What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-09-09 compared with 2023-09-12 · 246 added, 309 removed, 249 unchanged (69% of the section changed)

1 unchanged sentence

You should read the following discussion and analysis in conjunction

with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Report.

This discussion

and analysis contains forward-looking statements that are based on our management’s current beliefs and assumptions, which statements

are subject to substantial risks and uncertainties.

Our actual results may differ materially from those expressed or implied by these

forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item

1A of this Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“Report”).

with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form

10-K for the fiscal year ended June 30, 2024 (this “Report”).

This discussion and analysis contains forward-looking statements

that are based on our management’s current beliefs and assumptions, which statements are subject to substantial risks and uncertainties.

Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors,

including those discussed in “Risk Factors” included in Part I, Item 1A of this Report.

Please also see “Cautionary

1 unchanged sentence

Lantronix, Inc.

is a global Industrial and Enterprise internet of things

(“IoT”) provider of solutions that target high growth applications in specific verticals such as Smart Grid, Intelligent Transportation,

Smart Cities, and AI Data Centers.

Building on a long history of Networking and video processing competence, target applications include

Intelligent Substations infrastructure, Infotainment systems, and Video Surveillance, supplemented with a comprehensive Out of Band Management

(“OOB”) products offering for Cloud and Edge Computing.

We conduct our business globally and manage our sales teams by three geographic

is a global leader in compute

and connectivity solutions, targeting high-growth industries such as Smart Cities, Automotive, and Enterprise markets.

Our products and

services empower companies to capitalize on the expanding internet of things (“IoT”) market by delivering customizable solutions

that address each layer of the IoT stack.

We conduct our business globally and manage our sales teams by three

geographic regions:

the Americas;

4 unchanged sentences

Products and Solutions

To more closely align the categorization of our product lines with how

we position them in the marketplace, we have re-organized our products and solutions.

We now organize our products and solutions into

three product lines:

We organize our portfolio services and products into three product

Embedded IoT Solutions, IoT System Solutions, and Software & Services.

Until this recent change, we had

organized our products and solutions into three different product lines:

IoT, remote environment management (“REM”) and Other.

Going forward, we do not plan to disclose our net revenue by the old categorizations.

Refer to “Products and Solutions” included

in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion.

Recent Developments

TN Companies Acquisition

On August 2, 2021 we acquired the Transition Networks and Net2Edge businesses

(the “TN Companies”) from Communication Systems, Inc.

(“CSI”) for an aggregate purchase price of approximately

$30,651,000, which included earnout payments of up to $7,000,000 depending on the achievement of certain revenue targets for the TN Companies.

The TN Companies provide us with complementary IoT connectivity products and capabilities, including switching, Power over Ethernet (“PoE”)

and media conversion and adapter products.

In connection with the closing of the acquisition, we entered into new loan agreements with

Silicon Valley Bank (“SVB”) which included (i) a new term loan of $17,500,000 with an available revolving credit facility

of up to $2,500,000 and (ii) a second term loan of $12,000,000.

In January 2022, we repaid the $12,000,000 second term loan.

Uplogix Acquisition

On September 12, 2022 we acquired Uplogix, Inc.

for an aggregate purchase price of $8,000,000, subject to certain adjustments, plus an earnout up to an additional $4,000,000 depending

on the achievement of certain revenue targets of the business of Uplogix through September 30, 2023.

Uplogix brings immediate scale to

our out-of-band remote management solutions, adding a complementary high-end product offering that includes high-margin maintenance and

licensing revenues.

Refer to Note 3 of Notes to Consolidated Financial Statements

included in Part II, Item 8 of this Report, which is incorporated herein by reference, for additional discussions regarding these acquisitions.

Our Embedded IoT Solutions product lines include Open-Q System on Modules

and System in Packages, XPort®, XPort® Pro, Development Kits, xPico®, xPico® Wi-Fi, NICS and Optical SFPs.

Our IoT System Solutions product lines include LM83X, LM80, SLC ™ 8000,

Spider ™ , EMG ™ , UDS, EDS, EDS-MD, xPress™, xDirect®, E21x, E22x, G52x, X30x, Bolero4x, FOX3-4G,

FOX4, SGX™ and Power over Ethernet (“PoE”) Switches.

In addition, Lantronix offers non-PoE Network Switches and Media

Our Software and Services product lines include:

Engineering Services,

Percepxion™, ConsoleFlow™, Control Center and Level Services.

