Table of Contents





|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549           

|                 
|-----------------
|                 
|FORM
 10-K/A     
|(Amendment No. 1)
|                 

|                                        |                                                                                          
|--------------------------------------- | -----------------------------------------------------------------------------------------
|(Mark One)                             
|x                                       | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended June 30, 2010
|                                       
|o                                       | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to
_____.

Commission File
No.:   001-34839


---

Electromed, Inc. (Exact name of Registrant as specified in its charter)


|                                                                           |                                                                   
|-------------------------------------------------------------------------- | ------------------------------------------------------------------
|Minnesota                                                                  | 41-1732920                                                        
|(State or other jurisdiction of                                            | (IRS Employer                                                     
|incorporation or organization)                                             | Identification No.)                                               
|500 Sixth Avenue NW, New Prague, MN                                       
|(Address of principal executive offices)                                  
|                                                                          
|(952) 758-9299                                                            
|(Registrants telephone number, including area code)                      
|                                                                          
|Securities registered pursuant to Section 12(b) of the Act:               
|                                                                          
|Common Stock $0.01 par value
 (Title of each class)                        | Nasdaq Capital Market
 (Name of each exchange on which registered)
|                                                                           |                                                                   
|Securities registered pursuant to Section 12(g) of the Exchange Act:
 None
|                                                                           |                                                                   

---

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. 
Yes o
  No  x

Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. 
Yes o
  No  x

Indicate by
check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 
Yes o   No  x

Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 
Yes o   No  o

Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.

|                                                                     |                             
|-------------------------------------------------------------------- | ----------------------------
|Large
 accelerated filer o                                           | Accelerated filer
 o        
|Non-accelerated
 filer o (Do not check if smaller reporting company) | Smaller Reporting Company
 x

Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
  Yes  o  No  x

The registrant
completed the initial public offering of its common stock on August 18, 2010. Accordingly,
there was no public market for the registrants common stock as of December 31,
2009, the last day of the registrants most recently completed second fiscal
quarter.

There were
7,887,885 shares of the registrants common stock outstanding as of September
16, 2010.







Table of Contents

Explanatory Note

We are filing this Amendment
No. 1 to our Annual Report on Form 10-K for the fiscal year ended June 30,
2010 (the Original Report) in order to amend Item 8 of the Original Report to
include a signed copy of the Report of Independent Registered Public Accounting
Firm (the Audit Report).

Other than the amendment to
Item 8 of the Original Report to include a signed copy of the Audit Report,
this Amendment No. 1 does not affect any other items in our Original Report. We
are also filing as exhibits to this Amendment No. 1 the certifications pursuant
to section 302 and section 906 of the Sarbanes-Oxley Act of 2002, which are
currently dated.

Except as otherwise
expressly stated for the item amended in this Amendment No. 1, this Amendment
No. 1 continues to speak as of the date of the Original Report and we have
not updated the disclosure contained herein to reflect events that have
occurred since the filing of the Original Report. Accordingly, this Amendment
No. 1 should be read in conjunction with our Original Report and our other
filings made with the SEC subsequent to the filing of the Original Report.

-2-

---



Item 8. Financial Statements and
Supplementary Data.

Index to Financial Statements

|                                                            |     
|----------------------------------------------------------- | ----
|                                                            | Page
|                                                            |     
|Report of Independent Registered Public
 Accounting Firm    | F-1 
|                                                            |     
|Consolidated Balance Sheets                                 | F-2 
|                                                            |     
|Consolidated Statements of Income                           | F-3 
|                                                            |     
|Consolidated Statements of Changes in
 Stockholders Equity | F-4 
|                                                            |     
|Consolidated Statements of Cash Flows                       | F-5 
|                                                            |     
|Notes to Consolidated Financial statements                  | F-7 

-3-

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Table of Contents

Report of
Independent Registered Public Accounting Firm

To the Board
of Directors and Stockholders
Electromed, Inc. and Subsidiary

We have
audited the accompanying consolidated balance sheets of Electromed, Inc. and
Subsidiary as of June 30, 2010 and 2009, and the related consolidated
statements of income, stockholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Electromed, Inc.
and Subsidiary as of June 30, 2010 and 2009, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

/s/ McGladrey
& Pullen, LLP

McGladrey
& Pullen, LLP

Minneapolis,
MinnesotaSeptember 28, 2010

F-1

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Table of Contents

Electromed, Inc.
and Subsidiary
Consolidated Balance Sheets
June 30, 2010 and 2009

|                                                                                                                                     |  |         |            |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------- | ---------- | ---- | - | ---------- | -
|                                                                                                                                     |  | June 30 |           
|                                                                                                                                     |  | 2010    |            | 2009 |  
|Assets                                                                                                                               |  |         |            |      |   |            |  
|Current Assets                                                                                                                       |  |         |            |      |   |            |  
|Cash                                                                                                                                 |  | $       | 610,727    |      | $ | 361,916    |  
|Accounts receivable (net of allowances for
 doubtful accounts of $45,000)                                                            |  |         | 6,577,002  |      |   | 6,348,146  |  
|Inventories                                                                                                                          |  |         | 1,470,775  |      |   | 1,178,689  |  
|Prepaid expenses and other current assets                                                                                            |  |         | 269,193    |      |   | 167,272    |  
|Deferred income taxes                                                                                                                |  |         | 514,000    |      |   | 357,000    |  
|Total current assets                                                                                                                 |  |         | 9,441,697  |      |   | 8,413,023  |  
|Property and
 equipment, net                                                                                                         |  |         | 2,688,941  |      |   | 2,731,269  |  
|Finite-life
 intangible assets, net                                                                                                  |  |         | 1,055,776  |      |   | 228,783    |  
|Deferred
 common stock offering costs                                                                                                |  |         | 828,034    |      |   | -          |  
|Other assets                                                                                                                         |  |         | 128,789    |      |   | 88,023     |  
|Total assets                                                                                                                         |  | $       | 14,143,237 |      | $ | 11,461,098 |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Liabilities and Stockholders Equity                                                                                                 |  |         |            |      |   |            |  
|Current
 Liabilities                                                                                                                 |  |         |            |      |   |            |  
|Revolving line of credit                                                                                                             |  | $       | 1,768,128  |      | $ | -          |  
|Current maturities of long-term debt                                                                                                 |  |         | 397,886    |      |   | 392,251    |  
|Accounts payable                                                                                                                     |  |         | 1,239,827  |      |   | 426,320    |  
|Accrued compensation                                                                                                                 |  |         | 665,083    |      |   | 541,125    |  
|Warranty reserve                                                                                                                     |  |         | 363,277    |      |   | 292,254    |  
|Other accrued liabilities                                                                                                            |  |         | 60,308     |      |   | 111,879    |  
|Income taxes payable                                                                                                                 |  |         | 7,789      |      |   | 334,031    |  
|Total current liabilities                                                                                                            |  |         | 4,502,298  |      |   | 2,097,860  |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Long-term
 debt, less current maturities                                                                                             |  |         | 2,033,325  |      |   | 3,167,496  |  
|Deferred
 income taxes                                                                                                               |  |         | 145,000    |      |   | 137,000    |  
|Total liabilities                                                                                                                    |  |         | 6,680,623  |      |   | 5,402,356  |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Commitments
 and Contingencies (Note 9)                                                                                              |  |         |            |      |   |            |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Stockholders
 Equity                                                                                                                |  |         |            |      |   |            |  
|Electromed, Inc. stockholders equity:                                                                                               |  |         |            |      |   |            |  
|Common stock, $0.01 par value; authorized:
 10,000,000 shares; issued and outstanding: 6,187,885 and 6,047,152 shares,
 respectively |  |         | 61,879     |      |   | 60,472     |  
|Additional paid-in capital                                                                                                           |  |         | 6,685,362  |      |   | 6,201,636  |  
|Retained earnings (deficit)                                                                                                          |  |         | 797,873    |      |   | (118,465   | )
|                                                                                                                                     |  |         |            |      |   |            |  
|Common stock subscriptions receivable for
 shares outstanding of 48,500 and 53,500 respectively                                      |  |         | (82,500    | )    |   | (91,500    | )
|                                                                                                                                     |  |         |            |      |   |            |  
|Total Electromed, Inc. stockholders equity                                                                                          |  |         | 7,462,614  |      |   | 6,052,143  |  
|Noncontrolling interest                                                                                                              |  |         | -          |      |   | 6,599      |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Total stockholders equity                                                                                                           |  |         | 7,462,614  |      |   | 6,058,742  |  
|                                                                                                                                     |  |         |            |      |   |            |  
|Total liabilities and stockholders equity                                                                                           |  | $       | 14,143,237 |      | $ | 11,461,098 |  

