
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By conservatively assessing the market size in relation to the clinical studies cited above, we calculate that current HFCWO adoption may account for only 100,000 patients of the 500,000 to 600,000 currently diagnosed and treatable patients (see Figure 1 below).
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Intellectual Property As of June 30, 2023, we held 12 United States and 41 foreign-issued patents covering the SmartVest System and its underlying technology and had 9 pending United States and foreign patent applications. These patents and patent applications offer coverage in the field of air pressure pulse delivery to a human in support of airway clearance.
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We maintain established inventory levels for critical components and finished goods to assure continuity of supply.
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Other federal, state or foreign enforcement authorities could also take similar action if they were to determine that our promotional or training materials constitute promotion of an unapproved use, which could result in significant fines or penalties. 9 European Union and Other Regions European Union rules require that medical products receive the right to affix the CE mark, demonstrating adherence to quality standards and compliance with relevant European Union Medical Device Directives (“MDD”).
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Products that bear CE mark can be imported to, sold or distributed within the European Union. We obtained clearance to use the CE mark on our products in April 2005. Renewal of CE marking is required every five years, and our notified body performs an annual audit to ensure that we are in compliance with all applicable regulations.
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We have maintained our CE marking in good standing since originally receiving it and most recently renewed it in January 2020. The renewal of our MDD certificate will allow us to continue to CE mark and sell our SmartVest SQL device, with no substantial changes, in the European Union until the certificate expires in May 2024.
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We are currently working on finalizing updates to the quality system to achieve full compliance with Regulation (EU) 2017/745 (EU MDR) which came into effect in May 2021. We also require all our distributors in the European Union and other regions to comply with their home country regulations in our distributor agreements.
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Cybersecurity and Data Privacy Protecting the privacy of customer and personnel information is important to us, and we maintain security protocols and processes, including ongoing training and education for all personnel, designed to combat the risk of unauthorized access or inadvertent disclosure.
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Our business operations involve confidential information, including patient health information subject to regulation as discussed under “ HIPAA, HITECH and Other Privacy Regulations ” above. Our information technology infrastructure is designed to offer reliability, scalability, performance, security and privacy for our personnel, clients, and third-party contractors.
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We maintain comprehensive compliance and security programs designed to help safeguard and ensure the integrity of the confidential information we possess, which includes both organizational and technical control measures. We also have programs in place to monitor the safety of confidential information as well as plans for immediate, coordinated action in the event of a potential security incident.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. We own our principal headquarters and manufacturing facilities, consisting of approximately 37,000 square feet, which are located on an approximately 2.3-acre parcel in New Prague, Minnesota. All of the Company’s revenues, profits, and assets are associated with this facility. We believe that our facilities are satisfactory for our long-term growth plans.
Biggest changeItem 2. Properties. We own our principal headquarters and manufacturing facilities, consisting of approximately 37,000 square feet, which are located on an approximately 2.3-acre parcel in New Prague, Minnesota. Nearly all of the Company’s revenues, profits, and assets are associated with this facility. We believe that our facilities are satisfactory for our long-term growth plans.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecent Sales of Unregistered Equity Securities None. 13 Purchases of Equity Securities by the Company and Affiliated Purchasers On May 26, 2021, our Board of Directors approved a stock repurchase authorization. Under the authorization, we were originally able to repurchase up to $3.0 million of outstanding shares of our common stock through May 26, 2022.
Biggest changeUnder the authorization, we were originally able to repurchase up to $3.0 million of outstanding shares of our common stock through May 26, 2022. On May 26, 2022, our Board of Directors removed the date limitation.
The following table sets forth information concerning purchases of shares of our common stock for the three months ended June 30, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs April 1 – April 30, 2023 — $ — — $ 275,000 May 1 – May 31, 2023 — — — $ 275,000 June 1 – June 30, 2023 — — — $ 275,000 Total — $ — — Item 6. [Reserved].
The following table sets forth information concerning purchases of shares of our common stock for the three months ended June 30, 2024: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs April 1 – April 30, 2024 — $ — — $ 275,000 May 1 – May 31, 2024 — — — $ 275,000 June 1 – June 30, 2024 18,361 14.95 18,361 $ — Total 18,361 $ 14.95 18,361 Item 6. [Reserved].