Recent Accounting Pronouncements

Refer to Note 1 of Notes to Consolidated Financial Statements included

in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of recent accounting pronouncements.

Refer to Note 1 of Notes to Consolidated Financial Statements

included in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in accordance

generally accepted accounting principles requires us to make judgments, estimates and assumptions that affect the reported amounts

of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting

We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns and allowances, inventory valuation,

restructuring charges, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets, share-based compensation,

litigation and other contingencies.

We base our estimates and assumptions on historical experience and on various other factors that we

believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of

assets and liabilities that are not readily apparent from other sources.

To the extent there are material differences between our estimates

and the actual results, our future results of operations will be affected.

We believe the following critical accounting policies require us to make

significant judgments and estimates in the preparation of our consolidated financial statements:

The preparation of financial statements and related disclosures in

accordance with U.S.

generally accepted accounting principles (“GAAP”) requires us to make judgments, estimates and assumptions

that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue

and expenses during the reporting period.

We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns

and allowances, inventory valuation, restructuring charges, valuation of deferred income taxes, valuation of goodwill and long-lived and

intangible assets, share-based compensation, litigation and other contingencies.

We base our estimates and assumptions on historical experience

and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making

judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

To the extent there are

material differences between our estimates and the actual results, our future results of operations will be affected.

We believe the following critical accounting policies require us to

make significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue Recognition

6 unchanged sentences

is satisfied.

A significant portion of our products are sold to distributors under

agreements which contain (i) limited rights to return unsold products and (ii) price adjustment provisions, both of which are accounted

A significant portion of our products are sold to distributors

under agreements which contain (i) limited rights to return unsold products and (ii) price adjustment provisions, both of which are accounted

for as variable consideration when estimating the amount of revenue to recognize.

7 unchanged sentences

Actual product returns or pricing adjustments that differ from our estimates could result in increases or decreases to our net revenue.

A portion of our revenues are derived from engineering and related consulting

service contracts with customers.

These contracts generally include performance obligations in which control is transferred over time

because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates or enhances

an asset that the customer controls.

A portion of our revenues are derived from engineering and related

consulting service contracts with customers.

These contracts generally include performance obligations in which control is transferred

over time because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates

or enhances an asset that the customer controls.

These contracts typically provide services on the following basis:

11 unchanged sentences

of our performance completed to date.

We recognize revenue on fixed price contracts, over time, using an input

method based on the proportion of our actual costs incurred (generally labor hours expended) to the total costs expected to complete the

contract performance obligation.

We determined that this method best represents the transfer of services as the proportion closely depicts

the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation.

From time to time, we may enter into contracts with customers that include

promises to transfer multiple performance obligations that may include sales of products, professional engineering services and other

product qualification or certification services.

Determining whether the promises in these arrangements are considered distinct performance

obligations, that should be accounted for separately versus together, often requires judgment.

We consider performance obligations to

be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily

We recognize revenue on fixed price contracts, over time, using an

input method based on the proportion of our actual costs incurred (generally labor hours expended) to the total costs expected to complete

the contract performance obligation.

We determined that this method best represents the transfer of services as the proportion closely

depicts the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation.

From time to time, we may enter into contracts with customers that

include promises to transfer multiple performance obligations that may include sales of products, professional engineering services and

other product qualification or certification services.

Determining whether the promises in these arrangements are considered distinct

performance obligations, that should be accounted for separately versus together, often requires judgment.

We consider performance obligations

to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily

available and when the promised good or service is separately identifiable from other promised goods or services in the contract.

8 unchanged sentences

Inventory Valuation

We value inventories at the lower of cost (on a first-in, first-out basis)

or net realizable value, whereby we make estimates regarding the market value of our inventories, including an assessment of excess and

obsolete inventories.

We determine excess and obsolete inventories based on an estimate of the future sales demand for our products within

a specified time horizon, which is generally 12 months.

In addition, specific reserve estimates are recorded to cover risks for end-of-life

products, inventory located at our contract manufacturers and warranty replacement stock.

The estimates we use for demand are also used

for near-term capacity planning and inventory purchasing.

Demand for our products can fluctuate significantly from period to period.

significant decrease in demand could result in an increase in the amount of excess inventory on hand.

In addition, our industry is characterized

by rapid technological change, frequent new product development and product obsolescence that could result in an increase in the amount

of obsolete inventory quantities on hand.

Additionally, our estimates of future product demand and judgement to determine excess inventory

We value inventories at the lower of cost (on a first-in, first-out

basis) or net realizable value, whereby we make estimates regarding the market value of our inventories, including an assessment of excess

and obsolete inventories.

