Electromed, Inc. Stock Compensation Disclosure
| Note 8. | Share-Based Compensation |
Share-based compensation expense for fiscal 2025 and 2024 was $3,059,000 and $1,692,000, respectively, related to employee stock options, performance-based awards, restricted stock units and restricted stock awards. This expense is included in selling, general and administrative, research and development, and cost of sales expense in the Condensed Statements of Operations. As of June 30, 2025, the Company had $1,351,000 of unrecognized compensation expense related to non-vested equity awards, which is expected to be recognized over a weighted-average period of 2.01, 2.23 and 2.01 years related to restricted stock awards, restricted stock units, and employee stock options, respectively.
Equity plans: In November 2023, the Company’s shareholders approved the 2023 Equity Incentive Plan (the “2023 Plan”) which superseded the 2017 Omnibus Incentive Plan (the “2017 Plan”) and the 2014 Equity Incentive Plan (the “2014 Plan”). The 2023 Plan allows the Board to grant stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards, as well as cash incentive awards to all employees, non-employee directors, and advisors or consultants of the Company. The vesting schedule and term for each award are determined by the Board upon each grant. Upon vesting, and the Company’s determination that any necessary conditions precedent to the exercise of shares (such as satisfaction of tax withholding and compliance with applicable legal requirements) have been satisfied, shares purchased are delivered to the participant in a manner prescribed or permitted by the Board. The maximum number of shares of common stock available for issuance under the 2023 Plan is (i) 850,000 new shares of common stock, (ii) up to 192,018 shares of common stock that remained available for issuance under the 2017 Plan as of the approval date of the 2023 Plan, and (iii) up to 360,856 shares of common stock that were subject to outstanding awards under the 2017 Plan as of the approval date of the 2023 Plan, which shares will be available for future grants under the 2023 Plan to the extent that, on or after the approval date of the 2023 Plan, such awards expire, are cancelled, are forfeited or are settled for cash. There were 868,331 shares available for grant under the 2023 Plan as of June 30, 2025.
Employee options: The Company has historically granted stock options to employees as long-term incentive compensation. Options expire years from the grant date and typically vest over a period of years. There were 366,847 options granted under the 2017 Plan and prior plans outstanding as of June 30, 2025. There were 175,000 options granted as a standalone inducement outstanding as of June 30, 2025. There were 63,532 options issued under the 2023 Plan outstanding as of June 30, 2025.
The Company recognizes compensation expenses related to share-based payment transactions in the financial statements based on the estimated fair value of the award issued. The fair value of each option is estimated using the Black-Scholes pricing model at the time of award grant. The Company estimates the expected life of options based on the expected holding period by the option holder. The risk-free interest rate is based upon observed U.S. Treasury interest rates for the expected term of the options. The Company makes assumptions with respect to expected stock price volatility based upon the historical volatility of its stock price. Forfeitures are accounted for as they occur.
The following assumptions were used to estimate the fair value of options granted:
| Year Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Risk-free interest rate | 3.69 - 4.14 | % | 3.85 - 4.64 | % | ||||
| Expected term (years) | 6 | 6 | ||||||
| Expected volatility | 53 | % | 51 - 52 | % | ||||
The following table presents employee stock option activity for fiscal 2025 and 2024:
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Weighted- | Remaining | ||||||||||||||
| Number of | Grant Date | Average | Contractual | |||||||||||||
| Shares | Fair Value | Exercise Price | Life (in Years) | |||||||||||||
| Options outstanding as of June 30, 2023 | 451,570 | $ | 4.28 | $ | 6.93 | 5.53 | ||||||||||
| Granted | 263,162 | $ | 5.78 | $ | 10.70 | — | ||||||||||
| Exercised | (56,580 | ) | $ | 3.66 | $ | 5.50 | — | |||||||||
| Canceled or forfeited | (23,079 | ) | $ | 5.81 | $ | 10.46 | — | |||||||||
| Options outstanding as of June 30, 2024 | 635,073 | $ | 4.91 | $ | 8.49 | 6.40 | ||||||||||
| Options exercisable as of June 30, 2024 | 378,270 | $ | 4.34 | $ | 7.03 | 4.68 | ||||||||||
| Granted | 62,432 | $ | 9.50 | $ | 17.43 | — | ||||||||||
| Exercised | (84,895 | ) | $ | 3.59 | $ | 5.91 | — | |||||||||
| Canceled or forfeited | (7,231 | ) | $ | 5.79 | $ | 10.74 | — | |||||||||
| Options outstanding as of June 30, 2025 | 605,379 | $ | 5.56 | $ | 9.75 | 6.16 | ||||||||||
| Options exercisable as of June 30, 2025 | 417,551 | $ | 4.90 | $ | 8.31 | 5.14 | ||||||||||
The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds its exercise price. At June 30, 2025, the weighted average remaining contractual term for all outstanding stock options was 6.16 years and their aggregate intrinsic value was $7,412,000. Outstanding at June 30, 2025 were 605,379 stock options issued to employees, of which 417,551 were vested and exercisable and had an aggregate intrinsic value of $5,711,000.