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the NYSE American under the symbol “ELMD”. As of August 15, 2023, there were 55 registered holders of our common stock. Dividends We have never paid cash dividends on any of our shares of common stock.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the NYSE American under the symbol “ELMD”.
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. The agreement governing our credit facility restricts our ability to pay dividends.
As of August 20, 2024, there were 53 registered holders of our common stock. 13 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.
On May 26, 2022, our Board of Directors removed the date limitation. 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. As of June 30, 2023, the approximate dollar value of shares that may yet be purchased under the aforementioned authorization was $275,000.
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. As of June 30, 2024, a total of 258,356 shares have been repurchased and retired under this authorization for a total cost of $3.0 million.
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The agreement governing our credit facility restricts our ability to pay dividends. Recent Sales of Unregistered Equity Securities None. Purchases of Equity Securities by the Company and Affiliated Purchasers On May 26, 2021, our Board of Directors approved a stock repurchase authorization.
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As a result, the authorization has been exhausted in its entirety.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeOther Information 22 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 23 PART III 23 Item 10. Directors, Executive Officers and Corporate Governance 23 Item 11. Executive Compensation 23 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 24 Item 13. Certain Relationships and Related Transactions, and Director Independence 24 Item 14.
Biggest changeOther Information. 22 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 22 PART III 22 Item 10. Directors, Executive Officers and Corporate Governance. 22 Item 11. Executive Compensation. 23 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 23 Item 13. Certain Relationships and Related Transactions, and Director Independence. 23 Item 14.
Item 6. [Reserved] 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21 Item 8. Financial Statements and Supplementary Data F-1 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 22 Item 9A. Controls and Procedures 22 Item 9B.
Item 6. [Reserved]. 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 20 Item 8. Financial Statements and Supplementary Data. F-1 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 21 Item 9A. Controls and Procedures. 21 Item 9B.
Principal Accountant Fees and Services 24 PART IV 24 Item 15. Exhibits and Financial Statement Schedules 24
Principal Accountant Fees and Services. 23 PART IV 23 Item 15. Exhibits and Financial Statement Schedules. 23

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeHome care distributor revenue increased by $144,000, or 9.8%, in fiscal 2023 compared to fiscal 2022. The revenue increase in fiscal 2023 was due to increased demand from one of our primary home care distribution partners.
Biggest changeThe revenue increase in fiscal 2024 was due to increased demand from one of our primary homecare distribution partners. We sell to a limited number of home medical equipment distributors, who in turn sell our SmartVest System in the U.S. homecare market. 17 Other Revenue. Other revenue increased by $402,000, or 94.8%, in fiscal 2024 compared to fiscal 2023.
Overview Electromed develops and provides innovative airway clearance products applying HFCWO technologies in pulmonary care for patients of all ages. We manufacture, market and sell products that provide HFCWO, including the SmartVest System that includes our newest generation SmartVest Clearway ® , previous generation SmartVest SQL ® and related products, to patients with compromised pulmonary function.
Overview Electromed develops and provides innovative airway clearance products applying HFCWO technologies in pulmonary care for patients of all ages. 14 We manufacture, market and sell products that provide HFCWO, including the SmartVest System that includes our newest generation SmartVest Clearway ® , previous generation SmartVest SQL ® and related products, to patients with compromised pulmonary function.
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 judgment as appropriate. Some of our accounting policies and estimates require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial statements.
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. Some of our accounting policies and estimates require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial statements.
Accounting Standards Recently Issued But Not Yet Adopted by the Company See Note 1 of the Notes to our Financial Statements in this Annual Report on Form 10-K for information on new accounting standards adopted in fiscal 2023 or pending adoption.
Accounting Standards Recently Issued But Not Yet Adopted by the Company See Note 1 of the Notes to our Financial Statements in this Annual Report on Form 10-K for information on new accounting standards adopted in fiscal 2024 or pending adoption.
We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business.
We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges including share-based compensation for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business.