We determine excess and obsolete inventories based on an estimate of the future sales demand for our products

within a specified time horizon, which is generally 12 to 24 months.

In addition, specific reserve estimates are recorded to cover risks

for end-of-life products, inventory located at our contract manufacturers and warranty replacement stock.

The estimates we use for demand

are also used for near-term capacity planning and inventory purchasing.

Demand for our products can fluctuate significantly from period

A significant decrease in demand could result in an increase in the amount of excess inventory on hand.

In addition, our industry

is characterized by rapid technological change, frequent new product development and product obsolescence that could result in an increase

in the amount of obsolete inventory quantities on hand.

Our estimates of future product demand and judgement to determine excess inventory

may prove to be inaccurate, in which case we may have understated or overstated the reduction to the total carrying value of our inventory

23 unchanged sentences

Valuation of Deferred Income Taxes

We have recorded a valuation allowance to reduce our net deferred tax assets

to zero, primarily due to historical net operating losses (“NOLs”) and uncertainty of generating future taxable income.

consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation

We have recorded a valuation allowance to reduce our net deferred tax

assets to zero, primarily due to historical net operating losses (“NOLs”) and uncertainty of generating future taxable income.

We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation

If we determine that it is more likely than not that we will realize a deferred tax asset that currently has a valuation allowance,

25 unchanged sentences

Goodwill Impairment Testing

We evaluate goodwill for impairment on an annual basis in our fourth fiscal

quarter or more frequently if we believe indicators of impairment exist that would more likely than not reduce the fair value of our single

reporting unit below its carrying amount.

We evaluate goodwill for impairment on an annual basis on the last

day of our fourth fiscal quarter or more frequently if we believe indicators of impairment exist that would more likely than not reduce

the fair value of our single reporting unit below its carrying amount.

We begin our evaluation of goodwill for impairment by assessing qualitative

6 unchanged sentences

a significant change in our market capitalization relative to our book value.

Based on our qualitative assessment, if we conclude that it is more likely

than not that the fair value of our single reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment

Based on our qualitative assessment, if we conclude that it is more

likely than not that the fair value of our single reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment

test, which involves comparing the estimated fair value of our single reporting unit with its carrying value, including goodwill.

19 unchanged sentences

Long-Lived Assets and Intangible Assets

We assess the impairment of long-lived assets and intangible assets whenever

events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

Circumstances which could trigger

a review include, but are not limited to the following:

We assess the impairment of long-lived assets and intangible assets

whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

Circumstances that

could trigger a review include, but are not limited to the following:

significant decreases in the market price of the asset;

3 unchanged sentences

current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

Whenever events or changes in circumstances suggest that the carrying amount

of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows expected to be generated by the asset

from its use or eventual disposition.

If the sum of the expected future cash flows is less than the carrying amount of those assets, we

recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Significant management judgment

is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation.

These significant

judgments may include future expected revenue, expenses, capital expenditures and other costs, discount rates and whether or not alternative

uses are available for impacted long-lived assets.

Whenever events or changes in circumstances suggest that the carrying

amount of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows expected to be generated by

the asset from its use or eventual disposition.

If the sum of the expected future cash flows is less than the carrying amount of those

assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Significant management

judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation.

significant judgments may include future expected revenue, expenses, capital expenditures and other costs, discount rates and whether

or not alternative uses are available for impacted long-lived assets.

Share-Based Compensation

We record share-based compensation in our consolidated statements of operations

as an expense, based on the estimated grant date fair value of our share-based awards, with the fair values amortized to expense over

the requisite service period.

Our share-based awards are currently comprised of restricted stock units, performance stock units, common

stock options, and common stock purchase rights granted under our 2013 Employee Stock Purchase Plan (“ESPP”).

The fair value of our restricted stock units is based on the closing market

price of our common stock on the date of grant.

The fair value of our performance stock units is estimated as of the grant

date based upon the expected achievement of the performance metrics specified in the grant and the closing market price of our common

We record share-based compensation in our consolidated statements of

operations as an expense, based on the estimated grant date fair value of our share-based awards, with the fair values amortized to expense

over the requisite service period.

Our share-based awards are currently comprised of restricted stock units, performance stock units,

common stock options, and common stock purchase rights granted under our 2013 Employee Stock Purchase Plan (“ESPP”).

The fair value of our restricted stock units is based on the closing

market price of our common stock on the date of grant.

