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Item 8. Financial Statements and Supplementary Data

2025-08-26 compared with 2024-08-27 · 587 added, 618 removed, 211 unchanged (85% of the section changed)

Statements and Supplementary Data.

to Financial Statements

of Independent Registered Public Accounting Firm

of Operations

of Shareholders’ Equity

of Cash Flows

to Financial Statements

of Independent Registered Public Accounting Firm

and Board of Directors

on the Financial Statements

have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2024 and 2023, the related

statements of operations, shareholders’ equity and cash flows for the years then ended, and the related notes to the financial

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company

as of June 30, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity

with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

Financial Statements and Supplementary Data.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Shareholders ’ Equity

Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Electromed, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Electromed, Inc.

(the Company) as of June 30, 2025, and 2024, the related statements of operations, shareholders’ equity and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025, and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but

not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of

the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not,

by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts

or disclosures to which it relates.

of Customer Revenue Net of Adjustments

discussed in Note 2 to the financial statements, revenues are recognized at a point in time when control passes to the customer

upon product shipment or delivery.

Net patient revenues (patient revenue less estimated adjustments) are recognized at the estimated

net realizable amounts from third-party payers and customers in exchange for the product.

The Company has agreements with third-party

payers that provide for payments at amounts different from its established rates.

Each quarter, the Company estimates its adjustments

for each sale based on the terms of third-party payer contracts and historical collections experience, then applies an estimate

for an adjustment reserve percentage to the gross accounts receivable balances.

identified the measurement of the adjustment reserve related to customer revenue as a critical audit matter due to the audit effort,

degree of auditor judgment, and subjectivity involved in evaluating the audit evidence related to management’s estimate.

audit procedures related to the Company’s measurement of the adjustment reserve included the following, among others.

● Recalculated

the contractual and collection reserve estimates and compared them to the general ledger.

samples of product sales, additional revenue collections and writeoffs, to inspect and

compare to the underlying source documents and to test the reasonableness of the contractual

adjustment and collection percentage assumptions used in management’s estimate.

the reasonableness of management’s estimate of contractual and collection reserves

the estimates of realization percentages to historical net collection percentages for

portfolio groups.

whether quarterly historical realization percentages were reasonable and qualitatively

consistent with internal and external independent data.

have served as the Company’s auditor since 2010.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement of Customer Revenue Net of Adjustments

As discussed in Note 2 to the financial statements, revenues are recognized at a point in time when control passes to the customer upon product shipment or delivery.

Net patient revenues (patient revenue less estimated adjustments) are recognized at the estimated net realizable amounts from third-party payers and customers in exchange for the product.

The Company has agreements with third-party payers that provide for payments at amounts different from its established rates.

Each quarter, the Company estimates its adjustments for each sale based on the terms of third-party payer contracts and historical collections experience, then applies an estimate for an adjustment reserve percentage to the gross accounts receivable balances.

We identified the measurement of the adjustment reserve related to customer revenue as a critical audit matter due to the audit effort, degree of auditor judgment, and subjectivity involved in evaluating the audit evidence related to management’s estimate.

Our audit procedures related to the Company’s measurement of the adjustment reserve included the following, among others.

Recalculated the contractual and collection reserve estimates and compared them to the general ledger.

Selected samples of product sales, additional revenue collections and writeoffs, to inspect and compare to the underlying source documents and to test the reasonableness of the contractual adjustment and collection percentage assumptions used in management’s estimate.

Evaluated the reasonableness of management’s estimate of contractual and collection reserves by:

Comparing the estimates of realization percentages to historical net collection percentages for portfolio groups.

Evaluating whether quarterly historical realization percentages were reasonable and qualitatively consistent with internal and external independent data.

/s/ RSM US LLP

We have served as the Company’s auditor since 2010.

Minneapolis, Minnesota

August 26, 2025

Electromed, Inc.

Balance Sheets

June 30, 2025, and 2024

As of June 30,

Current Assets

Cash and cash equivalents

$ 15,287,000 $ 16,080,000

Accounts receivable (net of allowances for credit losses of $ 45,000 )

24,660,000 23,333,000

Contract assets

1,036,000 719,000

3,299,000 3,712,000

Prepaid expenses and other current assets

392,000 329,000

Income tax receivable

Total current assets

45,082,000 44,173,000

Property and equipment, net

4,714,000 5,165,000

Finite-life intangible assets, net

371,000 657,000

1,173,000 87,000

Deferred income taxes

2,462,000 2,152,000

$ 53,802,000 $ 52,234,000

Liabilities and Shareholders’ Equity

1 unchanged sentence

Accounts payable

$ 2,667,000 $ 1,010,000

Accrued compensation

5,079,000 3,893,000

Income tax payable

Warranty reserve

1,645,000 1,567,000

Other accrued liabilities

1,077,000 930,000

Total current liabilities

10,468,000 7,677,000

Other long-term liabilities

125,000 12,000

Total liabilities

10,593,000 7,689,000

Shareholders’ Equity

Common stock, $ 0.01 par value, 13,000,000 shares authorized;

8,637,883 and 8,555,236 issued and outstanding, as of June 30, 2024 and June 30, 2023, respectively

Common stock, $ 0.01 par value per share, 13,000,000 shares authorized;

8,349,176 and 8,637,883 shares issued and outstanding, as of June 30, 2025, and June 30, 2024, respectively

83,000 87,000

Additional paid-in capital

21,941,000 20,790,000

Retained earnings

21,185,000 23,668,000

Total shareholders’ equity

43,209,000 44,545,000

Total liabilities and shareholders’ equity

Notes to Financial Statements.

of Operations

$ 53,802,000 $ 52,234,000

See Notes to Financial Statements.

