RICHARDSON ELECTRONICS, LTD. [RELL] Filings

10-Q 1 rell-20240831.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from To

Commission File Number: 0-12906

RICHARDSON ELECTRONICS, LTD.

(Exact name of registrant as specified in its charter)

    Delaware

    36-2096643

    (State or other jurisdiction of
     incorporation or organization)

    (I.R.S. Employer
     Identification No.)

40W267 Keslinger Road, P.O. Box 393

LaFox, Illinois 60147-0393

(Address of principal executive offices)

Registrant’s telephone number, including area code: (630) 208-2200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.05 Par Value	RELL	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☒
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 8, 2024, there were 12,331,320 outstanding shares of Common Stock, $0.05 par value and 2,049,238 outstanding shares of Class B Common Stock, $0.05 par value, which are convertible into Common Stock of the registrant on a share for share basis.

TABLE OF CONTENTS


		Page



Part I.	Financial Information

Item 1.	Financial Statements	2
	Unaudited Consolidated Balance Sheets	2
	Unaudited Consolidated Statements of Comprehensive Income	3
	Unaudited Consolidated Statements of Cash Flows	4
	Unaudited Consolidated Statement of Stockholders’ Equity	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

Part II.	Other Information

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
Exhibit Index		24
Signatures		25

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Richardson Electronics, Ltd.

Consolidated Balance Sheets

(in thousands, except per share amounts)


	Unaudited		Audited
	August 31, 2024		June 1, 2024
Assets
Current assets:
Cash and cash equivalents	$	23,035	$	24,263
Accounts receivable, less allowance for credit losses of $351 and $323, respectively		30,862		24,845
Inventories, net		110,994		110,149
Prepaid expenses and other assets		2,488		2,397
Total current assets		167,379		161,654
Non-current assets:
Property, plant and equipment, net		20,612		20,681
Intangible assets, net		1,582		1,641
Right of use lease assets		2,538		2,760
Deferred income tax assets		5,555		5,500
Other non-current assets		197		209
Total non-current assets		30,484		30,791
Total assets	$	197,863	$	192,445
Liabilities
Current liabilities:
Accounts payable	$	19,758	$	15,458
Accrued liabilities		15,403		15,404
Lease liabilities current		1,107		1,169
Total current liabilities		36,268		32,031
Non-current liabilities:
Deferred income tax liabilities		79		90
Lease liabilities non-current		1,431		1,591
Other non-current liabilities		1,021		781
Total non-current liabilities		2,531		2,462
Total liabilities		38,799		34,493
Stockholders’ Equity
Common stock, $0.05 par value; 12,331 and 12,254 shares issued and outstanding on August 31, 2024 and June 1, 2024, respectively		617		613
Class B common stock, convertible, $0.05 par value; 2,049 shares issued and outstanding on August 31, 2024 and June 1, 2024		102		102
Preferred stock, $1.00 par value, no shares issued		—		—
Additional paid-in-capital		73,315		72,744
Retained earnings		83,630		83,729
Accumulated other comprehensive income		1,400		764
Total stockholders' equity		159,064		157,952
Total liabilities and stockholders’ equity	$	197,863	$	192,445

Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.

Richardson Electronics, Ltd.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)


	Three Months Ended
	August 31, 2024			September 2, 2023
Net sales	$	53,725		$	52,581
Cost of sales, exclusive of depreciation and amortization		37,299			35,317
Gross profit		16,426			17,264
Selling, general and administrative expenses, inclusive of depreciation and amortization		16,112			15,792
Gain on disposal of assets		(2	)		—
Operating income		316			1,472
Other (income) expense:
Interest income		(58	)		(71	)
Foreign exchange gain		(277	)		(97	)
Other, net		3			32
Total other income		(332	)		(136	)
Income before income taxes		648			1,608
Income tax provision		58			381
Net income		590			1,227
Foreign currency translation gain (loss), net of tax		636			(41	)
Comprehensive income	$	1,226		$	1,186

Net income per share:
Common shares - Basic	$	0.04		$	0.09
Class B common shares - Basic		0.04			0.08
Common shares - Diluted		0.04			0.09
Class B common shares - Diluted		0.04			0.08

Weighted average number of shares:
Common shares – Basic		12,200			12,171
Class B common shares – Basic		2,049			2,052
Common shares – Diluted		12,431			12,539
Class B common shares – Diluted		2,049			2,052

Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.

Richardson Electronics, Ltd.

