RELL Richardson Electronics, Ltd. - 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical accounting estimates and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:

Business Overview

Results of Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended May 31, 2025, June 1, 2024 and May 27, 2023, as reflected in our Consolidated Statements of Comprehensive Income.

Liquidity, Financial Position and Capital Resources - a discussion of our primary sources and uses of cash for the fiscal years ended May 31, 2025, June 1, 2024 and May 27, 2023, and a discussion of changes in our financial position.

Business Overview

Richardson Electronics, Ltd. (the "Company," "we," "our") is a leading global manufacturer of engineered solutions, green energy products, power grid and microwave tubes, and related consumables; power conversion and RF and microwave components including green energy solutions; tubes for diagnostic imaging equipment; and customized display solutions. More than 55% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

Some of the Company's products are manufactured in China and imported into the United States. Accordingly, the Company’s operations are subject to tariffs and other trade protection measures. The U.S. administration has instituted certain changes, and may make additional changes, in trade policies that include the negotiation or termination of trade agreements, higher tariffs on imports into the U.S., and other measures affecting trade between the U.S. and other countries from which the Company imports. Due in part to these measures, some countries are changing their trade policies relating to goods imported from the U.S. These global trade disruptions and geopolitical tensions, together with any related downturns in the global economy, could damp e n customer demand, i ncrease market volatility, and impact currency exchange rates, all which could materially and adversely affect the Company’s financial performance.

The impact of these changes in trade policies will depend on various factors, including (i) when trade measures are implemented, (ii) the ultimate amount, scope, nature, and duration of tariffs and other trade measures, and (iii) the extent to which the Company can mitigate impacts and pass on any increased costs associated with these changes. In addition, the impact of trade disruptions on general economic conditions and demand for electronic components is difficult to predict.

The recent tariff modifications did not materially impact our fiscal 2025 results. However, it is possible that further tariffs may be imposed on imports of our products, including by other countries, or that our business will be impacted by changing trade relations among countries. Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.

The Company reports its financial performance based on the operating and reportable segments defined as follows:

Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

Green Energy Solutions ("GES") combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long-term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery. After the January 2025 sale of certain assets to DirectMed, the Company manufactures and repairs CT tubes and sells them exclusively to DirectMed under a supply agreement.

We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.

Results of Operations

Overview - Fiscal Year Ended May 31, 2025

Fiscal 2025 contained 52 weeks and fiscal 2024 contained 53 weeks.

Net sales during fiscal 2025 were $208.9 million, up 6.3%, compared to net sales of $196.5 million during fiscal 2024.

Gross margin was 31.0% of net sales during fiscal 2025, compared to 30.5% of net sales during fiscal 2024.

Selling, general and administrative expenses were $62.2 million, or 29.8% of net sales, during fiscal 2025, compared to $59.5 million, or 30.3% of net sales, during fiscal 2024.

Operating loss during fiscal 2025 was $2.5 million, compared to an operating income of $0.3 million during fiscal 2024.

Other income during fiscal 2025 was $0.9 million, compared to other expense of $0.2 million during fiscal 2024.

Net loss during fiscal 2025 was $1.1 million, compared to a net income of $0.1 million during fiscal 2024.

Net Sales and Gross Profit Analysis

Net sales by segment and percentage change for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows ( in thousands ):

Net Sales

% Change

% Change

PMT

GES

Canvys

Healthcare

Total

During fiscal 2025, consolidated net sales increased by 6.3% compared to fiscal 2024. Sales for PMT increased by 7.0%, GES sales increased by 23.6%, Canvys sales increased by 2.2% and Healthcare sales decreased by 23.1%. The increase in PMT was mainly due to increased sales of engineered solutions for the semi-wafer fabrication products and increases in RF and Wireless Components. The increase in GES was mainly due to increased market share, new products and new customer development for power management products focused on numerous green energy applications. The increase in Canvys was attributable to higher sales in the North American markets. The decrease in Healthcare sales was due to the asset sale to DirectMed.

During fiscal 2024, consolidated net sales decreased by 25.2% compared to fiscal 2023. Sales for PMT decreased by 21.7%, GES sales decreased by 51.2%, Canvys sales decreased by 17.5% and Healthcare sales increased by 5.7%. The decrease in PMT was mainly due to lower sales of semi-wafer fabrication products and RF and microwave products. The decrease in GES was due to the project-based nature of the wind turbine business and lower shipments to EV locomotive customers, including a large shipment of battery modules made in fiscal 2023 that did not recur in fiscal 2024. The decrease in Canvys was primarily due to lower sales in the North American market. The increase in Healthcare was primarily due to higher parts and CT tube sales.

Gross profit by segment and percentage of segment net sales for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows ( in thousands ):

Gross Profit

PMT

GES

Canvys

Healthcare

Total

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.

Consolidated gross profit was $64.8 million during fiscal 2025, compared to $60.0 million during fiscal 2024. Consolidated gross margin as a percentage of net sales was 31.0% for fiscal 2025, compared to the 30.5% during fiscal 2024, primarily due to favorable product mix partially offset by manufacturing under absorption for PMT, favorable product mix of increased Engineered Solution products for GES, unfavorable product mix and higher freight costs for Canvys and a reduction in higher margin spare parts and higher component scrap for Healthcare. Gross margin during fiscal 2025 included expense related to inventory provisions of $0.4 million for PMT, $0.1 million for Canvys and $0.1 million for Healthcare.

Consolidated gross profit was $60.0 million during fiscal 2024, compared to $83.7 million during fiscal 2023. Consolidated gross margin as a percentage of net sales was 30.5% for fiscal 2024, compared to the 31.9% during fiscal 2023, primarily due to unfavorable product mix and manufacturing under absorption for PMT, unfavorable product mix for GES, favorable product mix and lower freight costs for Canvys and increased manufacturing under absorption for Healthcare. Gross margin during fiscal 2024 included expense related to inventory provisions of $0.4 million for PMT, $0.1 million for Canvys and $0.1 million for Healthcare.

Power and Microwave Technologies

Net sales for PMT increased 7.0% to $137.8 million during fiscal 2025 from $128.7 million during fiscal 2024. The increase was due primarily to increased sales of engineered solutions for the semiconductor wafer fabrication market and increases in RF and Wireless components. Gross margin as a percentage of net sales increased to 30.9% during fiscal 2025 as compared to 30.1% during fiscal 2024, primarily due to favorable product mix partially offset by manufacturing under absorption.

Net sales for PMT decreased 21.7% to $128.7 million during fiscal 2024 from $164.3 million during fiscal 2023. The decrease was mainly due to lower sales of semi-wafer fabrication products reflecting the cyclical slowdown in that market. RF and Wireless sales were also down due to a slowdown in the infrastructure business in Asia. However, the health of the business continues to be strong as we gain market share with new products and customers. Gross margin as a percentage of net sales decreased to 30.1% during fiscal 2024 as compared to 32.9% during fiscal 2023, primarily due to unfavorable product mix and manufacturing under absorption.

Green Energy Solutions

Net sales for GES increased 23.6% to $28.7 million during fiscal 2025 from $23.2 million during fiscal 2024. The increase in GES was mainly due to increased market share, new products and new customer development for power management products focused on numerous green energy applications. Gross margin as a percentage of net sales increased to 31.4% during fiscal 2025 as compared to 28.4% during fiscal 2024, primarily due to favorable product mix of increased Engineered Solution products.

Net sales for GES decreased 51.2% to $23.2 million during fiscal 2024 from $47.6 million during fiscal 2023. The decrease reflected the project-based nature of the wind turbine business and was mainly due to lower shipments to EV locomotive customers as they struggled with lead-times of other products to complete the locomotives and ship to their end customers for Beta testing. Comparative sales were also impacted by a large shipment of battery modules in fiscal 2023 that did not recur in fiscal 2024. Gross margin as a percentage of net sales decreased to 28.4% during fiscal 2024 as compared to 28.8% during fiscal 2023, primarily due to product mix. However, like PMT we continue to gain market share in this segment.

Canvys

Net sales for Canvys increased 2.2% to $33.1 million during fiscal 2025, from $32.4 million during fiscal 2024 due to higher sales in the North American markets. Gross margin as a percentage of net sales decreased to 32.9% during fiscal 2025 as compared to 33.8% during fiscal 2024 due to product mix and higher freight costs.