F-2

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Table of Contents

Electromed, Inc.
and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 2010 and 2009

|                                                                            |  |                     |            |      |   |            |  
|--------------------------------------------------------------------------- |  | ------------------- | ---------- | ---- | - | ---------- | -
|                                                                            |  | Years Ended June 30 |           
|                                                                            |  | 2010                |            | 2009 |  
|                                                                            |  |                     |            |      |   |            |  
|Net revenues                                                                |  | $                   | 14,303,848 |      | $ | 12,998,627 |  
|Cost of
 revenues                                                           |  |                     | 3,707,509  |      |   | 3,340,041  |  
|Gross profit                                                                |  |                     | 10,596,339 |      |   | 9,658,586  |  
|                                                                            |  |                     |            |      |   |            |  
|Operating
 expenses                                                         |  |                     |            |      |   |            |  
|Selling,
 general and administrative                                        |  |                     | 8,199,386  |      |   | 6,845,106  |  
|Research and
 development                                                   |  |                     | 600,986    |      |   | 357,871    |  
|Total operating expenses                                                    |  |                     | 8,800,372  |      |   | 7,202,977  |  
|Operating income                                                            |  |                     | 1,795,967  |      |   | 2,455,609  |  
|                                                                            |  |                     |            |      |   |            |  
|Interest
 expense, net of interest income of $6,417 and $8,746 respectively |  |                     | 263,431    |      |   | 270,446    |  
|Net income (loss) before income taxes                                       |  |                     | 1,532,536  |      |   | 2,185,163  |  
|                                                                            |  |                     |            |      |   |            |  
|Income tax
 expense                                                         |  |                     | (599,000   | )    |   | (830,000   | )
|Net income                                                                  |  |                     | 933,536    |      |   | 1,355,163  |  
|Less: Net
 income attributable to noncontrolling interest                   |  |                     | (17,198    | )    |   | (22,257    | )
|Net income attributable to Electromed, Inc.                                 |  | $                   | 916,338    |      | $ | 1,332,906  |  
|                                                                            |  |                     |            |      |   |            |  
|Earnings per
 share attributable to Electromed, Inc. common shareholders:   |  |                     |            |      |   |            |  
|Basic                                                                       |  | $                   | 0.15       |      | $ | 0.22       |  
|Diluted                                                                     |  |                     | 0.15       |      |   | 0.22       |  
|                                                                            |  |                     |            |      |   |            |  
|                                                                            |  |                     |            |      |   |            |  
|Weighted-average
 Electromed, Inc. common shares outstanding:               |  |                     |            |      |   |            |  
|Basic                                                                       |  |                     | 6,081,030  |      |   | 5,987,383  |  
|Diluted                                                                     |  |                     | 6,114,919  |      |   | 6,020,458  |  

F-3

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Table of Contents

Electromed, Inc.
and Subsidiary
Consolidated Statements of Stockholders Equity
Years Ended June 30, 2010 and 2009

|                                                                              |  |                  |           |        |   |        |   |                              |           |                               |   |                                          |   |                          |          |                              |   |         |   |   |          
|----------------------------------------------------------------------------- |  | ---------------- | --------- | ------ | - | ------ | - | ---------------------------- | --------- | ----------------------------- | - | ---------------------------------------- | - | ------------------------ | -------- | ---------------------------- | - | ------- | - | - | ---------
|                                                                              |  | Electromed, Inc. |           |        |   |        |   |                              |          
|                                                                              |  |                  |           |        |   |        |   | Additional
 Paid-in
 Capital |           | Retained
 Earnings
 (Deficit) |   | Common
 Stock
 Subscriptions
 Receivable |   | Noncontrolling
 Interest |          | Total
 Stockholders
 Equity |  
|                                                                              |  | Common Stock     |           |       
|                                                                              |  | Shares           |           | Amount |   |       
|                                                                              |  |                  |           |        |   |        |   |                              |           |                               |   |                                          |   |                          |          |                              |   |         |   |   |          
|Balance at June 30, 2008                                                      |  |                  | 5,880,911 |        | $ | 58,809 |   | $                            | 5,540,922 |                               | $ | (1,451,371                               | ) | $                        | (111,999 | )                            | $ | 4,658   |   | $ | 4,041,019
|Net income                                                                    |  |                  | -         |        |   | -      |   |                              | -         |                               |   | 1,332,906                                |   |                          | -        |                              |   | 22,257  |   |   | 1,355,163
|Sale of common stock                                                          |  |                  | 58,572    |        |   | 586    |   |                              | 214,414   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 215,000  
|Issuance of common stock for exercise of warrants                             |  |                  | 49,669    |        |   | 497    |   |                              | 148,507   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 149,004  
|Issuance of common stock for warrants exercised with subscription
 notes      |  |                  | 31,000    |        |   | 310    |   |                              | 46,190    |                               |   | -                                        |   |                          | (46,500  | )                            |   | -       |   |   | -        
|Issuance of common stock for acquisition of property and payment of
 services |  |                  | 30,000    |        |   | 300    |   |                              | 104,700   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 105,000  
|Proceeds on subscription notes receivable                                     |  |                  | -         |        |   | -      |   |                              | -         |                               |   | -                                        |   |                          | 66,999   |                              |   | -       |   |   | 66,999   
|Repurchase of common stock                                                    |  |                  | (3,000    | )      |   | (30    | ) |                              | (6,330    | )                             |   | -                                        |   |                          | -        |                              |   | -       |   |   | (6,360   
|Distributions paid to holders of noncontrolling interest                      |  |                  | -         |        |   | -      |   |                              | -         |                               |   | -                                        |   |                          | -        |                              |   | (20,316 | ) |   | (20,316  
|Share-based compensation expense                                              |  |                  | -         |        |   | -      |   |                              | 153,233   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 153,233  
|Balance at June 30, 2009                                                      |  |                  | 6,047,152 |        |   | 60,472 |   |                              | 6,201,636 |                               |   | (118,465                                 | ) |                          | (91,500  | )                            |   | 6,599   |   |   | 6,058,742
|Net income                                                                    |  |                  | -         |        |   | -      |   |                              | -         |                               |   | 916,338                                  |   |                          | -        |                              |   | 17,198  |   |   | 933,536  
|Issuance of common stock upon exercise of warrants                            |  |                  | 135,733   |        |   | 1,357  |   |                              | 389,475   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 390,832  
|Issuance of common stock for payment of services                              |  |                  | 5,000     |        |   | 50     |   |                              | 22,450    |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 22,500   
|Proceeds from subscription notes receivable                                   |  |                  | -         |        |   | -      |   |                              | -         |                               |   | -                                        |   |                          | 9,000    |                              |   | -       |   |   | 9,000    
|Distributions paid to holders of noncontrolling interest                      |  |                  | -         |        |   | -      |   |                              | -         |                               |   | -                                        |   |                          | -        |                              |   | (18,417 | ) |   | (18,417  
|Share-based compensation expense                                              |  |                  | -         |        |   | -      |   |                              | 168,895   |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 168,895  
|Income tax benefit related to exercise of stock warrants                      |  |                  | -         |        |   | -      |   |                              | 22,526    |                               |   | -                                        |   |                          | -        |                              |   | -       |   |   | 22,526   
|Purchase of noncontrolling interest in Electromed Financial, LLC              |  |                  | -         |        |   | -      |   |                              | (119,620  | )                             |   | -                                        |   |                          | -        |                              |   | (5,380  | ) |   | (125,000 
|Balance at June 30, 2010                                                      |  |                  | 6,187,885 |        | $ | 61,879 |   | $                            | 6,685,362 |                               | $ | 797,873                                  |   | $                        | (82,500  | )                            | $ | -       |   | $ | 7,462,614

