Electromed, Inc.

Previous wording

For a description of our critical accounting estimates and assumptions used in the preparation of our financial statements, including the unaudited Condensed Financial Statements in this Quarterly Report on Form 10-Q, see Note 1 and Note 2 to our unaudited Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 7, and Note 1 to our audited financial statements included in Part II, Item 8, of our Annual Report on Form 10-K for fiscal 2024.

Current wording

For a description of our critical accounting estimates and assumptions used in the preparation of our financial statements, including the unaudited Condensed Financial Statements in this Quarterly Report on Form 10-Q, see Notes 1 and 2 to our unaudited Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 7, and Note 1 to our audited financial statements included in Part II, Item 8, of our Annual Report on Form 10-K for fiscal 2025.

Previous wording

Net revenues for the three and nine months ended March 31, 2025, and 2024 are summarized in the table below.

Current wording

Net revenues for the three months ended September 30, 2025, and 2024 are summarized in the table below.

Previous wording

***Homecare revenue.***Homecare revenue increased by $1,815,000 or 14.8%, for the three months ended March 31, 2025, compared to the same period in the prior year. For the nine months ended March 31, 2025, homecare revenue was $41,906,000, representing an increase of $5,798,000, or 16.1%, compared to the same period in the prior year. The increases were primarily due to incremental referrals and approvals driven by an increase in direct sales representatives and efficiencies within our reimbursement department, as well as higher net revenues per approval.

Current wording

***Homecare revenue.***Homecare revenue increased by $1,678,000 or 12.7%, for the three months ended September 30, 2025, compared to the same period in the prior year. The increase was primarily due to an increase in direct sales representatives and higher net revenues per sales representative. Throughout the three months ended September 30, 2025, we averaged 57 homecare field sales representatives.

Previous wording

Homecare distributor revenue.* *Homecare distributor revenue increased by $172,000, or 32.8%, for the three months ended March 31, 2025, compared to the same period in the prior year. For the nine months ended March 31, 2025, homecare distributor revenue was $2,090,000, an increase of $713,000, or 51.8%, compared to the same period in the prior year. The increases in homecare distributor sales were primarily a result of increased demand from our distribution partners.

Current wording

Homecare distributor revenue.* *Homecare distributor revenue increased by $242,000, or 41.2%, for the three months ended September 30, 2025, compared to the same period in the prior year. The increase in homecare distributor sales was primarily a result of an increased number of distribution partners.

Previous wording

Other revenue.* *Other revenue was $162,000, a decrease of $115,000, or 41.5% for the three months ended March 31, 2025, compared to the same period in the prior year. For the nine months ended March 31, 2025, other revenue was $474,000, a decrease of $16,000, or 3.3%, compared to the same period in the prior year. Thedecreasesin other revenue were primarily due to the lower demand for purchases by customers that do not fall within the other markets described above.

Current wording

Other revenue.* *Other revenue was $122,000, a decrease of $58,000, or 32.2% for the three months ended September 30, 2025, compared to the same period in the prior year. Thedecreasein other revenue was primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above.

Previous wording

Gross profit increased to $12,229,000, or 78.0% of net revenues, for the three months ended March 31, 2025, from $10,382,000, or 74.8% of net revenues, in the same period in the prior year. Gross profit increased to $36,347,000, or 78.0% of net revenues, for the nine months ended March 31, 2025, from $30,425,000, or 76.3% of net revenues, in the same period in the prior year. The increase in gross profit dollars was primarily a result of increased overall revenue and the increase in gross profit percentage was a result of higher net revenue per device.

Current wording

Gross profit dollars increased to $13,197,000, or 78.1% of net revenues, for the three months ended September 30, 2025, from $11,491,000, or 78.3% of net revenues, in the same period in the prior year. The increase in gross profit dollars was primarily a result of increased overall revenue and higher net revenues per device. The decrease in gross profit percentage was a result of higher costs which were partially offset by higher net revenues per device.

Previous wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $9,812,000 and $29,033,000 for the three and nine months ended March 31, 2025, respectively, representing increases of $1,438,000 and $3,334,000, or 17.2% and 13.0%, respectively, compared to the same periods in the prior year.