Unaudited Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended
	August 31, 2024			September 2, 2023
Operating activities:
Net income	$	590		$	1,227
Adjustments to reconcile net income to cash provided by operating activities:
Unrealized foreign currency gain		(382	)		(37	)
Depreciation and amortization		1,044			998
Inventory provisions		139			85
Share-based compensation expense		593			483
Gain on disposal of assets		(2	)		—
Deferred income taxes		(58	)		(5	)
Change in assets and liabilities:
Accounts receivable		(5,858	)		4,462
Inventories		(124	)		(3,151	)
Prepaid expenses and other assets		(29	)		409
Accounts payable		4,164			(2,365	)
Accrued liabilities		(95	)		(1,124	)
Other		430			33
Net cash provided by operating activities		412			1,015
Investing activities:
Capital expenditures		(926	)		(1,141	)
Proceeds from sale of property, plant & equipment		7			—
Net cash used in investing activities		(919	)		(1,141	)
Financing activities:
Proceeds from issuance of common stock		144			327
Cash dividends paid on common and Class B common stock		(850	)		(843	)
Proceeds from revolving credit facility		1,000			—
Repayment of revolving credit facility		(1,000	)		—
Other		(162	)		(119	)
Net cash used in financing activities		(868	)		(635	)
Effect of exchange rate changes on cash and cash equivalents		147			(96	)
Decrease in cash and cash equivalents		(1,228	)		(857	)
Cash and cash equivalents at beginning of period		24,263			24,981
Cash and cash equivalents at end of period	$	23,035		$	24,124

Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.

Richardson Electronics, Ltd.

Unaudited Consolidated Statement of Stockholders’ Equity

(in thousands, except per share amounts)


	Common Stock		Class B Common Stock		Par Value		Additional Paid In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance June 1, 2024		12,254		2,049	$	715	$	72,744		$	83,729		$	764		$	157,952
Comprehensive income:
Net income		—		—		—		—			590			—			590
Foreign currency translation, net of tax		—		—		—		—			161			636			797
Share-based compensation:
Restricted stock		—		—		—		424			—			—			424
Stock options		—		—		—		169			—			—			169
Common stock:
Options exercised		17		—		1		140			—			—			141
Restricted stock issuance		60		—		3		(162	)		—			—			(159	)
Dividends paid to:
Common ($0.060 per share)		—		—		—		—			(739	)		—			(739	)
Class B Common ($0.054 per share)		—		—		—		—			(111	)		—			(111	)
Balance August 31, 2024		12,331		2,049	$	719	$	73,315		$	83,630		$	1,400		$	159,064

Balance May 27, 2023		12,140		2,052	$	710	$	70,951		$	87,044		$	615		$	159,320
Comprehensive income:
Net income		—		—		—		—			1,227			—			1,227
Foreign currency translation, net of tax		—		—		—		—			—			(41	)		(41	)
Share-based compensation:
Restricted stock		—		—		—		169			—			—			169
Stock options		—		—		—		314			—			—			314
Common stock:
Options exercised		48		—		2		325			—			—			327
Restricted stock issuance		37		—		2		(121	)		—			—			(119	)
Dividends paid to:
Common ($0.060 per share)		—		—		—		—			(732	)		—			(732	)
Class B Common ($0.054 per share)		—		—		—		—			(111	)		—			(111	)
Balance September 2, 2023		12,225		2,052	$	714	$	71,638		$	87,428		$	574		$	160,354

Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY

Richardson Electronics, Ltd. (the "Company," "we," "our") is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. Nearly 50% of our products are manufactured at our facilities located in LaFox, Illinois, Marlborough, Massachusetts and Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. 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.

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.

The Company reports its financial performance for the following 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 10, Segment and Geographic Information.

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

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements.

Our fiscal quarter ends on the Saturday nearest the end of the quarter-ending month. The first quarter of fiscal 2025 contained 13 weeks and the first quarter of fiscal 2024 contained 14 weeks.

In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results of interim periods have been made. All inter-company transactions and balances have been eliminated. The unaudited consolidated financial statements presented herein include the accounts of our wholly owned subsidiaries. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations. The results of our operations for three months ended August 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2025.

As described in Note 1, Description of the Company the Company reports its financial performance based on four operating and reportable segments. The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 1, 2024, which was filed with the SEC on August 5, 2024.

3. RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current period reporting classifications. The reclassification was related to the unrealized foreign exchange gain on the Statement of Cash Flows.

4. NEW ACCOUNTING PRONOUNCEMENTS - NOT YET ADOPTED

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 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 this ASU to determine its impact on the Company's disclosures.