F-4

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Table of Contents

Electromed, Inc. and Subsidiary 
Consolidated Statements of Cash Flows 
Years Ended June 30, 2010 and 2009

|                                                                                             |  |                      |            |      |   |            |  
|-------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | ---- | - | ---------- | -
|                                                                                             |  | Years Ended June 30, |           
|                                                                                             |  | 2010                 |            | 2009 |  
|Cash Flows From Operating Activities                                                         |  |                      |            |      |   |            |  
|Net income                                                                                   |  | $                    | 933,536    |      | $ | 1,355,163  |  
|Adjustments to reconcile net income to net
 cash provided by (used in) operating activities: |  |                      |            |      |   |            |  
|Depreciation                                                                                 |  |                      | 298,928    |      |   | 302,162    |  
|Amortization of finite-life intangible
 assets                                               |  |                      | 52,820     |      |   | 16,783     |  
|Amortization of debt issuance costs                                                          |  |                      | 53,404     |      |   | 9,638      |  
|Share-based compensation expense                                                             |  |                      | 168,895    |      |   | 153,233    |  
|Deferred income taxes                                                                        |  |                      | (149,000   | )    |   | 299,000    |  
|Loss on disposal of property and equipment                                                   |  |                      | 4,258      |      |   | 56,301     |  
|Issuance of common stock for payment of
 services                                            |  |                      | 22,500     |      |   | 35,000     |  
|Changes in operating assets and liabilities:                                                 |  |                      |            |      |   |            |  
|Accounts receivable                                                                          |  |                      | (228,856   | )    |   | (2,418,665 | )
|Inventories                                                                                  |  |                      | (292,086   | )    |   | (329,181   | )
|Prepaid expenses and other assets                                                            |  |                      | (111,345   | )    |   | (66,562    | )
|Accounts payable and accrued liabilities                                                     |  |                      | (145,117   | )    |   | (570,578   | )
|Net cash provided by (used in) operating
 activities                                         |  |                      | 607,937    |      |   | (1,157,706 | )
|                                                                                             |  |                      |            |      |   |            |  
|Cash Flows From Investing Activities                                                         |  |                      |            |      |   |            |  
|Expenditures for property and equipment                                                      |  |                      | (269,616   | )    |   | (648,716   | )
|Purchase of noncontrolling interest in
 Electromed Financial, LLC                            |  |                      | (125,000   | )    |   | -          |  
|Expenditures for finite-life intangible
 assets                                              |  |                      | (514,505   | )    |   | (61,908    | )
|Net cash used in investing activities                                                        |  |                      | (909,121   | )    |   | (712,320   | )
|                                                                                             |  |                      |            |      |   |            |  
|Cash Flows From Financing Activities                                                         |  |                      |            |      |   |            |  
|Net borrowings on revolving line of credit                                                   |  |                      | 1,768,128  |      |   | -          |  
|Principal payments on long-term debt
 including capital lease obligations                    |  |                      | (3,648,744 | )    |   | (641,409   | )
|Proceeds from long-term debt                                                                 |  |                      | 2,520,000  |      |   | 1,027,399  |  
|Noncontrolling interest distributions paid                                                   |  |                      | (18,417    | )    |   | (20,316    | )
|Payments of deferred financing fees                                                          |  |                      | (75,780    | )    |   | (1,696     | )
|Proceeds from sales of common stock and
 warrant exercises                                   |  |                      | 390,832    |      |   | 364,004    |  
|Proceeds on subscription notes receivable                                                    |  |                      | 9,000      |      |   | 66,999     |  
|Income tax benefit related to exercise of
 stock warrants                                    |  |                      | 22,526     |      |   | -          |  
|Expenditures for deferred offering costs                                                     |  |                      | (417,550   | )    |   | -          |  
|Repurchase of common stock                                                                   |  |                      | -          |      |   | (6,360     | )
|Net cash provided by financing activities                                                    |  |                      | 549,995    |      |   | (790,317   | )
|Net increase (decrease) in cash and cash
 equivalents                                        |  |                      | 248,811    |      |   | (1,079,709 | )
|Cash                                                                                         |  |                      |            |      |   |            |  
|Beginning of period                                                                          |  |                      | 361,916    |      |   | 1,441,625  |  
|End of period                                                                                |  | $                    | 610,727    |      | $ | 361,916    |  

F-5

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Table of Contents

Electromed, Inc. and Subsidiary

Consolidated Statements of Cash Flows
(Continued) 
Years Ended June 30, 2010 and 2009

|                                                                                     |  |                     |           |      |   |         | 
|------------------------------------------------------------------------------------ |  | ------------------- | --------- | ---- | - | ------- | 
|                                                                                     |  | Years Ended June 30 |          
|                                                                                     |  | 2010                |           | 2009 |  
|Supplemental Disclosures of Cash Flow
 Information                                   |  |                     |           |      |   |         | 
|Cash paid for interest                                                               |  | $                   | 227,454   |      | $ | 266,265 | 
|Cash paid for income taxes                                                           |  |                     | 1,052,640 |      |   | 192,703 | 
|                                                                                     |  |                     |           |      |   |         | 
|Supplemental Disclosures of Noncash
 Investing and Financing Activities              |  |                     |           |      |   |         | 
|Common stock issued for acquisition of
 property and equipment                       |  | $                   | -         |      | $ | 70,000  | 
|Reduction in basis of acquired building
 formerly under capital lease                |  |                     | 93,172    |      |   | -       | 
|Common stock issued for subscription notes                                           |  |                     | -         |      |   | 46,500  | 
|Accrued expenditures for finite-life
 intangible assets included in accounts payable |  |                     | 365,308   |      |   | -       | 
|Deferred common stock offering costs
 included in accounts payable                   |  |                     | 410,484   |      |   | -       | 
|Expenditures for property and equipment
 included in accounts payable                |  |                     | -         |      |   | 20,000  | 
|Property and equipment financed through
 capital leases                              |  |                     | 87,769    |      |   | 75,366  | 

F-6

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Table of Contents

Electromed, Inc. and Subsidiary 
Notes to Consolidated Financial Statements

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

Nature of business:
Electromed, Inc. (the Company) develops, manufactures and markets innovative
airway clearance products which apply High Frequency Chest Wall Oscillation
(HFCWO) therapy in pulmonary care for patients of all ages. The Company markets
its products in the United States to the home health care and institutional
markets for use by patients in personal residences, hospitals and clinics. The
Company also sells internationally both directly and through distributors. The
Company had international sales of approximately $647,000 and $919,000 for the
years ended June 30, 2010 and 2009 respectively. Since its inception, the
Company has operated in a single industry segment: developing, manufacturing
and marketing medical equipment. As a result, the information disclosed herein
materially represents all of the financial information related to the Companys
operating segment.

