What changed in this filing

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Item 1. Financial Statements

2026-02-10 compared with 2025-11-12 · 220 added, 100 removed, 355 unchanged (47% of the section changed)

2 unchanged sentences

Condensed Balance Sheets

September 30, 2025

December 31, 2025

June 30, 2025

8 unchanged sentences

Income tax receivable

206,000 408,000

Prepaid expenses and other current assets

16 unchanged sentences

3,711,000 5,079,000

Income tax payable

Warranty reserve

10 unchanged sentences

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

8,356,847 and 8,349,176 shares issued and outstanding, as of September 30, 2025, and June 30, 2025, respectively

8,279,631 and 8,349,176 shares issued and outstanding, as of December 31, 2025, and June 30, 2025, respectively

83,000 83,000

11 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

$ 18,897,000 $ 16,255,000 $ 35,784,000 $ 30,923,000

Cost of revenues

4,078,000 3,628,000 7,768,000 6,805,000

14,819,000 12,627,000 28,016,000 24,118,000

Operating expenses

Selling, general and administrative

10,815,000 9,834,000 21,101,000 19,221,000

Research and development

384,000 251,000 625,000 417,000

Total operating expenses

11,199,000 10,085,000 21,726,000 19,638,000

Operating income

3,620,000 2,542,000 6,290,000 4,480,000

Interest income, net

109,000 152,000 243,000 347,000

Net income before income taxes

3,729,000 2,694,000 6,533,000 4,827,000

Income tax expense

968,000 726,000 1,636,000 1,385,000

$ 2,761,000 $ 1,968,000 $ 4,897,000 $ 3,442,000

Income per share:

$ 0.33 $ 0.23 $ 0.59 $ 0.41

$ 0.32 $ 0.22 $ 0.56 $ 0.38

Weighted-average common shares outstanding:

8,270,565 8,424,534 8,296,674 8,494,511

8,689,290 8,953,349 8,685,497 8,983,726

See Notes to Condensed Financial Statements (Unaudited).

1 unchanged sentence

Condensed Statements of Cash Flows (Unaudited)

Three Months Ended September 30,

Six Months Ended December 31,

Cash Flows From Operating Activities

$ 4,897,000 $ 3,442,000

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

427,000 414,000

90,000 78,000

Share-based compensation expense

1,114,000 1,652,000

Changes in operating assets and liabilities:

Accounts receivable

( 1,600,000 ) 558,000

Contract assets

( 116,000 ) ( 278,000 )

( 260,000 ) 500,000

Prepaid expenses and other assets

Income tax receivable, net

( 691,000 ) ( 279,000 )

Income tax payable, net

790,000 ( 791,000 )

Accounts payable and accrued liabilities

( 88,000 ) 434,000

Accrued compensation

( 1,368,000 ) ( 270,000 )

Net cash provided by operating activities

3,195,000 5,460,000

Cash Flows From Investing Activities

Expenditures for property and equipment

( 886,000 ) ( 270,000 )

Expenditures for finite-life intangible assets

( 37,000 ) ( 25,000 )

Net cash used for investing activities

( 923,000 ) ( 295,000 )

Cash Flows From Financing Activities

Issuance of common stock upon exercise of options

232,000 346,000

Taxes paid on net share settlement of stock awards

( 234,000 ) ( 820,000 )

Repurchase of common stock

( 3,766,000 ) ( 4,536,000 )

Net cash used for financing activities

Net decrease in cash

( 3,768,000 ) ( 5,010,000 )

Net (decrease) increase in cash

( 1,496,000 ) 155,000

Cash and cash equivalents

Beginning of period

15,287,000 16,080,000

End of period

$ 13,791,000 $ 16,235,000

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes

$ 846,000 $ 2,180,000

Supplemental Disclosures of Noncash Investing and Financing Activities

Property and equipment and intangible asset acquisitions in accounts payable

$ 44,000 $ 73,000

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

$ 6,000 $ 1,026,000

Demonstration equipment transferred between inventory and property and equipment

$ 101,000 $ 131,000

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

4 unchanged sentences

Balance at June 30, 2024

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

- - - 1,474,000 1,474,000

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

81,944 1,000 ( 671,000 ) - ( 670,000 )