Electromed, Inc.

Statements of Operations

Years Ended June 30, 2025, and 2024

Years Ended June 30,

Year Ended June 30,

$ 64,000,000 $ 54,716,000

Cost of revenues

14,029,000 12,990,000

49,971,000 41,726,000

Operating expenses

Selling, general and administrative

39,315,000 34,489,000

Research and development

996,000 656,000

Total operating expenses

40,311,000 35,145,000

Operating income

9,660,000 6,581,000

Interest income, net

624,000 455,000

Net income before income taxes

10,284,000 7,036,000

Income tax expense

2,747,000 1,886,000

$ 7,537,000 $ 5,150,000

Income per share:

$ 0.89 $ 0.60

$ 0.85 $ 0.58

Weighted-average common shares outstanding:

Notes to Financial Statements.

8,454,100 8,562,245

8,914,421 8,864,585

See Notes to Financial Statements.

Electromed, Inc.

Statements of Shareholders ’ Equity

3 unchanged sentences

Balance as of June 30, 2023

Issuance of restricted stock, net

Issuance of common stock upon exercise of options

Taxes paid on stock option exercised on a net basis

8,555,236 $ 86,000 $ 18,788,000 $ 18,793,000 $ 37,667,000

— — — 5,150,000 5,150,000

Exercise of common stock options and issuance of restricted stock, net of cancellations and tax withholdings

101,008 1,000 310,000 — 311,000

Share-based compensation expense

— — 1,692,000 — 1,692,000

Repurchase of common stock

( 18,361 ) — — ( 275,000 ) ( 275,000 )

Balance as of June 30, 2024

Issuance of restricted stock, net

Issuance of common stock upon exercise of options

8,637,883 $ 87,000 $ 20,790,000 $ 23,668,000 $ 44,545,000

— — — 7,537,000 7,537,000

Exercise of common stock options, vesting of performance stock units and issuance of restricted stock, net of cancellations and tax withholdings

212,209 1,000 ( 1,908,000 ) — ( 1,907,000 )

Share-based compensation expense

— — 3,059,000 — 3,059,000

Repurchase of common stock

( 500,916 ) ( 5,000 ) — ( 10,020,000 ) ( 10,025,000 )

Balance as of June 30, 2025

Notes to Financial Statements.

8,349,176 $ 83,000 $ 21,941,000 $ 21,185,000 $ 43,209,000

See Notes to Financial Statements.

Electromed, Inc.

1 unchanged sentence

Years Ended June 30, 2025, and 2024

Years Ended June 30,

Year Ended June 30,

Cash Flows from Operating Activities

$ 7,537,000 $ 5,150,000

Adjustments to reconcile net income to net cash provided by operating activities:

1,039,000 789,000

Impairment of intangible assets

Amortization of finite-life intangible assets

133,000 52,000

Share-based compensation expense

3,059,000 1,692,000

Deferred income taxes

( 310,000 ) ( 571,000 )

Changes in operating assets and liabilities:

3 unchanged sentences

( 317,000 ) ( 232,000 )

175,000 459,000

Prepaid expenses and other assets

Income tax payable

( 959,000 ) 1,321,000

Income tax receivable, net

( 685,000 ) ( 59,000 )

Accounts payable and accrued liabilities

1 unchanged sentence

Accrued compensation

1,186,000 875,000

Net cash provided by operating activities

11,393,000 9,067,000

Cash Flows from Investing Activities

2 unchanged sentences

Expenditures for finite-life intangible assets

Net cash used in investing activities

( 44,000 ) ( 108,000 )

Net cash used for investing activities

( 306,000 ) ( 395,000 )

Cash Flows from Financing Activities

Issuance of common stock upon exercise of options

Taxes paid on stock options exercised on a net basis

398,000 311,000

Taxes paid on net share settlement of stock awards

( 2,278,000 ) —

Repurchase of common stock

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

( 10,000,000 ) ( 275,000 )

Net cash (used for) provided by financing activities

( 11,880,000 ) 36,000

Net (decrease) increase in cash

( 793,000 ) 8,708,000

Cash and cash equivalents

Beginning of period

16,080,000 7,372,000

End of period

$ 15,287,000 $ 16,080,000

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes

$ 3,742,000 $ 2,514,000

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment acquisitions in accounts payable

Intangible asset acquisitions in accounts payable

Lease assets obtained in exchange for new operating lease liabilities

Demonstration equipment transferred from inventory to property and equipment

Notes to Financial Statements.