Principles of consolidation and related party
transaction: The accompanying consolidated financial
statements include the accounts of Electromed, Inc. and its subsidiary,
Electromed Financial, LLC. Electromed Financial, LLC was established by the
Company to assist in raising capital from outside investors. The Company owned
95 percent of Electromed Financial, LLC through March 2, 2010, at which time
the Company acquired the remaining five percent of Electromed Financial, LLC
from a director of the Company for $125,000. Income related to the
noncontrolling interest in the subsidiary is reflected as noncontrolling
interest on the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.

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

Use of estimates:
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used. The Company
believes the critical accounting policies that require the most significant
assumptions and judgments in the preparation of its consolidated financial
statements include: revenue recognition and the estimation of selling price
adjustments, allowance for doubtful accounts, inventory obsolescence, valuation
allowance for deferred income tax assets and warranty liability.

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

Direct patient
sales are recorded at amounts to be received from patients under reimbursement
arrangements with third-party payers, including private insurers, prepaid
health plans, Medicare and Medicaid. In addition, the Company records an
estimate for selling price adjustments which often arise from changes in a
patients insurance coverage, changes in a patients domicile, insurance
company coverage limitations or patient death. Other than the installment sales
as discussed below, the Company expects to receive payment on the vast majority
of accounts receivables within one year and therefore has classified all accounts
receivable as current. However, in some instances, payment for direct patient
sales can be delayed or interrupted, resulting in a small portion of
collections occurring later than one year.

Certain
third-party reimbursement agencies pay the Company on a monthly installment
basis, which can span over several years. Due to the length of time over which
cash is collected and the inherent uncertainty of collectability with these
installment sales, the Company cannot make a reasonable estimate of revenue at
the time of sale and does not record accounts receivable or revenue at the time
of product shipment. Under the installment method, the Company defers and
amortizes the costs associated with the sale and, as each installment is
received, that amount is recognized as revenue. Deferred costs associated with
the sale are amortized to cost of revenue ratably over the estimated period in
which collections are scheduled to occur.

F-7

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Table of Contents

A summary of
sales made under the installment method are as follows:

|                                                                             |  |                     |         |      |   |         | 
|---------------------------------------------------------------------------- |  | ------------------- | ------- | ---- | - | ------- | 
|                                                                             |  | Years Ended June 30 |        
|                                                                             |  |                     |         |      |   |         | 
|                                                                             |  | 2010                |         | 2009 |  
|                                                                            
|Revenue recognized under installment sales                                   |  | $                   | 467,000 |      | $ | 299,000 | 
|                                                                             |  |                     |         |      |   |         | 
|Amortized cost of revenues recognized                                        |  |                     | 72,000  |      |   | 51,000  | 
|                                                                             |  |                     |         |      |   |         | 
|Unrecognized installment method sales were
 as follows:                      |  |                     |         |      |   |         | 
|                                                                             |  |                     |         |      |   |         | 
|                                                                             |  | Years Ended June 30 |        
|                                                                             |  |                     |         |      |   |         | 
|                                                                             |  | 2010                |         | 2009 |  
|                                                                            
|Estimated unrecognized sales, net of
 discounts                              |  | $                   | 708,000 |      | $ | 716,000 | 
|Unamortized costs of revenues included in
 prepaids and other current assets |  |                     | 111,000 |      |   | 94,000  | 

Shipping and handling expense:
Shipping and handling charges billed to customers are included as a cost in
arriving at gross profit. Shipping and handling charges incurred by the Company
are included in selling, general and administrative expenses and were $218,000
and $174,000 for the years ended June 30, 2010 and 2009 respectively.

Cash: The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in these
accounts.

Accounts receivable:
The Companys receivable balance is comprised of amounts due from individuals,
institutions and distributors. Balances due from individuals are typically
remitted to the Company by third-party reimbursement agencies such as Medicare,
Medicaid and private insurance companies. Accounts receivable are carried at
amounts estimated to be received from patients under reimbursement arrangements
with third-party payers. Accounts receivable are also net of an allowance for
doubtful accounts. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customers financial condition and credit history. Receivable are written off
when deemed uncollectible. Recoveries of receivables previously written off are
recorded when received. The allowance for doubtful accounts was approximately
$45,000 as of June 30, 2010 and 2009.

Inventories:Inventories,
consisting of material, labor and manufacturing overhead are stated at the
lower of cost (first-in, first-out method) or market. Work in process and
finished goods are carried at standard cost, which approximates actual cost, and
includes materials, labor and allocated overhead. Standard costs are reviewed
at least quarterly by management, or more often in the event circumstances
indicate a change in cost has occurred. The reserve for obsolescence is
determined by analyzing the inventory on hand and comparing it to expected
production requirements.

Property and equipment:Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements and assets acquired under capital leases are
depreciated over the shorter of their estimated useful lives or the remaining
lease term. The Company retains ownership of demonstration equipment in the
possession of both inside and outside sales representatives, who use the
equipment in the sales process.

Finite-life intangible assets:Finite-life
intangible assets include patents and trademarks. These intangible assets are
being amortized on a straight-line basis over their estimated useful lives, as
described in Note 4.

Long-lived assets:
Long-lived assets, such as property and equipment and finite-life intangible
assets are evaluated for impairment whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable. In evaluating
recoverability, the following factors, among others, are considered: a
significant change in the circumstances used to determine the amortization
period, an adverse change in legal factors or in the business climate, a
transition to a new product or service strategy, a significant change in
customer base, and a realization of failed marketing efforts. The
recoverability of an asset is measured by a comparison of the unamortized
balance of the asset to future undiscounted cash flows.

F-8

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Table of Contents

If the Company
believes the unamortized balance is unrecoverable, it would recognize an
impairment charge necessary to reduce the unamortized balance to the estimated
fair value of the asset. The amount of such impairment would be charged to
operations in the current period. The Company has not identified any indicators
of impairment associated with its long-lived assets.

Warranty liability:
The Company provides a lifetime warranty on its products to the prescribed
patient for sales within the United States and Canada, a five-year warranty on
its products to the prescribed patient for sales within Greece, and a
three-year warranty for all institutional sales and sales to individuals
outside the United States and Canada. The Company estimates the costs that may
be incurred under its warranty and records a liability in the amount of such
costs at the time the product is sold. Factors that affect the Companys
warranty liability include the number of units sold, historical and anticipated
rates of warranty claims, and cost per claim. The Company periodically assesses
the adequacy of its recorded warranty liability and adjusts the amounts as
necessary.

Changes in the
Companys warranty liability were approximately as follows:

|                                                     |  |                     |         |      |   |         |  
|---------------------------------------------------- |  | ------------------- | ------- | ---- | - | ------- | -
|                                                     |  | Years Ended June 30 |        
|                                                     |  | 2010                |         | 2009 |  
|Beginning warranty reserve                           |  | $                   | 292,000 |      | $ | 195,000 |  
|Accrual for products sold                            |  |                     | 146,000 |      |   | 162,000 |  
|Expenditures and costs incurred for
 warranty claims |  |                     | (75,000 | )    |   | (65,000 | )
|Ending warranty reserve                              |  | $                   | 363,000 |      | $ | 292,000 |  

Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

The Company
recognizes tax liabilities when the Company believes that certain positions may
not be fully sustained upon review by tax authorities. Benefits from tax
positions are measured at the largest amount of benefit that is greater than
fifty percent likely of being realized upon settlement. The current portion of
tax liabilities is included in other liabilities. To the extent that the final
tax outcome of these matters is different than the amounts recorded, such
differences impact income tax expense in the period in which such determination
is made. Interest and penalties, if any, related to accrued liabilities for
potential tax assessments are included in income tax expense.