The fair value of our performance stock units is estimated as of the

grant date based upon the expected achievement of the performance metrics specified in the grant and the closing market price of our common

stock on the date of grant.

14 unchanged sentences

stock purchase rights.

If factors change and we employ different assumptions, share-based compensation

expense may differ significantly from what we have recorded in the past.

If there are any modifications or cancellations of the underlying

unvested share-based awards, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.

If these events were to occur, it could increase or decrease our share-based compensation expense, which would impact our operating expenses

and gross margins.

If factors change and we employ different assumptions, share-based

compensation expense may differ significantly from what we have recorded in the past.

If there are any modifications or cancellations

of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel any remaining unearned share-based

compensation expense.

If these events were to occur, it could increase or decrease our share-based compensation expense, which would impact

our operating expenses and gross margins.

Results of Operations - Fiscal Years Ended June 30, 2024 and 2023

For fiscal 2023, our net revenue increased by $1,534,000, or 1.2%, compared

to fiscal 2022.

The increase in net revenue was driven by a 3.0% increase in net revenue in our Embedded IoT Solutions product line, as

well as an increase of 13.5% in net revenues in our Software & Services product line partially offset by a decrease of 2.6% in net

revenues in our IoT System Solutions product line.

For fiscal 2024, our net revenue increased by $29,138,000, or 22.2%,

compared to fiscal 2023.

The increase in net revenue was driven by an 81.7% increase in net revenue in our IoT System Solutions product

line partially offset by a decrease of 26.2% in net revenues in our Embedded IoT Solutions product line and a decrease of 11.3% in net

revenues in our Software & Services product line.

We had a net loss of $4,516,000 for fiscal 2024 compared to a net loss of $8,980,000

for fiscal 2023.

The increase in net loss was driven primarily by increased headcount costs related to the Uplogix acquisition as both

selling, general and administrative and research and development expenses as a percent of net revenue were higher in fiscal 2023 than

Additionally, in fiscal 2022 we recorded a tax benefit resulting from a U.S.

deferred tax liability in the TN Companies acquisition

purchase accounting related to non-tax-deductible intangible assets.

The following tables present our net revenue by product

lines and by geographic region:

The decrease in net loss was driven primarily by increased revenues, partially offset by an increase in operating expenses

of 6.8% and a decrease in gross profit as a percentage of revenue from 42.9% in fiscal 2023 to 40.1% in fiscal 2024.

The following tables present our net revenue by

product lines and by geographic region:

Years Ended June 30,

6 unchanged sentences

Embedded IoT Solutions

Net revenue increased in fiscal 2023 compared

to fiscal 2022 primarily due to organic growth in our compute modules in the APJ and EMEA regions as well as increased sales of our network

interface cards, primarily in the Americas region.

This increase was partially offset by a decrease in revenues from our wireless communications

products and embedded ethernet connectivity products across all regions.

Net revenue decreased primarily due to lower unit sales of our embedded

compute product line in the Americas and APJ regions as a result of two large design wins that reached end-of-life at the end of fiscal

To a lesser extent net revenue was impacted by lower unit sales of our network interface cards across all regions, and some of our

legacy embedded ethernet connectivity products in the Americas and EMEA regions.

IoT System Solutions

Net revenue decreased primarily due a decrease

in our out of band (“OOB”) and converter and radio products, partially offset by increases in our gateway and network switch

products, all mostly within the Americas.

Net revenue increased primarily due to increases in units sales of

(i) our custom solutions, as we ramped to volume production for a European smart energy grid provider in the current period, (ii) our

out-of-band products across all regions, and (iii) our converters and radio nodes products in the Americas region.

These increases were

partially offset by decreases in sales of our network switches in the Americas region.

Software & Services

Net revenue increased primarily due to an increase

in our extended warranty services in the Americas region, mostly as a result of the Uplogix acquisition.

Net revenue decreased primarily due to a year over year decline in our

engineering services in the EMEA region as two of our large design services projects transitioned from the design phase to full production

during fiscal 2024.

This was partially offset by growth in our extended warranty services across all regions as a result of increased

sales of our out-of-band products.

Gross profit represents net revenue less cost of revenue.

6 unchanged sentences

(In thousands, except percentages)

Gross profit as a percentage of revenue (“gross margin") in

fiscal 2023 remained consistent with fiscal 2022.

As compared to the prior year period, in the current period we experienced increased

revenue from our high-margin extended warranty services, mostly from the Uplogix acquisition, as well as increased unit sales of some

of our NICs and optics products, which typically carry a higher margin than our other embedded solutions.

