Electromed, Inc.

Nature of business: Electromed, Inc. (the “Company”) develops, manufactures and markets innovative airway clearance products that apply High Frequency Chest Wall Oscillation (“HFCWO”) therapy in pulmonary care for patients of all ages. The Company markets its products in the U.S. to the homecare and hospital markets. The Company also sells internationally through distributors. International sales were $248,000 and $470,000 for the fiscal years ended* June 30, 2025* (“fiscal2025”) and* June 30, 2024* (“fiscal2024”), respectively.

Since its inception, the Company has operated in a single industry segment: developing, manufacturing, and marketing medical equipment.

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

Use of estimates: Management uses estimates and assumptions in preparing the financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. The Company believes the critical accounting policies that require the most significant assumptions and judgments in the preparation of its financial statements include revenue recognition and the related estimation of variable consideration, inventory valuation, share-based compensation and warranty reserve.

Revenue recognition: Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to customers and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer. See Note2 for information on revenue.

Shipping and handling expense: Shipping and handling charges incurred by the Company on shipments to customers are included in cost of revenues and were $445,000 and $383,000 for fiscal2025 and2024, respectively.

Cash and cash equivalents: Cash and cash equivalents consist of cash in bank deposits and money market funds with original maturities ofthree months or less at the time of purchase. The Company hasnot experienced any losses in these accounts.

**Accounts receivable:**The Company’s accounts receivable balance is comprised of amounts due from individuals, hospitals and distributors. Balances due from individuals are typically remitted to the Company bythird-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 withthird-party payers. Accounts receivable are also net of an allowance for credit losses. Management determines the allowance for credit losses by regularly evaluating individual customer accounts and separately considering macroeconomic trends in determining expected losses. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

**Contract assets:**Contract assets include amounts recognized as revenue that are estimates of variable consideration when the consideration due to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company’s claim being processed by the payer. Contract assets are classified as current as amounts will turn into accounts receivable and be collected during the Company’s normal business operating cycle. Contract assets are reclassified to accounts receivable when the right to receive payment is unconditional.

**Inventories:**Inventories are stated at the lower of cost (first-in,first-out method) or net realizable value. 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 annually 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 future sales. Estimated inventory to be returned is based on how many devices have shipped that are expected to be returned prior to completion of the insurance reimbursement process.

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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. 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.

**Leases:**The Company determines if an arrangement is a lease at inception. Where an arrangement is a lease, the Company determines if it is an operating lease or a finance lease. At lease commencement, the Company records a lease liability and corresponding right of use (“ROU”) asset. Lease liabilities represent the present value of our future lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the Company’s lease liability is determined using its incremental collateralized borrowing rate at lease inception. ROU assets represent the Company’s right to control the use of the leased assets during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than12 months. Over the lease term (operating leases only), the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight line expense recognition. The Company has elected the practical expedient to calculate the present value of the fixed payments without having to perform an allocation to lease and non-lease components.

Finite-life intangible assets: Finite-life intangible assets include patents and trademarks. These intangible assets are amortized on a straight-line basis over their estimated useful lives, as described in Note5.

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

The amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s or assets group’s carrying amount over its estimated fair value.

In addition, we periodically reassess the estimated remaining useful lives of our long-lived and finite-life intangible assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings. We have experiencedno significant changes in the carrying amount or estimated remaining useful lives of our long-lived or amortizable intangible assets, except as described in Note5.

Software costs: We capitalize certain implementation costs incurred during the development stage of implementing new software. Capitalized costs are included within Other Assets on the Condensed Balance Sheets when the software meets the definition of a cloud computing arrangement that is a service contract. We expense costs as incurred during the post-implementation/operation stage. Capitalized implementation costs are amortized on a straight-line basis over the contractual term of the cloud computing arrangement, which includes renewal options that are reasonably certain to be exercised.

Warranty liability: The Company provides a lifetime warranty on its products to the prescribed patient for homecare sales within the U.S. and aone tofive-year warranty for all homecare distributor, hospital and other sales. 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 shipped or delivered. Factors that affect the Company’s warranty liability include the number of units shipped, historical and anticipated rates of warranty claims, the product’s useful life, 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 as follows:

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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 thannot that some portion or all of the deferred tax assets willnot be realized. The Company reverses a valuation allowance if it determines, based on the weight of all available evidence, including when cumulative losses become positive income, that it is more likely thannot that some or all of the deferred tax assets will 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 than50 percent likely of being realized upon settlement. 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 the costs of research activities as well as engineering and technical efforts required to develop new products or make improvements to existing products. Research and development costs are expensed as incurred.