Research and development:Research
and development costs include costs of research activities as well as
engineering and technical efforts required to develop new products or make
improvement to existing products. Research and development costs are expensed
as incurred.

Advertising costs:
Advertising costs are charged to expense when incurred. Advertising, marketing
and trade show costs for the years ended June 30, 2010 and 2009 were
approximately $527,000 and $642,000 respectively.

Share-based payments:
Share-based payment awards consist of warrants issued to employees for
services, and to nonemployees in lieu of payment for products or services.
Expense is estimated using the fair value of products or services rendered or
the Black-Scholes pricing model at the date of grant and is recognized on a
straight-line basis over the requisite service or vesting period of the award.

Fair value of financial instruments:
The carrying values of cash, accounts receivable, accounts payable and accrued
expenses approximate their fair value due to the short-term nature of these
instruments. The carrying value of long-term debt is the remaining amount due
to debtors under borrowing arrangements. To estimate the fair value of debt, the
Company estimates the interest rate necessary to secure financing to replace
its debt. At June 30, 2010, the fair value of long-term debt was not
significantly different than its carrying value.

F-9

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Table of Contents

Basic and diluted earnings per share:
Basic per share amounts are computed by dividing net income attributable to
Electromed, Inc. by the weighted-average number of common shares outstanding.
Diluted per share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless their effect is anti-dilutive,
thereby reducing the loss per share or increasing the income per share (see
Note 7 for information on stock warrants).

Recently issued accounting pronouncements:
In June 2009, the FASB issued revised guidance for the consolidation of
variable interest entities. This amends the original guidance requiring an
enterprise to perform an analysis to determine whether the enterprises
variable interest or interests give it a controlling financial interest in a
variable interest entity (VIE). This analysis identifies the primary
beneficiary of a VIE as the enterprise that has both (a) the power to direct the
activities of a VIE that most significantly impact the entitys economic
performance, and (b) the obligation to absorb losses of the entity that could
potentially be significant to the VIE. Additionally, this new guidance requires
an enterprise to assess whether it has an implicit financial responsibility to
ensure that a VIE operates as designed when determining it has the power to
direct the activities of the VIE that most significantly impact the entitys
economic performance. This guidance is effective at the beginning of the
Companys 2011 fiscal year. This guidance is not expected to have a material
effect on the Companys consolidated financial statements.

Reclassifications:
Certain items in the fiscal 2009 financial statements have been reclassified to
be consistent with the classifications adopted for fiscal 2010. The fiscal 2009
reclassifications had no impact on previously reported net income and
stockholders equity.

|        |            
|------- | -----------
|Note 2. | Inventories

The components
of inventory at June 30, 2010 and 2009 are approximately as follows:

|                                |  |         |           |      |   |           |  
|------------------------------- |  | ------- | --------- | ---- | - | --------- | -
|                                |  | June 30 |          
|                                |  | 2010    |           | 2009 |  
|Parts
 inventory                |  | $       | 765,000   |      | $ | 759,000   |  
|Work in
 process                |  |         | 56,000    |      |   | 114,000   |  
|Finished
 goods                 |  |         | 680,000   |      |   | 336,000   |  
|Less:
 Reserve for obsolescence |  |         | (30,000   | )    |   | (30,000   | )
|Total                           |  | $       | 1,471,000 |      | $ | 1,179,000 |  

|        |                       
|------- | ----------------------
|Note 3. | Property and Equipment

Property and
equipment, including assets under capital leases, consisted of approximately
the following:

|                                    |  |                                   |         |   |            |   |   |           |  
|----------------------------------- |  | --------------------------------- | ------- | - | ---------- | - | - | --------- | -
|                                    |  | Estimated 
 Useful 
 Lives(Years) |         |   |            |   |   |           |  
|                                    |  |                                   | June 30 |  
|                                    |  |                                   | 2010    |   | 2009       |  
|Building and
 building improvements |  | 15-39                             |         | $ | 1,892,000  |   | $ | 1,920,000 |  
|Land                                |  | N/A                               |         |   | 200,000    |   |   | 200,000   |  
|Land
 improvements                  |  | 15                                |         |   | 162,000    |   |   | 162,000   |  
|Equipment                           |  | 3-7                               |         |   | 921,000    |   |   | 755,000   |  
|Demonstration
 equipment            |  | 3                                 |         |   | 507,000    |   |   | 396,000   |  
|Vehicles                            |  | 5                                 |         |   | 35,000     |   |   | 35,000    |  
|                                    |  |                                   |         |   | 3,717,000  |   |   | 3,468,000 |  
|Less:
 Accumulated depreciation     |  |                                   |         |   | (1,028,000 | ) |   | (737,000  | )
|Total
 property and equipment       |  |                                   |         | $ | 2,689,000  |   | $ | 2,731,000 |  

F-10

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Table of Contents

|        |                              
|------- | -----------------------------
|Note 4. | Finite-Life Intangible Assets

The carrying
value of patents and trademarks includes the original cost of obtaining the
patents, periodic renewal fees, and other costs associated with maintaining and
defending patent and trademark rights. Patents and trademarks are amortized
over their estimated useful lives, generally 15 and 12 years, respectively.
Accumulated amortization was $114,000 and $61,000 at June 30, 2010 and 2009,
respectively.

The activity
and balances of finite-life intangible assets were approximately as follows:

|                     |  |                     |           |      |   |         |  
|-------------------- |  | ------------------- | --------- | ---- | - | ------- | -
|                     |  | Years Ended June 30 |          
|                     |  | 2010                |           | 2009 |  
|Balance,
 beginning  |  | $                   | 229,000   |      | $ | 184,000 |  
|Additions            |  |                     | 880,000   |      |   | 62,000  |  
|Amortization expense |  |                     | (53,000   | )    |   | (17,000 | )
|Balance,
 ending     |  | $                   | 1,056,000 |      | $ | 229,000 |  

Based on the
carrying value at June 30, 2010, amortization expense is expected to be
approximately $93,000 annually.

Additions
during the year ended June 30, 2010 consisted primarily of legal defense costs
associated with a trademark infringement lawsuit filed against the Company (see
Note 9). Such defense costs are being capitalized by the Company and amortized
over the remaining useful life of the trademark. In the event the Company is
unsuccessful in defending this trademark, such capitalized legal defense costs
will be immediately expensed. The future amortization amount is expected to
change as the Company incurs additional costs associated with its patents and
trademarks, including the trademark defense costs.

|        |                       
|------- | ----------------------
|Note 5. | Financing Arrangements

The Company
entered into a $3,500,000 revolving line of credit on December 9, 2009, which
expires on November 30, 2010, if not renewed. Advances are due at the
expiration date and are secured by substantially all Company assets. The amount
available for borrowing is limited to 60 percent of eligible accounts
receivable less the outstanding balance on the Companys 4.28% term note due
December 2012. Interest on advances accrues at LIBOR plus 2.75 percent and is
payable monthly. As of June 30, 2010, there was approximately $1,768,000
outstanding on the line of credit and $883,000 available for future borrowing.(a)