Property and equipment and intangible asset acquisitions in accounts payable

$ 107,000 $ 4,000

Taxes owed on net share settlement of stock awards in accrued liabilities

Demonstration equipment transferred between inventory and property and equipment

$ 238,000 $ 50,000

Issuance of common stock upon the vesting of performance-based stock units

See Notes to Financial Statements.

Electromed, Inc.

Notes to Financial Statements

Nature of Business and Summary of Significant Accounting

Nature of Business and Summary of Significant Accounting Policies

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.

Company markets its products in the U.S.

(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 $ 470,000 and $ 424,000 for the fiscal years ended June 30, 2024 (“fiscal 2024”)

and June 30, 2023 (“fiscal 2023”), respectively.

its inception, the Company has operated in a single industry segment:

The Company also sells internationally through distributors.

International sales were $ 248,000 and $ 470,000 for the fiscal years ended June 30, 2025 (“fiscal 2025 ”) and June 30, 2024 (“fiscal 2024 ”), respectively.

Since its inception, the Company has operated in a single industry segment:

developing, manufacturing, and marketing medical equipment.

summary of the Company’s significant accounting policies follows:

of estimates :

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.

accepted accounting principles (“U.S.

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.

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.

generally accepted accounting principles (“U.S.

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 Note 2 for information on revenue.

and handling expense :

Shipping and handling charges incurred by the Company are included in cost of revenues and were $ 383,000

and $ 896,000 for fiscal 2024 and 2023, respectively.

and cash equivalents :

Cash and cash equivalents consist of cash in bank deposits and money market funds with original maturities

of three months or less at the time of purchase.

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 fiscal 2025 and 2024 , respectively.

Cash and cash equivalents:

Cash and cash equivalents consist of cash in bank deposits and money market funds with original maturities of three months or less at the time of purchase.

The Company has not 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 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.

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 credit losses.

Management determines

the allowance for credit losses by regularly evaluating individual customer accounts and separately considering macroeconomic

trends in determining expected 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 include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals

where the final determination of the insurance coverage amount is dependent on future approval of an appeal, or 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 :

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 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.

costs are reviewed at least annually by management, or more often in the event circumstances indicate a change in cost has occurred.

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.

inventory to be returned is based on how many devices that have shipped that are expected to be returned prior to completion of

the insurance reimbursement process.

and equipment :

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.

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 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.

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.

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 than 12 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

intangible assets :

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 than 12 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 Note 5.

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.

These intangible assets are amortized on a straight-line basis over their estimated useful lives, as described in Note 5.

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.

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.

addition, we periodically reassess the estimated remaining useful lives of our long-lived and finite-life intangible assets.

to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings.

We have experienced

no significant changes in the carrying amount or estimated remaining useful lives of our long-lived or amortizable intangible

The Company provides a lifetime warranty on its products to the prescribed patient for homecare sales within the

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 experienced no significant changes in the carrying amount or estimated remaining useful lives of our long-lived or amortizable intangible assets, except as described in Note 5.

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 a one to five -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.

in the Company’s warranty liability were as follows :

Schedule of changes in warranty liability

Years Ended June 30,

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:

Year Ended June 30,

Beginning warranty reserve

$ 1,567,000 $ 1,378,000

Accrual for products sold

441,000 559,000

Expenditures and costs incurred for warranty claims

( 363,000 ) ( 370,000 )

Ending warranty reserve

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

$ 1,645,000 $ 1,567,000

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.

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 than

not 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.

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 50 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.

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

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.

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 than not 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 than 50 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 fiscal 2024 and 2023

were $ 1,487,000 and $ 1,244,000 , respectively.

Share-based payment awards consist of options to purchase shares of common stock, performance-based share awards

and restricted shares of common stock issued to employees for services.

Expense for options is estimated using the Black-Scholes

pricing model at the date of grant, expenses 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 is determined by the closing price on the day the grant is

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.

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.

income per common share :

Advertising, marketing and trade show costs for fiscal 2025 and 2024 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.

income per common share is computed using the weighted-average number of common shares outstanding during the period, excluding

any restricted stock awards which have not 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.

Common stock equivalents included in the calculation of diluted earnings per share

were 302,340 and 237,149 shares for fiscal 2024 and 2023, respectively.

Common stock equivalents excluded from the calculation

of diluted earnings per share because their impact was anti-dilutive were 288,792 and 194,154 shares for fiscal 2024 and 2023,

respectively.

Issued Accounting Standards

Standards Update (“ASU”) 2016-13 – Credit Losses:

Measurement of Credit Losses on Financial Instruments (subsequently

amended by ASU 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, and 2020-02)

standard introduces new accounting guidance for credit losses on financial instruments within its scope, including trade receivables.

This new guidance adds an impairment model that is based on expected losses rather than incurred losses.