This was offset by decreased

unit sales in our OOB products, which also typically carry a high margin, as well as lower margins on our engineering services revenue

during fiscal 2023.

Gross profit as a percent of revenue (referred to as “gross margin”)

decreased primarily due to a change in product mix and increased logistics and overhead costs related to our smart grid customer that

grew to 26% of our net revenue during fiscal 2024.

We expect this customer to contribute less revenue during fiscal 2025 which should

lead to an improvement in our product mix and lower logistics and overhead costs as a percentage of revenue for fiscal 2025.

Selling, General and Administrative

Selling, general and administrative expenses consisted of personnel-related

Selling, general and administrative expenses consists of personnel-related

expenses including salaries and commissions, share-based compensation, facility expenses, information technology, advertising and marketing

expenses and professional legal and accounting fees.

The following table presents our selling, general and administrative expenses:

The following table presents our selling, general and administrative

Years Ended June 30,

6 unchanged sentences

Selling, general and administrative

Selling, general and administrative expenses increased in fiscal 2023 when

compared to fiscal 2022 primarily due to (i) increased personnel-related expenses in headcount added from the Uplogix acquisition, (ii)

higher accounting, audit and legal fees primarily related to compliance with Section 404(b) of the Sarbanes-Oxley Act, (iii) higher facilities

and insurance expenses related to our new Minnesota warehouse location, (iv) higher advertising and marketing costs related to increased

trade show activity, (v) higher depreciation related to property and equipment for our new facilities in California and Minnesota and

(vi) higher bad debt expenses included in the “Other” category above.

Selling, general and administrative expenses increased primarily due to

higher personnel-related expenses arising from merit increases and variable and share-based compensation related to the Company’s

improved financial performance in fiscal 2024.

Merit increases and variable and share-based compensation were significantly lower and

in many cases not earned during fiscal 2023.

To a lesser extent, the increase in selling, general and administrative expenses were impacted

by (i) an increase in depreciation expense related to new equipment and certain business analysis tools that we added in the current year,

and (ii) increases in insurance premiums and various facility-related costs.

These increases were partially offset by (i) reductions in

headcount and (ii) lower professional fees and outside services related to audit and accounting compliance costs that were higher in the

prior year as we implemented Section 404(b) of the Sarbanes-Oxley Act.

Research and Development

Research and development expenses consisted of personnel-related expenses,

Research and development expenses consists of personnel-related expenses,

share-based compensation, and expenditures to third-party vendors for research and development activities and product certification costs.

8 unchanged sentences

Research and development

Research and development expenses increased in fiscal 2023 when compared

to fiscal 2022 primarily due to an increase in personnel-related costs driven by the acquisition of Uplogix and internal growth of our

engineering teams worldwide.

We also experienced increased share-based compensation expenses from certain grants of performance stock

Research and development expenses increased primarily due to higher personnel-related

costs resulting from merit increases and variable and share-based compensation costs related to our improved financial performance in

These increases were partially offset by (i) a reduction in headcount and (ii) a decrease in product certification expenses

and outsourced development resources.

Restructuring, Severance and Related Charges

During fiscal 2023 and 2022, we incurred charges

of approximately $693,000 and $795,000, respectively, primarily related to headcount reductions in connection with synergy capture and

the elimination of redundant roles from the acquisitions of Uplogix and the TN Companies.

We may incur additional restructuring, severance

and related charges in future periods as we continue to identify cost savings and synergies related to our acquisitions and general business

During fiscal 2024 and 2023, we incurred charges of approximately $1,423,000

and $693,000, respectively, related to headcount reductions and restructuring of certain non-essential operations.

We may incur additional restructuring, severance and related charges

in future periods as we continue to identify cost savings and synergies related to our acquisitions and general business operations.

Acquisition-Related Costs

During fiscal 2023 we incurred approximately $315,000 of costs primarily

in connection with the acquisition of Uplogix.

These costs were mainly comprised of legal and other professional fees.

In fiscal 2022 we incurred approximately $889,000 of acquisition-related

costs, mostly comprised of banking and legal fees related to the acquisition of the TN Companies and our exploration of other acquisition

Amortization of Purchased Intangible Assets

in connection with the acquisition of Uplogix, Inc.

These costs were mainly comprised of banking, legal and other

professional fees.