In November 2023, the FASB issued 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 chief operating

decision maker ("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 provide 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. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission's ("SEC") Disclosure Update and Simplification Initiative. The amendments in this update require modification of certain disclosure and presentation requirements for a variety of ASU topics in response to the SEC's Release No. 33-10532. The effective date for each amended topic in the ASC is the date on which the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendment will be removed from the Codification and not become effective. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

5. CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Inventories, net: Our consolidated inventories were stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include approximately $95.0 million of finished goods, $11.7 million of raw materials and $4.3 million of work-in-progress as of August 31, 2024, 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, the exiting of certain markets and assumptions about future demand and market conditions. Inventory reserves were approximately $6.1 million as of August 31, 2024 and $6.0 million as of June 1, 2024.

Revenue Recognition: 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. Revenue is recognized when control transfers since it is not always based on delivery of the goods. The Company’s revenue includes the following streams:

•

Manufacturing/assembly

•

Distribution

•

Services revenue

Manufacturing/assembly typically includes the products that are manufactured or assembled in our manufacturing facility. These products can either be built to the customer’s prints/designs or are products that we stock in our warehouse to sell to any customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold in addition to the product. Our contracts for customized products generally include termination provisions if a customer cancels its order. However, we recognize revenue at a point in time because the termination provisions normally do not require, upon cancellation, the customer to pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or services that we promise to transfer to the customer. The promises to the customer are limited only to those goods or services. The performance obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As such, they are not a separate promised service. The Company elects to account for shipping and handling as activities to fulfill the promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell them through use in their own processes.

Distribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our customers. The distribution business does not include a separate service bundled with the product sold or sold on top of the product. Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods. Control refers to the ability of the customer to direct the use of and obtain substantially all the remaining benefits from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally, our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.

Repair, installation or training activities generate services revenue. 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.

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 the Company's 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 unaudited consolidated balance sheets.

Contract Balances: Contract balances were as follows (in thousands):


	August 31, 2024		June 1, 2024		May 27, 2023
Accounts receivable	$	30,862	$	24,845	$	30,067
Contract liabilities		4,527		4,520		3,283

During the three months ended August 31, 2024 and September 2, 2023, the Company recognized $0.9 million and $1.5 million, respectively, of revenue upon satisfaction of performance obligations related to amounts that were included in the contract liabilities balance as of June 1, 2024 and May 27, 2023, respectively.

See Note 10, Segment & Geographic Information for a disaggregation of revenue by reportable segment and geographic region, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the Company.

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.

Intangible Assets: Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or by recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows 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 agreements acquired in connection with prior acquisitions. Technology represents the fair value acquired in connection with acquisitions and an exclusive license, manufacturing and distribution agreement. Intangible assets subject to amortization were as follows (in thousands):


	August 31, 2024		June 1, 2024
Gross Amounts:
Customer Relationships(1)	$	3,405	$	3,396
Technology		380		380
Total Gross Amounts	$	3,785	$	3,776

Accumulated Amortization:
Customer Relationships	$	1,943	$	1,886
Technology		260		249
Total Accumulated Amortization	$	2,203	$	2,135

Net Intangible Assets	$	1,582	$	1,641

(1)

Change from prior period reflects impact of foreign currency translation.

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


Fiscal Year	Amortization Expense
Remaining 2025	$	181
2026		207
2027		193
2028		185
2029		174
Thereafter		642
Total amortization	$	1,582

The weighted average number of years of amortization expense remaining is 10.0 years.

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.

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


	August 31, 2024		June 1, 2024
Compensation and payroll taxes	$	4,153	$	3,495
Accrued severance		506		506
Professional fees		614		487
Deferred revenue		4,527		4,520
Other accrued expenses		5,603		6,396
Accrued Liabilities	$	15,403	$	15,404

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 expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive income. Each quarter, we assess 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 unaudited consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence. Warranty reserves were approximately $0.7 million as of August 31, 2024 and June 1, 2024.

6. REVOLVING CREDIT FACILITY

The Company entered into a Credit Agreement (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. 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 to address short-term working capital needs and repaid that $1.0 million during the first quarter of fiscal 2025. There was no amount outstanding under the Revolving Credit Facility as of August 31, 2024.

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 August 31, 2024.

Borrowings under the Revolving Credit Facility will bear interest at a rate per annum selected by the Company from the following options: (a) Term SOFR Rate (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 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%.

