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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:

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Business Overview

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Results of Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended June 1, 2024, May 27, 2023 and May 28, 2022, as reflected in our Consolidated Statements of Comprehensive Income.

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Liquidity, Financial Position and Capital Resources - a discussion of our primary sources and uses of cash for the fiscal years ended June 1, 2024, May 27, 2023 and May 28, 2022, 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, 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 55% 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.

Some of the Company's products are manufactured in China and imported into the United States. The Office of the United States Trade Representative ("USTR") instituted tariffs on the importation of a number of products into the United States from China. These tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's products manufactured in China are subject to duties of 25% when imported into the United States.

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.

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

Results of Operations

Overview - Fiscal Year Ended June 1, 2024

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Fiscal 2024 contained 53 weeks and fiscal 2023 contained 52 weeks.

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Net sales during fiscal 2024 were $196.5 million, down 25.2%, compared to net sales of $262.7 million during fiscal 2023.

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Gross margin was 30.5% of net sales during fiscal 2024, compared to 31.9% of net sales during fiscal 2023.

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Selling, general and administrative expenses were $59.5 million, or 30.3% of net sales, during fiscal 2024, compared to $58.7 million, or 22.4% of net sales, during fiscal 2023.

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Operating income during fiscal 2024 was $0.3 million, compared to an operating income of $25.0 million during fiscal 2023.

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Other expense during fiscal 2024 was $0.2 million, compared to other income of less than $0.1 million during fiscal 2023.

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Net income during fiscal 2024 was $0.1 million, compared to a net income of $22.3 million during fiscal 2023.

Net Sales and Gross Profit Analysis

Net sales by segment and percent change for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows (in thousands):

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 part and CT tube sales.

During fiscal 2023, consolidated net sales increased by 16.9% compared to fiscal 2022. Sales for PMT increased by 5.7%, GES sales increased by 110.5%, Canvys sales increased by 11.8% and Healthcare sales increased by 0.5%. The increase in PMT was mainly due to strong growth in the semi-wafer fabrication industry and the RF and microwave products for various applications. The increase in GES was primarily due to growth in related product sales to the wind turbine industry, as well as EV battery modules. The increase in Canvys was primarily due to strong sales in the North American market. The increase in Healthcare was primarily due to an increase in equipment sales.

Gross profit by segment and percent of segment net sales for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows (in thousands):

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 $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.

Consolidated gross profit was $83.7 million during fiscal 2023, compared to $71.7 million during fiscal 2022. Consolidated gross margin as a percentage of net sales was 31.9 % for fiscal 2023, the same as the 31.9% during fiscal 2022, primarily due to favorable product mix for PMT, unfavorable product mix for GES, unfavorable product mix for Canvys and improved manufacturing absorption and decreased component scrap for Healthcare. Gross margin during fiscal 2023 included expense related to inventory provisions of $0.3 million for PMT, $0.1 million for Canvys and $0.1 million for Healthcare.

Power and Microwave Technologies

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.

Net sales for PMT increased 5.7% to $164.3 million during fiscal 2023 from $155.4 million during fiscal 2022. The increase was mainly due to strong growth in the semi-wafer fabrication industry for the first nine months and the RF and microwave products for various applications. Gross margin as a percentage of net sales increased to 32.9% during fiscal 2023 as compared to 32.7% during fiscal 2022, primarily due to product mix.

Green Energy Solutions

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.

Net sales for GES increased 110.5% to $47.6 million during fiscal 2023 from $22.6 million during fiscal 2022. The increase was mainly due to growth in related product sales to the wind turbine industry, as well as EV battery modules. Gross margin as a percentage of net sales decreased to 28.8% during fiscal 2023 as compared to 32.0% during fiscal 2022, primarily due to product mix.

Canvys

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.

Net sales for Canvys increased 11.8% to $39.3 million during fiscal 2023, from $35.2 million during fiscal 2022. Sales increased primarily due to strong sales in the North American market. Gross margin as a percentage of net sales decreased to 31.5% during fiscal 2023 as compared to 32.0% during fiscal 2022 mainly due to product mix.

Healthcare

Net sales for Healthcare increased 5.7% to $12.1 million during fiscal 2024, from $11.4 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.