This standard was adopted

July 1, 2023 and does not have a material impact on the financial statements.

2023-07 - Segment Reporting (Topic 280):

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 have not 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

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, with early adoption permitted.

The Company is currently evaluating the impact of adoption and

additional disclosure requirements.

2023-09 - Income Taxes (Topic 740):

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

standard introduces increased transparency about income tax information through the requirement of increased disclosures around

specific categories in the rate reconciliation and requiring additional information on reconciling items.

It is effective for

annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact

of adoption and additional disclosure requirements.

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 consideration paid or payable from 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, as further described below under Performance obligations and transaction price .

promised goods and services in a contract are considered a performance obligation and accounted for separately if the individual

good or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are

readily available to the customer and the good or service is separately identifiable from other promises in the arrangement).

If an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations

in proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or

more but not all the performance obligations.

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” (“ASC 340”), or other applicable guidance are met.

Company includes shipping and handling fees in net revenues.

Shipping and handling costs associated with the shipment of the SmartVest

System 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.

timing of revenue recognition, billings and cash collections results in accounts receivable on the Balance Sheets as further described

above under Accounts receivable and Contract assets in Note 1.

Disaggregation

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.

Disaggregation of revenues.

In the following table, revenue is disaggregated by market:

Schedule of disaggregated revenue

Years Ended June 30,

Year Ended June 30,

$ 57,287,000 $ 49,503,000

3,140,000 2,535,000

Homecare distributor

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

Years Ended June 30,

2,928,000 1,852,000

645,000 826,000

$ 64,000,000 $ 54,716,000

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

Year Ended June 30,

$ 29,127,000 $ 24,215,000

20,960,000 18,627,000

Medicare Supplemental

are recognized at a point in time when control passes to the customer upon product shipment or delivery.

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 ASC 606, “Revenue From Contracts With Customers” (“ASC 606”).

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:

5,220,000 4,706,000

922,000 1,114,000

1,058,000 841,000

$ 57,287,000 $ 49,503,000

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 ASC 606, “Revenue From Contracts With Customers” (“ASC 606” ).

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 of three 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.

Company makes available to its homecare patients limited post-sale services that are not material in the context of the contracts,

either individually or taken together, and therefore does not 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 various models of the SmartVest System are comprised of three 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 are not material in the context of the contracts, either individually or taken together, and therefore does not 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.

patients generally will rely on third-party payers, including commercial payers and governmental payers such as Medicare, Medicaid

Homecare patients generally will rely on third -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.

The third-party

payers’ reimbursement programs fall into three 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 capped not 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.

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.

once delivered to a patient who needs the SmartVest System, the patient is under no obligation to return the SmartVest System

should payments be terminated as a result 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, as further discussed under Accounts receivable

and Contract assets below.

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 may be further

impacted by variable consideration.

ASC 606 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 the third-party payer’s

termination due to changes in insurance coverage, death or the patient’s discontinued use of the SmartVest System, (ii)

contracts under appeal and (iii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.

estimates may be 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.

The Company’s estimates of

variable consideration consist of amounts it may receive 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.

includes steps to ensure that revenue recognized on a portfolio basis does not 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

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that

a significant future reversal of cumulative revenue under the contract will not occur.

payment trends for recovery of claims subject to payer installments and payments from patients have remained relatively consistent

over the past five 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 generally not subject to the risk of significant revenue reversal.

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 ASC

606 to estimate variable consideration.

Company often receives payment from third-party payers for the SmartVest System sales that may exceed one year.

Despite these

extended payment terms, no significant financing component is deemed to exist because the purpose of such terms is not 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.

distributors.

Sales to distributors, who sell direct to patients, are made at fixed contract prices and may include tiered

pricing structures or volume-based rebates which offer more favorable pricing once certain volumes are achieved per the negotiated

The distributor’s purchases accumulate to give the distributor 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 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.

Transfer of control of the products

occurs upon shipment or delivery to the distributor as applicable.

The Company’s hospital sales are made to hospitals and home health care centers, pulmonary rehabilitation

centers and other clinics.

Sales to these institutions are negotiated with the individual institution or with group purchasing

organizations, with payments received directly from the institution.

No insurance reimbursement is involved.

Generators are either

sold or leased to the institutions and associated hoses and wraps (used in institutional settings rather than vests) are sold

Accordingly, each product is distinct and considered a separate performance obligation in sales to institutional customers.

The agreements with institutions fall into two main types, distinguished by differences in the timing of transfer of control and

timing of payments:

sale – Under these transactions, the Company sells its products for a prescribed

or negotiated price.

Transfer of control of the product, and associated revenue recognition,

occurs at the time of shipment and payment is made within normal credit terms, usually

within 30 days.

usage agreements – Under these transactions, the Company provides a generator device

at no cost to the hospital in return for a fixed annual commitment to purchase consumable

These agreements are cancellable upon at least sixty 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.

Sales to international or other customers are at fixed contract prices that are not subject to further adjustments

for variable consideration.

