Electromed, Inc.

In June 2021, we determined that an unauthorized third party gained access to a limited number of our files. Upon discovery, we immediately initiated an investigation and engaged third-party advisors to assist in investigating the source and scope of the unauthorized activity, and to further secure our information systems. From the investigation, we determined that certain files containing certain information of customers, employees, and some third-party contractors were accessed. There has been no indication that any of this information has been used inappropriately and we are working to mitigate any impact on the Company. Individuals whose information may have been involved in the data privacy incident were specifically contacted by the Company. The Company has a cyber insurance policy which we believe will cover most of the costs associated with this specific data incident.  To help prevent a similar incident from occurring in the future, we further enhanced the security of our systems, and will continue to review and, where appropriate enhance, our security protocols and processes, and training and education.  

We believe that sharing rewards is essential to increasing employee engagement and improving morale and creating a positive culture. We also offer our employees a competitive salary and benefits package and are committed to continuous review of these programs. These benefits include but are not limited to retirement savings, a variety of health insurance options and other benefits programs, including dental and vision, disability insurance, contributions to health savings accounts, paid maternity/paternity leave, and wellness resources. In addition, we offer opportunities for remote work and flexible schedules and location, depending on business needs and the specific role.

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

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

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

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