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 are certified to recondition and resell returned SmartVest System units. Returned units are typically reconditioned and resold and continue to be used for demonstration equipment and warranty replacement parts.
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 are certified to recondition and resell returned SmartVest System units. Returned units are typically reconditioned and resold or used for demonstration equipment and warranty replacement parts.
Actions to support accelerating our growth include the following: ● Expand our sales force in targets geographies with high potential, adding an additional five territories and direct sales reps; ● Increase Electromed brand awareness through direct-to-consumer and physician marketing, and peer to peer education; ● Provide best-in-class customer care and support; and ● Develop and promulgate the body of bronchiectasis clinical evidence to increase physician adoption of the SmartVest System for patients.
Actions to support accelerating our revenue growth include the following: ● Expand our sales force in targets geographies with high potential, adding an additional three territories and direct sales reps; ● Increase SmartVest brand awareness through direct-to-consumer and physician marketing, and peer to peer education; ● Provide best-in-class customer care and support; and ● Develop and promulgate the body of bronchiectasis clinical evidence to increase physician adoption of the SmartVest System for patients.
During fiscal 2023 and 2022, we spent approximately $1,648,000 and $1,425,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility.
During fiscal 2024 and 2023, we spent approximately $287,000 and $1,648,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility.
The effective tax rates differ from the statutory federal rate because of state income taxes, R&D tax credits, and other permanent items that are non-deductible for tax purposes relative to the amount of taxable income. Net Income Net income for fiscal 2023 was $3,166,000, compared to net income of $2,305,000 in fiscal 2022.
The effective tax rates differ from the statutory federal rate because of state income taxes, R&D tax credits, and other permanent items that are non-deductible for tax purposes relative to the amount of taxable income. Net Income Net income for fiscal 2024 was $5,150,000, compared to net income of $3,166,000 in fiscal 2023.
The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts as necessary. Share-Based Compensation Share-based payment awards consist of options to purchase shares of our common stock issued to employees. Expense for share-based payment awards consist of options to purchase shares of our common stock issued to employees for services.
The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts as necessary. Share-Based Compensation Share-based payment awards consist of options to purchase shares of our common stock issued to employees, restricted stock awards, and performance-based awards.
Field sales employees totaled 55, of which 46 were direct sales, as of June 30, 2023, compared to 52 as of June 30, 2022, of which 43 were direct sales. We expect to continue to expand our salesforce to align with our revenue growth projections.
Field sales employees totaled 62, of which 53 were direct sales, as of June 30, 2024, compared to 55 as of June 30, 2023, of which 46 were direct sales. We expect to continue to expand our salesforce to align with our revenue growth projections.
We expect that material costs and shipping rates will remain elevated during the first half of fiscal 2024 relating to supply chain availability and inflationary trends in electronic components and may extend to other components. In certain instances, we have purchased key electronic materials in advance to ensure adequate future supply and mitigate the risk of potential supply chain disruptions.
We expect that material costs and shipping rates will continue to be a challenge during fiscal 2025 relating to supply chain availability and inflationary trends in electronic components and may extend to other components. In certain instances, we have purchased key materials in advance to ensure adequate future supply and mitigate the risk of potential supply chain disruptions.
Estimated income tax expense included a current federal and state tax benefit of approximately $12,000 related to excess tax benefit for fully vested stock options and non-qualified stock options that were exercised during the period. The effective tax rates were 22.5% and 23.1% for fiscal 2023 and 2022, respectively.
Estimated income tax expense includes a current federal and state tax benefit of approximately $250,000 related to the excess tax benefit for fully vested stock options and non-qualified stock options that were exercised during the period. The effective tax rates were 26.8% and 22.5% for fiscal 2024 and 2023, respectively.
While the impact of macroeconomic conditions and other factors such as inflation are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash requirements for fiscal 2024.
While the impact of macroeconomic conditions and other factors such as inflation are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash requirements for at least the next twelve months from the date of this report .
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, and the line of credit expires on December 18, 2023, if not renewed. As of June 30, 2023, the maximum $2,500,000 was available under the line of credit.