Advertising costs: Advertising costs are expensed when incurred. Advertising, marketing and trade show costs for fiscal2025 and2024 were $1,421,000 and $1,487,000, respectively.

Share-based payments: Share-based payment awards consist of options to purchase shares of our common stock, restricted stock awards, restricted stock units, and performance-based awards, issued to employees for services as well as restricted stock awards issued to non-employee directors. Expense for options is estimated using the Black-Scholes pricing model at the date of grant, expense for performance-based awards with market conditions is estimated using the Monte-Carlo pricing model at the date of grant and expense for restricted stock awards and restricted stock units is determined by the closing price on the day the grant is made. Expense is recognized on a graded vesting basis over the requisite service or vesting period of the award, on a straight-line basis for performance-based awards, or at the time services are provided for non-employee awards.

Fair value of financial instruments: The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these instruments.

Net income per common share: Net income is presented on a per share basis for both basic and diluted common shares. Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period, excluding any restricted stock awards which havenot vested. The diluted net income per common share calculation includes outstanding restricted stock grants and assumes that all stock options were exercised and converted into shares of common stock at the beginning of the period unless their effect is anti-dilutive.

Recently Issued Accounting Standards

ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

The standard introduces increased disclosure requirements primarily related to significant segment expenses, along with disclosure of key criteria and metrics utilized by the Chief Operating Decision Maker (“CODM”). It is effective for annual periods beginning after** December 15, 2023,** and interim periods within fiscal years beginning after** December 15, 2024,** with early adoption permitted. The Company adopted this standard for the year ended* June 30, 2025*and expanded its disclosures as required under the standard.

ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures

The standard introduces increased transparency about income tax information through the requirement of increased disclosures around specific categories in the rate reconciliation and requires additional information on reconciling items. It is effective for annual periods beginning after** December 15, 2024,** with early adoption permitted. The Company currently expects to adopt this standard for its fiscal year ending** June 30, 2026,** and is evaluating the impact of adoption and additional disclosure requirements.

ASU 2024-03 -Reporting Comprehensive Income:Expense Disaggregation Disclosures

The standard introduces increased disclosure requirements for certain costs and expenses. It is effective for annual reporting periods beginning after** December 15, 2026,** and interim reporting periods within fiscal years beginning after** December 15, 2027,** with early adoption permitted. The Company currently expects to adopt this standard for its fiscal year ending** June 30, 2027,** and is evaluating the impact of adoption and additional disclosure requirements.

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**Disaggregation of revenues.**In the following table, revenue is disaggregated by market:

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In the following table, homecare revenue is disaggregated by payer type:

**Performance obligations and transaction price.**A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under ASC606, “Revenue From Contracts With Customers” (“ASC606”). A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling price for each and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations and the timing or method of revenue recognition in each of the Company’s markets are discussed below:

Homecare market.**In the Company’s homecare market, its customers are patients who use the SmartVest System. The various models of the SmartVest System are comprised ofthree main components - a generator, a vest and a connecting hose - that are sold together as an integrated unit. Accordingly, in contracts within the homecare market, the Company regards the SmartVest System to be a single performance obligation.

The Company makes available to its homecare patients limited post-sale services that arenot material in the context of the contracts, either individually or taken together, and therefore doesnot consider them to be performance obligations. The costs associated with the services are accrued and expensed when the related revenues are recognized. As such, transactions in the homecare market consist of a single performance obligation: the SmartVest System.

Homecare patients generally will rely onthird-party payers, including commercial payers and governmental payers such as Medicare, Medicaid and the U.S. Department of Veterans Affairs to cover and reimburse all or part of the cost of the SmartVest System. Thethird-party payers’ reimbursement programs fall intothree types, distinguished by the differences in the timing of payments from the payer, consisting of either (i) outright sale, in which payment is received from the payer based on standard terms, (ii) capped installment sale, under which the SmartVest System is sold for a series of payments that are cappednot to exceed a prescribed or negotiated amount over a period of time or (iii) installment sale, under which the SmartVest System is paid for over a period of several months as long as the patient continues to use the SmartVest System.