The third -party payers’ reimbursement programs fall into three 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 capped not 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 under no 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 may be further impacted by variable consideration.

ASC 606 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 the third -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 may be 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 ASC 606 to estimate variable consideration.

The Company’s estimates of variable consideration consist of amounts it may receive 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 does not 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 past five 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 generally not 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, and 2024 , respectively.

The Company often receives payment from third -party payers for the SmartVest System sales that may exceed one year.

Despite these extended payment terms, no significant financing component is deemed to exist because the purpose of such terms is not 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 are not subject to further adjustments for variable consideration.

Limited sales within the homecare distributor and hospital markets may include 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 considered one 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 within 30 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 at no cost to the hospital in return for a fixed annual commitment to purchase consumable wraps.

These agreements are cancellable upon at least sixty 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 warranties not sold on a standalone

basis or are otherwise considered immaterial in the context of the contract, and therefore are not considered distinct performance

obligations under ASC 606.

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.

These warranties are assurance type warranties not sold on a standalone basis or are otherwise considered immaterial in the context of the contract and therefore are not considered distinct performance obligations under ASC 606.

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” (“ASC 340” ), 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:

Schedule of contract assets

As of June 30,

Receivables, included in “Accounts receivable, net of allowance for credit losses”

$ 24,660,000 $ 23,333,000

Contract Assets

Accounts receivable, net of allowances for credit losses, as of June 30, 2022 were $21,052,000.

changes in contract assets during the period are as follows:

$ 1,036,000 $ 719,000

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

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

June 30, 2025

3 unchanged sentences

Contract assets, beginning

Reclassification of contract assets to accounts receivable

$ 719,000 $ 487,000

Reclassification of contract assets to accounts receivable

( 2,577,000 ) ( 2,325,000 )

Contract assets recognized

2,694,000 2,840,000

Increase (decrease) as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period

200,000 ( 283,000 )

Contract assets, ending

components of inventory were as follows:

Schedule of components of inventories

$ 1,036,000 $ 719,000

Selected Balance Sheet Information

Inventory consists of the following:

As of June 30, 2025

As of June 30, 2024

Parts inventory

$ 2,075,000 $ 2,556,000

Work in process

180,000 454,000

Finished goods

928,000 834,000

Estimated inventory to be returned

393,000 265,000

Reserve for obsolescence

( 277,000 ) ( 397,000 )

$ 3,299,000 $ 3,712,000

Other assets consist of the following:

As of June 30, 2025

As of June 30, 2024

Capitalized software costs

$ 952,000 $ -

Right of use assets

198,000 87,000

$ 1,173,000 $ 87,000

Other accrued liabilities consist of the following:

As of June 30, 2025

As of June 30, 2024

Accrued insurance recoupments

$ 602,000 $ 467,000

Other accrued expenses

475,000 463,000

$ 1,077,000 $ 930,000

Property and Equipment

and equipment were as follows:

Schedule of property and equipment, including assets under capital leases

Property and equipment were as follows:

Estimated Useful

As of June 30,

Lives (Years) 2025 2024

Building and building improvements

10 - 40 $ 3,457,000 $ 3,448,000

N/A 200,000 200,000

Land improvements

15 173,000 173,000

3 - 7 3,214,000 3,101,000

7 2,236,000 2,236,000

Demonstration and rental equipment

3 1,214,000 1,105,000

Construction in progress

Accumulated depreciation

N/A 224,000 72,000

10,718,000 10,335,000

Accumulated depreciation

( 6,004,000 ) ( 5,170,000 )

Net property and equipment

$ 4,714,000 $ 5,165,000

Finite-life Intangible Assets

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 $ 273,000 and $ 224,000 as of June 30, 2024,

and 2023, respectively.

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

Schedule of activity and balances of finite-life intangible assets

Years Ended June 30,

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 , and 2024 , 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 the fourth quarter of fiscal 2025, 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 was not 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:

Year Ended June 30,

Balance, beginning

$ 657,000 $ 605,000

59,000 104,000

Amortization expense

( 133,000 ) ( 52,000 )

( 212,000 ) —

Balance, ending

on the carrying value as of June 30, 2024, future amortization is expected to be as follows:

Schedule of future amortization of finite-life intangible assets

Fiscal years ending June 30:

$ 371,000 $ 657,000

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

Fiscal year ending June 30:

Financing Arrangements

Company has a credit facility that provides for a revolving line of credit and a term loan.

Effective December 13, 2023 ,

the Company renewed its $ 2,500,000 revolving line of credit.

There was no outstanding principal balance on the line of credit

as of June 30, 2024, or June 30, 2023.

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 8.50 %

as of June 30, 2024) 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 , if not renewed

before such date.

The Company has a credit facility that provides for a $ 2,500,000 revolving line of credit through December 18, 2025 , if not renewed before such date.

There was no 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 the prime 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 , if not 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.

documents governing the line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net

worth covenant of not less than $ 10,125,000 and restrictions on the Company’s ability to incur certain additional indebtedness

or pay dividends.