There was no outstanding principal balance on the line of credit as of June 30, 2024, or June 30, 2023. 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, and the line of credit expires on December 18, 2025, if not renewed.
Estimated inventory to be returned is based on how many devices that have shipped that are expected to be returned prior to completion of the insurance reimbursement process. 16 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 institutional sales and sales to individuals outside the U.S.
Estimated inventory to be returned is based on the number of devices that have shipped that are expected to be returned prior to completion of the insurance reimbursement process. 16 Warranty Reserve The Company provides a lifetime warranty on its products to the prescribed patient for homecare sales within the U.S. and a one to five-year warranty for all homecare distributor, hospital and other sales.
Professional and legal fees, including recruiting and insurance expenses, increased by $859,000, or 19.4%, to $5,284,000 in fiscal 2023, compared to $4,425,000 in fiscal 2022. Professional fees include services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees.
Professional and legal fees, including recruiting and insurance expenses, decreased by $456,000, or 8.6%, to $4,828,000 in fiscal 2024, compared to $5,284,000 in fiscal 2023. Professional fees include services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees.
Estimated income tax expense includes a current federal and state tax benefit of approximately $250,000 related to the excess tax benefit for fully vested stock options and non-qualified stock options that were exercised during the period. 19 Income tax expense in fiscal 2022 was $692,000, which included a current tax expense of $1,181,000 and a deferred benefit of $489,000.
Estimated income tax expense includes a current federal and state tax benefit of approximately $103,000 related to the excess tax benefit for fully vested stock options and non-qualified stock options that were exercised during the period. Income tax expense in fiscal 2023 was $920,000, which includes a current tax expense of $963,000 and a deferred benefit of $43,000.
Payment obligations under the line of credit are secured by a security interest in substantially all of our tangible and intangible assets. 20 The documents governing our line of credit 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.
The documents governing our line of credit 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.
Revenue through this channel was 3% of our total revenues in fiscal 2023. Our key growth strategies for fiscal 2024 are to accelerate our revenue growth by taking market share and expanding the addressable population for the largest and fastest growing segments of the market: adult pulmonology/bronchiectasis.
Our key growth strategies for fiscal 2025 are to accelerate our revenue growth by taking market share and expanding the addressable population for the largest and fastest growing segments of the market: adult pulmonology/bronchiectasis.
In determining the fair value of options, we make various assumptions using the Black-Scholes pricing model, including expected risk-free interest rate, stock price volatility, and life.
In determining the fair value of options and performance-based awards with market conditions, we make various assumptions using the Black-Scholes and Monte-Carlo pricing models respectively, including expected risk-free interest rate, stock price volatility, and life.
We have marketed the SmartVest System and its predecessor products since 2000 to patients suffering from cystic fibrosis, bronchiectasis and repeated episodes of pneumonia.
In 2022, we launched the SmartVest Clearway to adult pulmonary, pediatric and cystic fibrosis patients for use in the home. We have marketed the SmartVest System and its predecessor products since 2000 to patients suffering from cystic fibrosis, bronchiectasis and repeated episodes of pneumonia.
Operating Expenses Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses were $31,595,000 in fiscal 2023, representing an increase of $4,481,000 or 16.5% from $27,114,000 in fiscal 2022. SG&A payroll and compensation-related expenses including health insurance benefits and other compensation increased by $2,629,000, or 14.7%, to $20,552,000 in fiscal 2023, compared to $17,923,000 in fiscal 2022.
Operating Expenses Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses were $34,489,000 in fiscal 2024, representing an increase of $2,894,000 or 9.2% from $31,595,000 in fiscal 2023. SG&A payroll and compensation-related expenses including health insurance benefits and other compensation increased by $2,885,000, or 14.0%, to $23,437,000 in fiscal 2024, compared to $20,552,000 in fiscal 2023.
In June 2017, we announced the launch of the SmartVest SQL with SmartVest Connect™ wireless technology, which allows data connection between physicians and patients to track therapy performance and collaborate in treatment decisions. In 2022, we launched the SmartVest Clearway with SmartVest Connect technology to adult pulmonary, pediatric and cystic fibrosis patients for use in the home.