Regardless of the type of transaction, provided criteria for an enforceable contract are met, it is the Company’s long-standing business practice to regard all homecare agreements as transferring control to the patient upon shipment or delivery, despite possible payment cancellation under government or commercial programs where the payer is controlling the payment over specified time periods. For homecare sales that feature installment payments, the ultimate amount of consideration received from Medicare, Medicaid or commercial payers can be significantly less than expected if the contract is terminated due to changes in the patient’s status, including insurance coverage, hospitalization, death or otherwise becoming unable to use the SmartVest System. However, once delivered to a patient who needs the SmartVest System, the patient is underno obligation to return the SmartVest System should payments be terminated because of the described contingencies. As a result, the Company’s product sales qualify for point-in-time revenue recognition. Control transfers to the patient, and revenue is recognized upon shipment or delivery of the SmartVest System. At this point, physical possession and the significant risks and rewards of ownership are transferred to the patient and either a current or future right to payment is triggered.

The Company’s contractually stated transaction prices in the homecare market are generally set by the terms of the contracts negotiated with insurance companies or by government programs. The transaction price for the Company’s products* maybe further impacted by variable consideration. ASC606* requires the Company to adjust the transaction price at contract inception and throughout the contract duration for the estimated value of payments to be received from insurance payers based on historical experience and other available information, subject to the constraint on estimates of variable consideration. Transactions requiring estimates of variable consideration primarily include (i) capped installment payments, which are subject to thethird-party payer’s termination due to changes in insurance coverage, death or the patient’s discontinued use of the SmartVest System, and (ii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.

Although estimates* maybe made on a contract-by-contract basis, whenever possible, the Company uses all available information including historical collection patterns to estimate variable consideration for portfolios of contracts. For each type of variable consideration discussed above, there are many contracts with similar characteristics with a wide range of possible transaction prices. For that reason, the Company uses the probability-weighted expected value method provided under ASC606* to estimate variable consideration. The Company’s estimates of variable consideration consist of amounts it* mayreceive from insurance providers in excess of its initial revenue estimate due to patients meeting deductibles or coinsurance during the payment duration, changes to a patient’s insurance status, changes in an insurance allowable, and amounts received directly from patients for their allowable or coinsurance. The Company believes it has representative historical information to estimate the amount of variable consideration in relevant portfolios considering the significant experience it has with each portfolio and the similarity of patient accounts within a portfolio. The analysis includes steps to ensure that revenue recognized on a portfolio basis doesnot* result in a material difference when compared with an individual contract approach. The Company also leverages its historical experience and all available relevant information for each portfolio of contracts to minimize the risk its estimates used to arrive at the transaction price will result in a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved. Historical payment trends for recovery of claims subject to payer installments and payments from patients have remained relatively consistent over the pastfive years.No significant changes in patient demographics or other relevant factors have occurred that would limit the predictive value of such payment trends in estimating variable consideration for current contracts. As a result, the Company believes its estimates of variable consideration are generallynot subject to the risk of significant revenue reversal. Revenue recognized from performance obligations satisfied in prior periods due to changes in estimates of variable consideration was immaterial for the years ended* June 30, 2025,and2024*, respectively.

The Company often receives payment fromthird-party payers for the SmartVest System sales that* mayexceedone* year. Despite these extended payment terms,no significant financing component is deemed to exist because the purpose of such terms isnot to provide financing to the patient, the payer or the Company. Rather, the extended payment terms are mandated by the government or commercial insurance programs, the fundamental purpose of which is to avoid paying the full purchase price of equipment that* may*potentially be used by the patient for only a short period of time.

**Homecare Distributor, Hospital and Other markets.Sales within the homecare distributor, hospital, and other markets are primarily at fixed contract prices that arenot subject to further adjustments for variable consideration. Limited sales within the homecare distributor and hospital markets mayinclude tiered pricing structures or volume-based rebates which offer more favorable pricing once certain volumes are achieved per the negotiated contract. The distributor or hospital’s purchases accumulate to give a right to a higher discount on purchases in excess of the specified level within the contract period. As a result, to the extent the Company expects the distributor or hospital to exceed the specified volume of purchases in the annual period, it recognizes revenue at a blended rate based on estimated total annual volume and sales revenue. This effectively defers a portion of the transaction price on initial purchases below the specified volumes for recognition when the higher discount is earned on purchases in excess of specified volumes.