Net sales for Healthcare increased 0.5% to $11.4 million during fiscal 2023, essentially unchanged from fiscal 2022. The slight increase in sales was primarily due to an increase in equipment sales, partially offset by decreases in part sales and CT tube sales. Gross margin as a percentage of net sales increased to 30.7% during fiscal 2023, compared to 21.2% during fiscal 2022. The increase was primarily due to improved manufacturing absorption and decreased component scrap expenses.

Sales by Geographic Area

Our sales are aggregated by the following geographic regions: North America; Asia/Pacific; Europe; Latin America; and Other.

Net sales by geographic area and percent change for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows (in thousands):

(1)

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

Gross profit by geographic area and percent of geographic net sales for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows (in thousands):

(1)

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

We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Terms are generally on 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“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.

Selling, general and administrative expenses increased during fiscal 2023 to $58.7 million from $55.7 million during fiscal 2022. This increase in SG&A expense from fiscal 2022 was mainly due to higher employee compensation and travel expenses, partially offset by lower legal fees and a lower bad debt expense. SG&A as a percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022.

Other Income/Expense

Other expense was $0.2 million during fiscal 2024, compared to other income of less than $0.1 million during fiscal 2023. Fiscal 2024 had $0.3 million of investment income the same as fiscal 2023. 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 loss reported for fiscal 2024 totaled $0.4 million compared to $0.3 million for fiscal 2023. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Income Tax Provision

Our income tax provision (benefit) during fiscal 2024, fiscal 2023 and fiscal 2022 was $0.1 million, $2.7 million and ($2.2 million), respectively. The effective income tax rates during fiscal 2024, fiscal 2023 and fiscal 2022 were 61.4%, 10.8% and (13.7%), respectively. The difference between the effective income tax rates as compared to the U.S. federal statutory rate of 21.0% during fiscal 2024, fiscal 2023 and fiscal 2022 was primarily driven by the impact of valuation allowance changes related to the realizability of our U.S. state and federal net deferred tax assets and changes in our geographical distribution of income (loss). In addition, the Company recognized both foreign tax and research and development ("R&D") tax credits in fiscal 2024.

During the fourth quarter of fiscal 2024, the Company recorded R&D tax credits of $0.5 million. These credits represent the expected U.S. federal credits to be claimed for fiscal 2024.

Net deferred tax assets related to domestic state NOL carryforwards at June 1, 2024 amounted to approximately $1.8 million, compared to $2.1 million at May 27, 2023. Net deferred tax assets related to foreign NOL carryforwards was $0.1 million as of June 1, 2024, and $0.2 million as of May 27, 2023 with various or indefinite expiration dates. During the fourth quarter of fiscal 2024 we increased the valuation allowance on the state net operating losses by $0.9 million resulting in a total valuation allowance against state net operating losses of $1.1 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. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $0.1 million in both fiscal 2024 and fiscal 2023.

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 June 1, 2024. 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 of June 1, 2024, we recorded a $0.9 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 June 1, 2024, a valuation allowance of $2.1 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 May 27, 2023 was $1.4 million. The valuation allowance relates to state NOLs ($1.1 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.0 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, net of refunds, including foreign estimated tax payments, were less than $0.1 million, $4.8 million and $1.5 million, during fiscal 2024, fiscal 2023 and fiscal 2022, 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 andU.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.

The Company recorded a $0.1 million uncertain tax position as of June 1, 2024 as compared to not recording an uncertain tax position as of May 27, 2023. 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 June 1, 2024.

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 $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. 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 8, Income Taxes, of 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 $25.0 million at May 27, 2023. Cash and cash equivalents by geographic area at May 27, 2023 consisted of $8.1 million in North America, $8.6 million in Europe, $1.5 million in Latin America and $6.8 million in Asia/Pacific. No funds were repatriated to the United States in fiscal 2023 from our foreign entities.

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. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility are expected to be used for working capital and general corporate purposes of the Company and its subsidiaries. The Company utilized $3.7 million of the credit line to address short-term cash requirements and repaid that $3.7 million during the fiscal 2024. As of the end of fiscal 2024 and the date of this report, 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 adjusted for non-cash items and changes in our operating assets and liabilities.

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 stock-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.