Restricted stock: The 2023 Plan permits the Personnel and Compensation Committee of the Board to grant other stock-based awards, including shares of restricted stock. The Company makes restricted stock grants to key employees and non-employee directors that vest over months to years following the applicable grant date.
The Company issued restricted stock awards to employees consisting of 21,400 and 23,428 shares of common stock during fiscal 2025 and 2024, respectively, with vesting terms of years and fair values of $17.25 and $10.74 per share, respectively. The Company issued restricted stock awards to directors consisting of 21,000 shares of common stock during fiscal 2025 and 2024, with vesting terms of months and fair values of $30.78 and $10.44 per share, respectively. Restricted stock transactions during the years ended June 30, 2025, and 2024 are summarized as follows:
| Weighted-Average | ||||||||
| Shares of | Grant Date Fair | |||||||
| Restricted Stock | Value per Share | |||||||
| Unvested awards outstanding as of June 30, 2023 | 18,233 | $ | 10.23 | |||||
| Granted | 44,428 | $ | 10.60 | |||||
| Vested | (40,034 | ) | $ | 10.45 | ||||
| Canceled or forfeited | — | $ | — | |||||
| Unvested awards outstanding as of June 30, 2024 | 22,627 | $ | 10.57 | |||||
| Granted | 42,400 | $ | 23.95 | |||||
| Vested | (33,610 | ) | $ | 23.14 | ||||
| Canceled or forfeited | — | $ | — | |||||
| Unvested awards outstanding as of June 30, 2025 | 31,417 | $ | 15.18 | |||||
Restricted stock units: The Company issued restricted stock units to employees during fiscal 2025 consisting of opportunities to receive up to 69,102 shares of common stock upon vesting, with vesting terms of years and a weighted average fair value of $17.96 per share. Restricted stock unit transactions during the years ended June 30, 2025, and 2024 are summarized as follows:
| Weighted-Average | ||||||||
| Shares Underlying | Grant Date Fair | |||||||
| Restricted Stock Units | Value per Share | |||||||
| Unvested units outstanding as of June 30, 2023 | — | $ | — | |||||
| Granted | — | $ | — | |||||
| Vested | — | $ | — | |||||
| Canceled or forfeited | — | $ | — | |||||
| Unvested units outstanding as of June 30, 2024 | — | $ | — | |||||
| Granted | 69,102 | $ | 17.96 | |||||
| Vested | — | $ | — | |||||
| Canceled or forfeited | (3,300 | ) | $ | 17.25 | ||||
| Unvested units outstanding as of June 30, 2025 | 65,802 | $ | 17.99 | |||||
Performance-based restricted stock units: The Company granted 175,000 performance-based restricted stock units (“PSUs”) to our President and Chief Executive Officer in connection with his commencement of service on July 1, 2023. The PSUs were eligible to vest and settle into shares of common stock based on the extent to which performance goals tied to the total shareholder return of our common stock (“TSR”) were achieved. TSR was evaluated from the initial grant date through the end of each subsequent fiscal quarter using the three-month volume-weighted average closing prices in accordance with the underlying award agreement. The PSUs were eligible to vest and settle into shares of common stock on a 1-for-1 basis with respect to -half of the shares upon achieving a TSR of 50% and the remaining shares upon a TSR of 100%, in each case within years of the date of grant. The grant date fair value of the awards was determined using a Monte Carlo valuation model with an expected term of years. As of September 30, 2024, TSR exceeded the 50% target, resulting in a partial vesting and the issuance of 87,500 shares of common stock. As of December 31, 2024, TSR exceeded the 100% target, resulting in vesting and issuance of the remaining 87,500 shares of common stock.
As a result of both vestings, unrecognized stock-based compensation expense totaling $575,000, which was set to be recognized in future periods, was recognized during the year ended June 30, 2025. Stock-based compensation expense recognized for the PSUs was $863,000 and $288,000 for the years ended June 30, 2025, and June 30, 2024, respectively. As a result of the vestings and settlements described above, there were no PSUs outstanding as June 30, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 26, 2025 | Showing above |
| 2024 | Aug 27, 2024 | |
| 2023 | Aug 22, 2023 | |
| 2022 | Aug 23, 2022 | |
| 2021 | Aug 24, 2021 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.