Net sales for Canvys decreased 17.5% to $32.4 million during fiscal 2024, from $39.3 million during fiscal 2023. Sales decreased primarily due to lower sales in the North American market resulting from high interest rates negatively impacting our medical OEM customers. Gross margin as a percentage of net sales increased to 33.8% during fiscal 2024 as compared to 31.5% during fiscal 2023 due to product mix and lower freight costs.

Healthcare

Net sales for Healthcare decreased 23.1% to $9.3 million during fiscal 2025, from $12.1 million during fiscal 2024. The decrease in sales was primarily due to the asset sale to DirectMed. Gross margin as a percentage of net sales decreased to 25.0% during fiscal 2025, compared to 30.4% during fiscal 2024. The decrease was primarily due to the asset sale to DirectMed resulting in no longer selling higher margin spare parts coupled with higher component scrap.

Net sales for Healthcare increased 5.7% to $12.1 million during fiscal 2024, from $11.4 million during fiscal 2023. The increase in sales was primarily due to higher part and CT tube sales. Gross margin as a percentage of net sales decreased slightly to 30.4% during fiscal 2024, compared to 30.7% during fiscal 2023. The decrease was primarily due to increased manufacturing under absorption, offset by an improved product mix.

Sales by Geographic Area

We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Terms are generally open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.

Our sales are aggregated by the following geographic regions: North America; Asia/Pacific; Europe; Latin America; and Other. The net sales by geographic area and percentage change for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows ( in thousands ):

Net Sales

% Change

% Change

North America

Asia/Pacific

Europe

Latin America

Other (1)

Total

Primarily includes net sales not allocated to a specific geographical region.

Gross Profit by Geographic Area

Gross profit by geographic area and percentage of geographic net sales for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows ( in thousands ):

Gross Profit (Loss)

Amount

% of Net Sales

Amount

% of Net Sales

Amount

% of Net Sales

North America

Asia/Pacific

Europe

Latin America

Other (1)

Total

Primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) increased 4.4% during fiscal 2025 to $62.2 million from $59.5 million during fiscal 2024. This increase in SG&A from fiscal 2024 mainly reflected higher incentives due to sales growth, partially offset by lower Research and Development ("R&D") expenses. SG&A as a percentage of sales decreased to 29.8% during fiscal 2025 as compared to 30.3% during fiscal 2024.

SG&A increased 1.4% during fiscal 2024 to $59.5 million from $58.7 million during fiscal 2023. This increase in SG&A from fiscal 2023 was mainly due to higher R&D expenses, partially offset by lower incentives due to financial performance. SG&A as a percentage of sales increased to 30.3% during fiscal 2024 as compared to 22.4% during fiscal 2023.

Loss on Disposal of Healthcare Assets and Other Charges

A substantial portion of Healthcare assets were sold to DirectMed on January 24, 2025 that resulted in a total loss of $5.1 million for fiscal 2025. The loss on assets sold to DirectMed totaled $3.2 million and the Company recorded an impairment charge of $1.9 million for inventories, net and property, plant and equipment, net. In future periods, Healthcare financial results will no longer be a standalone segment and will be consolidated into the PMT segment. Refer to Note 11, D isposal of Healthcare Asset s and Related Charges , in Part II, Item 8 for more details.

Other Income/Expense

Other income was $0.9 million during fiscal 2025, compared to other expense of $0.2 million during fiscal 2024. Fiscal 2025 had $0.4 million of investment income compared to $0.3 million in fiscal 2024. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. The foreign exchange gain reported for fiscal 2025 totaled $0.5 million compared to a loss of $0.4 million for fiscal 2024. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Income Tax (Benefit) Provision

Our income tax (benefit) provision during fiscal 2025, fiscal 2024 and fiscal 2023 was ($0.4) million, $0.1 million and $2.7 million, respectively. The effective income tax rates during fiscal 2025, fiscal 2024 and fiscal 2023 were 25.4%, 61.4% and 10.8%, respectively. The difference between the effective income tax rates as compared to the U.S. federal statutory rate of 21.0% during fiscal 2025, fiscal 2024 and fiscal 2023 reflects changes in the geographical distribution of income (loss) and the impact of valuation allowance changes related to the realizability of our U.S. state net operating loss deferred tax assets.

Net deferred tax assets related to domestic state net operating loss ("NOL") carryforwards amounted to approximately $1.9 million as of May 31, 2025 and $1.8 million as of June 1, 2024. Net deferred tax assets related to foreign NOL carryforwards were $0.1 million as of both May 31, 2025 and June 1, 2024 with various or indefinite expiration dates. During fiscal 2025, we increased the valuation allowance on the state net operating losses by $0.6 million resulting in a total valuation allowance against state net operating losses of $1.7 million.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liabilities on the outside basis difference is now primarily withholding tax on future dividend distributions. There was no deferred tax liability related to undistributed earnings of our foreign subsidiaries in fiscal 2025 and less than $0.1 million in fiscal 2024.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 31, 2025. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and GILTI inclusions of our foreign earnings, the changes in our business performance in recent years and the utilization of federal NOLs. The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 31, 2025, no additional valuation allowance on the U.S. federal deferred tax items was recorded. As of May 31, 2025, we recorded an additional $0.6 million valuation allowance on state NOLs as there was more negative evidence which limited the Company’s ability to utilize the state NOLs, including the anticipated expiration of some state NOLs prior to utilization and legislation restrictions for some states.

As of May 31, 2025, a valuation allowance of $2.8 million was recorded, representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance as of June 1, 2024 was $2.1 million. The valuation allowance relates to state NOLs ($1.7 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.1 million). The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Income taxes paid/(refunded), including foreign estimated tax payments, were $1.8 million, less than $0.1 million and $4.8 million, during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In The Netherlands, years prior to fiscal 2020 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. During the third quarter of fiscal 2025, we received a notice from the State of Illinois for an income tax audit covering the period from June 2021 to May 2023. The Company has provided all the documentation requested and is waiting to hear from the State of Illinois office for further action. We have no other current open audits in the U.S.

The Company recorded $0.3 million related to uncertain tax positions as of May 31, 2025 as compared to $0.1 million as of June 1, 2024. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1 million for interest as of May 31, 2025.

Subsequent to year end, on July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. Key income tax-related provisions of the OBBBA relevant to the Company include the removal of mandatory capitalization of domestic research and development expenditures, permanent extension of bonus depreciation and revisions to international tax regimes. The Company is evaluating the financial implications of the OBBBA and will begin reflecting its effects in its first quarter of fiscal 2026. The Company estimates that the legislation will not have a material impact on its effective income tax rate in future periods relative to prior periods.

Liquidity, Financial Position and Capital Resources

Our operations and cash needs have been primarily financed through income from operations and cash on hand.

Cash and cash equivalents were $35.9 million at May 31, 2025. Cash and cash equivalents by geographic area at May 31, 2025 consisted of $19.5 million in North America, $7.7 million in Europe, $0.9 million in Latin America and $7.8 million in Asia/Pacific. The January 24, 2025 sale of certain Healthcare assets to DirectMed generated $8.0 million of cash, which we expect to use to support opportunities in our Green Energy Solutions business. No cash was repatriated to the United Stated in fiscal 2025. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 9, Income Taxes , from the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Cash and cash equivalents were $24.3 million at June 1, 2024. Cash and cash equivalents by geographic area at June 1, 2024 consisted of $7.1 million in North America, $7.3 million in Europe, $1.1 million in Latin America and $8.8 million in Asia/Pacific. We repatriated $0.3 million to the United States in the second quarter of fiscal 2024 from our entity in Mexico.

Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash requirements.

On March 20, 2023, the Company established a senior, secured revolving credit facility agreement with a three-year term in an aggregate principal amount not to exceed $30 million, including a swingline loan and a letter of credit sub-facility (collectively, the "Revolving Credit Facility") with PNC Bank N. A. This Credit Agreement was amended by the First Amendment to the Credit Agreement dated April 9, 2025. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility, if any, are expected to be used for working capital and general corporate purposes of the Company and its subsidiaries. The Company utilized $1.0 million of the credit line and repaid that $1.0 million during fiscal 2025. As of the end of fiscal 2025 and through the report release date, no amounts were outstanding under the Revolving Credit Facility.