Amortization of Intangible Assets

We acquired certain intangible assets through our recent acquisitions,

2 unchanged sentences

estimated useful lives and resulted in charges of $5,314,000 and $5,804,000 during fiscal 2024 and 2023, respectively.

Interest Income (Expense), Net

Interest Expense, Net

For fiscal 2024 and 2023, we incurred net interest expense from interest

1 unchanged sentence

We also earn interest on our domestic cash balances.

Loss on Extinguishment of Debt

For fiscal 2022, we recognized a non-cash loss on the extinguishment of

our mezzanine term loan facility of $764,000, representing the write-off of unamortized deferred financing costs.

Other Expense, Net

Other expense, net, is comprised primarily of foreign currency remeasurement

and transaction adjustments related to our foreign subsidiaries whose functional currency is the U.S.

Other Income (Expense), Net

Other income (expense), net, is comprised primarily of foreign currency

remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the U.S.

Provision for Income Taxes

2 unchanged sentences

(In thousands, except percentages)

Provision (benefit) for income taxes

The following table presents our effective tax rate based upon our provision

for income taxes:

Provision for income taxes

The following table presents our effective tax rate based upon our

provision for income taxes:

Years Ended June 30,

1 unchanged sentence

We utilize the liability method of accounting for income taxes.

The differences

between our effective tax rate and the federal statutory rate in fiscal 2023 and fiscal 2022 were also impacted by the effect of our domestic

losses recorded without a tax benefit, as well as the effect of certain state and foreign earnings taxed at rates differing from the federal

statutory rate.

In fiscal 2022 we recorded a tax benefit resulting from a U.S.

tax liability in the TN Companies acquisition purchase accounting related to non-tax-deductible intangible assets recognized in our consolidated

financial statements.

The acquired deferred tax liabilities are a source of income to support recognition of our existing deferred tax

We record net deferred tax assets to the extent we believe these assets

are more likely than not to be realized.

Aside from a net deferred tax liability of $146,000 that we recorded as of June 30, 2023, as

a result of our cumulative losses and uncertainty of generating future taxable income, we provided a full valuation allowance against

our net deferred tax assets at June 30, 2023 and 2022.

Refer to Note 8 of Notes to Consolidated Financial Statements, included

in Part II, Item 8 of this Report, for additional information.

Due to the “change of ownership” provision of the Tax Reform

Act of 1986, utilization of our NOL carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable

income in future periods.

Due to the annual limitation, a portion of these carryforwards may expire before ultimately becoming available

to reduce future income tax liabilities.

The following table presents our NOL carryforwards:

June 30, 2023

(In thousands)

Our federal NOL carryforwards generated for tax years beginning before

July 1, 2018 began to expire in the fiscal year ended June 30, 2021.

Pursuant to the 2017 Tax Cuts and Jobs Act (the “2017 Act”),

we also have federal NOL carryforwards of $6,788,000 that will not expire but can only be used to offset 80% of future taxable income.

For state income tax purposes, our NOL carryforwards began to expire in the fiscal year ended June 30, 2013.

differences between our effective tax rate and the federal statutory rate in fiscal 2024 and fiscal 2023 were also impacted by the effect

of our domestic losses recorded without a tax benefit, as well as the effect of certain state and foreign earnings taxed at rates differing

from the federal statutory rate.

record net deferred tax assets to the extent we believe these assets are more likely than not to be realized.

Aside from a net deferred

tax liability of $179,000 and $146,000 that we recorded as of June 30, 2024 and 2023, respectively, based on our cumulative losses and

uncertainty of generating future taxable income, we provided a full valuation allowance against our net deferred tax assets at June 30,

2024 and 2023.

Refer to Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, for

additional information.

Liquidity and Capital Resources

The following table presents our working capital and cash and cash equivalents:

The following table presents our working capital and cash and cash

(In thousands)

1 unchanged sentence

Cash and cash equivalents

In September 2022 we entered into an amendment to our Senior Credit Facilities

(as defined in Note 5 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report) which provide

for an additional term loan in the original principal amount of $5,000,000 that matures on August 2, 2025.

We also borrowed $2,000,000

on our revolving credit facility, which we repaid in February of 2023.

On March 10, 2023, SVB was closed by the California Department of

Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

13, 2023, the FDIC announced that it had transferred all insured and uninsured deposits and substantially all assets of SVB to a newly

created, full-service FDIC-operated “bridge bank” called Silicon Valley Bridge Bank, N.A., where depositors would have full

access to their money immediately.

On March 27, 2023, First Citizens Bank announced that it had entered into an agreement with the FDIC

to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A.