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.

May 26, 2021, the Company’s Board of Directors (the “Board”) approved a stock repurchase authorization.

the authorization, the Company was originally able to repurchase up to $ 3.0 million of shares of common stock through May 26,

On May 26, 2022, our Board of Directors removed the date limitation.

As of June 30, 2024, a total of 258,356 shares have

been repurchased and retired under this authorization for a total cost of $ 3,000,000 , or $ 11.61 per share.

Repurchased shares

have been retired and constitute authorized but unissued shares.

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 of not 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.

Share-Based Compensation

compensation expense for fiscal 2024 and 2023 was $ 1,692,000 and $ 708,000 , respectively, related to employee stock options, performance-based

restricted stock units and restricted stock awards.

This expense is included in selling, general and administrative expense in

the Statements of Operations.

As of June 30, 2024, the Company had $ 1,659,000 of unrecognized compensation expense related to

non-vested equity awards, which is expected to be recognized over a weighted-average period of 3.0 , 1.99 and 2.59 years related

to performance-based restricted stock units, restricted stock awards and employee stock options, respectively.

Share-based compensation expense for fiscal 2025 and 2024 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 the 2023 Equity Incentive Plan (the “2023 Plan”) which superseded the 2017 Omnibus Incentive Plan (the “2017 Plan”) and the 2014 Equity Incentive Plan (the “2014 Plan”).

The 2023 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 the 2023 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 the 2017 Plan as of the approval date of the 2023 Plan, and (iii) up to 360,856 shares of common stock that were subject to outstanding awards under the 2017 Plan as of the approval date of the 2023 Plan, which shares will be available for future grants under the 2023 Plan to the extent that, on or after the approval date of the 2023 Plan, such awards expire, are cancelled, are forfeited or are settled for cash.

There were 868,331 shares available for grant under the 2023 Plan as of June 30, 2025 .

Employee options:

The Company has historically granted stock options to employees as long-term incentive compensation.

Options expire

ten years from the grant date and vest over a period of three years.

In November 2023, the Company’s shareholders approved

the 2023 Equity Incentive Plan (the “2023 Plan”) which superseded the 2017 Omnibus Incentive Plan (the “2017

Plan”) and the 2014 Equity Incentive Plan (the “2014 Plan”).

The 2023 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.

number of shares of common stock available for issuance under the 2023 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 the 2017 Plan as of the approval date of the 2023

Plan, and (iii) up to 360,856 shares of common stock that were subject to outstanding awards under the 2017 Plan as of the approval

date of the 2023 Plan, which shares will be available for future grants under the 2023 Plan to the extent that, on or after the

approval date of the 2023 Plan, such awards expire, are cancelled, are forfeited or are settled for cash.

There were 458,973 options

granted under the 2017 Plan and prior plans outstanding as of June 30, 2024.

There were 1,100 options issued under the 2023 Plan

outstanding and 1,031,734 shares available for grant under the 2023 Plan as of June 30, 2024.

Company recognizes compensation expense 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

Options expire ten years from the grant date and typically vest over a period of three years.

There were 366,847 options granted under the 2017 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 the 2023 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.

risk-free interest rate is based upon observed U.S.

The risk-free interest rate is based upon observed U.S.

Treasury interest rates for the expected term of the options.

makes assumptions with respect to expected stock price volatility based upon the historical volatility of its stock price.

are accounted for as they occur.

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

Schedule of assumptions used to estimate fair value of options granted

Ended June 30,

interest rate

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:

Year Ended June 30,

Risk-free interest rate

3.69 - 4.14 % 3.85 - 4.64 %

Expected term (years)

Expected volatility

53 % 51 - 52 %

following table presents employee stock option activity for fiscal 2024 and 2023:

Schedule of stock option transactions

The following table presents employee stock option activity for fiscal 2025 and 2024 :

Exercise Price

1 unchanged sentence

Options outstanding as of June 30, 2023

451,570 $ 4.28 $ 6.93 5.53

263,162 $ 5.78 $ 10.70 —

( 56,580 ) $ 3.66 $ 5.50 —

Canceled or forfeited

( 23,079 ) $ 5.81 $ 10.46 —

Options outstanding as of June 30, 2024

635,073 $ 4.91 $ 8.49 6.40

Options exercisable as of June 30, 2024

378,270 $ 4.34 $ 7.03 4.68

62,432 $ 9.50 $ 17.43 —

( 84,895 ) $ 3.59 $ 5.91 —

Canceled or forfeited

( 7,231 ) $ 5.79 $ 10.74 —

Options outstanding as of June 30, 2025

605,379 $ 5.56 $ 9.75 6.16

Options exercisable as of June 30, 2025

intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds its exercise price.

June 30, 2024, the weighted average remaining contractual term for all outstanding stock options was 6.4 years and their aggregate

intrinsic value was $ 4,154,000 .

Outstanding at June 30, 2024 were 635,073 stock options issued to employees, of which 378,270

were vested and exercisable and had an aggregate intrinsic value of $ 3,029,000 .