Cash Flows from Operating Activities

Cash flow from operating activities primarily resulted from our net income (loss) adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities provided $10.6 million of cash during fiscal 2025. We had $1.1 million net loss, a $5.1 million loss on the disposal of Healthcare assets, a $1.0 million unrealized foreign exchange gain and a $3.3 million increase in deferred income tax assets during fiscal 2025. Other cash provided during fiscal 2025 included non-cash share-based compensation expense of $1.5 million associated with the issuance of stock option awards and restricted stock awards, $0.6 million of inventory provisions and $4.0 million from depreciation and amortization expense associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities provided cash of $4.8 million during fiscal 2025, mainly due to a decrease in receivables of $0.1 million, a decrease in inventories of $0.2 million and a $4.3 million net increase in accounts payable and accrued liabilities The increase in accounts payable and accrued liabilities was due to higher year-end accruals and timing.

Operating activities provided $6.5 million of cash during fiscal 2024. We had net income of $0.1 million during fiscal 2024, which included non-cash share-based compensation expense of $1.3 million associated with the issuance of stock option awards and restricted stock awards, $0.6 million of inventory provisions and depreciation and amortization expense of $4.3 million associated with our property and equipment as well as amortization of our intangible assets, and a $1.0 million increase in deferred income taxes. Changes in our operating assets and liabilities provided cash of $1.2 million during fiscal 2024, mainly due to a decrease in receivables of $5.3 million, a decrease in accounts payable and accrued liabilities of $4.7 million and a decrease in prepaid expenses of $0.3 million. The majority of the decrease in receivables reflected lower sales revenue compared to the prior year fourth quarter. The decrease in accounts payable and accrued liabilities was due to lower year-end accruals and timing.

Cash Flows from Investing Activities

Cash flow from investing activities consisted primarily of proceeds from the disposal of Healthcare assets and capital expenditures.

Cash provided by investing activities of $4.0 million during fiscal 2025 was due to $6.8 million from the proceeds from the sale of Healthcare assets partially offset by $2.8 million of capital expenditures. The capital expenditures were primarily related to our LaFox manufacturing business and facility improvements and IT systems.

Cash used by investing activities during fiscal 2024 was due to the $4.0 million of capital expenditures. Those capital expenditures were primarily related to our LaFox manufacturing business and facility renovation and IT systems.

Our purchases and proceeds from investments consisted of time deposits and CDs. Purchasing of future investments may vary from period to period due to interest and foreign currency exchange rates.

Cash Flows from Financing Activities

Cash flow from financing activities primarily consists of cash dividends paid.

Cash used in financing activities of $3.2 million during fiscal 2025 resulted primarily from the $3.4 million used to pay dividends to stockholders with a $0.3 million offset for the proceeds from stock option exercises.

Cash used in financing activities of $2.9 million during fiscal 2024 resulted primarily from the $3.4 million used to pay dividends to stockholders with a $0.6 million offset for the proceeds from stock option exercises.

All future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions and such other factors that the Board may deem relevant.

Contractual Obligations

Contractual obligations are presented in the table below as of May 31, 2025 ( in thousands ):

Less than

1 year

years

Less Interest

Total

Lease obligations (1)

Lease obligations are related to certain warehouse and office facilities under non-cancelable operating leases.

Critical Accounting Estimates

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“US GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Our assumptions, judgments and estimates are based on historical experience and various other factors deemed relevant. Actual results could be materially different from those estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors.

We believe the assumptions, judgments and estimates involved for the following have the greatest potential impact on our consolidated financial statements:

Inventories, net

Income Taxes

Inventories, net

Our consolidated inventories are stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include finished goods, raw materials and work-in-progress.

We do not anticipate any material risks or uncertainties related to possible future inventory write-downs. Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in an industry or market conditions differ from management’s estimates, additional provisions may be necessary.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.

New Accounting Pronouncements

A summary of the New Accounting Pronouncements is provided in Note 4, Significant Accounting Policies and Disclosures, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 7A. Quantitative and Qualitat ive Disclosures about Market Risk

Risk Management and Market Sensitive Financial Instruments

We are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We manage these risks through normal operating and financing activities.

Foreign Currency Exposure

Even though we consider foreign currency exchange rates at the time an order is taken, our financial statements, denominated in a non-U.S. functional currency, are subject to foreign exchange rate fluctuations.

Our foreign denominated assets and liabilities are cash and cash equivalents, accounts receivable, inventory, accounts payable and intercompany receivables and payables, as we conduct business in countries of the European Union, Asia/Pacific and, to a lesser extent, Canada and Latin America. We manage foreign exchange exposures by using currency clauses in certain sales contracts. We have not used any derivative instruments nor entered any forward contracts in fiscal 2025, fiscal 2024 or fiscal 2023.

Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net sales would have been lower by an estimated $11.3 million during fiscal 2025, an estimated $10.8 million during fiscal 2024 and an estimated $12.2 million during fiscal 2023. Total assets would have declined by an estimated $5.4 million as of the fiscal year ended May 31, 2025 and an estimated $4.6 million as of the fiscal year ended June 1, 2024, while the total liabilities would have decreased by an estimated $1.4 million as of the fiscal year ended May 31, 2025 and an estimated $1.2 million as of the fiscal year ended June 1, 2024.

The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks is set forth in Part I, Item 1A , Risk Factors , of our Annual Report on this Form 10-K.

ITEM 8. Financial Statemen ts and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Richardson Electronics, Ltd.

LaFox, Illinois

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Richardson Electronics, Ltd. (the “Company”) as of May 31, 2025 and June 1, 2024, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended May 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2025 and June 1, 2024, and the results of its operations and its cash flows for each of the three fiscal years in the period ended May 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of May 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated August 4, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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

Estimation of Obsolete or Slow-moving Inventory Reserve - Power and Microwave Technologies ("PMT") Reportable Segment

As described in Note 4 to the consolidated financial statements, the consolidated inventory balance as of

May 31, 2025, was $102.8 million, net of $7.6 million in reserves. Provisions for obsolete or slow-moving inventories are based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. A number of products in the PMT reportable segment represent trailing edge technology the Company often buys products ahead of supplier price increases and extended lead times which can create higher levels of inventory. As technologies evolve and customers replace their equipment, PMT inventory on hand may become obsolete.

We have identified the Company's estimation of obsolete or slow-moving inventory reserve for the PMT reportable segment as a critical audit matter due to the significant judgments required by management in estimating any obsolete or slow-moving inventory reserve needed for certain inventory items. The Company’s estimation of its obsolete or slow-moving inventory reserve, performed on an item-by-item basis, requires inputs from operations personnel and assessing current market conditions and future industry trends, which can be difficult to predict given evolving technologies and the declining market for certain products. Auditing this matter involved especially challenging auditor judgment due to the nature and extent of audit effort needed to evaluate the reasonableness of management’s estimate of future demands.

The primary procedures we performed to address this critical audit matter included:

Testing the design, implementation, and operating effectiveness of controls over the development of the Company’s estimation of the obsolete or slow-moving inventory reserve.

Assessing the reasonableness of management's estimate of future demand by selecting a sample and (i) inquiring of operations personnel as to their assessment of the viability of aged and slow-moving inventory, (ii) evaluating historical customer ordering trends and current uses, and (iii) when applicable evaluating stock rotation privileges.

Evaluating the reasonableness of management’s estimates by comparing the prior period inventory on hand for certain products to current period sales, write-offs, and inventory consumption.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2015.

Chicago, Illinois

August 4, 2025

Richardson Electronics, Ltd.

Consolidat ed Balance Sheets

(in thousands, except per share amounts)

May 31, 2025

June 1, 2024

Assets

Current assets:

Cash and cash equivalents

Accounts receivable, less allowance for credit losses

of $ 250  and $ 323 , respectively

Inventories, net

Prepaid expenses and other assets

Total current assets

Non-current assets:

Property, plant and equipment, net

Intangible assets, net

Right of use lease assets

Deferred income taxes

Other non-current assets

Total non-current assets

Total assets

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

Accrued liabilities

Lease liabilities current

Total current liabilities

Non-current liabilities:

Deferred income tax liabilities

Lease liabilities non-current

Other non-current liabilities

Total non-current liabilities

Total liabilities

Commitments and contingencies (Note 4)

Stockholders’ Equity

Common stock, $ 0.05  par value; 12,362  and 12,254  shares issued

and outstanding on May 31, 2025 and June 1, 2024, respectively

Class B common stock, convertible, $ 0.05  par value; 2,049  shares

issued and outstanding on May 31, 2025 and June 1, 2024

Additional paid-in-capital

Retained earnings

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

Refer to accompanying Notes to Consolidated Financial Statements .

Richardson Electronics, Ltd.

Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Loss (gain) on disposal of property, plant and equipment

Loss on disposal of healthcare assets and other charges

Operating (loss) income

Other (income) expense:

Interest income

Foreign exchange

Other, net

Total other (income) expense

(Loss) income before income taxes

Income tax (benefit) provision

Net (loss) income

Foreign currency translation gain (loss), net of tax

Comprehensive income

Net (loss) income per share:

Common stock - Basic

Class B common stock - Basic

Common stock - Diluted

Class B common stock - Diluted

Weighted average number of shares:

Common stock - Basic

Class B common stock - Basic

Common stock - Diluted

Class B common stock - Diluted

Refer to accompanying Notes to Consolidated Financial Statements .

Richardson Electronics, Ltd.

Consolidated St atements of Cash Flows

(in thousands)

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:

Unrealized foreign currency gain

Depreciation and amortization

Inventory provisions

Share-based compensation expense

Loss (gain) on disposal of property, plant and equipment

Deferred income taxes

Loss on disposal of Healthcare assets and other charges

Change in assets and liabilities:

Accounts receivable

Inventories

Prepaid expenses and other assets

Accounts payable

Accrued liabilities

Other

Net cash provided by (used in) operating activities

Investing activities:

Capital expenditures

Proceeds from disposal of healthcare assets

Proceeds from the sale of property, plant and equipment

Proceeds from maturity of investments

Net cash provided by (used in) investing activities

Financing activities:

Proceeds from issuance of common stock

Cash dividends paid on common and Class B common stock

Proceeds from revolving credit facility

Repayment of revolving credit facility

Other

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental Disclosure of Cash Flow Information:

Cash paid during the fiscal year:

Income taxes, net of refunds

Non-cash activities:

Accruals for construction in progress

Right of use assets obtained in exchange for

lease liabilities

Refer to accompanying Notes to Consolidated Financial Statements .

Richardson Electronics, Ltd.

Consolidated Stateme nts of Stockholders’ Equity

(in thousands, except per share amounts)

Common

Class B

Common

Par

Value

Additional

Paid In

Capital

Retained

Earnings

Accumulated

Other

Comprehensive

Income

Total

Balance May 28, 2022

Comprehensive income

Net income

Foreign currency translation, net of tax

Share-based compensation:

Restricted stock

Stock options

Common stock:

Options exercised

Restricted stock issuance

Class B converted to common

Dividends paid to:

Common ($ 0.24  per share)

Class B ($ 0.22  per share)

Balance May 27, 2023

Comprehensive income

Net income

Foreign currency translation, net of tax

Share-based compensation:

Restricted stock

Stock options

Common stock:

Options exercised

Restricted stock issuance

Class B converted to common

Dividends paid to:

Common ($ 0.24  per share)

Class B ($ 0.22  per share)

Balance June 1, 2024

Comprehensive income

Net loss

Foreign currency translation, net of tax

Share-based compensation:

Restricted stock

Stock options

Common stock:

Options exercised

Restricted stock issuance

Dividends paid to:

Common ($ 0.24  per share)

Class B ($ 0.22  per share)

Balance May 31, 2025

Refer to accompanying Notes to Consolidated Financial Statements .

Richardson Electronics, Ltd.

Notes to Consolidated Financial Statements

DESCRIPTION OF THE COMPANY

Richardson Electronics, Ltd. (the "Company," "we," "our") is a global manufacturer of engineered solutions, green energy products, power grid and microwave tubes, and related consumables; power conversion and RF and microwave components including green energy solutions; tubes for diagnostic imaging equipment; and customized display solutions. We have manufacturing at our facilities located in LaFox, Illinois, Marlborough, Massachusetts, and Donaueschingen, Germany.

We serve customers in alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company products and services include design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair. Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical and communication applications.

On January 24, 2025, the Company sold a substantial portion of the assets of its Healthcare business to DirectMed Imaging, LLC (“DirectMed”), a Delaware limited liability company, and entered into an exclusive 10-year global supply agreement in which Richardson will supply DirectMed with repaired Siemens CT X-ray tubes. Additionally, the Company will continue manufacturing a limited quantity of ALTA CT X-ray tubes exclusively for DirectMed. A description of this transaction, which resulted in a total loss of $ 5.1 million being recorded for the fiscal year ended May 31, 2025, is provided in Note 11 , Disposal of Healthcare Assets and Other Charges.

Accordingly, the Company reports its financial performance for the following four business segments: Power and Microwave Technologies ("PMT"), Green Energy Solutions ("GES"), Canvys and Healthcare. A description of the Company's business segments is provided in Note 12, Segment and Geographic Information.

We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP") for all fiscal years presented. The consolidated financial statements include our wholly owned subsidiaries. All intercompany transactions and account balances have been eliminated in consolidation.

Our fiscal year 2025 began on June 2, 2024 and ended on May 31, 2025, our fiscal year 2024 began on May 28, 2023 and ended on June 1, 2024 and our fiscal year 2023 began on May 29, 2022 and ended on May 27, 2023. Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current period reporting classifications. The reclassifications were related to the unrealized foreign exchange gain (loss) on the Consolidated Statements of Cash Flows.

SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES

Use of Estimates: The preparation of financial statements in conformity with US GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management continuously evaluates its estimates which includes the allowance for credit losses, revenue recognition, inventory obsolescence, loss contingencies and income taxes. Management bases the estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, however, actual results could differ from those estimates.

Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.

Cash and Cash Equivalents: We consider short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and that have a maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents approximate the fair market value of these assets.

Accounts Receivable and Allowance for Credit Losses: Trade accounts receivable represent amounts billed to customers and not yet collected. Trade accounts receivable is recorded at the invoiced amount, which approximates net recoverable value, and generally do not bear interest. The Company's accounts receivable, net balance was $ 24.1 million, $ 24.8 million and $ 30.1 million as of May 31, 2025, June 1, 2024 and May 27, 2023, respectively. Our allowance for credit losses includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; a large number of customers which are widely dispersed across geographic areas; and collectability and delinquency history by geographic area. Significant changes in one or more of these considerations may require adjustments affecting net (loss) income and net carrying value of accounts receivable. The allowance for credit losses was approximately $ 0.3 million as of May 31, 2025, and $ 0.3 million as of June 1, 2024.

Inventories, net: Our consolidated inventories are stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include approximately $ 86.4 million of finished goods, $ 11.5 million of raw materials and $ 4.9 million of work-in-progress as of May 31, 2025 as compared to approximately $ 93.9 million of finished goods, $ 12.2 million of raw materials and $ 4.0 million of work-in-progress as of June 1, 2024.

Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, exiting certain markets and assumptions about future demand and market conditions. If future demand changes in the industry or market conditions differ from management’s estimates, additional provisions may be necessary. The inventory reserve as of May 31, 2025 was $ 7.6 million compared to $ 6.0 million as of June 1, 2024. The $ 1.4 million write-down pursuant to the inventory retained following the disposal of certain Healthcare assets is reflected in the $ 7.6 million reserve balance as May 31, 2025.

We recorded provisions to our inventory reserves of $ 0.6 million, $ 0.6 million and $ 0.5 million during fiscal 2025, fiscal 2024 and fiscal 2023, respectively, which were included in cost of sales. The provisions were primarily for obsolete and slow-moving parts. The parts were written down to estimated realizable value.

Property, Plant and Equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. Provisions for depreciation are computed using the straight-line method over the estimated useful life of the asset. Depreciation is classified as a selling, general and administrative ("SG&A"') expense in the Consolidated Statements of Comprehensive Income. The depreciation expense was approximately $ 3.8 million, $ 4.0 million and $ 3.4 million during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.

Property, plant and equipment consist of the following ( in thousands ):

May 31, 2025

June 1, 2024

Land and improvements

Buildings and improvements

Computer, communications equipment and software

Machinery and other equipment

Construction in progress

Accumulated depreciation

Property, plant, and equipment, net

Construction in progress on May 31, 2025, included $ 1.6 million for IT systems, $ 0.8 million for manufacturing facilities and $ 0.4 million for other facilities.

Supplemental disclosure information of the estimated useful life of the assets:

Land improvements

10  years

Buildings and improvements

10  - 30 years

Computer, communications equipment and software

3  - 10 years

Machinery and other equipment

3  - 20 years

Intangible Assets : Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives and are tested for impairment when events or changes in circumstances occur that indicate possible impairment.

Our intangible assets represent the fair value for customer relationships and technology acquired in connection with our acquisitions. Intangible assets subject to amortization were as follows (in thousands) :

May 31, 2025

June 1, 2024

Gross Amounts:

Customer Relationships

Technology

Total Gross Amounts

Accumulated Amortization:

Customer Relationships

Technology

Total Accumulated Amortization

Net Intangible Assets

As disclosed in Note 11 , Disposal of Healthcare Assets and Other Charges , the Company sold certain assets related to Healthcare including intangible assets with a carrying value of $ 1.1 million.