Long-term debt
consists of approximately the following as of June 30, 2010 and 2009:

|                                                                                                                                                                     |  |         |           |      |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | --------- | ---- | - | --------- | 
|                                                                                                                                                                     |  | June 30 |          
|                                                                                                                                                                     |  | 2010    |           | 2009 |  
|                                                                                                                                                                    
|Mortgage note payable with bank, due in
 monthly installments of $10,706, including interest at 5.79%, remaining due
 December 2014, secured by land and building(a) |  | $       | 1,494,000 |      | $ | -         | 
|                                                                                                                                                                     |  |         |           |      |   |           | 
|Term note payable with bank, due in monthly
 installments of $29,649, including interest at 4.28%, due December 2012,
 secured by substantially all assets(a)        |  |         | 815,000   |      |   | -         | 
|                                                                                                                                                                     |  |         |           |      |   |           | 
|Capital lease obligations, due in varying
 monthly installments, including interest ranging from 8.99% to 12.07%, to
 July 2013, secured by equipment                |  |         | 122,000   |      |   | 78,000    | 
|Capital lease obligation for building,
 implied interest of 11.92%, terminated with the purchase of the building                                                     |  |         | -         |      |   | 654,000   | 
|                                                                                                                                                                     |  |         |           |      |   |           | 
|Notes payable with bank, interest ranging
 from 6.75% to 9.0%, paid in full in fiscal 2010                                                                           |  |         | -         |      |   | 1,629,000 | 
|                                                                                                                                                                     |  |         |           |      |   |           | 
|Construction and mortgage notes payable
 with bank, interest at 6.0%, paid in full prior to December 31, 2009                                                        |  |         | -         |      |   | 1,198,000 | 
|Total                                                                                                                                                                |  |         | 2,431,000 |      |   | 3,559,000 | 
|Less: Current portion                                                                                                                                                |  |         | 398,000   |      |   | 392,000   | 
|Long-term debt                                                                                                                                                       |  | $       | 2,033,000 |      | $ | 3,167,000 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | These
 instruments have certain financial and nonfinancial covenants which, among
 others, require the Company to maintain a minimum fixed charge coverage ratio
 and a maximum cash flow leverage ratio, and restrict the payment of
 dividends. Under the terms of the credit facility, the Company is required to
 immediately pay to the bank any net proceeds raised from an equity offering.
 The bank has agreed to waive this requirement as it relates to the initial
 public offering as discussed in Note 11.

F-11

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Table of Contents

Approximate
future maturities of long-term debt as of June 30, 2010 are as follows:

|                      |  |   |           | 
|--------------------- |  | - | --------- | 
|Year ending
 June 30: |  |   |           | 
|2011                  |  | $ | 398,000   | 
|2012                  |  |   | 429,000   | 
|2013                  |  |   | 239,000   | 
|2014                  |  |   | 50,000    | 
|2015                  |  |   | 1,315,000 | 
|Total                 |  | $ | 2,431,000 | 

Capital leases and related party transaction:
The Company has financed certain office equipment through capital leases. The
Company also had a building capital lease with a director of the Company
through December 2009, at which time the Company purchased the building for
approximately $555,000 using the proceeds from a new mortgage note with a bank.
The net carrying value of the capital lease obligation exceeded the purchase
price by approximately $93,000 which was recognized as a reduction in the net
book value of the acquired building, which had been capitalized at the
inception of the lease.

At June 30,
2010 and 2009, carrying value of assets under these capital leases are
approximately as follows:

|                                |  |         |         |      |   |         |  
|------------------------------- |  | ------- | ------- | ---- | - | ------- | -
|                                |  | June 30 |        
|                                |  | 2010    |         | 2009 |  
|Building                        |  | $       | -       |      | $ | 675,000 |  
|Fixtures and
 office equipment  |  |         | 181,000 |      |   | 96,000  |  
|Less:
 Accumulated depreciation |  |         | (38,000 | )    |   | (67,000 | )
|Total                           |  | $       | 143,000 |      | $ | 704,000 |  

Depreciation
expense for these assets was $26,000 and $29,000 for the years ended June 30,
2010 and 2009 respectively.

Approximate
future minimum payments under capital leases as of June 30, 2010 are as
follows:

|                                                                                   |  |   |         |  
|---------------------------------------------------------------------------------- |  | - | ------- | -
|Year ending
 June 30:                                                              |  |   |         |  
|                                                                                  
|2011                                                                               |  | $ | 71,000  |  
|2012                                                                               |  |   | 48,000  |  
|2013                                                                               |  |   | 18,000  |  
|Total                                                                              |  |   | 137,000 |  
|Less: Amount
 representing interest                                                |  |   | (15,000 | )
|Present
 value of future minimum lease payments (included in long term debt above) |  | $ | 122,000 |  

F-12

---



Table of Contents

Note 6.     Common
Stock

Common stock issued for property and
services:In fiscal 2009, the Company issued 20,000
and 10,000 shares for land improvements and services with estimated fair values
of $70,000 and $35,000, respectively. During the year ended June 30, 2010, the
Company issued 5,000 shares for services valued at $22,500.

Common stock subscription receivables:During
fiscal 2008, the Company issued 47,333 shares of common stock to unrelated
third parties upon the exercise of outstanding warrants. The Company agreed to
accept subscription notes receivable from these individuals for a total of
approximately $112,000. For the year ended June 30, 2009, cash collected on
these notes was approximately $52,000.

During fiscal
2009, the Company issued 31,000 shares of common stock to an employee upon
exercise of outstanding warrants. The Company agreed to accept a subscription
note receivable from this individual for $46,500. For the year ended June 30,
2010 and 2009, cash collected on this note was approximately $9,000 and
$15,000, respectively. The Company revalued the warrants upon issuance of this
subscription note and recognized additional share-based expense of
approximately $67,000 for the year ended June 30, 2009.

Sales of common stock:The
Company from time to time has sold common stock to investors for cash. During
the year ended June 30, 2009, the Company sold 48,572 shares at $3.50 per share
and 10,000 shares at $4.50 per share, for total cash proceeds of approximately
$215,000. All shares were sold to unrelated third-party investors.

Note
7.     Share-Based Payments

Employee warrants:The
Company grants stock warrants to employees as long-term incentive compensation.
All warrants are granted at exercise prices equal to or greater than the
estimated fair market value of the Companys common stock, based upon recent
common stock sales transactions with independent third-party investors.
Warrants generally expire four to ten years from the grant date and vest over a
period of up to five years. Warrants have not been granted under a formal plan;
however, the number of warrants eligible for issuance is limited to the number
of authorized shares of the Companys common stock.

The Company
recognizes compensation expense related to share-based payment transactions in
the consolidated financial statements based on the estimated fair value of the
award issued. The fair value of each warrant is estimated using the
Black-Scholes pricing model at the time of award grant. The Company estimates
the expected life of warrants based on the expected holding period by the
warrant holder. The risk-free interest rate is based upon observed U.S.
Treasury interest rates for the expected term of the warrants. The Company
makes assumptions with respect to expected stock price volatility based upon
the volatility of similar companies. Forfeitures are estimated at the time of
grant and revised in subsequent periods if actual forfeitures differ from
initial estimates. Forfeitures are estimated based on the percentage of awards expected
to vest, taking into consideration the seniority level of the award recipient.

Share-based
compensation expense for the years ended June 30, 2010 and 2009 was
approximately $169,000 and $153,000 respectively.