Current wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $10,286,000 for the three months ended September 30, 2025, representing an increase of $899,000, or 9.6%, compared to the same period in the prior year.

Previous wording

Payroll and compensation-related expenses were $6,592,000 and $19,924,000 for the three and nine months ended March 31, 2025, respectively, representing increases of $871,000 and $2,813,000, or 15.2% and 16.4%, respectively, compared to the same periods in the prior year. The increases in the current-year periods were primarily due to the accelerated recognition of share-based compensation associated with the vesting of performance-based equity awards, and salaries and incentive compensation related to the higher average number of sales, sales support, marketing, and reimbursement personnel to process higher patient referrals. 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. Field sales employees totaled 62 as of March 31, 2025, 55 of which were direct sales representatives, compared to 59 field sales employees and 51 direct sales representatives as of March 31, 2024.

Current wording

Payroll and compensation-related expenses were $6,876,000 for the three months ended September 30, 2025, representing an increase of $419,000, or 6.5%, compared to the same period in the prior year. The increase in the current-year period was primarily due to the increase in salaries and incentive compensation related to the higher average number of sales, marketing, and reimbursement personnel to process higher patient referrals. 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.

Previous wording

Travel, meals and entertainment expenses were $922,000 and $2,880,000 for the three and nine months ended March 31, 2025, respectively, representing increases of $162,000 and $427,000, or 21.3% and 17.4%, respectively, compared to the same periods in the prior year. The increase in the current year was primarily due to a higher average number of direct sales representatives and higher travel costs.

Current wording

Travel, meals and entertainment expenses were $1,274,000 for the three months ended September 30, 2025, representing an increase of $310,000, or 32.2%, compared to the same period in the prior year. The increase in the current year was primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development.

Previous wording

Total discretionary marketing expenses were $325,000 and $943,000 for the three and nine months ended March 31, 2025, respectively, representing an increase of $21,000 and a decrease of $152,000, or an increase of 6.9% and a decrease of 13.9%, respectively, compared to the same periods in the prior year. The increase in the three-month period was due to increased investment in our direct-to-consumer advertising, while the decrease in thenine-month period was primarily due to a one-time investment in market research in the prior year that did not recur in the nine months ended March 31, 2025.

Current wording

Total discretionary marketing expenses were $410,000 for the three months ended September 30, 2025, representing an increase of $146,000, or 55.3%, compared to the same period in the prior year. The increase in the current period was due to increased investment in our direct-to-consumer advertising and other market development initiatives in the three months ended September 30, 2025.

Previous wording

Professional fees were $1,285,000 and $3,604,000 for the three and nine months ended March 31, 2025, respectively, representing increases of $307,000 and $382,000, or 31.4% and 11.9%, respectively, compared to the same periods in the prior year. Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees. The increase for thethree and nine months ended March 31, 2025, was primarily related to increased expense recognition associated with the board of directors’ equity compensation.

Current wording

Professional fees were $1,090,000 for the three months ended September 30, 2025, representing a decrease of $50,000, or 4.4%, compared to the same period in the prior year. Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support, insurance and consulting fees. The decrease in the current year was primarily due to external recruiting spend in the prior year that did not recur in the three months ended September 30, 2025.

Previous wording

Research and development expenses. Research and development (“R&D”) expenses were $277,000 and $694,000 for the three and nine months ended March 31, 2025, respectively, representing increases of $110,000 and $214,000, or 65.9% and 44.6%, respectively, compared to the same periods in the prior year. The increases were primarily due to increased average headcount and external spend related to product enhancements and sustaining engineering.

Current wording

Research and development expenses. Research and development (“R&D”) expenses were $241,000 for the three months ended September 30, 2025, representing an increase of $75,000, or 45.2%, compared to the same period in the prior year. The increase was primarily due to increased average headcount and external spend related to product enhancements and sustaining engineering.