In 2015, we launched the SmartVest SQL into hospital and certain international markets. In June 2017, we announced the launch of the SmartVest SQL with SmartVest Connect™ wireless technology, which allows data connection between physicians and patients to track therapy performance and collaborate in treatment decisions.
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. Expense is recognized on a straight-line basis over the requisite service or vesting period of the award, or at the time services are provided for non-employee awards.
Expense is recognized on a graded vesting basis over the requisite service or vesting period of the award, or at the time services are provided for non-employee awards. Expenses for performance-based awards with market conditions is estimated using the Monte-Carlo pricing model at the date of grant and expense is recognized on a straight-line basis.
Private payers consider a variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts. 14 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.
We have primarily employed 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.
The increase in current year net income was primarily due to stronger home care and distributor revenue growth. Liquidity and Capital Resources Cash Flows and Sources of Liquidity Cash Flows from Operating Activities Net cash provided by operating activities in fiscal 2023 was $1,315,000.
The increase of $1,984,000, or 62.7% in the current year net income was primarily due to revenue growth, decreased professional fees, and increased interest income. Liquidity and Capital Resources Cash Flows and Sources of Liquidity Cash Flows from Operating Activities Net cash provided by operating activities in fiscal 2024 was $9,067,000.
SmartVest Clearway is the smallest, and lightest generator on the market, and is designed with an intuitive touchscreen to simplify programing and everyday use.
SmartVest Clearway is the smallest, and lightest generator on the market, and is designed with an intuitive touchscreen to simplify programing and everyday use. Our products are sold in both the homecare market and the hospital market. The SmartVest SQL has been sold in the domestic homecare market since 2014.
See Note 8 to the Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for a description of these assumptions. 17 Results of Operations Fiscal Year Ended June 30, 2023 Compared to Fiscal Year Ended June 30, 2022 Revenues Revenue for the fiscal years ended June 30, 2023 and 2022 are summarized in the table below.
See Note 8 to the Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for a description of these assumptions.
The changes to our supply chain lead times resulted in a temporary interruption that impacted product availability for certain customers beginning in September 2022 and continuing through June 2023. We anticipate that these increased lead times and temporary interruption of supply have the potential to continue through the first half of fiscal 2024.
The changes to our supply chain lead times resulted in a temporary interruption that impacted product availability for certain customers beginning in September 2022 and continued through June 2023. In fiscal 2024, we experienced a return to normal supply chain lead times through renegotiated supplier agreements and improved long-term material requirements planning.
Cash flows from operating activities consisted of net income of $3,166,000, non-cash expenses of approximately $1,278,000, a decrease in prepaid expenses of $202,000 an increase in tax payable of approximately $285,000 and a $696,000 increase in accounts payable and accrued liabilities, and accrued compensation.
Cash flows from operating activities consisted of net income of $5,150,000, non-cash expenses of approximately $1,962,000, a decrease in prepaid expenses and other assets of $1,321,000, a decrease in accounts receivable of $797,000, a decrease in inventories of $459,000 and an increase in accrued compensation of $875,000.
Adequacy of Capital Resources Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business.
Cash Flows from Financing Activities Net cash provided by financing activities in fiscal 2024 was approximately $36,000, consisting of $311,000 received from the issuance of common stock upon the exercise of options, partially offset by $275,000 used for our share repurchase program. 19 Adequacy of Capital Resources Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business.
The increase in the current year was primarily due to a higher average number of sales, sales support and marketing personnel, increased reimbursement personnel to process higher patient referrals, increased temporary resources to assist with systems infrastructure investments and increased incentive payments on higher home care revenue.
The increase in the current year was primarily due to increases in share-based compensation, salaries, and incentive compensation related to the higher average number of sales, sales support, marketing, and reimbursement personnel to process higher patient referrals.
Cash Flows from Investing Activities Net cash used in investing activities in fiscal 2023 was approximately $1,716,000. Cash used in investing activities consisted of approximately $1,648,000 in expenditures for property and equipment, approximately $1,083,000 for software and $565,000 for equipment, and $68,000 in payments for patent and trademark costs.
Cash used in investing activities consisted of approximately $287,000 in expenditures for property and equipment, which included approximately $62,000 for software and $225,000 for equipment, and $108,000 in payments for patent and trademark costs.
Interest on borrowings on the line of credit accrues at the prime rate (8.25% as of June 30, 2023) less 1.0% and is payable monthly. There was no outstanding principal balance on the line of credit as of June 30, 2023 or June 30, 2022.
Effective December 13, 2023, we renewed our credit facility, which provides us with a revolving line of credit. Interest on borrowings on the line of credit accrues at the prime rate (8.50% as of June 30, 2024) less 1.0% and is payable monthly.
The increase in the current year was primarily due to discretionary investment in market research, physician marketing, and peer to peer education engagement strategies. Travel, meals and entertainment expenses increased $422,000, or 16.4%, to $2,990,000 for fiscal 2023 compared to $2,568,000 in fiscal 2022.
Total discretionary marketing expenses increased by $452,000, or 43.7% to $1,487,000 in fiscal 2024, compared to $1,035,000 in fiscal 2023. The increase in the current year was primarily due to an investment in market research, direct-to-consumer and direct-to-physician marketing.
Home care revenue increased by $5,941,000, or 15.6%, in fiscal 2023 compared to fiscal 2022. The revenue increase compared to fiscal 2022 was primarily due to increases in referrals and approvals.
Homecare revenue increased by $5,558,000, or 12.6%, in fiscal 2024 compared to fiscal 2023. The increase in revenue was due to an increase in direct sales representatives, higher quality referrals, and efficiencies recognized within our reimbursement department.
The increase in the current year period was primarily due to an increase in headcount and our annual sales meeting expenses. Research and Development Expenses R&D expenses decreased by $440,000, or 32.4%, to $916,000 in fiscal 2023 compared to $1,356,000 in fiscal 2022.
Research and Development Expenses R&D expenses decreased by $260,000, or 28.4%, to $656,000 in fiscal 2024 compared to $916,000 in fiscal 2023.
Based on our current operational performance, we believe our working capital of approximately $29,734,000 and available borrowings under our existing credit facility will provide adequate liquidity for fiscal 2024. Effective December 17, 2021, we renewed our credit facility, which provides us with a revolving line of credit.
Based on our current operational performance, we believe our working capital of approximately $36,496,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for at least the next twelve months from the date of this report.
Income Tax Expense Income tax expense in fiscal 2023 was $920,000, which includes a current tax expense of $963,000 and a deferred benefit of $43,000.
The increase in the current year was primarily due to increased savings rates on higher cash balances. Income Tax Expense Income tax expense in fiscal 2024 was $1,886,000, which includes a current tax expense of $2,457,000 and a deferred benefit of $571,000.
Fiscal Years Ended June 30, 2023 2022 Increase (Decrease) Home Care Revenue $ 43,945,000 $ 38,004,000 $ 5,941,000 15.6 % Institutional Revenue 2,080,000 1,660,000 420,000 25.3 % Home Care Distributor Revenue 1,618,000 1,474,000 144,000 9.8 % International Revenue 424,000 521,000 (97,000 ) (18.6 %) Total Revenue $ 48,067,000 $ 41,659,000 $ 6,408,000 15.4 % Home Care Revenue.
Fiscal Years Ended June 30, 2024 2023 Increase (Decrease) Homecare Revenue $ 49,503,000 $ 43,945,000 $ 5,558,000 12.6 % Hospital Revenue 2,535,000 2,080,000 455,000 21.9 % Homecare Distributor Revenue 1,852,000 1,618,000 234,000 14.5 % Other Revenue 826,000 424,000 402,000 94.8 % Total Revenue $ 54,716,000 $ 48,067,000 $ 6,649,000 13.8 % Homecare Revenue.
These cash flows from operating activities were offset by a $3,078,000 increase in accounts receivable, an increase in inventory of $1,033,000, and a $201,000 increase in contract assets. The increase in accounts receivable was primarily due to an increase in the Medicare portion of our home care business, which has a 13-month payment cycle.