Share-based compensation expense

- - 697,000 - 697,000

Repurchase of common stock

( 262,756 ) ( 3,000 ) - ( 4,555,000 ) ( 4,558,000 )

Balance at September 30, 2024

8,457,071 $ 85,000 $ 20,816,000 $ 20,587,000 $ 41,488,000

- - - 1,968,000 1,968,000

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

99,773 1,000 ( 831,000 ) - ( 830,000 )

Share-based compensation expense

- - 955,000 - 955,000

Repurchase of common stock

- - - 22,000 22,000

Balance at December 31, 2024

8,556,844 $ 86,000 $ 20,940,000 $ 22,577,000 $ 43,603,000

Shareholders’

Balance at June 30, 2025

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

- - - 2,136,000 2,136,000

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

48,519 1,000 ( 46,000 ) - ( 45,000 )

Share-based compensation expense

- - 458,000 - 458,000

Repurchase of common stock

( 40,848 ) - - ( 1,013,000 ) ( 1,013,000 )

Balance at September 30, 2025

8,356,847 $ 84,000 $ 22,353,000 $ 22,308,000 $ 44,745,000

- - - 2,761,000 2,761,000

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

28,377 - 64,000 - 64,000

Share-based compensation expense

- - 656,000 - 656,000

Repurchase of common stock

( 105,593 ) ( 1,000 ) - ( 2,786,000 ) ( 2,787,000 )

Balance at December 31, 2025

8,279,631 $ 83,000 $ 23,073,000 $ 22,283,000 $ 45,439,000

Electromed, Inc.

22 unchanged sentences

Nature of Business and Summary of Significant Accounting Policies of the Annual Report on Form 10 -K for the year ended June 30, 2025.

There have been no significant changes to these policies that have had a material impact on the Unaudited Condensed Financial Statements and the accompanying disclosure notes for the three months ended September 30, 2025 .

Recently Issued Accounting Standards

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The Company expects to adopt this standard for its fiscal year ending June 30, 2028, and is evaluating the impact of adoption and additional disclosure requirements.

ASU 2025 - 06 - Intangibles - Goodwill and Other - Internal Use Software

The standard modernizes the accounting for software costs that are accounted for under Subtopic 350 - 40.

It is effective for annual reporting periods beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted.

The Company expects to adopt this standard for its fiscal year ending June 30, 2029, and is evaluating the impact of adoption and additional disclosure requirements.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s financial statements and related disclosures.

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.

2 unchanged sentences

In the following table, net revenues are disaggregated by market:

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

$ 17,274,000 $ 14,593,000 $ 32,163,000 $ 27,804,000

655,000 723,000 1,702,000 1,413,000

Homecare distributor

905,000 807,000 1,734,000 1,394,000

63,000 132,000 185,000 312,000

$ 18,897,000 $ 16,255,000 $ 35,784,000 $ 30,923,000

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

$ 7,985,000 $ 7,327,000 $ 15,156,000 $ 14,178,000

6,924,000 5,478,000 12,588,000 10,245,000

Medicare Supplemental

1,660,000 1,388,000 3,059,000 2,499,000

423,000 196,000 778,000 438,000

282,000 204,000 582,000 444,000

$ 17,274,000 $ 14,593,000 $ 32,163,000 $ 27,804,000

Contract balances.

The following tables provide information about accounts receivable and contract assets from contracts with customers:

As of September 30, 2025

As of December 31, 2025

As of June 30, 2025

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

$ 26,260,000 $ 24,660,000

Contract Assets

$ 1,152,000 $ 1,036,000

Total Accounts receivable, net of allowances for credit losses, as of June 30, 2024 , were $ 23,333,000 .