We were informed by SVB that the Senior Credit Facilities

remain available on the same terms as set forth in the Loan Agreement (as defined in Note 5 to Consolidated Financial Statements

included in Part II, Item 8 of this Report), notwithstanding the closure of SVB, however there can be no assurances that the closure of

SVB or any related impacts across the financial services industry will not adversely affect our ability to access any additional term

loans that may be available under the Loan Agreement.

Our principal sources of cash and liquidity include our existing cash and

cash equivalents, borrowings and amounts available under the Senior Credit Facilities, and cash generated from operations.

that our current cash holdings and net cash flows from operations are sufficient to satisfy our current obligations for the foreseeable

future, and, assuming continued access to the undrawn amounts available under our Senior Credit Facilities, these combined sources will

be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least

the next 12 months and beyond.

We continue to monitor the availability of potential alternate sources of credit based on market conditions

and our ongoing capital requirements.

There can be no guarantee that we would be able to obtain any needed alternate financing on acceptable

terms, or at all, or that such a financing would not result in a default under the Loan Agreement.

We anticipate that the primary factors

affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

Beginning in Fiscal 2023, the 2017 Act requires that for tax purposes we

capitalize certain research and development expenses and amortize domestic expenses over five years and foreign expenses over 15 years.

We expect this requirement will increase our taxable income in certain state jurisdictions for which our ability to utilize NOL carryforwards

to offset income taxes will be limited.

We define cash and cash equivalents as highly liquid deposits with original

maturities of 90 days or less when purchased.

We maintain cash and cash equivalents balances at certain financial institutions in excess

of amounts insured by the FDIC.

There can be no assurance that our deposits in excess of the FDIC limits will be backstopped by the U.S.,

or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government

institutions or by acquisition in the event of a failure or liquidity crisis.

As of the date of this Report, we have full access to and control of our

cash and cash equivalents balance at SVB and our other banking institutions.

We continue to monitor the circumstances surrounding SVB

and the other third-party depository institutions that hold our cash and cash equivalents.

Our emphasis is primarily on safety of principal

and secondarily on maximizing yield on those funds.

In light of the status of SVB, we have considered and may consider in the future moving

our bank accounts and cash resources to other financial institutions, which could result in SVB declaring us to be in default under the

Loan Agreement.

In April 2023, we entered into the Letter Agreement (as defined in Note 5 to Consolidated Financial Statements

included in Part II, Item 8 of this Report) with SVB, which, among other matters, amended the Loan Agreement to reduce the former requirement

to hold 85% of our company-wide cash balances at SVB to 50% and provided a waiver of any event of default under the Loan Agreement for

any failure to comply with this covenant prior to the date of the Letter Agreement.

As of the date of this Report, we are in compliance

with all covenants of the Loan Agreement.

Our future working capital requirements will depend on many factors, including

the following:

Our principal sources of cash and liquidity include our existing cash

and cash equivalents, borrowings and amounts available under our existing term loan and revolving credit facility (together, the “Senior

Credit Facilities”), and cash generated from operations.

We are subject to a variable amount of interest on the principal balance

of our Senior Credit Facilities and could be adversely impacted by rising interest rates in the future.

We believe that our current cash

holdings and net cash flows from operations are sufficient to satisfy our current obligations for the foreseeable future, and, assuming

continued access to the undrawn amounts available under our Senior Credit Facilities, these combined sources will be sufficient to fund

our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and

We continue to monitor our existing banking relationships and the availability of potential alternate sources of credit based

on market conditions and our ongoing capital requirements.

There can be no guarantee that we would be able to obtain any needed alternate

financing on acceptable terms, or at all, or that such a financing would not result in a default under the Loan Agreement (as defined

in Note 5 of Notes to Consolidated Financial Statements, including in Part II, Item 8 of this Report).

We anticipate that the primary

factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

We define cash and cash equivalents as highly liquid deposits with

original maturities of 90 days or less when purchased.

We maintain cash and cash equivalents balances at certain financial institutions

in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”).

There can be no assurance that our deposits

in excess of the FDIC limits will be backstopped by the U.S., or that any bank or financial institution with which we do business will

be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity

Our future working capital requirements will depend on many factors,

including the following:

timing and amount of our net revenue;

our product mix and the resulting gross margins;

research and development expenses;

research and development

selling, general and administrative expenses;

11 unchanged sentences

Bank Loan Agreements

Refer to Note 5 of Notes to Consolidated Financial Statements, included

in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of our loan agreements.