The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table (in thousands) :

Fiscal Year

Amortization

Expense

Thereafter

Total amortization expense

The amortization expense associated with the intangible assets, which is classified as SG&A on the Consolidated Statements of Comprehensive Income, totaled approximately $ 0.2 million during fiscal 2025, $ 0.3 million during fiscal 2024 and $ 0.3 million during fiscal 2023, respectively.

Right of Use Lease Assets: We determine if an arrangement is a lease at inception in accordance with Accounting Standards Codification ("ASC") Topic 842, Leases. The lease term begins on the commencement date, which is the date we take possession of the leases, and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The lease term is used to determine lease classification as an operating or finance lease and is used to calculate straight-line expense for operating leases.

Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make payments arising from the lease. As a practical expedient, lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases. ROU assets and lease liabilities are recognized at the commencement date based upon the present value of lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. We estimate contingent lease incentives when it is probable that we are entitled to the incentive at lease commencement. Since our leases do not typically provide an implicit rate, we use our incremental borrowing rate based upon the information available at commencement date of each lease. The determination of the incremental borrowing rate requires judgment. We determine the incremental borrowing rate using our secure borrowing rate. We elected the short-term lease recognition exemption for all leases that qualify. Therefore, leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets; instead, lease payments are recognized as lease expenses on a straight-line basis over the lease term. See Note 8, Leases , for additional details.

Operating lease assets and liabilities are recognized for leases with lease terms greater than 12 months based on the present value of the future lease payments over the lease at the commencement date. Operating lease expense is recognized on a straight-line basis over the lease term.

Long-lived assets : We review property, plant and equipment, definite-lived intangible assets and other long-lived assets for impairment whenever adverse events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.

If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates. We conduct annual reviews of idle and underutilized equipment and review business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group, and an impairment charge is recorded when the carrying value exceeds the estimated fair value. Following the guidance of ASC 350, Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment , our analysis supports the values of property, plant and equipment and intangible assets exceed the carrying value. Except for the Healthcare disposal as discussed in Note 11, no impairment was recognized for fiscal 2025, fiscal 2024 and fiscal 2023.

Additionally, we also evaluate the remaining useful life of each reporting period to determine whether events and circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long-lived asset’s remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.

Accrued Liabilities: Accrued liabilities consist of the following ( in thousands ):

May 31, 2025

June 1, 2024

Compensation and payroll taxes

Accrued severance

Professional fees

Contract liabilities

Other accrued expenses

Accrued Liabilities

Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. We record a reserve for uncertain tax positions whenever appropriate. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income tax matters in income tax expense line item within the Consolidated Statements of Comprehensive Income. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.

Warranties: We offer assurance-type warranties for the limited number of specific products we manufacture.

We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expenses related to our warranty obligations as cost of sales in our Consolidated Statements of Comprehensive Income. Each quarter, we assess the actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products and warranty experience.

Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our Consolidated Balance Sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence.

Changes in the warranty reserve during fiscal 2025 and fiscal 2024 were as follows ( in thousands ):

Warranty

Reserve

Balance at May 27, 2023

Accruals for products sold

Utilization

Balance at June 1, 2024

Accruals for products sold

Utilization

Balance at May 31, 2025

Other Non-Current Liabilities: Other non-current liabilities of $ 1.2 million at May 31, 2025 and $ 0.8 million at June 1, 2024, primarily represent employee-benefits obligations in various non-U.S. locations.

Common and Class B Common Stock: We have authorized 17,000,000 shares of common stock and 3,000,000 shares of Class B common stock. The Class B common stock has 10 votes per share and has transferability restrictions; however, Class B common stock may be converted into common stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of common stock and Class B common stock rank equally and have the same rights, except that Class B common stock cash dividends are limited to 90 % of the amount of Class A common stock cash dividends.

Revenue Recognition: We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Terms are generally open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.

Our customers are generally not resellers, but rather businesses that incorporate our products into their processes from which they generate an economic benefit. The goods are also distinct in that each item sold to the customer is clearly identified on both the purchase order and resulting invoice. Each product we sell benefits the customer independently of the other products. Each item on each purchase order from the customer can be used by the customer unrelated to any other products we provide to the customer. We derive revenue from the sale of products. Generally, the performance obligation under contracts are satisfied when there is a transfer of control of the products to our customer, which is primarily upon shipment or, in certain instances, upon the delivery of the products to the named customer location.

We also generate revenue from repair, installation or training activities. The services we provide are relatively short in duration and are typically completed in one or two weeks. Therefore, at each reporting date, the amount of unbilled work is insignificant. The services revenue has consistently accounted for less than 5 % of the Company’s total revenues and is expected to continue at that level.

We record discounts taken based on historical experience. The policy varies by business unit. The Company allows returns with prior written authorization. We estimate returns based on historical experience. The Company maintains a reserve for returns based on historical trends that cover all contracts and revenue streams using the expected value method because we have a large number of contracts with similar characteristics, which is considered variable consideration. The reserve for returns creates a refund liability on our balance sheet as a contra trade accounts receivable as well as an asset in inventory. We value the inventory at cost due to there being minimal or no costs to the Company as we generally require the customer to pay freight and we typically do not have costs associated with activities such as relabeling or repackaging. The reserve is considered immaterial at each balance sheet date. Returns for defective product are typically covered by our suppliers’ warranty, thus, returns for defective product are not factored into our reserve.

Principal versus agent guidance was considered for products that are provided by our suppliers versus manufactured by the Company. The Company acts as the principal as we are responsible for satisfying the performance obligation. We have primary responsibility for fulfilling the contract, we have inventory risk prior to delivery to our customer, we establish prices, our consideration is not in the form of a commission and we bear the credit risk. The Company recognizes revenue in the gross amount of consideration.

Contracts with customers

A revenue contract exists once a customer purchase order is received, reviewed and accepted. Each accepted purchase order identifies a distinct good or service as a performance obligation. The goods include standard products purchased from a supplier and stocked on our shelves, customized products purchased from a supplier, products that are customized or have value added to them in house prior to shipping to the customer and manufactured products. Prior to accepting a customer purchase order, we review the credit worthiness of the customer. Purchase orders are deemed to meet the collectability criterion once the customer’s credit is approved. The Company receives advance payments or deposits from our customers before revenue is recognized resulting in contract liabilities. Contract liabilities are included in accrued liabilities in the Consolidated Balance Sheets.

On occasion, the Company enters bill-and-hold arrangements. Each bill-and-hold arrangement is reviewed and revenue is recognized only when the control has transferred to our customer and certain criteria have been met: (i) the reason for the bill-and-hold arrangement is substantive; (ii) the product is segregated from the Company’s other inventory items held for sale; (iii) the product is ready for shipment to the customer; and (iv) the Company does not have the ability to use the product or direct it to another customer. The bill and hold revenue recognized was $ 4.0 million for fiscal 2025, $ 2.1 million for fiscal 2024 and $ 3.1 million for fiscal 2023.

Contract Liabilities: Contract liabilities and revenue recognized were as follows for the years ended May 31, 2025, June 1, 2024 and May 27, 2023 ( in thousands ):

May 31, 2025

June 1, 2024

May 27, 2023

Contract liability

Revenue recognition in the period from the amounts included

in the contract liability at beginning of the year

The contract liability balance of $ 4.5 million on May 31, 2025 includes $ 0.8 million of deferred revenue from the disposal of Healthcare assets, which will be recognized over the next twelve months.

See Note 12, Segment and Geographic Information, for a disaggregation of revenue by reportable segment and geographic region, which represents how our Chief Operating Decision Maker ("CODM") reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the Company.

Customer Concentration: No single customer represented more than 10 percent of our total accounts receivable balance as of May 31, 2025 and June 1, 2024. No single customer represented more than 10 percent of the consolidated net sales in fiscal 2025 and fiscal 2024. In fiscal 2023, sales to one customer in our PMT segment totaled $ 31.2 million, which accounted for 12 percent of the Company’s consolidated net sales.

Supplier Concentration: Two of our suppliers each represented more than 10 percent of our total cost of sales in fiscal 2025. Two of our suppliers each represented 11 percent of our total cost of sales in fiscal 2024. The amount owed to both suppliers for fiscal 2025 totaled $ 3.7 million as of May 31, 2025. The amount owed to both suppliers for fiscal 2024 totaled $ 3.8 million as of June 1, 2024.

Shipping and Handling Fees and Costs: Shipping and handling costs billed to customers are reported as revenue and the related costs are reported as a component of cost of sales.

Share-Based Compensation : We measure and recognize share-based compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. We estimate fair value of stock options using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life and dividends. Restricted stock compensation expense is based on the Company’s stock price at the date of the grant and is amortized over the vesting period.

We account for the forfeitures of share-based compensation in the period in which they occur. Compensation cost is recognized using a graded vesting schedule over the applicable vesting period. Share-based compensation expense totaled approximately $ 1.5 million during fiscal 2025, $ 1.3 million during fiscal 2024 and $ 0.9 million during fiscal 2023. The tax benefit for share-based compensation expense totaled approximately $ 0.4 million during fiscal 2025, $ 0.3 million during fiscal 2024 and $ 0.2 million during fiscal 2023.

Foreign Currency Translation: The functional currency is the local currency at all foreign locations, with the exception of Hong Kong, where the functional currency is the U.S. dollar. Balance sheet items for our foreign entities, included in our Consolidated Balance Sheets, are translated into U.S. dollars at end-of-period spot rates. Gains and losses resulting from translation of foreign subsidiary financial statements are credited or charged directly to accumulated other comprehensive income, a component of stockholders’ equity. Revenues and expenses are translated at the current rate on the date of the transaction. Gains and losses resulting from foreign currency transactions are included in income. Foreign exchange gain (loss) reflected in our Consolidated Statements of Comprehensive Income were a $ 0.5 million gain during fiscal 2025, a $ 0.4 million loss during fiscal 2024 and a $ 0.3 million loss during fiscal 2023.

New Accounting Pronouncements - Adopted

In November 2023, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment requires disclosures of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit of loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The new guidance also requires that a public entity that has a single reportable segment provides all the disclosures required by the amendments in this update and all existing segment disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the impact of this ASU effective May 31, 2025 and incorporated the required disclosures within Note 12 to the consolidated financial statement s.

New Accounting Pronouncements - Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required in an entity's income tax rate reconciliation table and requires disclosure of income taxes paid in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and disclosures.

In November 2024, the FASB issued ASU 2024-03 Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, which requires an entity to disclose on an annual and interim basis, disaggregated information about specific income statement expense categories. The guidance should be applied prospectively with the option to apply the standard retrospectively. The standard becomes effective for the annual period starting on January 1, 2027 and interim periods starting on January 1, 2028. T he Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and disclosures.

5. SHARE-BASED COMPENSATION

Stock options granted generally vest over a period of five years and have contractual terms to exercise of 10 years. A summary of stock option activity is as follows ( in thousands, except option prices and years):

Number of

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Contractual

Life

Aggregate

Intrinsic

Value (1)

Options Outstanding at May 28, 2022

Granted

Exercised

Forfeited

Cancelled

Options Outstanding at May 27, 2023

Granted

Exercised

Forfeited

Cancelled

Options Outstanding at June 1, 2024

Granted

Exercised

Forfeited

Cancelled

Options Outstanding at May 31, 2025

Options Vested at May 31, 2025

Includes only those options that were in-the-money as of May 31, 2025. Stock options for which the exercise price exceeded the market price have been omitted. Fluctuations in the intrinsic value of both outstanding and exercisable options may result from changes in underlying stock price and timing and volume of option grants, exercises and forfeitures.

There were 47,440 stock options exercised during fiscal 2025, with cash received of $ 0.3 million. The total intrinsic value of options exercised was $ 0.3 million during fiscal 2025, $ 0.3 million during fiscal 2024 and $ 4.7 million for fiscal 2023. The weighted average fair value of stock option grants was $ 4.95 during fiscal 2025, $ 6.33 during fiscal 2024 and $ 5.44 during fiscal 2023. As of May 31, 2025, total unrecognized compensation costs related to unvested stock options and restricted stock awards was approximately $ 2.7 million, which is expected to be recognized over the remaining weighted average period of approximately two to four years . The total grant date fair value of stock options vested during fiscal 2025 was $ 0.5 million.

The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Expected volatility

Risk-free interest rate

Expected live (years)

Annual cash dividend

The expected volatility assumptions are based on historical experience commensurate with the expected term. The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of the stock option. The expected term of stock options is estimated from the vesting period of the award and represents the weighted average period that our stock options are expected to be outstanding.

As of May 31, 2025, a summary of restricted stock award transactions was as follows ( in thousands ):

Unvested

Restricted

Shares

Unvested at May 27, 2023

Granted

Vested

Unvested at June 1, 2024

Granted

Vested

Unvested at May 31, 2025

Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-in-capital in the Consolidated Statements of Stockholders’ Equity during fiscal 2025, fiscal 2024 and fiscal 2023.

The Amended and Restated 2011 Long-Term Incentive Compensation Plan (the “Plan”) authorizes the issuance of up to 3,500,000 shares as incentive stock options, non-qualified stock options or stock awards. Under this plan, 443,000 shares are reserved for future issuance. The Plan authorizes the granting of stock options at the fair market value at the date of grant. Generally, these options become exercisable over five years and expire up to 10 years from the date of grant. Restricted stock awards vest on the anniversary of the grant date in three equal installments.

EARNINGS PER SHARE ("EPS")

Our Class B common stock is considered a participating security requiring the use of the two-class method for the computation of basic and diluted earnings per share. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method. The shares of Class B common stock are considered to be participating convertible securities since the shares of Class B common stock are convertible on a share-for-share basis into shares of common stock and may participate in dividends with common stock according to a predetermined formula which is 90 % of the amount of Class A common stock cash dividends.

The allocation of undistributed (loss) earnings between common stock and Class B common stock is based on the relationship of the weighted shares outstanding for the respective stock class (common or Class B) to the total of the weighted shares outstanding for common stock and 90 % of the weighted shares outstanding for Class B common stock. The adjustment to the number of outstanding Class B common stock shares reflects the limitation of Class B common stock dividends to 90 % of common stock dividends.

The EPS presented in our Consolidated Statements of Comprehensive Income are based on the following ( in thousands, except per share amounts ):

For the Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Basic

Diluted

Basic

Diluted

Basic

Diluted

Numerator for Basic and Diluted EPS:

Net (loss) income

Less dividends:

Common stock

Class B common stock

Undistributed (loss) earnings

Common stock undistributed (loss) earnings

Class B common stock undistributed (loss) earnings

Total undistributed (loss) earnings

Denominator for Basic and Diluted EPS:

Common stock weighted average shares

Effect of dilutive securities

Dilutive stock options and awards

Denominator for diluted EPS adjusted for

weighted average shares and assumed

conversions

Class B common stock weighted average

shares, and shares under if-converted

method for diluted EPS

Net (loss) income per share:

Common stock

Class B common stock

Note: There were 232 common stock options and awards that were anti-dilutive and not included in the diluted earnings per share for fiscal 2025. There were no common stock options that were anti-dilutive for fiscal 2024 and fiscal 2023.

REVOLVING CREDIT FACILITY

The Company entered into a Credit Agreement (as amended by the First Amendment to the Credit Agreement dated April 9, 2025, the "Credit Agreement") for a three-year Revolving Credit Facility with PNC Bank N.A. on March 20, 2023 (the "Revolving Credit Facility"). The Revolving Credit Facility will mature on March 20, 2026 .

The First Amendment to the Credit Agreement modified the definition of “Consolidated EBITDA” to consider the non-recurring non-cash loss in the amount up to $ 4.9 million recognized by the Company in connection with the Asset Purchase Agreement, dated January 24, 2025, between the Company and DirectMed. Borrowings under the Revolving Credit Facility, including the swingline loan and letter of credit sub-facility extended to the Company thereunder, are secured by (i) a continuing first priority lien on and security interest in and to substantially all of the assets of the Company and its domestic subsidiaries and (ii) a continuing first priority pledge of the Pledged Collateral of the Company and the Guarantors identified in the Security Agreement and the Pledge Agreement executed in connection with the Revolving Credit Facility. The combined maximum borrowings under the Revolving Credit Facility are $ 30 million. Proceeds of borrowings may be used for working capital and general corporate purposes. The Company utilized $ 1.0 million of the credit line and repaid that $ 1.0 million during fiscal 2025. There was no amount outstanding under the Revolving Credit Facility as of May 31, 2025 .