The 2023 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 over

six months to three years following the applicable grant date.

Company issued restricted stock awards to employees totaling 23,428 and 32,400 during fiscal 2024 and 2023, respectively, with

a vesting term of three years and a fair value of $ 10.74 and $ 9.92 per share, respectively.

The Company issued restricted stock

awards to directors totaling 21,000 and 21,000 during fiscal 2024 and 2023, respectively, with a vesting term of six months and

a fair value of $ 10.44 and $ 9.86 per share for fiscal 2024 and 2023, respectively.

Restricted stock transactions during the years

ended June 30, 2024 and 2023 are summarized as follows:

Schedule of restricted stock transactions

417,551 $ 4.90 $ 8.31 5.14

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:

The 2023 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 over six months to three 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 fiscal 2025 and 2024 , respectively, with vesting terms of three 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 fiscal 2025 and 2024 , with vesting terms of six months and fair values of $ 30.78 and $ 10.44 per share, respectively.

Restricted stock transactions during the years ended June 30, 2025, and 2024 are summarized as follows:

Weighted-Average

Grant Date Fair

Restricted Stock

Value per Share

Unvested awards outstanding as of June 30, 2023

18,233 $ 10.23

44,428 $ 10.60

( 40,034 ) $ 10.45

Canceled or forfeited

Unvested awards outstanding as of June 30, 2024

22,627 $ 10.57

42,400 $ 23.95

( 33,610 ) $ 23.14

Canceled or forfeited

Unvested awards outstanding as of June 30, 2025

Performance-Based

31,417 $ 15.18

Restricted stock units:

Company granted 175,000 performance-based restricted stock units (“PSUs”) to our President and Chief Executive Officer

in connection with his appointment as CEO on July 1, 2023.

The PSUs are to be earned based on the extent to which performance

goals tied to Total Shareholder Return (“TSR”) are achieved.

The performance-based restricted stock units will be

eligible to vest and settle into shares of common stock on a 1-for-1 basis with respect to one-half of the shares upon achieving

a total shareholder return of 50% and the remaining shares upon a total shareholder return 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 of four years.

weighted average grant date fair value per unit was $ 6.58 per unit and as of June 30, 2024, there are 175,000 PSUs outstanding.

On June 30, 2024, there was approximately $ 863,000 of total unrecognized compensation expense related to outstanding PSUs that

is expected to be recognized over a period of 3.00 years.

of the provision for income taxes were as follows:

Schedule of components of the provision for income taxes

Years Ended June 30,

The Company issued restricted stock units to employees during fiscal 2025 consisting of opportunities to receive up to 69,102 shares of common stock upon vesting, with vesting terms of three years and a weighted average fair value of $ 17.96 per share.

Restricted stock unit transactions during the years ended June 30, 2025, and 2024 are summarized as follows:

Weighted-Average

Shares Underlying Grant Date Fair

Restricted Stock Units Value per Share

Unvested units outstanding as of June 30, 2023

Canceled or forfeited

Unvested units outstanding as of June 30, 2024

69,102 $ 17.96

Canceled or forfeited

( 3,300 ) $ 17.25

Unvested units outstanding as of June 30, 2025

65,802 $ 17.99

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 the three -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 a 1 -for- 1 basis with respect to one -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 of four 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 were no PSUs outstanding as June 30, 2025.

Components of the provision for income taxes were as follows:

Year Ended June 30,

Current Federal

$ 2,478,000 $ 1,935,000

Current State

579,000 522,000

Total Current

3,057,000 2,457,000

Deferred Federal

( 311,000 ) ( 516,000 )

Deferred State

1,000 ( 55,000 )

Total Deferred

( 310,000 ) ( 571,000 )

Total Income Tax Expense

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:

Schedule of effective income tax reconciliation

Years Ended June 30,

$ 2,747,000 $ 1,886,000

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:

Year Ended June 30,

Tax expense at statutory federal rate

$ 2,160,000 $ 1,477,000

State income tax expense, net of federal tax effect

459,000 369,000

Share based compensation

( 1,016,000 ) ( 82,000 )

Disallowed meal expenses

Change in valuation allowance on deferred tax assets

207,000 169,000

Non-deductible officer compensation

Other permanent items

40,000 ( 47,000 )

Income tax expense

effective tax rates for fiscal 2024 and 2023 were 26.8 % and 22.5 %, respectively.

significant components of deferred income taxes were as follows:

Schedule of significant components of deferred income taxes

$ 2,747,000 $ 1,886,000

The effective tax rates for fiscal 2025 and 2024 were 26.7 % and 26.8 %, respectively.