Three Months Ended

Six Months Ended

Fiscal Year Ended

September 30, 2025

December 31, 2025

June 30, 2025

Contract assets, beginning

$ 1,036,000 $ 719,000

Reclassification of contract assets to accounts receivable

( 1,002,000 ) ( 2,577,000 )

Contract assets recognized

1,065,000 2,694,000

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

53,000 200,000

Contract assets, ending

$ 1,152,000 $ 1,036,000

Selected Balance Sheet Information

Inventory consists of the following:

As of September 30, 2025

As of December 31, 2025

As of June 30, 2025

Parts inventory

Raw materials

Work in process

3 unchanged sentences

Other assets consist of the following:

As of September 30, 2025

As of December 31, 2025

As of June 30, 2025

2 unchanged sentences

Other accrued liabilities consist of the following:

As of September 30, 2025

As of December 31, 2025

As of June 30, 2025

8 unchanged sentences

Changes in the Company’s warranty reserve were as follows:

Three Months Ended

Six Months Ended

Fiscal Year Ended

September 30, 2025

December 31, 2025

June 30, 2025

Warranty reserve, beginning

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

Accrual for products sold

382,000 441,000

Expenditures and costs incurred for warranty claims

( 214,000 ) ( 363,000 )

Warranty reserve, ending

Income tax expense was $ 668,000 and the effective tax rate was 23.8 % for the three months ended September 30, 2025 .

Estimated income tax expense for the three months ended September 30, 2025 , includes a discrete current tax benefit of $ 81,000 , primarily related to the windfall tax benefit of vested restricted stock and the exercise of stock options.

Income tax expense was estimated at $ 659,000 and the effective tax rate was 30.9 % for the three months ended September 30, 2024 .

Estimated income tax expense for the three months ended September 30, 2024 , includes a discrete current tax benefit of $ 4,000 , primarily related to the vesting of restricted stock awards.

$ 1,813,000 $ 1,645,000

Income tax expense was estimated at $ 968,000 and $ 1,636,000 , and the effective tax rate was 26.0 % and 25.1 % for the three and six months ended December 31, 2025 .

Estimated income tax expense for the three and six months ended December 31, 2025 , includes a discrete current tax benefit of $ 22,000 and $ 103,000 , respectively, primarily related to the windfall tax benefit of vested restricted stock awards and the exercise of stock options.

Income tax expense was estimated at $ 726,000 and $ 1,385,000 , and the effective tax rate was 26.9 % and 28.7 % for the three and six months ended December 31, 2024 .

Estimated income tax expense for the three and six months ended December 31, 2024 , includes a discrete current tax benefit of $ 135,000 and $ 139,000 , respectively, primarily related to the exercise of stock options and the vesting of restricted stock awards.

The Company is subject to U.S.

9 unchanged sentences

Additionally, for expenditures incurred in prior years (i.e., after December 31, 2021, and before January 1, 2025), the legislation permits an election to accelerate the remaining deductions over either a one -year period ( 2026 ) or a two -year period ( 2026 and 2027 ).

The Company is currently evaluating the recognition of deferred tax assets associated with such prior year expenditures and the impact of the available acceleration options.

The outcome of this evaluation may affect the Company’s future income tax payments and related disclosures.

The Company anticipates it will elect to accelerate the remaining deductions over a one -year period ( 2026 ).

The expected reduction of cash paid for taxes is estimated to be approximately $ 428,000 in 2026.

Financing Arrangements

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

There was no outstanding principal balance on the line of credit as of September 30, 2025 , or June 30, 2025 .

Interest on borrowings under the line of credit, if any, accrues at the prime rate ( 7.25 % on September 30, 2025 ) less 1.00 % and is payable monthly.

The amount eligible for borrowing on the line of credit is limited to the lesser of $ 2,500,000 or 57.00 % of eligible accounts receivable.

On September 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 the tangible and intangible assets of the Company.

The documents governing the line of credit contain certain financial and non-financial 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.

On December 16, 2025, the Company entered into a credit agreement with BMO Bank N.A.

The credit agreement provides the Company with a senior security credit facility with a $ 10,000,000 revolving line of credit.

The credit agreement provides that the credit facility will mature on December 16, 2026 , if not renewed or replaced before such date.

Any borrowings under the credit facility will bear interest at one -month Term SOFR ( 3.87 % on December 31, 2025), plus 1.75 %, payable monthly.