Operating activities utilized $8.2 million of cash during fiscal 2023. We had net income of $22.3 million during fiscal 2023, which included non-cash stock-based compensation expense of $0.9 million associated with the issuance of stock option awards and restricted stock awards, $0.5 million of inventory provisions and depreciation and amortization expense of $3.7 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities resulted in a use of cash of $35.5 million during fiscal 2023, mainly due to an increase in inventories of $30.5 million, a decrease in accounts payable and accrued liabilities of $4.4 million and an increase in prepaid expenses of $0.5 million. The majority of the inventory increase was to support our Electron tube, PMG, Green Energy Solutions, LaFox manufacturing and Healthcare businesses. The decrease in accounts payable and accrued liabilities was due to revenue recognition and timing.

Cash Flows from Investing Activities

The cash flow from investing activities consisted primarily of purchases and maturities of investments and capital expenditures.

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.

Cash used by investing activities of $2.2 million during fiscal 2023 was mainly attributed to $7.4 million in capital expenditures with a $5.0 million offset for the maturities of a Certificate of Deposit (CD). Capital expenditures were primarily related to our LaFox manufacturing business and facility renovation, IT systems and the Healthcare business.

Our purchases and proceeds from investments consist 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

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

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

Cash provided by financing activities of $0.4 million during fiscal 2023 resulted primarily from the $3.8 million of proceeds from the issuance of common stock from stock option exercises and the $3.3 million used to pay dividends to shareholders.

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 June 1, 2024 (in thousands):

Less than 1 year 1 - 3years 4 - 5years More than5 years Less Interest Total

(1)

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

Critical Accounting Estimates

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“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:

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Allowance for Credit Losses

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Revenue Recognition

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Inventories, net

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Intangible and Long-Lived Assets

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Income Taxes

Allowance for Credit Losses

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 income and net carrying value of accounts receivable.

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.

The Company’s revenue includes the following streams:

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Manufacturing/assembly

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Distribution

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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 service that we promise to transfer to the customer. The promises to the customer are limited only to those goods or service. 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 of, 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.

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.

Intangible and Long-Lived Assets

Our intangible assets reflect their fair value. Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or recognized valuation models.

We review property 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. We conduct annual reviews for idle and underutilized equipment and review business plans for possible impairment. 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.

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 3, Significant Accounting Policies and Disclosures.

ITEM 7A. Quantitative and Qualitative 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 take into account current 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 do manage foreign exchange exposures by using currency clauses in certain sales contracts. We have not used any derivative instruments nor entered into any forward contracts in fiscal 2024, fiscal 2023 or fiscal 2022.

Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net sales would have been lower by an estimated $10.8 million during fiscal 2024, an estimated $12.2 million during fiscal 2023 and an estimated $12.1 million during fiscal 2022. Total assets would have declined by an estimated $4.6 million as of the fiscal year ended June 1, 2024 and an estimated $4.3 million as of the fiscal year ended May 27, 2023, while the total liabilities would have decreased by an estimated $1.2 million as of the fiscal year ended June 1, 2024 and an estimated $1.1 million as of the fiscal year ended May 27, 2023.

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 Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

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 June 1, 2024 and May 27, 2023, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 1, 2024, 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 June 1 2024 and May 27, 2023, and the results of its operations and its cash flows for each of the three years in the period ended June 1, 2024, 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 June 1, 2024, 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 5, 2024 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 Public Company Accounting Oversight Board (United States) (“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 judgments. 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.

Estimationof Inventory Reserve - Power and Microwave Technologies ("PMT") Reportable Segment

As described in Note 3 to the consolidated financial statements, the consolidated inventory balance as of June 1, 2024 was $110.1 million, net of $6.0 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 segment represent trailing edge technology. PMT 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, the market for and resulting net realizable value of PMT's products may decline.

We have identified the Company's estimation of inventory reserve for the PMT segment as a critical audit matter due to the significant judgments required by management in estimating net realizable value for certain inventory items. The Company's estimation of its inventory reserve, performed on an item-by-item basis, requires inputs from operations personnel and an assessment of current market conditions and future industry trends, which can be difficult to predict given evolving technologies and the declining market for some 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 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 as to 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 performing a retrospective comparison of 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 5, 2024

Richardson Electronics, Ltd.

Consolidated Balance Sheets

(in thousands, except per share amounts)

Assets

Current assets:

Prepaid expenses and other assets 2,397 2,633

Non-current assets:

Other non-current assets 209 267

Liabilities and Stockholders’ Equity

Current liabilities:

Non-current liabilities:

Deferred income tax liabilities 90 98

Other non-current liabilities 781 612

Total non-current liabilities 2,462 2,139

Stockholders’ Equity

Preferred stock, $1.00 par value, no shares issued and outstanding — —

Accumulated other comprehensive income 764 615

Total liabilities and stockholders’ equity $ 192,445 $ 198,048

Richardson Electronics, Ltd.

Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

Fiscal Year Ended

Loss (gain) on disposal of assets 70 (7 ) 20

Other expense (income):

Investment/interest income (284 ) (295 ) (80 )

Total other expense (income) 191 (47 ) 198

Foreign currency translation gain (loss), net of tax 149 (185 ) (4,093 )

Net income per share:

Class B common shares - Diluted 0.00 1.40 1.18

Weighted average number of shares:

Richardson Electronics, Ltd.

Consolidated Statements of Cash Flows

(in thousands)

Fiscal Year Ended

Operating activities:

Loss (gain) on disposal of assets 70 (7 ) 20

Change in assets and liabilities:

Prepaid expenses and other assets 250 (519 ) (228 )

Net cash provided by (used in) operating activities 6,524 (8,199 ) 1,911

Investing activities:

Proceeds from the sale of property, plant & equipment — 194 —

Proceeds from maturity of investments — 5,000 —

Purchases of investments — — (5,000 )

Net cash used in investing activities (4,041 ) (2,184 ) (8,120 )

Financing activities:

Proceeds from revolving credit facility 3,744 — —

Repayment of revolving credit facility (3,744 ) — —

Net cash (used in) provided by financing activities (2,905 ) 389 (352 )

Decrease in cash and cash equivalents (718 ) (10,514 ) (7,821 )

Supplemental Disclosure of Cash Flow Information:

Cash paid during the fiscal year:

Income taxes, net of refunds $ — $ 4,807 $ 1,484

Non-cash activities:

Non-cash accruals for construction in progress $ 267 $ — $ —

Right of use assets obtained in exchange for lease liabilities 1,518 695 2,306

Richardson Electronics, Ltd.

Consolidated Statements of Stockholders’ Equity

(in thousands, except per share amounts)

Comprehensive income

Foreign currency translation, net of tax — — — — — (4,093 ) (4,093 )

Share-based compensation:

Restricted stock — — — 444 — — 444

Stock options — — — 210 — — 210

Common stock:

Restricted stock issuance 72 — 4 (4 ) — — —

Class B converted to common 44 (44 ) — — — — —

Dividends paid to:

Class B ($0.22 per share) — — — — (448 ) — (448 )

Comprehensive income

Foreign currency translation, net of tax — — — — — (185 ) (185 )

Share-based compensation:

Restricted stock — — — 542 — — 542

Stock options — — — 394 — — 394

Common stock:

Restricted stock issuance 49 — 2 (71 ) — — (69 )

Class B converted to Common 1 (1 ) — — — — —

Dividends paid to:

Class B ($0.22 per share) — — — — (443 ) — (443 )

Comprehensive income

Net income — — — — 61 — 61

Foreign currency translation, net of tax — — — — — 149 149

Share-based compensation:

Restricted stock — — — 685 — — 685

Stock options — — — 641 — — 641

Common stock:

Restricted stock issuance 37 — 2 (121 ) — — (119 )

Class B converted to Common 3 (3 ) — — — — —

Dividends paid to:

Class B ($0.22 per share) — — — — (443 ) — (443 )

Richardson Electronics, Ltd.

Notes to Consolidated Financial Statements

DESCRIPTION OF THE COMPANY

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.

Customer Concentration: No one customer represented more than 10 percent of our total accounts receivable balance as of June 1, 2024. One customer represented 20 percent of our total accounts receivable balance as of May 27, 2023. No one customer represented more than 10 percent of the consolidated net sales in fiscal 2024. Sales to one customer in our PMT segment totaled $31.2 million, which accounted for 12 percent of the Company’s consolidated net sales in fiscal 2023. No one customer represented more than 10 percent of the consolidated net sales in fiscal 2022.

Supplier Concentration: Two of our suppliers each represented 11 percent of our total cost of sales in fiscal 2024. One supplier represented 11 percent in fiscal 2023 and in fiscal 2022. The amount owed to both suppliers for fiscal 2024 totaled $3.8 million as of June 1, 2024. The amount owed for fiscal 2023 totaled $0.2 million as of May 27, 2023.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with 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 2024 began on May 28, 2023 and ended on June 1, 2024, our fiscal year 2023 began on May 29, 2022 and ended on May 27, 2023 and our fiscal year 2022 began on May 30, 2021 and ended on May 28, 2022. Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.

SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES

Use of Estimates: The preparation of financial statements in conformity with 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 critical accounting policies and estimates, including the allowance for credit losses, revenue recognition, inventory obsolescence, intangible assets, 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.

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 balance sheet 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 $24.8 million and $30.1 million as of 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 income and net carrying value of accounts receivable. The allowance for credit losses was approximately $0.3 million as of June 1, 2024, and $0.2 million as of May 27, 2023.

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.

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.

The Company’s revenue includes the following streams:

•

Manufacturing /assembly

•

Distribution

•

Services revenue

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.

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 streamsusing 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 customized 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 the 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.

Contract Liabilities: Contract liabilities and revenue recognized were as follows (in thousands):

Revenue recognized (5,976 )

Revenue recognized (3,392 )

See Note 10, Segment and 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.

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 loss reflected in our Consolidated Statements of Comprehensive Income were $0.4 million, $0.3 million and $0.3 million duringfiscal 2024, fiscal 2023 and fiscal 2022, respectively.

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.

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 $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 as compared to approximately $93.4 million of finished goods, $11.8 million of raw materials and $5.2 million of work-in-progress as of May 27, 2023.

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 the industry or market conditions differ from management’s estimates, additional provisions may be necessary. The inventory reserve as of June 1, 2024 was $6.0 million compared to $5.9 million as of May 27, 2023.

We recorded provisions to our inventory reserves of $0.6 million, $0.5 million and $0.5 million during fiscal 2024, fiscal 2023 and fiscal 2022, 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.

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.

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 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. Amortization is classified as a selling, general and administrative expense ("SG&A") on the income statement. Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with the acquisitions.

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 expense ("SG&A") on the income statement. The depreciation expense was approximately $4.0 million, $3.4 million and $3.2 million during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

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

Computer, communications equipment and software 11,900 11,692

Property, plant, and equipment, net $ 20,681 $ 20,823

Construction in progress at June 1, 2024, included $0.6 million for facilities, $0.6 million for manufacturing facilities and $1.0 million for IT systems. All projects are expected to be completed before the end of fiscal 2025.

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

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 for 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.

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):

Compensation and payroll taxes $ 3,495 $ 4,422

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 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 2024 and fiscal 2023 were as follows (in thousands):

WarrantyReserve

Accruals for products sold 91

Utilization (42 )

Accruals for products sold 2

Utilization (42 )

Other Non-Current Liabilities: Other non-current liabilities of $0.8 million at June 1, 2024 and $0.6 million at May 27, 2023, primarily represent employee-benefits obligations in various non-U.S. locations.

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 using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life and dividends. We account for the forfeitures of stock-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 $1.3 million during fiscal 2024, $0.9 million during fiscal 2023 and $0.7 million during fiscal 2022.

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):

(1)

Includes only those options that were in-the-money as of June 1, 2024. 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 74,822 stock options exercised during fiscal 2024, with cash received of $0.6 million. The total intrinsic value of options exercised was $0.3 million during fiscal 2024, $4.7 million during fiscal 2023 and $1.9 million for fiscal 2022. The weighted average fair value of stock option grants was $6.33 during fiscal 2024, $5.44 during fiscal 2023 and $1.50 during fiscal 2022. As of June 1, 2024, total unrecognized compensation costs related to unvested stock options and restricted stock awards was approximately $2.5 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 2024 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

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. For stock options granted during fiscal 2022 the simplified method was used as we believed that our historical stock option experience did not provide a reasonable basis upon which to estimate the expected term.

The following table summarizes information about stock options outstanding at June 1, 2024 (in thousands, except option prices and years):

Outstanding Vested

As of June 1, 2024, a summary of restricted stock award transactions was as follows (in thousands):

UnvestedRestrictedShares

Vested (73 )

Vested (66 )

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 2024, fiscal 2023 and fiscal 2022.

The Employees’ 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, 756,000 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: 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.

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 earnings per share (“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

Basic Diluted Basic Diluted Basic Diluted

Numerator for Basic and Diluted EPS:

Less dividends:

Denominator for Basic and Diluted EPS:

Effect of dilutive securities

Net income per share:

Note: There were nocommon stock options that were anti-dilutive for fiscal 2024, fiscal 2023 and fiscal 2022.