Sales to homecare distributors include the SmartVest system which is consideredone performance obligation as described previously in the Homecare section. For our hospital and other customers, generators, hoses, and wraps (used in institutional and other settings rather than vests) are sold separately. Accordingly, each product is distinct and considered a separate performance obligation. Transfer of control of the products occurs upon shipment or delivery to the customer as applicable. Payment is made within normal credit terms, usually within30 days.

In addition to outright sales, within the hospital market, the Company also enters into wrap usage agreements. Under these transactions, the Company provides a generator device atno cost to the hospital in return for a fixed annual commitment to purchase consumable wraps. These agreements are cancellable upon at leastsixty days prior written notice by either party. If cancelled, the generator is returned to the Company, where it can be refurbished and used again later. Revenue for the consumable wraps is recognized when control transfers to the customer.

**Product warranty.*The Company offers warranties on its products. These warranties are assurance type warrantiesnot sold on a standalone basis or are otherwise considered immaterial in the context of the contract and therefore arenot considered distinct performance obligations under ASC606. The Company estimates the costs that may*be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold.

**Contract costs.**Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs under Accounting Standards Codification (“ASC”)340-40, “Other Assets and Deferred Costs” (“ASC340”), or other applicable guidance are met.

The Company includes shipping and handling fees in net revenues. Shipping and handling costs associated with the shipment of the SmartVest System or individual generators, hoses, and wraps after control has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues in the Statements of Operations.

**Contract balances.**The following table provides information about accounts receivable and contracts assets from contracts with customers:

Total Accounts receivable, net of allowances for credit losses, as of* June 30, 2023*, were $24,130,000.

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Significant changes in contract assets during the period are as follows:

Inventory consists of the following:

Other assets consist of the following:

Other accrued liabilities consist of the following:

Property and equipment were as follows:

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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 $428,000 and $273,000 as of* June 30, 2025*, and2024, respectively.

The Company assesses intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group* may**not* be fully recoverable. If impairment indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-lived assets to their carrying value. Starting in thefourth quarter of fiscal2025, we have ceased efforts to maintain or renew patents issued by jurisdictions outside of the United States and Mexico. The Company determined that the current carrying value of the international patents wasnot recoverable. An impairment charge of $212,000 was recorded during the year ended* June 30, 2025.*The impairment loss is included within selling, general, and administrative expenses within the Statement of Operations.

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

Based on the carrying value as of* June 30, 2025*, future amortization is expected to be as follows:

The Company has a credit facility that provides for a $2,500,000 revolving line of credit through* December 18, 2025,ifnot* renewed before such date. There wasno outstanding principal balance on the line of credit as of* June 30, 2025*, or* June 30, 2024*. Interest on borrowings under the line of credit, if any, accrues at theprime rate (7.50% as of* June 30, 2025*) less 1.0% and is payable monthly. The amount eligible for borrowing on the line of credit is limited to the lesser of $2,500,000 or 57.0% of eligible accounts receivable and the line of credit expires on* December 18, 2025,ifnot* renewed before such date. As of* June 30, 2025*, the maximum $2,500,000 was eligible for borrowing. Payment obligations under the line of credit, if any, are secured by a security interest in substantially all of the tangible and intangible assets of the Company.

The documents governing the line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net worth covenant ofnot less than $10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness or pay dividends.

Authorized shares: The Company’s Articles of Incorporation, as amended, have established 15,000,000 authorized shares of capital stock consisting of 13,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of undesignated stock.

On* September 11, 2024,*the Company announced the approval of a stock repurchase authorization. Under the authorization, the Company could repurchase up to $5,000,000 of shares of common stock. A total of 280,017 shares were repurchased and retired under this authorization for a total cost of $5,000,000, or $17.86 per share. This repurchase authorization has been exhausted in its entirety.