The significant components of deferred income taxes were as follows:

As of June 30,

Deferred tax assets:

Revenue recognition and accounts receivable reserves

Accrued liabilities

Finite-life intangible assets

$ 1,247,000 $ 1,298,000

Warranty reserve

405,000 392,000

Stock based compensation

901,000 733,000

205,000 204,000

Capitalized research and development

428,000 289,000

189,000 171,000

3,375,000 3,087,000

Valuation allowance

( 205,000 ) ( 204,000 )

Net deferred tax assets

3,170,000 2,883,000

Deferred tax liabilities:

Property and equipment

( 556,000 ) ( 662,000 )

( 152,000 ) ( 69,000 )

Total deferred tax liabilities

( 708,000 ) ( 731,000 )

Net deferred tax assets

Company has research and development state tax credit carryforwards of $ 258,000 and $ 221,000 as of June 30, 2024, and June 30,

2023, respectively.

Based on the historical use of the credits, management believes it is more likely than not these credits will

begin to expire unused between fiscal years 2025 and 2038.

As of June 30, 2024, and June 30, 2023, the Company had a valuation

allowance of $ 258,000 and $ 221,000 , respectively, related to its research and development state tax carryforwards.

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 than 50 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 does not believe that it has any material

uncertain tax positions as of June 30, 2024, and June 30, 2023.

Company is subject to U.S.

$ 2,462,000 $ 2,152,000

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 than not these credits will begin to expire unused between fiscal years 2026 and 2038.

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, and 2024 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, and 2024 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 than 50 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 does not 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 is no longer subject to federal and state income tax examinations by tax authorities for fiscal year ended prior to

June 30, 2021.

With limited exceptions, the Company is no 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, 2021, without proposing any adjustments.

The Company is not 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 manner

not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in

the period such resolution occurs.

Company has leases for office and warehouse space and office equipment that require monthly payments.

These leases have payments

ranging from $ 200 to $ 5,300 per month which expire through December 2025 and are recognized on a straight-line basis over the

life of the lease.

federal income tax return for the fiscal year ended June 30, 2022, without proposing any adjustments.

The Company is not 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 manner not 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 the first quarter of fiscal 2026.

The Company does not anticipate any material impacts to its overall tax expense;

however, we do expect a reclassification between current and deferred tax expense.

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 2028 and are recognized on a straight-line basis over the life of the lease.

All leases are classified as operating leases which do not include renewal options.

The Company currently does

not 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.

Company has recognized right of use assets associated with its operating leases of $ 87,000 and $ 161,000 as of June 30, 2024, and

June 30, 2023, respectively, which is included in other assets on the Company’s balance sheet.

Operating lease liabilities

were $87,000 and $161,000 as of June 30, 2024, and June 30, 2023, respectively, which are included in other accrued liabilities

and other long-term liabilities on the Company’s balance sheet.

of June 30, 2024, and June 30, 2023, the Company had a weighted-average lease term of 1.1 and 1.5 years, respectively, for its

operating leases, which had a weighted-average discount rate of 4.0 % and 4.0 %, respectively.

Operating lease payments of $ 78,000

are included in operating cash flows in fiscal 2024.

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

Schedule of maturities of lease liabilities

The Company currently does not 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 in other 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 in other 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 fiscal 2025 .

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

Fiscal years ending June 30:

1 unchanged sentence

Present value of lease liabilities

Earnings Per Common Share ("EPS")

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

Year Ended June 30,

$ 7,537,000 $ 5,150,000

Weighted-average common shares outstanding:

8,454,100 8,562,245

Effect of dilutive common stock equivalents

460,321 302,340

8,914,421 8,864,585

Earnings per common share:

$ 0.89 $ 0.60

$ 0.85 $ 0.58

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 fiscal 2025 and 2024 , respectively.

Commitments and Contingencies

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.

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.

The Company matches each employee’s salary reduction contribution, not to exceed

four percent of annual compensation.

Total employer contributions to this plan for fiscal 2024 and 2023 were $ 598,000 and $ 524,000 ,

respectively.

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” or within twelve months of a “Change in Control,” as such terms are defined in the respective employment

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 Section 401 (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 fiscal 2025 and 2024 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.

Related Parties

Company uses a parts supplier whose founder and president was a director of the Company through November 12, 2021.

director has remained a beneficial owner of greater than 5% of the Company’s outstanding common stock through June 30, 2024.

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 than 5% 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 years 2025 and 2024 , respectively.

due to the supplier were $ 18,000 and $ 247,000 on June 30, 2024, and June 30, 2023 respectively, which were included in accounts

payable and other accrued liabilities on the Balance Sheets.

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.

Segment Reporting

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.

We have a single active product and engage in the single business

activity of [selling and supporting that single product].

There are no segment managers who are held accountable for operations,

operating results or plans for levels or components below the consolidated level.

Accordingly, we have determined that we have

a single reportable and operating segment structure.

We and our CODM evaluate performance based on revenue from our single product

in the markets in which the Company operates.

We have determined that we have a single 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 are no 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 Note 2.

Subsequent Events

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.

Except as described

below, there have been no events subsequent to June 30, 2024, which would require recognition in the Financial Statements or Notes

to the Financial Statements.

in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 been no events subsequent to June 30, 2025 , which would require recognition in the Financial Statements or Notes to the Financial Statements.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data