Previous wording

Operating income increased by $299,000 or 16.2% to $2,140,000 for the three months ended March 31, 2025, compared to the same period in the prior year. Operating income increased by $2,374,000 or 55.9% to $6,620,000 for the nine months ended March 31, 2025, compared to the same period in the prior year. The increase is primarily due to an increase in revenue and gross profit in both the three-andnine-month periods, as well as a lower growth rate in selling, general and administrative expenses in the nine-month period.

Current wording

Operating income increased by $732,000 or 37.8% to $2,670,000 for the three months ended September 30, 2025, compared to the same period in the prior year. The increase is primarily due to an increase in revenue and gross profit.

Previous wording

Net interest income for the three and nine months ended March 31, 2025, was $142,000 and $489,000, respectively, compared to $120,000 and $293,000, respectively, for the same periods in the prior year. The increases are primarily due to increased cash balances.

Current wording

Net interest income for the three months ended September 30, 2025, was $134,000, compared to $195,000, for the same period in the prior year. The decrease is primarily due to decreased interest rates and cash balances.

Previous wording

Income tax expenses were estimated at $391,000 and $1,776,000, and the effective tax rate was 17.1% and 25.0%, for the three and nine months ended March 31, 2025, respectively. Estimated income tax expense for the three and nine months ended March 31, 2025, includes a discrete tax benefit of $338,000 and $478,000, respectively, primarily related to the exercise of stock options.

Current wording

Income tax expense was estimated at $668,000, and the effective tax rate was 23.8%, for the three months ended September 30, 2025. Estimated income tax expense for the three months ended September 30, 2025, includes a discrete tax benefit of $81,000, primarily related to the windfall tax benefit of vested restricted stock and the exercise of stock options.

Previous wording

Income tax expense was estimated at $468,000 and $1,217,000, and the effective tax rate was 23.9% and 26.8%, for the three and nine months ended March 31, 2024, respectively. Estimated income tax expense for the three and nine months ended March 31, 2024, includes a discrete current tax benefit of $99,000 and $95,000, respectively, primarily related to the exercise of stock options.

Current wording

Income tax expense was estimated at $659,000, and the effective tax rate was 30.9%, for the three months ended September 30, 2024. Estimated income tax expense for the three months ended September 30, 2024, includes a discrete current tax benefit of $4,000, primarily related to the vesting of restricted stock awards.

Previous wording

Net income for the three and nine months ended March 31, 2025, was $1,891,000 and $5,333,000, respectively, compared to $1,493,000 and $3,322,000 for the same periods in the prior year. The increase in net income was primarily due to increased revenue and gross profit.

Current wording

Net income for the three months ended September 30, 2025, was $2,136,000, an increase of 44.9%, compared to $1,474,000 for the same period in the prior year. The increase in net income was primarily due to increased revenue and gross profit.

Previous wording

For the nine months ended March 31, 2025, net cash provided by operating activities was $7,534,000. Cash flows provided by operating activities consisted of net income of $5,333,000, non-cash expenses of $3,184,000, an increase in accounts payable and accrued expenses of $877,000, a decrease in inventories of $564,000, and an increase in accrued compensation of $78,000. These cash flows from operating activities were offset by an increase in income tax receivable, net of $1,209,000, an increase in prepaid expenses and other assets of $779,000, an increase in contract assets of $405,000, and an increase in accounts receivable of 109,000.

Current wording

For the three months ended September 30, 2025, net cash provided by operating activities was $169,000. Cash flows provided by operating activities consisted of net income of $2,136,000, non-cash expenses of $717,000, an increase in accounts payable and accrued expenses of $448,000 and a decrease in income tax receivable, net of $202,000. These cash flows from operating activities were offset by a decrease in accrued compensation of $2,348,000, an increase in inventories of $515,000, an increase in prepaid expenses and other assets of $241,000, an increase in contract assets of $134,000, and an increase in accounts receivable of 96,000.

Previous wording

For the nine months ended March 31, 2025, cash used for investing activities was $149,000. Cash used for investing activities consisted of $117,000 in expenditures for property and equipment and $32,000 in expenditures for intangible asset costs.