On* March 6, 2025,*the Company announced the approval of a new stock repurchase authorization. Under the new authorization, the Company could repurchase up to $5,000,000 shares of common stock. A total of 220,899 shares were repurchased and retired under this authorization for a total cost of $5,000,000, or 22.63 per share. This repurchase authorization has been exhausted in its entirety.

Repurchased shares are automatically retired and constitute authorized but unissued shares.

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Share-based compensation expense for fiscal2025 and2024 was $3,059,000 and $1,692,000, respectively, related to employee stock options, performance-based awards, restricted stock units and restricted stock awards. This expense is included in selling, general and administrative, research and development, and cost of sales expense in the Condensed Statements of Operations. As of* June 30, 2025*, the Company had $1,351,000 of unrecognized compensation expense related to non-vested equity awards, which is expected to be recognized over a weighted-average period of 2.01,2.23 and 2.01 years related to restricted stock awards, restricted stock units, and employee stock options, respectively.

Equity plans:In November 2023,the Company’s shareholders approved the2023 Equity Incentive Plan (the“2023 Plan”) which superseded the2017 Omnibus Incentive Plan (the*“2017* Plan”) and the2014 Equity Incentive Plan (the*“2014* Plan”). The2023 Plan allows the Board to grant stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards, as well as cash incentive awards to all employees, non-employee directors, and advisors or consultants of the Company. The vesting schedule and term for each award are determined by the Board upon each grant. Upon vesting, and the Company’s determination that any necessary conditions precedent to the exercise of shares (such as satisfaction of tax withholding and compliance with applicable legal requirements) have been satisfied, shares purchased are delivered to the participant in a manner prescribed or permitted by the Board. The maximum number of shares of common stock available for issuance under the2023 Plan is (i)850,000 new shares of common stock, (ii) up to 192,018 shares of common stock that remained available for issuance under the2017 Plan as of the approval date of the2023 Plan, and (iii) up to 360,856 shares of common stock that were subject to outstanding awards under the2017 Plan as of the approval date of the2023 Plan, which shares will be available for future grants under the2023 Plan to the extent that, on or after the approval date of the2023 Plan, such awards expire, are cancelled, are forfeited or are settled for cash. There were 868,331 shares available for grant under the2023 Plan as of* June 30, 2025*.

Employee options:The Company has historically granted stock options to employees as long-term incentive compensation. Options expireten years from the grant date and typically vest over a period ofthree years. There were 366,847 options granted under the2017 Plan and prior plans outstanding as of June 30, 2025. There were 175,000 options granted as a standalone inducement outstanding as of June 30, 2025.There were 63,532 options issued under the2023 Plan outstanding as of* June 30, 2025.*

The Company recognizes compensation expenses related to share-based payment transactions in the financial statements based on the estimated fair value of the award issued. The fair value of each option is estimated using the Black-Scholes pricing model at the time of award grant. The Company estimates the expected life of options based on the expected holding period by the option holder. The risk-free interest rate is based upon observed U.S. Treasury interest rates for the expected term of the options. The Company makes assumptions with respect to expected stock price volatility based upon the historical volatility of its stock price. Forfeitures are accounted for as they occur.

The following assumptions were used to estimate the fair value of options granted:

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The following table presents employee stock option activity for fiscal2025 and2024:

The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds its exercise price. At* June 30, 2025*, the weighted average remaining contractual term for all outstanding stock options was 6.16 years and their aggregate intrinsic value was $7,412,000. Outstanding at* June 30, 2025* were 605,379 stock options issued to employees, of which 417,551 were vested and exercisable and had an aggregate intrinsic value of $5,711,000.

Restricted stock: The2023 Plan permits the Personnel and Compensation Committee of the Board to grant other stock-based awards, including shares of restricted stock. The Company makes restricted stock grants to key employees and non-employee directors that vest oversix months tothree years following the applicable grant date.