New Accounting Pronouncements - Adopted

ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and 2020-02) introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expanded the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. The Company adopted the new standard on May 28, 2023 and the adoption had no impact on the Company's financial condition, results of operations or cash flows.

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 or 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.

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. There was no amount outstanding under the Revolving Credit Facility as of June 1, 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 June 1, 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%.

5. RELATED PARTY TRANSACTION

On June 15, 2015, the Company entered into a lease agreement for the IMES facility with LDL, LLC. That lease agreement was extended for five years in fiscal 2021. The Company is entitled to extend the term of the lease for an additional five-year renewal term by notifying the landlord in writing of its intention to do so within six months of the expiration of the term. The Executive Vice President of IMES, Lee A. McIntyre III (former owner of IMES), had an ownership interest in LDL, LLC. Mr. McIntyre departed from the Company in fiscal year 2023, effective as of

September 24, 2022. The lease agreement provides for monthly payments over five years with total future minimum lease payments of $0.2 million. Rental expense related to this lease amounted to $0.2 million for the fiscal year ended June 1, 2024, $0.2 million for the fiscal year ended May 27, 2023 and $0.2 million for the fiscal year ended May 28, 2022.

6. 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. No impairment was recognized in fiscal 2024, fiscal 2023 or fiscal 2022.

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):

Gross Amounts:

Accumulated Amortization:

Total Accumulated Amortization $ 2,135 $ 1,876

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 AmortizationExpense

Total amortization expense $ 1,641

The amortization expense associated with the intangible assets, which is classified as a selling, general and administrative expense ("SG&A") on the income statement, totaled approximately $0.3 million during fiscal 2024, $0.3 million during fiscal 2023 and $0.2 million during fiscal 2022.

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 at June 1, 2024 and May 27, 2023 were as follows (in thousands):

Right of use lease assets $ 2,760 $ 2,457

Lease liability non-current $ 1,591 $ 1,429

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

Consolidated operating lease expense Operating expenses $ 1,745 $ 1,721

Rent expense for fiscal 2024, fiscal 2023 and fiscal 2022 was $1.5 million, $1.5 million, and $1.6 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

Thereafter —

Total lease payments 2,941

Lease inputted interest 181

Net minimum lease payments $ 2,760

The weighted average remaining lease terms and interest rates of leases held by the Company as of June 1, 2024 and May 27, 2023 were as follows:

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

Fiscal Year Ended

Cash Flow Source Classification June 1, 2024 May 27, 2023

Operating cash flows from operating leases Operating activities $ 1,329 $ 566

INCOME TAXES

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

Fiscal Year Ended

The provision (benefit) for income taxes for fiscal 2024, fiscal 2023 and fiscal 2022 consisted of the following (in thousands):

Fiscal Year Ended

Current:

Deferred:

Federal (26 ) — —

Income tax provision (benefit) $ 96 $ 2,697 $ (2,168 )

The differences between income taxes at the U.S. federal statutory income tax rate of 21.0% for fiscal 2024, fiscal 2023 and fiscal 2022 and the reported income tax provision for fiscal 2024, fiscal 2023 and fiscal 2022, are summarized as follows:

Fiscal Year Ended

Effect of:

State income taxes, net of federal tax benefit (90.1 ) 3.6 5.5

Foreign income inclusion 149.0 0.5 —

Foreign taxes at other rates 189.0 0.4 4.5

Permanent tax differences (93.0 ) 0.1 (2.0 )

Change in valuation allowance for deferred tax assets 548.6 (7.0 ) (43.1 )

Foreign return to provision adjustments 179.9 (0.7 ) 0.2

Restricted stock (33.6 ) (3.1 ) —

U.S. return to provision adjustments (648.6 ) — —

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 June 1, 2024 and May 27, 2023. Significant components were as follows (in thousands):

Fiscal Year Ended

Deferred tax assets:

NOL carryforwards - foreign and domestic $ 1,940 $ 2,324

Foreign tax credits — 26

Valuation allowance - foreign and domestic (2,116 ) (1,375 )

Net deferred tax assets after valuation allowance 7,505 6,894

Deferred tax liabilities:

Accelerated depreciation (2,071 ) (2,441 )

Tax on undistributed earnings (24 ) (24 )

Other — (1 )

During the fourth quarter of fiscal 2024, the Company recorded R&D tax credits of $0.5 million. These credits represent the expected U.S. federal credits to be claimed for fiscal 2024.