These cash flows from operating activities were offset by a decrease in accounts payable and accrued liabilities of $1,206,000, an increase of $232,000 in contract assets and a decrease in income tax payable of $59,000. Cash Flows from Investing Activities Net cash used in investing activities in fiscal 2024 was approximately $395,000.
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Our products are sold in both the home health care market and the institutional market for use by patients in hospitals, which we refer to as “institutional sales.” The SmartVest SQL has been sold in the domestic home care market since 2014. In 2015, we launched the SmartVest SQL into institutional and certain international markets.
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Private payers consider a variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts.
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Impacts of COVID-19 on Our Business and Operations In March 2020, the World Health Organization designated COVID-19 as a global pandemic, and the U.S. Department of Health and Human Services designated COVID-19 as a public health emergency (“PHE”).
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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.
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In response to the COVID-19 pandemic and the U.S. federal government’s declaration of a PHE, the Centers for Medicare & Medicaid Services (“CMS”) implemented several temporary rule changes and waivers to allow prescribers to best treat patients during the period of the PHE. These waivers became effective on March 1, 2020.
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Results of Operations Fiscal Year Ended June 30, 2024 Compared to Fiscal Year Ended June 30, 2023 Revenues Revenue for the fiscal years ended June 30, 2024 and 2023 are summarized in the table below.
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Clinical indications and documentation typically required were not enforced for respiratory-related products, including the SmartVest System (solely with respect to Medicare patients). On January 30, 2023, the Biden administration announced that the COVID-19 national and PHE declarations will end on May 11, 2023. The CMS waiver was not extended and expired on May 11, 2023.
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Efficiencies were due to recent investments aimed at increasing referral conversion rates and decreasing conversion processing time resulting in recognizing revenue on more units in fiscal 2024. Hospital Revenue. Hospital revenue increased by $455,000, or 21.9%, in fiscal 2024 compared to fiscal 2023. Hospital revenue includes sales to hospitals, rental companies and other institutions.
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We believe that we were able to mitigate the potential effects on our net revenue resulting from the expiration of the CMS waiver by hiring additional employees to increase capacity and minimize the average timeframe to convert a Medicare patient referral to approval and re-educating clinicians on Medicare requirements for reimbursement of HFCWO.
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The increase was primarily due to an increase in sales representatives focused on the hospital market as well as increased capital and disposable demand. Homecare Distributor Revenue. Homecare distributor revenue increased by $234,000, or 14.5%, in fiscal 2024 compared to fiscal 2023.
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We did not receive any direct financial assistance from any government program during fiscal 2022 or fiscal 2023 in connection with COVID-19 relief measures.
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The increase in other revenue was primarily due to increased demand of international distributor purchases and purchases by customers that do not fall within the other markets described above. Gross Profit Gross profit increased to $41,726,000 in fiscal 2024, or 76.3% of net revenues, from $36,519,000 or 76.0% of net revenues, in fiscal 2023.
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If we are unable to procure components to meet our demand or if we extend delivery lead-times to our customers, there may be an adverse impact to our revenue and, longer term, the potential of market share losses.
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The increase in gross profit was primarily due to increased revenue in fiscal 2024, decreased shipping expenses and increased material costs in the prior year to expedite inventory purchases which did not recur in the current year.
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We are taking actions to expedite components and to identify and qualify alternate suppliers for certain components to minimize any impact to our revenue and customer deliveries.
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Travel, meals and entertainment expenses increased $352,000, or 11.8%, to $3,342,000 for fiscal 2024 compared to $2,990,000 in fiscal 2023. The increase in the current year was primarily due to a higher average number of direct sales representatives, higher travel costs, an increased number of sales territories and a mid-year sales meeting held in fiscal 2024.
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The increase in referrals was primarily due to an increase in direct sales representatives, increased sales representative productivity driven by increased clinic access and patient flow, our sales team refining their selling process and clinic targeting methodology, and benefits of the CMS waiver on the non-commercial Medicare portion of our home care revenue.
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The decrease was primarily related to fiscal 2023 costs such as legal and consulting costs associated with the termination of the Public Health Emergency for COVID-19, recruiting costs for multiple senior leadership positions and legal fees related to a reimbursement project, all of which did not recur in fiscal 2024.
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Additionally, we benefitted from a Medicare allowable rate increase that took effect on January 1, 2023. Annual Medicare rate increases for our device are linked closely to changes in the Urban Consumer Price Index.
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The decrease in the current year was primarily due to reduced costs associated with our SmartVest Clearway platform development in the prior year which has now been launched into the Homecare and Hospital markets . 18 Interest Income, net Net interest income was approximately $455,000 in fiscal 2024 compared to net interest income of $78,000 in fiscal 2023.
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The CMS waiver benefited the non-commercial Medicare portion of our home care revenue by increasing the number of referrals and the approval percentage for previously non-covered diagnoses.
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As of June 30, 2024, the maximum $2,500,000 was available under the line of credit. Payment obligations under the line of credit are secured by a security interest in substantially all of our tangible and intangible assets.
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We believe that our ongoing sales team execution, along with the return to pre-COVID-19 levels of patient face-to-face engagement with physicians and clinic access for our sales team mitigated the fourth quarter homecare revenue impact of the CMS waiver expiration on May 11, 2023. Institutional Revenue. Institutional revenue increased by $420,000, or 25.3%, in fiscal 2023 compared to fiscal 2022.
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Institutional revenue includes sales to group purchasing organizations, rental companies and other institutions. The revenue increase was due to increased capital purchases and stronger consumable volumes compared to fiscal 2022, as hospitals resumed utilization of HFCWO protocols after reducing utilization early in the COVID-19 pandemic. Home Care Distributor Revenue.
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We began selling to a limited number of home medical equipment distributors during our fiscal year ended June 30, 2020, who in turn sell our SmartVest System in the U.S. home care market. International Revenue. International revenue decreased by $97,000, or 18.6%, in fiscal 2023 compared to fiscal 2022.
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International revenue growth is not currently a primary focus for us, and our corporate resources are focused on supporting and maintaining our current international distributors. Gross Profit Gross profit increased to $36,519,000 in fiscal 2023, or 76.0% of net revenues, from $31,442,000 or 75.5% of net revenues, in fiscal 2022.
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The increase in gross profit was primarily related to increases in domestic home care revenue including the Medicare allowable rate increase that took effect in January 2023. 18 We have a goal of improving our gross margin percentage over time due to cost savings initiatives associated with Clearway, supplier optimization, and gaining operating leverage on higher volumes.
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The increase in the current year was primarily due to an increased investment in our system infrastructure and increased clinical study costs. We continue to make key investments in systems infrastructure including implementing a new enterprise resource planning system, enhancing our customer relationship management system and further optimizing of the revenue cycle management system that was implemented in June 2021.
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We expect these system infrastructure investments will result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance. Total discretionary marketing expenses increased by $211,000, or 25.6% to $1,035,000 in fiscal 2023, compared to $824,000 in fiscal 2022.
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The decrease in the current year was primarily due to reduced professional consulting costs associated with our next generation platform development activities. R&D expenses were 1.9% of revenue in fiscal 2023 compared to 3.3% of revenue in fiscal 2022. We expect R&D spending to be between 1.0% and 2.0% of revenue during fiscal 2024.
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Interest Income, net Net interest income was approximately $78,000 in fiscal 2023 compared to net interest income of $25,000 in fiscal 2022. The increase in the current year was primarily due to higher interest rates earned on our cash deposits despite lower overall cash balances in the current year.
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The increase in inventory was primarily due to an increase in raw materials associated with the launch of Clearway. Our cash receipt collection remains strong, with the three months ended June 30, 2023, period having the highest cash receipt collections in our company's history, building upon the prior record that was set in the previous quarter.
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Cash Flows from Financing Activities Net cash used in financing activities in fiscal 2023 was approximately $380,000, consisting of $153,000 used for our share repurchase program and $310,000 for taxes paid on net share settlements of stock option exercises offset by $83,000 of cash provided by the issuance of common stock upon exercise of options.

Other ELMD 10-K year-over-year comparisons