The Credit Agreement provides that the Company must maintain compliance with a maximum consolidated leverage ratio covenant and a minimum consolidated fixed charge coverage ratio, each as determined in accordance with the Credit Agreement. The Credit Agreement also contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limitations on certain other indebtedness, loans and investments, liens, mergers, asset sales, and transactions with affiliates, as well as customary events of default for financings of this type. The Company was in compliance with financial covenants under the Credit Agreement as of May 31, 2025.

Borrowings under the Revolving Credit Facility will bear interest at a rate per annum selected by the Company from the following options: (a) Term secured overnight financing rate ("SOFR") for the applicable Interest Period, plus the SOFR Adjustment for the applicable Interest Period, plus 1.25 %; (b) Base Rate plus 0.25 % or (c) Daily Simple risk free rate ("RFR") for Euros, plus the RFR Adjustment, plus 1.25 %. Letters of credit issued under the letter of credit sub-facility will have a letter of credit fee equal to 1.25 % per annum. The fee for the unused portion of the credit line is 0.10 %.

LEASES

The Company leases real and personal property in the normal course of business under various operating leases. The Company uses operating leases for facility space and automobiles. Most of the leased facility space is for sales and general office use. Automobile leases are used throughout the Company. Several leases include renewal clauses which vary in length and may not include specific rent renewal amounts. The Company will revise the value of the right of use assets and associated lease liabilities upon a remeasurement event.

The gross amounts of assets and liabilities related to operating leases on May 31, 2025 and June 1, 2024 were as follows (in thousands) :

Lease Type

May 31, 2025

June 1, 2024

Right of use lease assets

Lease liabilities current

Lease liabilities non-current

The components of lease costs for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows (in thousands) :

Fiscal Year Ended

Lease Type

Classification

May 31, 2025

June 1, 2024

May 27, 2023

Consolidated operating lease expense

Operating expenses

Rent expenses for fiscal 2025, fiscal 2024 and fiscal 2023 were $ 1.4 million, $ 1.5 million, and $ 1.5 million, respectively.

Our future lease commitments for minimum rentals, including common area maintenance charges and property taxes during the next five years are as follows (in thousands) :

Fiscal Year

Operating Leases

Total lease payments

Lease inputted interest

Net minimum lease payments

The weighted average remaining lease terms and interest rates of leases held by the Company as of May 31, 2025 and June 1, 2024 were as follows:

Operating Leases as of:

Weighted Average Remaining

Lease Term in Years

Weighted Average

Interest Rate

May 31, 2025

June 1, 2024

The cash activities associated with our leases for fiscal 2025, fiscal 2024 and fiscal 2023 were as follows (in thousands) :

Fiscal Year Ended

Cash Flow Source

Classification

May 31, 2025

June 1, 2024

May 27, 2023

Operating cash flows from operating leases

Operating activities

INCOME TAXES

(Loss) income before income taxes included the following components ( in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

United States

Foreign

(Loss) income before income taxes

The (benefit) provision for income taxes for fiscal 2025, fiscal 2024 and fiscal 2023 consisted of the following ( in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Current:

Federal

State

Foreign

Total current

Deferred:

Federal

State

Foreign

Total deferred

Income tax (benefit) provision

The differences between income taxes at the U.S. federal statutory income tax rate of 21.0 % for fiscal 2025, fiscal 2024 and fiscal 2023 and the reported income tax provision for fiscal 2025, fiscal 2024 and fiscal 2023, are summarized as follows:

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Federal statutory rate

Effect of:

State income taxes, net of federal tax benefit

Foreign income inclusion

Foreign taxes at other rates

Permanent tax differences

Tax reserves

Change in valuation allowance for deferred tax assets

Foreign return to provision adjustments

Restricted stock

Research and development credit

U.S. return to provision adjustments

Other

Effective tax rate

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred tax assets and liabilities reflect operations as of May 31, 2025 and June 1, 2024. Significant components were as follows ( in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

Deferred tax assets:

Net operating loss carryforwards - foreign and domestic

Inventory valuations

Goodwill

Research and Development tax credits

Deferred revenue

Severance reserve

Foreign capital loss

Section 174 capitalization

Other

Subtotal

Valuation allowance - foreign and domestic

Net deferred tax assets after valuation allowance

Deferred tax liabilities:

Accelerated depreciation

Tax on undistributed earnings

Other

Subtotal

Net deferred tax assets

Supplemental disclosure of net deferred tax assets,

excluding valuation allowance:

Domestic

Foreign

Total

During fiscal 2025, the Company recorded Research and Development ("R&D") tax credits of $ 0.4 million. These credits represent the expected U.S. federal credits to be claimed for fiscal 2025.

Net deferred tax assets related to domestic state net operating loss ("NOL") carryforwards amounted to approximately $ 1.9 million as of May 31, 2025 and $ 1.8 million as of June 1, 2024. Net deferred tax assets related to foreign NOL carryforwards were $ 0.1 million as of both May 31, 2025 and June 1, 2024 with various or indefinite expiration dates. During the fourth quarter of fiscal 2025 we increased the valuation allowance on the state net operating losses by $ 0.6 million resulting in a total valuation allowance against state net operating losses of $ 1.7 million.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. There was no deferred tax liability related to undistributed earnings of our foreign subsidiaries in fiscal 2025 and less than $ 0.1 million in fiscal 2024.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 31, 2025. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and GILTI inclusions of our foreign earnings, the changes in our business performance in recent years and the utilization of federal NOLs. The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 31, 2025, no additional valuation allowance on the U.S. federal deferred tax items was recorded. As of May 31, 2025, we recorded an additional $ 0.6 million valuation allowance on state NOLs as there was more negative evidence which limited the Company’s ability to utilize the state NOLs, including the anticipated expiration of some state NOLs prior to utilization and legislation restrictions for some states.

As of May 31, 2025, a valuation allowance of $ 2.8 million was recorded, representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance as of June 1, 2024 was $ 2.1 million. The valuation allowance relates to state NOLs ($ 1.7 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($ 1.1 million). The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Income taxes paid/(refunded), including foreign estimated tax payments, were $ 1.8 million, less than $ 0.1 million and $ 4.8 million, during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In The Netherlands, years prior to fiscal 2020 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. During the third quarter of fiscal 2025, we received a notice from the State of Illinois for an income tax audit covering the period from June 2021 to May 2023. The Company has provided all the documentation requested and is waiting to hear from the State of Illinois office for further action. We have no other current open audits in the U.S.

The Company recorded $ 0.3 million related to uncertain tax positions as of May 31, 2025 as compared to $ 0.1 million as of June 1, 2024. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $ 0.1 million for interest as of May 31, 2025.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

Unrecognized tax benefits, beginning of period

Reserve on R&D credits

Unrecognized tax benefits, end of period

Subsequent to year end, on July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. Key income tax-related provisions of the OBBBA relevant to the Company include the removal of mandatory capitalization of domestic research and development expenditures, permanent extension of bonus depreciation and revisions to international tax regimes. The Company is evaluating the financial implications of the OBBBA and will begin reflecting its effects in its first quarter of fiscal 2026. The Company estimates that the legislation will not have a material impact on its effective income tax rate in future periods relative to prior periods.

EMPLOYEE BENFITS

The employee profit-sharing plan is a defined contribution profit-sharing plan. The profit-sharing plan has a 401(k) provision whereby we match 50 % of employee contributions up to 6.0 % of pay for fiscal 2025, fiscal 2024 and fiscal 2023. Charges to expense for matching contributions to this plan were $ 0.9 million, $ 0.9 million and $ 1.0 million, during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.

DISPOSAL OF HEALTHCARE ASSETS AND OTHER CHARGES

On January 24, 2025, the Company entered into an Asset Purchase Agreement with DirectMed. Pursuant to the terms and subject to the conditions of the Purchase Agreement, DirectMed purchased assets of the Company used in the operation of its International Medical Equipment and Service ("IMES") business as well as ALTA tube and related inventory (the “IMES Sale”). The IMES Sale transaction closed simultaneously with the execution of the Asset Purchase Agreement on January 24, 2025.

Under the terms of the Asset Purchase Agreement, the Company sold a substantial portion of the assets comprising its Healthcare reportable segment to DirectMed for an initial consideration of $ 8.2 million and entered into an exclusive 10-year global supply agreement in which Richardson will supply DirectMed with repaired Siemens CT X-ray tubes ("Siemens CT Supply Agreement"). Additionally, the Company will continue manufacturing a limited quantity of ALTA CT X-ray tubes exclusively for DirectMed under a supply agreement ("ALTA CT Supply Agreement").