There was no outstanding principal balance on the line of credit as of December 31, 2025.

The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement.

In connection with the execution of the BMO Bank N.A.

credit facility, the Company allowed its existing credit facility with Choice Financial Group to expire on its terms, effective December 18, 2025.

The documents governing the credit facility contain certain customary financial and non-financial covenants that include a maximum total funded debt ratio of not more than 2.50x and a minimum fixed charge coverage ratio of at least 1.20x (as each such term is defined in the credit agreement), as well as restrictions on the Company's ability to incur certain additional indebtedness.

Authorized shares:

3 unchanged sentences

This repurchase authorization has no expiration date.

As of September 30, 2025 , a total of 40,848 shares have been repurchased and retired under this authorization for a total cost of $ 1,003,000 , or an average of $ 24.57 per share.

As of December 31, 2025 , a total of 146,441 shares have been repurchased and retired under this authorization for a total cost of $ 3,766,000 , or an average of $ 25.72 per share.

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

1 unchanged sentence

The Company’s share-based compensation plans are described in Note 8 to the financial statements included in the Company’s Annual Report on Form 10 -K for fiscal 2025.

Share-based compensation expenses were $ 458,000 and $ 697,000 for the three months ended September 30, 2025 , and 2024 , respectively.

Share-based compensation expenses were $ 1,114,000 and $ 1,652,000 for the six months ended December 31, 2025 , and 2024 , respectively.

This expense is included in selling, general and administrative, research and development, and cost of revenues expense in the Condensed Statements of Operations.

Stock Options

Stock option transactions during the three months ended September 30, 2025 , are summarized as follows:

Stock option transactions during the six months ended December 31, 2025 , are summarized as follows:

Weighted-Average

6 unchanged sentences

Cancelled or Forfeited

Outstanding at September 30, 2025

( 4,988 ) $ 22.36

Outstanding at December 31, 2025

637,495 $ 10.92

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

Three Months Ended

Six Months Ended

Fiscal Year Ended

September 30, 2025

December 31, 2025

June 30, 2025

4 unchanged sentences

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

On September 30, 2025 , the weighted average remaining contractual term for all outstanding stock options was 6.2 years and the aggregate intrinsic value of the options was $ 8,801,000 .

Outstanding on September 30, 2025 , there were 649,579 stock options issued to employees, of which 435,777 were vested and exercisable and had an aggregate intrinsic value of $ 6,905,000 .

As of September 30, 2025 , $ 1,114,000 of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of approximately 2.4 years.

On December 31, 2025 , the weighted average remaining contractual term for all outstanding stock options was 5.9 years and the aggregate intrinsic value of the options was $ 11,605,000 .

Outstanding on December 31, 2025 , there were 637,495 stock options issued to employees, of which 441,255 were vested and exercisable and had an aggregate intrinsic value of $ 8,987,000 .

As of December 31, 2025 , $ 865,000 of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of approximately 2.3 years.

Restricted Stock

During the three months ended September 30, 2025 , the Company issued restricted stock awards to employees totaling 22,300 shares of common stock, with a weighted average vesting term of 3 years and a weighted average fair value of $ 23.95 per share.

There were 45,224 shares of unvested restricted stock with a weighted average fair value of $ 19.31 per share outstanding as of September 30, 2025 .

As of September 30, 2025 , $ 669,000 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.5 years.

During the three months ended September 30, 2025 , the Company issued restricted stock units to employees totaling 55,300 shares of common stock, with a weighted average vesting term of 3 years and a weighted average fair value of $ 23.95 per share.

During the three months ended September 30, 2025 , there were 1,967 restricted stock units cancelled or forfeited.

There were 98,993 shares of unvested restricted stock units with a weighted average fair value of $ 21.32 per share outstanding as of September 30, 2025 .

As of September 30, 2025 , $ 1,682,000 of total unrecognized compensation expense related to restricted stock units is expected to be recognized over a weighted-average period of approximately 2.6 years.

During the six months ended December 31, 2025 , the Company issued restricted stock awards to employees totaling 22,300 shares of common stock, with a weighted average vesting term of 3 years and a weighted average fair value of $ 23.95 per share.

During the six months ended December 31, 2025, the Company issued restricted stock awards to its Board of Directors totaling 21,000 shares of common stock, with a vesting term of 6 months and a fair value of $ 27.42 per share.

There were 65,374 shares of unvested restricted stock with a weighted average fair value of $ 22.02 per share outstanding as of December 31, 2025 .

As of December 31, 2025 , $ 1,034,000 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.6 years.

During the six months ended December 31, 2025 , the Company issued restricted stock units to employees totaling 56,318 shares of common stock, with a weighted average vesting term of 3 years and a weighted average fair value of $ 23.96 per share.

During the six months ended December 31, 2025 , there were 6,973 restricted stock units cancelled or forfeited.

There were 94,301 shares of unvested restricted stock units with a weighted average fair value of $ 21.27 per share outstanding as of December 31, 2025 .

As of December 31, 2025 , $ 1,337,000 of total unrecognized compensation expense related to restricted stock units is expected to be recognized over a weighted-average period of approximately 2.5 years.

Performance-Based Restricted Stock Units

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As of September 30, 2024, TSR exceeded the 50 % target, resulting in a partial vesting and the issuance of an initial 87,500 shares of common stock to our CEO.

The partial vesting resulted in an acceleration of $ 395,000 of stock-based compensation expense in the three months ended September 30, 2024, which was set to be recognized in future periods.

There were no performance-based restricted stock units issued or outstanding during the three months ended September 30, 2025.

As of December 31, 2024, TSR exceeded the 100 % target, resulting in the vesting of the remaining 87,500 shares of common stock.

As a result of both vesting, unrecognized stock-based compensation expense totaling $ 718,000 was recognized in the six months ended December 31, 2024, which was set to be recognized in future periods.

There were no performance-based restricted stock units issued or outstanding during the six months ended December 31, 2025.

Commitments and Contingencies

13 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

$ 2,761,000 $ 1,968,000 $ 4,897,000 $ 3,442,000

Weighted-average common shares outstanding:

8,270,565 8,424,534 8,296,674 8,494,511

Effect of dilutive common stock equivalents

418,725 528,815 388,823 489,215

8,689,290 8,953,349 8,685,497 8,983,726

Earnings per common share:

Common stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive were 104,290 and 44,026 for the three months ended September 30, 2025 , and 2024 , respectively.

$ 0.33 $ 0.23 $ 0.59 $ 0.41

$ 0.32 $ 0.22 $ 0.56 $ 0.38

Common stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive were 57,146 and 8,865 for the three months ended December 31, 2025 , and 2024 , respectively, and were 37,509 and 43,498 for the six months ended December 31, 2025, and 2024, respectively.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

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Results of Operations

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

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

Three Months Ended

September 30,

Six Months Ended

Increase (Decrease)

Homecare distributor

Homecare revenue.

Homecare revenue increased by $1,678,000 or 12.7%, for the three months ended September 30, 2025, compared to the same period in the prior year.

The increase was primarily due to an increase in direct sales representatives and higher net revenues per sales representative.

Throughout the three months ended September 30, 2025, we averaged 57 homecare field sales representatives.

Homecare revenue increased by $2,681,000, or 18.4%, for the three months ended December 31, 2025, compared to the same period in the prior year.

For the six months ended December 31, 2025, homecare revenue increased by $4,359,000, or 15.7%, compared to the same period in the prior year.

The increases were primarily due to an increase in direct sales representatives and higher net revenues per sales representative.

For the three months ended December 31, 2025, we averaged 58 homecare field sales representatives.

Hospital revenue.

Hospital revenue was $1,047,000, an increase of $357,000, or 51.7%, for the three months ended September 30, 2025, compared to the same period in the prior year.

The growth in the current period primarily reflects an increase in sales representatives focused on the hospital market and higher capital and disposal demand.

Hospital revenue was $655,000, a decrease of $68,000, or 9.4%, for the three months ended December 31, 2025, compared to the same period in the prior year.

For the six months ended December 31, 2025, hospital revenue was $1,702,000, an increase of $289,000, or 20.5%, compared to the same period in the prior year.

The decrease in the three months ended December 31, 2025, was due to fewer capital equipment orders as hospital capital revenue is a long-cycle sale and revenue from quarter to quarter can vary depending on capital budget allocations at the hospital.

The growth in the six months ended December 31, 2025, primarily reflects an increase in sales representatives focused on the hospital market and higher capital and disposal demand.

Homecare distributor revenue.

Homecare distributor revenue increased by $242,000, or 41.2%, for the three months ended September 30, 2025, compared to the same period in the prior year.

The increase in homecare distributor sales was primarily a result of an increased number of distribution partners.

Homecare distributor revenue increased by $98,000, or 12.1%, for the three months ended December 31, 2025, compared to the same period in the prior year.

For the six months ended December 31, 2025, homecare distributor revenue increased by $340,000, or 24.4%, compared to the same period in the prior year.

The increases in homecare distributor sales were primarily a result of increased orders from distribution partners.

Other revenue.

Other revenue was $122,000, a decrease of $58,000, or 32.2% for the three months ended September 30, 2025, compared to the same period in the prior year.

The decrease in other revenue was primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above.

Gross profit dollars increased to $13,197,000, or 78.1% of net revenues, for the three months ended September 30, 2025, from $11,491,000, or 78.3% of net revenues, in the same period in the prior year.

The increase in gross profit dollars was primarily a result of increased overall revenue and higher net revenues per device.

The decrease in gross profit percentage was a result of higher costs which were partially offset by higher net revenues per device.

Other revenue was $63,000, a decrease of $69,000, or 52.3% for the three months ended December 31, 2025, compared to the same period in the prior year.

For the six months ended December 31, 2025, other revenue was $185,000, a decrease of $127,000, or 40.7%, compared to the same period in the prior year.

The decreases in other revenue were primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above.

Gross profit dollars increased to $14,819,000, or 78.4% of net revenues, for the three months ended December 31, 2025, from $12,627,000, or 77.7% of net revenues, in the same period in the prior year.

Gross profit dollars increased to $28,016,000, or 78.3% of net revenues, for the six months ended December 31, 2025, from $24,118,000, or 78.0% of net revenues, in the same period in the prior year.

The increases in gross profit were primarily a result of increased overall revenue and higher net revenues per device.

Operating expenses

Selling, general and administrative expenses.

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

Payroll and compensation-related expenses were $6,876,000 for the three months ended September 30, 2025, representing an increase of $419,000, or 6.5%, compared to the same period in the prior year.

The increase in the current-year period was primarily due to the increase in salaries and incentive compensation related to the higher average number of sales, marketing, and reimbursement personnel to process higher patient referrals.

Selling, general and administrative (“SG&A”) expenses were $10,815,000 and $21,101,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $981,000 and $1,880,000, or 10.0% and 9.8%, respectively, compared to the same periods in the prior year.

Payroll and compensation-related expenses were $7,496,000 and $14,372,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $621,000 and $1,040,000, or 9.0% and 7.8%, respectively, compared to the same periods in the prior year.

The increases in the current-year periods were primarily due to the increase in salaries and incentive compensation related to the higher average number of sales representatives and higher overall compensation costs.

We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges, including share-based compensation, for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business.

Travel, meals and entertainment expenses were $1,274,000 for the three months ended September 30, 2025, representing an increase of $310,000, or 32.2%, compared to the same period in the prior year.

The increase in the current year was primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development.

Total discretionary marketing expenses were $410,000 for the three months ended September 30, 2025, representing an increase of $146,000, or 55.3%, compared to the same period in the prior year.

The increase in the current period was due to increased investment in our direct-to-consumer advertising and other market development initiatives in t he three months ended September 30, 2025.

Professional fees were $1,090,000 for the three months ended September 30, 2025, representing a decrease of $50,000, or 4.4%, compared to the same period in the prior year.

Travel, meals and entertainment expenses were $1,013,000 and $2,287,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $20,000 and $330,000, or 2.0% and 16.9%, respectively, compared to the same periods in the prior year.

The increases in the current year were primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development.

Total discretionary marketing expenses were $443,000 and $853,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $88,000 and $234,000, or 24.8% and 37.8%, respectively, compared to the same period in the prior year.

The increases in the current year were due to increased investment in our direct-to-consumer advertising and other market development initiatives in t he six months ended December 31, 2025.

Professional fees were $1,166,000 and $2,256,000 for the three and six months ended December 31, 2025, respectively, representing a decrease of $13,000 and $63,000, or 1.1% and 2.7%, respectively, compared to the same periods in the prior year.

Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support, insurance and consulting fees.

The decrease in the current year was primarily due to external recruiting spend in the prior year that did not recur in the three months ended September 30, 2025.

The decrease in the sixth months ended December 31, 2025, was primarily due to external recruiting spend in the prior year that did not recur in the six months ended December 31, 2025.

Research and development expenses .

Research and development (“R&D”) expenses were $241,000 for the three months ended September 30, 2025, representing an increase of $75,000, or 45.2%, compared to the same period in the prior year.

The increase was primarily due to increased average headcount and external spend related to product enhancements and sustaining engineering.

Research and development (“R&D”) expenses were $384,000 and $625,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $133,000 and $208,000, or 53.0% and 49.9%, respectively, compared to the same periods in the prior year.

The increases were primarily due to increased average headcount and consulting expenses related to product enhancements and sustaining engineering.

Operating income

Operating income increased by $732,000 or 37.8% to $2,670,000 for the three months ended September 30, 2025, compared to the same period in the prior year.

The increase is primarily due to an increase in revenue and gross profit.

Operating income increased by $1,078,000 or 42.4% to $3,620,000, or 19.2% of net revenues, for the three months ended December 31, 2025, compared to the same period in the prior year.

Operating income increased by $1,810,000 or 40.4% to $6,290,000 for the six months ended December 31, 2025, compared to the same period in the prior year.

The increases were primarily due to an increase in revenue and gross profit.

Interest income, net

Net interest income for the three months ended September 30, 2025, was $134,000, compared to $195,000, for the same period in the prior year.

The decrease is primarily due to decreased interest rates and cash balances.

Net interest income for the three and six months ended December 31, 2025, was $109,000 and $243,000, respectively, compared to $152,000 and $347,000, respectively, for the same period in the prior year.

The decreases were primarily due to decreased interest rates and lower cash balances.

Income tax expense

Income tax expense was estimated at $668,000, and the effective tax rate was 23.8%, for the three months ended September 30, 2025.

Estimated income tax expense for the three months ended September 30, 2025, includes a discrete tax benefit of $81,000, primarily related to the windfall tax benefit of vested restricted stock and the exercise of stock options.

Income tax expense was estimated at $659,000, and the effective tax rate was 30.9%, for the three months ended September 30, 2024.

Estimated income tax expense for the three months ended September 30, 2024, includes a discrete current tax benefit of $4,000, primarily related to the vesting of restricted stock awards.

Net income for the three months ended September 30, 2025, was $2,136,000, an increase of 44.9%, compared to $1,474,000 for the same period in the prior year.

The increase in net income was primarily due to increased revenue and gross profit.

Income tax expense was estimated at $968,000 and 1,636,000, and the effective tax rate was 26.0% and 25.1%, for the three and six months ended December 31, 2025, respectively.

Estimated income tax expense for the three and six months ended December 31, 2025, includes a discrete current tax benefit of $22,000 and $103,000, respectively, primarily related to the windfall tax benefit of vested restricted stock and the exercise of stock options.

Income tax expense was estimated at $726,000 and $1,385,000, and the effective tax rate was 26.9% and 28.7%, for the three and six months ended December 31, 2024, respectively.

Estimated income tax expense for the three and six months ended December 31, 2024, includes a discrete current tax benefit of $135,000 and $139,000, respectively, primarily related to the exercise of stock options and the vesting of restricted stock awards.