The following
weighted-average assumptions were used to estimate the fair value of warrants
granted:

|                         |  |                     |        |      |  |        |  
|------------------------ |  | ------------------- | ------ | ---- |  | ------ | -
|                         |  | Years Ended June 30 |       
|                        
|                         |  | 2010                |        | 2009 | 
|                         |  |                     |        |      |  |        |  
|Risk-free
 interest rate |  |                     | 1.45   | %    |  | 3.24   | %
|Expected
 life (years)   |  |                     | 4 - 10 |      |  | 4 - 10 |  
|Expected
 volatility     |  |                     | 46.0   | %    |  | 46.9   | %
|Expected
 dividends      |  |                     | 0      | %    |  | 0      | %

F-13

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Table of Contents

The following
table presents employee warrant activity for the years ended June 30, 2010 and
2009:

|                                       |  |                   |          |                                            |  |                                   |      |                                                              |  |   |      |  |  |      |  | 
|-------------------------------------- |  | ----------------- | -------- | ------------------------------------------ |  | --------------------------------- | ---- | ------------------------------------------------------------ |  | - | ---- |  |  | ---- |  | 
|                                       |  | Number of
 Shares |          | Weighted-
 Average
 Grant Date
 Fair Value |  | Weighted-
 Average
 ExercisePrice |      | Weighted-
 Average
 Remaining
 Contractual
 Life (in
 Years) | 
|Warrants
 outstanding at June 30, 2008 |  |                   | 272,000  |                                            |  | $                                 | 1.32 |                                                              |  | $ | 2.64 |  |  | 1.14 |  | 
|Granted                                |  |                   | 307,800  |                                            |  |                                   | 2.13 |                                                              |  |   | 3.55 |  |  | -    |  | 
|Exercised                              |  |                   | (31,000  | )                                          |  |                                   | 0.61 |                                                              |  |   | 1.50 |  |  | -    |  | 
|Canceled or forfeited                  |  |                   | (40,000  | )                                          |  |                                   | 1.06 |                                                              |  |   | 2.56 |  |  | -    |  | 
|Warrants
 outstanding at June 30, 2009 |  |                   | 508,800  |                                            |  |                                   | 1.87 |                                                              |  |   | 3.27 |  |  | 6.03 |  | 
|Activity:                              |  |                   |          |                                            |  |                                   |      |                                                              |  |   |      |  |  |      |  | 
|Granted                                |  |                   | 25,000   |                                            |  |                                   | 1.68 |                                                              |  |   | 4.50 |  |  | -    |  | 
|Exercised                              |  |                   | (117,000 | )                                          |  |                                   | 1.77 |                                                              |  |   | 2.90 |  |  | -    |  | 
|Canceled or
 forfeited                 |  |                   | (25,000  | )                                          |  |                                   | 2.02 |                                                              |  |   | 2.60 |  |  | -    |  | 
|Warrants
 outstanding at June 30, 2010 |  |                   | 391,800  |                                            |  |                                   | 1.87 |                                                              |  |   | 3.47 |  |  | 6.74 |  | 
|Warrants
 exercisable at June 30, 2010 |  |                   | 124,560  |                                            |  |                                   | 1.51 |                                                              |  |   | 3.21 |  |  | 4.75 |  | 

For the years
ended June 30, 2010 and 2009 net cash proceeds from the exercise of employee
warrants was approximately $339,000 and $47,000 respectively. The Company
received an excess income tax benefit of approximately $23,000 in 2010 and no income
tax benefit in 2009 from the exercise of employee warrants.

At June 30,
2010, the Company had approximately $450,000 of unrecognized stock-based
compensation, which is expected to be recognized over a weighted-average period
of 3.2 years. The aggregate intrinsic value of warrants outstanding was
approximately $403,000, and the intrinsic value of warrants exercisable was
approximately $161,000 at June 30, 2010.

Warrants issued to non-employees for
services:In years prior to fiscal 2009, the Company
issued warrants to non-employees for services in lieu of cash payments. At June
30, 2010, the Company had warrants outstanding and exercisable to purchase
20,000 shares of common stock at a weighted-average exercise price of $3.00 per
share. These warrants expire at various dates through January 3, 2011.

All
outstanding warrants issued for services were granted prior to the 2009 fiscal
year. All services related to these warrants were completed prior to fiscal
2009. The Company has therefore recorded all share-based expense associated
with these services in prior years. During the year ended June 30, 2010, a
warrant to purchase 5,000 shares was exercised at an exercise price of $3.50
per share. There were no warrants forfeited during the year ended June 30,
2010. During the year ended June 30, 2009, there were 400,000 warrants
forfeited. The warrants canceled during the year ended June 30, 2009 were
forfeited as a result of a termination agreement with an independent sales
representative (see Note 9).

Warrants issued with convertible debt:
In years prior to fiscal 2009, the Company issued convertible notes payable to
certain individuals. In conjunction with the issuance of these convertible
notes, creditors also received warrants to purchase common stock for an
exercise price of $3.00 per share. At June 30, 2010, the Company had
approximately 83,000 warrants outstanding and exercisable at a weighted-average
exercise price of $3.00 per share. Approximately 38,000 warrants expire in
September 2012 and approximately 45,000 expire in September 2015. During the
years ended June 30, 2010 and 2009, warrant holders exercised 13,733 and 49,669
warrants at a weighted-average exercise price of $2.50 and $3.00 respectively.
There were no warrants forfeited and cancelled during the year ended June 30,
2010. During the year ended June 30, 2009, 62,338 warrants were forfeited and
canceled.

F-14

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Table of Contents

Note 8.     Income
Taxes

Components of
the provision for (benefit from) income taxes for the years ended June 30, 2010
and 2009, are as follows:

|         |  |                     |          |      |   |         | 
|-------- |  | ------------------- | -------- | ---- | - | ------- | 
|         |  | Years Ended June 30 |         
|         |  | 2010                |          | 2009 |  
|Current  |  | $                   | 748,000  |      | $ | 531,000 | 
|Deferred |  |                     | (149,000 | )    |   | 299,000 | 
|Total    |  | $                   | 599,000  |      | $ | 830,000 | 

The total
income tax expense differs from the expected tax expense, computed by applying
the federal statutory rate to the Companys income before income taxes, as
follows:

|                                              |  |                     |         |      |   |         | 
|--------------------------------------------- |  | ------------------- | ------- | ---- | - | ------- | 
|                                              |  | Years Ended June 30 |        
|                                              |  | 2010                |         | 2009 |  
|Tax expense
 at statutory federal rate        |  | $                   | 515,000 |      | $ | 743,000 | 
|State income
 tax benefit, net of federal tax |  |                     | 55,000  |      |   | 75,000  | 
|Other
 permanent items                        |  |                     | 29,000  |      |   | 12,000  | 
|Income tax
 expense                           |  | $                   | 599,000 |      | $ | 830,000 | 

The
significant components of deferred income taxes are as follows:

|                                            |  |         |          |      |   |          |  
|------------------------------------------- |  | ------- | -------- | ---- | - | -------- | -
|                                            |  | June 30 |         
|                                            |  | 2010    |          | 2009 |  
|Deferred tax
 assets (liabilities):         |  |         |          |      |   |          |  
|Revenue recognition and accounts receivable |  | $       | 228,000  |      | $ | 221,000  |  
|Accrued liabilities                         |  |         | 296,000  |      |   | 200,000  |  
|Net operating loss carryforwards            |  |         | 2,000    |      |   | 31,000   |  
|Property and equipment                      |  |         | (195,000 | )    |   | (118,000 | )
|Finite-life intangible assets               |  |         | (60,000  | )    |   | (52,000  | )
|Investment in subsidiary                    |  |         | -        |      |   | (80,000  | )
|Warrants                                    |  |         | 110,000  |      |   | 82,000   |  
|Other                                       |  |         | (12,000  | )    |   | (64,000  | )
|Net deferred
 tax assets                    |  | $       | 369,000  |      | $ | 220,000  |  

The components
giving rise to the net deferred income tax assets described above have been
included in the accompanying consolidated balance sheets as follows:

|                        |  |         |          |      |   |          |  
|----------------------- |  | ------- | -------- | ---- | - | -------- | -
|                        |  | June 30 |         
|                        |  | 2010    |          | 2009 |  
|Current assets          |  | $       | 514,000  |      | $ | 357,000  |  
|Long-term liabilities   |  |         | (145,000 | )    |   | (137,000 | )
|Net deferred tax assets |  | $       | 369,000  |      | $ | 220,000  |  

The Company
has state net operating loss carryforwards at June 30, 2010, of approximately
$19,000 to reduce future income tax liabilities, which will begin to expire in
2024.