Consideration received of $ 8.0 million from DirectMed was allocated between the asset sale and the ALTA CT Supply Agreement based on their respective fair values (measured using Level 3 inputs) as follows: $ 6.8 million allocated to the asset sale and $ 1.2 million allocated to the ALTA CT Supply Agreement. The consideration related to the ALTA CT Supply Agreement has been initially recorded as deferred revenue within other liabilities in the Consolidated Balance Sheets and will be recognized into income as ALTA tubes are sold. Deferred revenue as of May 31, 2025 was $ 0.8 million.

In conjunction with the IMES Sale, other non-cash charges were incurred relating to the write-down of CT tube component inventory not transferred to the buyer and not expected to be used by the Company of $ 1.4 million, and an impairment of specific property, plant and equipment of $ 0.5 million that will be used to satisfy the ALTA CT Supply Agreement, which are included in the total loss recorded for the fiscal year ended May 31, 2025.

A summary of the $ 5.1 million disposal loss and other charges is shown in the following table (in thousands):

Proceeds from IMES sale attributable to disposal of healthcare assets

Assets sold:

Accounts receivable

Inventories, net

Property, plant and equipment, net

Intangible assets, net

Transaction related costs

Loss on disposal of healthcare assets

Other charges:

Loss on write-down of healthcare related inventory not disposed of

Impairment of property, plant and equipment, net to satisfy ALTA CT Supply Agreement

Total loss

SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports its financial performance to its CODM based on the four operating and reportable segments defined as follows:

Power and Microwave Technologies ("PMT") includes the power grid and microwave tube business and RF, Wireless and Power technologies. PMT provides design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair PMT also offers its customers technical services for both microwave and industrial equipment.

Green Energy Solutions ("GES") designs and manufactures products for the energy storage market and power management applications. We provide design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Display solutions include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services.

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. After the January 2025 sale of certain assets to DirectMed, the Company manufactures and repairs CT tubes and sells them to exclusively to DirectMed under an supply agreement.

The CODM for Richardson Electronics, Ltd. is Edward J. Richardson ( Chairman, Chief Executive Officer and President ). The CODM utilizes segment gross profit compared to both the current forecast and the prior year to analyze and assess financial performance by segment. The CODM’s assessment of each segment’s financial performance is utilized to deliberate and execute decisions to allocate resources to manage the growth and profitability of the individual segments and the entire Company. Inventories, net is the only segment asset metric analyzed and reviewed by the CODM.

Operating results by segment are summarized in the following tables ( in thousands ):

Fiscal Year Ended May 31, 2025

PMT

GES

Canvys

Healthcare

Total

Sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Loss on disposal of property, plant and equipment

Loss on disposal of healthcare assets and other charges

Operating loss

Interest income

Foreign exchange gain

Other, net

Loss before income taxes

Fiscal Year Ended June 1, 2024

PMT

GES

Canvys

Healthcare

Total

Sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Loss on disposal of property, plant and equipment

Operating income

Interest income

Foreign exchange loss

Other, net

Income before income taxes

Fiscal Year Ended May 27, 2023

PMT

GES

Canvys

Healthcare

Total

Sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Gain on disposal of property, plant and equipment

Operating income

Interest income

Foreign exchange loss

Other, net

Income before income taxes

The segment assets, which consist of inventories, net are summarized in the following table (in thousands):

PMT

GES

Canvys

Healthcare

Total Segment Assets

The reconciliations of segment assets to the Consolidated Balance Sheets are summarized in the following table (in thousands):

May 31, 2025

June 1, 2024

Total segment assets

Cash and cash equivalents

Accounts receivable

Other current assets

Property, plant and equipment, net

Intangible assets, net

Right of use lease assets

Other non-current assets

Non-current deferred income taxes

Total assets

Geographic net sales information is primarily grouped by customer destination into five areas: North America; Asia/Pacific; Europe; Latin America; and Other.

Net sales and gross profit by geographic region are summarized in the following table ( in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

May 27, 2023

Net Sales

North America (1)

Asia/Pacific (2)

Europe (3)

Latin America (2)

Other (4)

Total

Gross Profit

North America (1)

Asia/Pacific (2)

Europe (2)

Latin America (2)

Other (4)

Total

Primarily applicable to the United States. No other country generated a material amount.

No country generated a material amount .

Primarily applicable to Germany and Netherlands. No other country generated a material amount.

Includes primarily net sales not allocated to a specific geographical region, unabsorbed value-add cost and other unallocated expenses .

Net assets by geographic region are summarized in the following table ( in thousands ):

Fiscal Year Ended

May 31, 2025

June 1, 2024

Net Assets

North America (1)

Asia/Pacific (2)

Europe (3)

Latin America (2)

Total

Primarily applicable to the United States. No other country generated a material amount.

No country generated a material amount.

Primarily applicable to Germany and Netherlands. No other country generated a material amount.

The Company had long-lived assets of $ 20.5 million as of May 31, 2025 and $ 25.1 million as of June 1, 2024. The long-lived assets which include property, plant and equipment-net, intangible assets-net and right of use lease assets, were primarily in the U.S. There were approximately $ 2.1 million of long-lived assets that belong to our foreign affiliates as of May 31, 2025 and $ 2.1 million as of June 1, 2024.

RISKS AND UNCERTAINTIES

Our business and the companies with which we do business are subject to risks and uncertainties caused by factors beyond our control. Such factors include economic pressures related to inflation, rising interest rates, economic weakness or recession, as well as geopolitical and public health, tightening labor markets, and pandemics. These and other similar conditions and events have in the past and could in the future disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.

VALUATION AND QUALIFYING ACCOUNTS

The following table presents the valuation and qualifying account activity for fiscal years ended May 31, 2025, June 1, 2024 and May 27, 2023 ( in thousands ):

Description

Balance at

beginning

of period

Charged to

expense

Deductions

Balance at

end

of period

Year ended May 31, 2025

Allowance for credit losses

Inventory provisions

Year ended June 1, 2024

Allowance for credit losses

Inventory provisions

Year ended May 27, 2023

Allowance for credit losses

Inventory provisions

Notes:

Provision for credit losses.

Uncollectible amounts written off, net of recoveries and foreign currency translation.

Charges to cost of sales. Included in fiscal 2025 were inventory write-downs of $ 1.5 million for Healthcare, $ 0.4 million for PMT and $ 0.1 million for Canvys.

Inventory disposed or sold, net of foreign currency translation.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) ( in thousands, except per share

amounts ):

Description

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

Fiscal 2025

Net sales

Gross profit

Net income (loss)

Net income (loss) per share:

Common stock - basic

Class B common stock - basic

Common stock - diluted

Class B common stock - diluted

(1) Reported loss includes a $ 3.6  million

disposal loss on healthcare assets.

Fiscal 2024

Net sales

Gross profit

Net income (loss)

Net income (loss) per share:

Common stock - basic

Class B common stock - basic

Common stock - diluted

Class B common stock - diluted

IT EM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

None .

ITEM 9A. C ontrols and Procedures

Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of May 31, 2025.

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2025, at a reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of the Chief Executive Officer and Chief Financial Officer, management conducted an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2025, based on the framework in the Internal Control-Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective as of May 31, 2025.

Management’s assessment of the effectiveness of our internal control over financial reporting as of May 31, 2025, has been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their report, which is included herein.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Richardson Electronics, Ltd.

LaFox, Illinois

Opinion on Internal Control over Financial Reporting

We have audited Richardson Electronics Ltd.’s (the “Company’s”) internal control over financial reporting as of May 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2025, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of May 31, 2025 and June 1, 2024, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended May 31, 2025, and the related notes and our report dated August 4, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

Chicago, Illinois

August 4, 2025

ITEM 9B. O ther Information

10b5-1 Trading Arrangement

During the most recently completed fiscal quarter, no director or officer of the Company adopted , modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (in each case, as defined in Item 408 of Regulation S-K).

Insider Trading Policies

The Company has adopted insider trading policies and procedures governing the purchase, sale and other disposition of its securities by directors, officers and employees that management believes are reasonably designed to promote compliance with insider trading laws, rules, and regulations, and any listing standards applicable to the company. A copy of the Company’s insider trading policy is attached as Exhibit 19.1 hereto.

I TEM 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

None.

PART III

ITEM 10. Directors, Executive Of ficers and Corporate Governance

Information concerning directors and executive officers of the registrant will be contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2025 and is incorporated herein by reference.

ITEM 11. Executi ve Compensation

Information concerning executive compensation will be contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2025 and is incorporated herein by reference.