The Company issued restricted stock awards to employees consisting of 21,400 and 23,428 shares of common stock during fiscal2025 and2024, respectively, with vesting terms ofthree years and fair values of $17.25 and $10.74 per share, respectively. The Company issued restricted stock awards to directors consisting of 21,000 shares of common stock during fiscal2025 and2024, with vesting terms ofsix months and fair values of $30.78 and $10.44 per share, respectively. Restricted stock transactions during the years ended* June 30, 2025,and2024* are summarized as follows:

**Restricted stock units:The Company issued restricted stock units to employees during fiscal2025 consisting of opportunities to receive up to 69,102 shares of common stock upon vesting, with vesting terms ofthree years and a weighted average fair value of $17.96 per share. Restricted stock unit transactions during the years ended June 30, 2025,and2024 are summarized as follows:

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*Performance-based restricted stock units:The Company granted 175,000 performance-based restricted stock units (“PSUs”) to our President and Chief Executive Officer in connection with his commencement of service on July 1, 2023.The PSUs were eligible to vest and settle into shares of common stock based on the extent to which performance goals tied to the total shareholder return of our common stock (“TSR”) were achieved. TSR was evaluated from the initial grant date through the end of each subsequent fiscal quarter using thethree-month volume-weighted average closing prices in accordance with the underlying award agreement. The PSUs were eligible to vest and settle into shares of common stock on a1-for-1 basis with respect toone-half of the shares upon achieving a TSR of 50% and the remaining shares upon a TSR of 100%, in each case within four years of the date of grant. The grant date fair value of the awards was determined using a Monte Carlo valuation model with an expected term offour years. As of September 30, 2024,TSR exceeded the 50% target, resulting in a partial vesting and the issuance of 87,500 shares of common stock. As of December 31, 2024,*TSR exceeded the 100% target, resulting in vesting and issuance of the remaining 87,500 shares of common stock.

As a result of both vestings, unrecognized stock-based compensation expense totaling $575,000, which was set to be recognized in future periods, was recognized during the year ended* June 30, 2025.Stock-based compensation expense recognized for the PSUs was $863,000 and $288,000 for the years ended June 30, 2025,and June 30, 2024,respectively. As a result of the vestings and settlements described above, there wereno PSUs outstanding as June 30, 2025.*

Components of the provision for income taxes were as follows:

Actual income tax expense differs from the expected tax expense, computed by applying the statutory federal income tax rate to the Company’s earnings before income taxes, as follows:

The effective tax rates for fiscal2025 and2024 were 26.7% and 26.8%, respectively.

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The significant components of deferred income taxes were as follows:

The Company has research and development state tax credit carryforwards, net of federal tax impacts, of $205,000 and $204,000 as of* June 30, 2025*, and* June 30, 2024*, respectively. Based on the historical use of the credits, management believes it is more likely thannot these credits will begin to expire unused between fiscal years2026 and2038. As of* June 30, 2025*, and* June 30, 2024*, the Company had a valuation allowance of $205,000 and $204,000, respectively, related to its research and development state tax carryforwards.

The Company’s effective tax rates for the fiscal years ended* June 30, 2025,and2024* differ from its 21% U.S. statutory corporate tax rate due to the impact of state income taxes, permanent tax differences, the tax impact of the vesting of restricted stock units, and changes in the Company’s deferred tax asset valuation allowance. The effective tax rate in any year or quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the fiscal years ended* June 30, 2025,and2024* were 26.7% and 26.8%, respectively.

The Company applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized to determine the recognition and derecognition of uncertain tax positions. Once the more-likely-than-not threshold is met, the amount of benefit to be recognized is the largest amount of tax benefit that is greater than50 percent likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. The Company doesnot believe that it has any material uncertain tax positions as of* June 30, 2025*, and* June 30, 2024*.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. With limited exceptions, the Company isno longer subject to federal and state income tax examinations by tax authorities for fiscal year ended prior to* June 30, 2022.The Internal Revenue Service has completed its examination of the Company’s U.S. federal income tax return for the fiscal year ended June 30, 2022,without proposing any adjustments. The Company isnot* under any current income tax examinations by any other state or local taxing authority. If any issues addressed in the Company’s tax audits are resolved in a mannernot consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The One, Big, Beautiful Bill Act (the “Act”) was signed into law on* July 4,*2025. The Act contains tax law changes with various effective dates affecting business taxpayers. Among the tax law changes were provisions that would impact the Company related to the timing of certain tax deductions including depreciation expense, research and development expenditures, and interest expense. The Company will implement the tax law changes in thefirst quarter of fiscal2026. The Company doesnot anticipate any material impacts to its overall tax expense; however, we do expect a reclassification between current and deferred tax expense.