The Company
has evaluated its exposure to unrecognized tax benefits as of June 30, 2010 and
2009, and has estimated that there are no unrecognized benefits which would be
material to the consolidated financial statements. The Companys policy would
be to recognize accrued interest and penalties related to unrecognized tax benefits
as a component of income tax expense.

The Company is
subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. With limited exceptions, tax years prior to fiscal 2007 are no
longer open to federal, state and local examination by taxing authorities.

F-15

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Table of Contents

Note
9.     Commitments and Contingencies

Settlement of sales representation agreement:In July 2008, the Company settled a lawsuit with an
independent sales representative organization. The terms of the settlement
required the Company pay all commissions upon cash collection for sales through
July 31, 2008, in accordance with the original agreement. Approximately $28,000
and $71,000 of commissions related to this independent sales representative
organization were accrued in the accompanying consolidated financial statements
as of June 30, 2010 and 2009, respectively. The period for which commissions would
otherwise be payable to the independent sales representative organization was
reduced by three months from October 31, 2008, to July 31, 2008. As a condition
of the settlement, the independent sales representative organization did not
exercise and forfeited their warrants for 400,000 shares of Company common
stock, which had been previously expensed. Additional conditions of the
settlement included the cancellation of a $1,000,000 contingent payment clause
upon a change in control of the Company and a requirement by the Company to
repurchase 3,000 shares of its common stock held by the independent sales
representative organization for $2.12 per share.

Litigation:Subsidiaries
of Hill-Rom Holdings, Inc., (collectively, Hill-Rom) brought an action on August
21, 2009, against the Company alleging that the Companys use of the term
SmartVest infringes on its alleged trademark The Vest. The Company answered
the allegations and brought counter-claims against Hill-Rom alleging, among
other things, defamation and libel. For the year period ended June 30, 2010,
the Company incurred and capitalized costs of $880,000 in defending this
trademark. Subsequent to June 30, 2010 and through July 31, 2010 the Company
incurred and capitalized approximately $27,000 in defending this trademark.

In the
addition to the trademark matter discussed above, the Company is occasionally
involved in claims and disputes arising in the ordinary course of business. The
Company insures its business risks where possible to mitigate the financial
impact of individual claims, and establishes reserves for an estimate of any
probable cost of settlement or other disposition. In the opinion of management,
the ultimate disposition or resolution of these matters, if any, will not have
a material adverse effect on the Companys financial position, results of
operations, or liquidity.

401(k) profit sharing plan:The
Company has an employee benefit plan under Section 401(k) of the Internal
Revenue Code covering all employees who are 21 years of age or older and have
1,000 hours of service with the Company. The Company matches each employees
salary reduction contribution, not to exceed 4 percent of annual compensation.
Total employer contributions to this plan for the years ended June 30, 2010 and
2009 were approximately $125,000 and $108,000.

Employment Agreements:Effective
January 1, 2010, the Company entered into new employment agreements with its
chief executive officer and chief financial officer. These agreements provide
the officers, with among other things, one years salary upon a separation of
service without cause for termination. Also, in the event the employee resigns
within six months of a change in control, the chief executive officer and chief
financial officer are entitled to receive a severance equal to two years base
salary.

Note 10.     Related
Parties

The Company
uses a related-party service provider, a director and minority shareholder of
which was the original inventor of the Companys product, to perform certain
outsourced research and development functions. The Companys chief executive
officer is also the president, chief executive officer and chairman of the
board of directors of the service provider and owns approximately 11% of that
entitys outstanding common stock. In addition, two members of the Companys
board of directors are directors and minority shareholders of the service
provider. The Company has an agreement with the service provider which provides
that the service provider will perform 80 hours per week of research and
development work in exchange for a monthly fee, in the amount of $25,000
through June 2010 and $30,000 through December 2010. For the years ended June
30, 2010 and 2009, expenses for these services totaled approximately $280,000
and $115,000 respectively, and such expenses are included in research and
development expense in the income statement.

Also see Notes
1 and 5 for additional related party transactions with Company directors.

F-16

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Table of Contents

Note
11.     Subsequent Events

On August 13,
2010, The Company completed an initial public stock offering (IPO) of 1,700,000
shares of common stock at an offering price of $4.00 per share. In addition,
the Company received notice on September 23, 2010 that the underwriter in the
IPO would acquire an additional 200,000 pursuant to exercise of a portion of
its over-allotment option. After deducting the payment of underwriting
discounts, commissions and offering costs, the net proceeds from the sale of
shares in the IPO and pursuant to the over-allotment option will be
approximately $5,990,000. In connection with the IPO and the exercise of the
over-allotment option, the Company also issued to Feltl warrants to purchase up
to 190,000 additional shares of the Companys common stock at a price of $4.80
per share.

The changes to
the balance sheet adjusted for the IPO, over-allotment and subsequent $500,000 payment to the
revolving line of credit are as follows:



|                      |  |               |            |                        |   |            | 
|--------------------- |  | ------------- | ---------- | ---------------------- | - | ---------- | 
|                      |  | June 30, 2010 |           
|                      |  | Audited       |            | Proforma 
 (Unaudited) |  
|Assets                |  | $             | 14,143,237 |                        | $ | 19,634,039 | 
|                      |  |               |            |                        |   |            | 
|Liabilities           |  |               | 6,680,623  |                        |   | 6,180,623  | 
|                      |  |               |            |                        |   |            | 
|Stockholders
 equity |  |               | 7,462,614  |                        |   | 13,453,416 | 

Under the
terms of the Companys credit facility with U.S. Bank, the Company is required
to immediately pay to the bank any net proceeds raised from an equity offering.
The bank has agreed to waive this requirement as it relates to the initial
public offering.

F-17

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Table of Contents

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|                        |                                      
|----------------------- | -------------------------------------
|                        | ELECTROMED,
 INC.                    
|                        |                                      
|                        |                                      
|Date:
 October 15, 2010 | /s/ Robert
 D. Hansen                
|                        | Robert D.
 Hansen                    
|                        | Chairman and
 Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature
     
     Title
     
     Date/s/ Robert D. Hansen
     
     Co-Founder, Chairman and Chief Executive Officer
(principal executive officer)
     
     October 15, 2010Robert D. Hansen/s/ Terry M. Belford
     
     Chief Financial Officer
(principal financial officer and principal accounting officer)
     
     October 15, 2010Terry M. Belford, CPA, CMA*
     
     Co-Founder and Director
     
     October 15, 2010Craig N. Hansen*
     
     Director
     
     October 15, 2010Dr. Noel D. Collis, MD*
     
     Director
     
     October 15, 2010Thomas M. Hagedorn*
     
     Director
     
     October 15, 2010Dr. George H. Winn, DDS




*By:
     /s/ Robert D. HansenRobert D. Hansen, as attorney-in-fact pursuant to power of attorney previously filed.




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