Current wording

For the three months ended September 30, 2025, cash used for investing activities was $267,000. Cash used for investing activities consisted of $252,000 in expenditures for property and equipment and $15,000 in expenditures for intangible assets.

Previous wording

For the nine months ended March 31, 2025, cash used for financing activities was $8,228,000. Cash used for financing activities consisted of $6,331,000 used for our share repurchase program and $2,278,000 for taxes paid on net share settlement of stock awards, partially offset by $381,000 from the issuance of common stock upon exercise of options.

Current wording

For the three months ended September 30, 2025, cash used for financing activities was $1,076,000. Cash used for financing activities consisted of $1,003,000 used for our share repurchase program and $229,000 for taxes paid on net share settlement of stock awards, partially offset by $156,000 from the issuance of common stock upon exercise of options.

Previous wording

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. Based on our current operational performance, we believe our working capital of approximately $35,684,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report.

Current wording

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. Based on our current operational performance, we believe our working capital of approximately $35,800,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report.

Previous wording

We maintain a credit facility that was last amended in December 2023, which provides us with a revolving line of credit. Interest on borrowings on the line of credit accrues at the prime rate (7.50% as of March 31, 2025) less 1.0% and is payable monthly. There was no outstanding principal balance on the line of credit as of March 31, 2025, or June 30, 2024. 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. As of March 31, 2025, 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 our tangible and intangible assets.

Current wording

We maintain a credit facility that was last amended in December 2023, which provides us with a revolving line of credit. Interest on borrowings on the line of credit accrues at the prime rate (7.25% as of September 30, 2025) less 1.0% and is payable monthly. There was no outstanding principal balance on the line of credit as of September 30, 2025, or June 30, 2025. 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 replaced or renewed. As of September 30, 2025, 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 our tangible and intangible assets.

Previous wording

For the nine months ended March 31, 2025, and 2024, we spent approximately $117,000 and $265,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility. We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flows.

Current wording

For the three months ended September 30, 2025, and 2024, we spent approximately $252,000 and $37,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility. We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flow.

Previous wording

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward- looking statements include, but are not limited to, statements regarding: our business strategy, including our intended level of investment in R&D and marketing activities; our expectations with respect to earnings, gross margins and sales growth, industry relationships, marketing strategies and international sales; estimated sizes of markets into which our products are or may be sold; our business strengths and competitive advantages; our ability to grow additional sales distribution channels; our intent to retain any earnings for use in operations rather than paying dividends; our expectation that our products will continue to qualify for reimbursement and payment under government and private insurance programs; our intellectual property plans and practices; the expected impact of applicable regulations on our business; our beliefs about our manufacturing processes; our expectations and beliefs with respect to our employees and our relationships with them; our belief that our current facilities are adequate to support our growth plans; our expectations with respect to ongoing compliance with the terms of our credit facility; our expectations regarding the ongoing availability of credit and our ability to renew our line of credit; enhancements to our products and services; expected excise tax exemption for the SmartVest System; and our anticipated revenues, expenses, capital requirements and liquidity. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “project,” “goal,” “target,” “should,” “will,” “would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements.

Current wording

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding: our business strategy, including our intended level of investment in research and development and marketing activities; our expectations with respect to earnings, gross margins and sales growth, industry relationships, marketing strategies and international sales; estimated sizes of markets into which our products are or may be sold; our business strengths and competitive advantages; our ability to grow additional sales distribution channels; our intent to retain any earnings for use in operations rather than paying dividends; our expectation that our products will continue to qualify for reimbursement and payment under government and private insurance programs; our intellectual property plans and practices; the expected impact of applicable regulations on our business; our beliefs about our manufacturing processes; our expectations and beliefs with respect to our employees and our relationships with them; our belief that our current facilities are adequate to support our growth plans; our expectations with respect to ongoing compliance with the terms of our credit facility; our expectations regarding the ongoing availability of credit and our ability to renew our line of credit; enhancements to our products and services; expected excise tax exemption for the SmartVest System; and our anticipated revenues, expenses, capital requirements and liquidity. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “project,” “target,” “should,” “will,” “would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by the forward-looking statements.