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The Company has leases for office and warehouse space and office equipment that require monthly payments. These leases have payments ranging from $1,000 to $6,000 per month which expire through* June 2028and are recognized on a straight-line basis over the life of the lease. All leases are classified as operating leases which donot* include renewal options. The Company currently doesnot have any variable lease costs. The Company elected the practical expedient to calculate the present value of the fixed payments without having to perform an allocation to lease and non-lease components.

In* June 2025,*the Company modified its operating lease in California, extending the term for another three years. As a result of the lease modification, the Company obtained an additional right-of-use asset in exchange for new operating lease liabilities in the amount of $190,000. The additional right-of-use asset in exchange for new operating lease liabilities represents non cash investing and financing activities, which have been excluded from the Statement of Cash Flows. These amounts are present on the Company's balance sheet in other assets, accrued liabilities and other long-term liabilities.

The Company has recognized total right of use assets associated with its operating leases of $198,000 and $87,000 as of* June 30, 2025*, and* June 30, 2024*, respectively, which is included inother assets on the Company’s balance sheet. Operating lease liabilities were $198,000 and $87,000 as of* June 30, 2025*, and* June 30, 2024*, respectively, which are included inother accrued liabilities and other long-term liabilities on the Company’s balance sheet.

As of* June 30, 2025*, and* June 30, 2024*, the Company had a weighted-average lease term of 2.9 and 1.1 years, respectively, for its operating leases, which had a weighted-average discount rate of 6.4% and 4.0%, respectively. Operating lease payments of $81,000 are included in operating cash flows in fiscal2025.

Maturities of lease liabilities, which are included in other accrued liabilities and other long-term liabilities on the Balance Sheet, are as follows:

The computations of basic and diluted EPS amounts were as follows:

Common stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive were 52,146 and 288,792 shares for fiscal2025 and2024, respectively.

F-19

**Litigation:**The Company is occasionally involved in claims and disputes arising in the ordinary course of business. The Company insures certain 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.

401(k) Profit Sharing Plan: The Company has an employee benefit plan under Section401(k) of the Internal Revenue Code covering all employees who are 21 years of age or older. The Company matches each employee’s salary reduction contribution,not to exceed four percent of annual compensation. Total employer contributions to this plan for fiscal2025 and2024 were $743,000 and $598,000, respectively.

**Employment Agreements:*The Company is party to employment agreements with its President and Chief Executive Officer and its Chief Financial Officer, as may*be amended from time to time. These agreements provide these officers with, among other things, twelve months of base salary upon a termination of employment without “Cause” or in the event the employee resigns for “Good Reason.” The employment agreements also provide these officers with, among other things, increased severance payments in connection with a termination that occurs within twelve months of a “Change in Control,” as defined in the respective employment agreements.

The Company uses a parts supplier whose founder and president was a director of the Company through* November 12, 2021.The former director has remained a beneficial owner of greater than5%* of the Company’s outstanding common stock through* June 30, 2025*. The Company made payments to the supplier of $1,377,000 and $2,051,000 during fiscal years2025 and2024, respectively. Amounts due to the supplier were $508,000 and $18,000 on* June 30, 2025*, and* June 30, 2024*, respectively, which were included in accounts payable and other accrued liabilities on the Balance Sheets.

We have determined that we have asingle reportable and operating segment structure. Our President and Chief Executive Officer is our chief operating decision maker (“CODM”). The CODM reviews financial information, including long-lived assets, presented on a consolidated basis, accompanied by information about revenue by market, for purposes of allocating resources and evaluating financial performance. Furthermore, the CODM uses consolidated net income (loss) as the measure of our sole segment’s profit or loss. Significant segment expenses are those expenses reported in the Consolidated Statement of Operations. We have a single active product and engage in the single business activity of selling and supporting that single product. There areno managers who are held accountable for operations, operating results or plans for levels or components below the consolidated level. We and our CODM evaluate our performance based on revenue from our single product in the markets in which the Company operates and consolidated net income (loss), which is reflected in the Consolidated Statement of Operations. Revenue by market is described above in Note2.

The Company evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date the financial statements are issued for either disclosure or adjustment to the Company’s financial results. There have beenno events subsequent to* June 30, 2025*, which would require recognition in the Financial Statements or Notes to the Financial Statements.

F-20