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 June 1, 2024, a valuation allowance of $2.1 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 May 27, 2023, was $1.4 million. The valuation allowance relates to state NOLs ($1.1 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.0 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, net of refunds, including foreign estimated tax payments, were less than $0.1 million, $4.8 million and $1.5 million, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

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

Fiscal Year Ended

Unrecognized tax benefits, beginning of period $ — $ 125

Currency translation adjustment — (4 )

Release German reserve — (121 )

Reserve on R&D credits 93 —

Unrecognized tax benefits, end of period $ 93 $ —

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 2024, fiscal 2023 and fiscal 2022. Charges to expense for matching contributions to this plan were $0.9 million, $1.0 million and $0.8 million, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

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:

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.

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.

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):

Fiscal Year Ended

PMT

GES

Canvys

Healthcare

A reconciliation of assets to the relevant consolidated amount is as follows (in thousands):

Other non-current assets 209 267

Other assets - non-current deferred income taxes 5,500 4,526

(1)

Other current assets include miscellaneous receivables and prepaid expenses.

Assets are not disclosed by reportable segment as the Company does not track assets by reportable segment and certain assets are not specific to any reportable segment.

PMT capital expenditures totaled $0.1 million for fiscal 2024 and fiscal 2023. Canvys capital expenditures totaled less than $0.1 million for fiscal 2023. Healthcare capital expenditures totaled $0.2 million for fiscal 2024 and $0.6 million for fiscal 2023. We also had capital expenditures of $3.7 million during fiscal 2024 and $6.6 million during fiscal 2023 related to the Company’s ERP system and facilities that were not specific to any particular reportable segment.

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

Net Sales

Gross Profit

(1)

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

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

Fiscal Year Ended

Net Assets

The Company had long-lived assets of $22.3 million as of June 1, 2024, and $22.7 million as of May 27, 2023. The long-lived assets, which include our fixed assets and intangibles, were primarily in the U.S. There were approximately $0.3 million of long-lived assets that belong to our foreign affiliates as of June 1, 2024 and $0.3 million as of May 27, 2023.

The Company had depreciation and amortization expense of $4.3 million, $3.7 million and $3.4 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively. The depreciation and amortization, which includes our fixed assets and intangibles, were primarily in the U.S. Depreciation and amortization expense that belongs to our foreign affiliates was approximately $0.1 million for fiscal 2024, $0.1 million for fiscal 2023 and $0.1 million for fiscal 2022, respectively.

11.

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.

12.

VALUATION AND QUALIFYING ACCOUNTS

The following table presents the valuation and qualifying account activity for fiscal years ended June 1, 2024, May 27, 2023 and May 28, 2022 (in thousands):

Notes:

(1)

Provision for credit losses

(2)

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

(3)

Charges to cost of sales. Included in fiscal 2024 were inventory write-downs of $0.4 million for PMT, $0.1 million for Canvys and $0.1 million for Healthcare.

(4)

Inventory disposed or sold, net of foreign currency translation.

13.

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

Description FirstQuarter SecondQuarter ThirdQuarter FourthQuarter

Net income per share:

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

None.

ITEM 9A.Controls and Procedures

(a)

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 June 1, 2024.

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 June 1, 2024, at a reasonable assurance level.

(b)

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 June 1, 2024, 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 June 1, 2024.

Management’s assessment of the effectiveness of our internal control over financial reporting as of June 1, 2024, has been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their report, which is included herein.

(c)

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 June 1, 2024, 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 June 1, 2024, 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 June 1, 2024 and May 27, 2023, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 1, 2024, and the related notes and our report dated August 5, 2024 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 5, 2024

ITEM 9B. Other 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.

ITEM 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

None.

PART III

Richardson Electronics, Ltd. RELL US Equity

RELL · 10-K · period ended 2024-06-01

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

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

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

ITEM 9A.Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Directors, Executive Officers and Corporate Governance

Richardson Electronics, Ltd. RELL US Equity☆

RELL · 10-K · period ended 2024-06-01

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

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

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

ITEM 9A.Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Directors, Executive Officers and Corporate Governance

Richardson Electronics, Ltd. RELL US Equity