7. LEASE OBLIGATIONS

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 net assets and liabilities related to operating leases were as follows (in thousands):


Lease Type	August 31, 2024		June 1, 2024
Right of use lease assets	$	2,538	$	2,760

Lease liabilities current		1,107		1,169

Lease liabilities non-current		1,431		1,591

The components of lease costs were as follows (in thousands):


		Three Months Ended
		August 31, 2024		September 2, 2023
Consolidated operating lease expense	Operating expenses	$	435	$	454

The approximate future minimum lease payments under operating leases at August 31, 2024 were as follows (in thousands):


Fiscal Year	Operating Leases
Remaining 2025	$	981
2026		923
2027		425
2028		222
2029		146
Total lease payments		2,697
Less imputed interest		159
Net minimum lease payments	$	2,538

The weighted average remaining lease terms and interest rates of leases held by the Company as of August 31, 2024 and September 2, 2023 were as follows:


Operating Lease as of:	Weighted Average Remaining Lease Term in Years	Weighted Average Interest Rate
August 31, 2024	2.7	4.6%
September 2, 2023	2.5	4.1%

The cash activities associated with our leases for the three month periods ended August 31, 2024 and September 2, 2023, were as follows (in thousands):


		Three Months Ended
Cash Flow Source	Classification	August 31, 2024		September 2, 2023

Operating cash flows from operating leases	Operating activities	$	353	$	111

8. INCOME TAXES

We recorded an income tax provision of $0.1 million and $0.4 million for the first three months of fiscal 2025 and the first three months of fiscal 2024, respectively. The effective income tax rate during the first three months of fiscal 2025 was a tax provision of 9.0% as compared to a tax provision of 23.7% during the first three months of fiscal 2024. The difference in rate during the first three months of fiscal 2025 as compared to the first three months of fiscal 2024 reflects changes in our geographical distribution of income (loss), which is primarily driven by a decrease in U.S. earnings for fiscal 2025 and the state income tax provision, as well as an increase in the utilization of U.S. research and development credits. The 9.0% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss), as well as the utilization of U.S. research and development credits.

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 2019 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. We have no current open audits in the U.S.

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. The deferred tax liabilities related to undistributed earnings of our foreign subsidiaries was less than $0.1 million as of August 31, 2024 and June 1, 2024.

The Company recorded a $0.3 million liability for uncertain tax positions as of August 31, 2024. The uncertain tax positions totaled $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 and penalties as it relates to the reserve of the research and development credit as of June 1, 2024 and August 31, 2024, respectively.

The Company maintains a valuation allowance representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance was $2.2 million as of August 31, 2024 and was $1.4 million as of September 2, 2023. The current valuation allowance is recorded on deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.1 million) and state NOLs ($1.1 million). The amount of the deferred tax assets 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.

9. EARNINGS PER SHARE

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 common stock cash dividends.

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 (loss) 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 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 earnings per share (“EPS”) presented in our unaudited consolidated statements of comprehensive income was based on the following amounts (in thousands, except per share amounts):


	Three Months Ended
	August 31, 2024						September 2, 2023
	Basic			Diluted			Basic		Diluted
Numerator for Basic and Diluted EPS:
Net income	$	590		$	590		$	1,227	$	1,227
Less dividends:
Common stock		739			739			732		732
Class B common stock		111			111			111		111
Undistributed (loss) earnings	$	(260	)	$	(260	)	$	384	$	384

Common stock undistributed (loss) earnings	$	(226	)	$	(226	)	$	333	$	335
Class B common stock undistributed (loss) earnings		(34	)		(34	)		51		49
Total undistributed (loss) earnings	$	(260	)	$	(260	)	$	384	$	384

Denominator for Basic and Diluted EPS:
Common stock weighted average shares		12,200			12,200			12,171		12,171
Effect of dilutive securities
Dilutive stock options					231					368
Denominator for diluted EPS adjusted for weighted average shares and assumed conversion					12,431					12,539
Class B common stock weighted average shares and shares under if-converted method for diluted EPS		2,049			2,049			2,052		2,052

Net income per share:
Common stock	$	0.04		$	0.04		$	0.09	$	0.09

Class B common stock	$	0.04		$	0.04		$	0.08	$	0.08

Note: There were no common stock options that were antidilutive in the first quarter of fiscal 2025 and fiscal 2024.

10. SEGMENT AND GEOGRAPHIC INFORMATION

As described in Note 1, Description of the Company, the Company reports its financial performance based on the operating and reportable segments which are 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. 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.

The CEO, who is the chief operating decision maker, evaluates performance and allocates Company resources primarily based on the gross profit of each segment.

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


	Three Months Ended
	August 31, 2024		September 2, 2023
PMT
Net Sales	$	34,202	$	35,744
Gross Profit		10,202		11,511

GES
Net Sales		8,086		4,394
Gross Profit		2,374		1,580

Canvys
Net Sales		7,638		9,889
Gross Profit		2,621		3,365

Healthcare
Net Sales		3,799		2,554
Gross Profit		1,229		808

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):


	Three Months Ended
	August 31, 2024	September 2, 2023
Net Sales