Net income for the three and six months ended December 31, 2025, was $2,761,000 and $4,897,000, representing an increase of 40.3% and 42.3%, respectively, compared to $1,968,000 and $3,442,000 for the same periods in the prior year.

The increases in net income were primarily due to increased revenue and gross profit.

Liquidity and Capital Resources

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Cash Flows from Operating Activities

For the three months ended September 30, 2025, net cash provided by operating activities was $169,000.

Cash flows provided by operating activities consisted of net income of $2,136,000, non-cash expenses of $717,000, an increase in accounts payable and accrued expenses of $448,000 and a decrease in income tax receivable, net of $202,000.

These cash flows from operating activities were offset by a decrease in accrued compensation of $2,348,000, an increase in inventories of $515,000, an increase in prepaid expenses and other assets of $241,000, an increase in contract assets of $134,000, and an increase in accounts receivable of 96,000.

For the six months ended December 31, 2025, net cash provided by operating activities was $3,195,000.

Cash flows provided by operating activities consisted of net income of $4,897,000, non-cash expenses of $1,631,000, and an increase in income tax payable, net of $790,000.

These cash flows from operating activities were offset by an increase in accounts receivable of $1,600,000, a decrease in accrued compensation of $1,368,000, an increase in prepaid expenses and other assets of $691,000, an increase in inventories of $260,000, an increase in contract assets of $116,000, and a decrease in accounts payable and accrued expenses of $88,000.

Cash Flows from Investing Activities

For the three months ended September 30, 2025, cash used for investing activities was $267,000.

For the six months ended December 31, 2025, cash used for investing activities was $923,000.

Cash used for investing activities consisted of $886,000 in expenditures for property and equipment and $37,000 in expenditures for intangible assets.

Cash Flows from Financing Activities

For the three months ended September 30, 2025, cash used for financing activities was $1,076,000.

For the six months ended December 31, 2025, cash used for financing activities was $3,768,000.

Cash used for financing activities consisted of $3,766,000 used for our share repurchase program and $234,000 for taxes paid on net share settlement of stock awards, partially offset by $232,000 from the issuance of common stock upon exercise of options.

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Based on our current operational performance, we believe our working capital of approximately $36,192,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report.

We maintain a credit facility that was last amended in December 2023, which provides us with a revolving line of credit.

Interest on borrowings on the line of credit accrues at the prime rate (7.25% as of September 30, 2025) less 1.0% and is payable monthly.

There was no outstanding principal balance on the line of credit as of September 30, 2025, or June 30, 2025.

The amount eligible for borrowing on the line of credit is limited to the lesser of $2,500,000 or 57.0% of eligible accounts receivable, and the line of credit expires on December 18, 2025, if not replaced or renewed.

As of September 30, 2025, the maximum $2,500,000 was available under the line of credit.

Payment obligations under the line of credit are secured by a security interest in substantially all our tangible and intangible assets.

The documents governing our line of credit contain certain financial and non-financial covenants that include a minimum tangible net worth of not less than $10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends.

We maintain a credit facility that was entered into in December 2025, which provides us with a revolving line of credit.

The credit agreement provides the Company with a senior security credit facility with a $10,000,000 revolving line of credit.

Any borrowings under the credit facility will bear interest at one-month Term SOFR (3.87% on December 31, 2025), plus 1.75%, payable monthly.

The credit agreement provides that the credit facility will mature on December 16, 2026, if not renewed before such date.

There was no outstanding principal balance on the line of credit as of December 31, 2025.

The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement.

So long as there is no default or event of default, the governing documents do not restrict the Company's ability to pay dividends or repurchase common stock.

Any failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring prepayment of outstanding indebtedness, or refusing to renew the line of credit.

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If we are unable to repay such indebtedness, the lender could foreclose on these assets.

For the three months ended September 30, 2025, and 2024, we spent approximately $252,000 and $37,000, respectively, on property and equipment.

For the six months ended December 31, 2025, and 2024, we spent approximately $886,000 and $270,000, respectively, on property and equipment.

We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility.

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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-Q

Item 1. Financial Statements