The following table presents the major components of the consolidated statements

of cash flows:

Refer to Note 5 of Notes to Consolidated Financial Statements,

included in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of our loan agreements.

The following table presents the major components of the consolidated

statements of cash flows:

Years Ended June 30,

(In thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Operating Activities

Our operations provided cash during fiscal 2023 compared to using cash

in fiscal 2022.

For fiscal 2023, our net loss included $13,644,000 of non-cash charges, and the changes in operating assets and liabilities

used cash of $4,427,000.

Our net inventories increased by $12,057,000, or 32.0%, from June 30, 2022

Cash provided by operating activities during fiscal 2024 increased compared

to fiscal 2023.

In fiscal 2023, we used a significant amount of cash in the build-up of our inventories and decreases in our accounts

payable and accrued liabilities.

For fiscal 2024, our net loss included $16,740,000 of non-cash charges, while the changes in operating

assets and liabilities provided net cash of $6,399,000.

Our net inventories decreased by $22,038,000, or 44.3%, from June 30, 2023

to June 30, 2024.

The increase was primarily related to the purchase of components for a supply arrangement that we entered into with

a customer in January 2023 for which we received a deposit of $15,500,000 from said customer to reimburse us for the cost of the component

In addition, we assumed $3,590,000 of net inventories in the Uplogix acquisition.

The decrease resulted primarily from (i) current year shipments to a smart grid customer for which we had built up our

stock levels and (ii) our efforts to reduce inventory levels that increased during the supply shortages we experienced during the pandemic.

Accounts payable decreased by $2,054,000, or 16.6%, from June 30, 2023

to June 30, 2023, which was slightly offset by the acquisition of $278,000 of accounts payable from the Uplogix acquisition.

The reduction

is primarily due to the timing of our inventory purchases and related payments to our vendors during the current fiscal year.

Other current liabilities increased by $20,336,000, or 239.9%, from June

to June 30, 2024.

This was mostly driven by increases of approximately (i) $15,500,000 in deposits related to expected future

shipments under a customer contract, (ii) $1,524,000 in deferred revenue, mostly acquired in the Uplogix acquisition, and (iii) $1,271,000

in earnout consideration payable related to the Uplogix acquisition.

The reduction is primarily due to the decrease in our inventories and the timing of payments to our vendors.

Accounts receivable increased by $3,597,000, or 13.0%, from June 30,

2023 to June 30, 2024.

The increase is primarily due to the increased sales during the current year coupled with timing of payments received

from our customers.

Accrued payroll and related expenses increased by $3,405,000 or 140.1%

from June 30, 2023 to June 30, 2024.

The increase is primarily due to variable compensation costs incurred during the current year.

Other current liabilities decreased by $17,842,000, or 61.9%, from June

30, 2023 to June 30, 2024.

This was mostly driven by a reduction in deposits previously received related to shipments under a customer

Investing Activities

Net cash used in investing activities during fiscal 2023 was driven by

the acquisition of Uplogix, which used net cash of $4,650,000.

We also used $2,673,000 for the purchase of property and equipment, primarily

related to building out and furnishing our new lease facilities in California and Minnesota.

Net cash used in investing activities for fiscal 2024 consisted of

purchases of equipment amounting to $1,479,000, primarily for research and development and certain business analysis tools.

in investing activities during fiscal 2023 included the acquisition of Uplogix, which used net cash of $4,650,000, as well as purchases

of plant and equipment of $2,673,000 primarily related to building out and furnishing our new lease facilities in California and Minnesota.

Financing Activities

Net cash provided by financing activities during fiscal 2023 resulted primarily

from $7,000,000 in gross proceeds received from our credit facilities with SVB.

The increase in cash was partially offset by principal

payments on the senior credit facility and repayment of the $2,000,000 balance on the revolving credit facility, as well as tax withholdings

paid on behalf of employees for restricted shares.

Net cash used in financing activities during fiscal 2024 resulted primarily

from $2,853,000 of principal payments on the Senior Credit Facilities as well as $1,027,000 tax withholdings paid on behalf of employees

for restricted shares.

Additionally, we used cash of $1,262,000 to pay the contingent consideration earned related to the Uplogix acquisition.

Net cash provided by financing activities during fiscal 2023 resulted primarily from $7,000,000 in gross proceeds received from our Senior

Credit Facilities with SVB partially offset by payments of $3,994,000 on the term loan as well as tax withholdings paid of $821,000 on

behalf of employees for restricted shares.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis