What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-05-02 · 158 added, 262 removed, 115 unchanged (79% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition

and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes

included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended March 31, 2024 (this “Report”).

This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates

The following discussion and analysis of our financial condition and

results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes included

in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended September 30, 2024 (this “Report”).

discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates

and anticipated future financial performance.

See the section of this Report entitled “Cautionary Note Regarding Forward-Looking

Statements” for additional information.

See the section of this Report entitled “ Cautionary Note Regarding Forward-Looking Statements ” for additional information.

These statements involve numerous risks and uncertainties.

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in “ Risk Factors ” in Part II, Item 1A of this Report.

Unless otherwise indicated by the context,

all references to the “Company”, “Lantronix”, "we", "us", and "our" in this Quarterly

Unless otherwise indicated by the context, all

references to the “Company”, “Lantronix”, “we”, “us”, and “our” in this Quarterly

Report on Form 10-Q include Lantronix, Inc.

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Lantronix, Inc.

is a global industrial and enterprise internet of things

(“IoT”) provider of solutions that target diversified verticals ranging from smart cities, utilities and healthcare to enterprise,

intelligent transportation, and industrial automation.

Building on a long history of connectivity and video processing competence, target

applications include video surveillance, traffic management, infotainment systems, robotics, edge computing and remote environment management.

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

geographic regions:

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

the Americas;

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Products and Solutions Overview

We organize our portfolio services and products into the following

product lines:

We organize our portfolio services and products into the following product

Embedded IoT Modules, IoT Systems Solutions, and Software and Engineering Services.

Embedded IoT Modules

This portfolio of embedded products provides a variety of options including

Compute System-on-Module (“SOM”) or System-in-Package (“SIP”) solutions supplemented with wired and wireless network

connectivity products.

As the level of silicon integration continues to grow, the compute modules also provide the ability to collect

digital information (Video, Audio or Sensors) and analyze/comprehend the data streams based on specific AI/ML algorithms.

The new implementations

of SIP devices can process multiple media streams with CV (Computer Vision) technology and the modules can be controlled remotely via

ConsoleFlow™, Lantronix’s Cloud software-as-a-service (“SaaS”) platform.

Our IoT compute products typically are

embedded into a customer new product design, enabling advanced application functionality at the edge.

These products include application

processing that delivers compute to meet customer needs for data transformation, computer vision, machine learning, augmented / virtual

reality, audio / video aggregation and distribution, and custom applications at the edge.

Many of the products are offered with software

tools intended to further accelerate our customers’ time-to-market and increase their value add.

Most of our IoT embedded products

are pre-certified in a number of countries thereby significantly reducing our original equipment manufacturer (“OEM”) customers’

regulatory certification costs and accelerating their time-to-market.

Our portfolio of embedded products provides a comprehensive range of options,

including Compute System-on-Module (“SOM”) and System-in-Package (“SIP”) solutions, complemented by wired and

wireless network connectivity products.

As the level of silicon integration continues to advance, our compute modules offer the capability

to collect, analyze, and interpret digital information (e.g., Video, Audio or Sensor data) using specialized artificial intelligence (“AI”)/machine

learning algorithms.

IoT System Solutions

The IoT Systems Solutions portfolio consists of fully functional standalone

systems that provide routing, switching or gateway functionalities as well as Telematics and media conversion.

These products include

wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure network

connectivity, power for IoT end devices through Power over Ethernet (“PoE”), application hosting, protocol conversion, media

conversion, secure access for distributed IoT deployments and many other functions.

Most of our IoT System products are pre-certified

in a number of countries thereby significantly reducing our OEM customers’ regulatory certification costs and accelerating their

time-to-market.

Our IoT Systems Solutions portfolio offers a wide range of fully functional

standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion.

These products

include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure

network connectivity, power for IoT end devices through Power over Ethernet (“PoE”), application hosting, protocol conversion,

media conversion, secure access for distributed IoT deployments and many other functions.

By offering pre-certified products across multiple

regions, Lantronix significantly reduces original equipment manufacturer customers’ regulatory certification costs and speeds up

their time-to-market.

Software and Services

Our SaaS platform provides single pane of glass management for remote

environment management and IoT deployments.

Our platform enables customers to easily deploy, monitor, manage, and automate across their

global deployments, all from a single platform login, virtually connected as though directly on each device.

Our platform eliminates the

need to have 24/7 personnel on site, and makes it easy to see and drill into an issue quickly, even in large scale deployments.

We leverage our engineering expertise and product development

best practices to deliver high quality, innovative products, cost-effectively and on time.

Our engineering services flexible

business model allows for choosing turnkey product development or team augmentation for accelerating complex areas of product

development such as camera development and tuning, voice control, machine learning, artificial intelligence, computer vision,

augmented / virtual reality, mechanical and radio-frequency design, thermal and power optimization, or in any specific area a

customer needs assistance.

We also provide extended warranty, support and maintenance services

related to our out-of-band (“OOB”) and certain other product families.

Our SaaS platform offers comprehensive single-pane-of-glass management

for out-of-band (“OOB”) and IoT deployments.

Our platform enables customers to easily deploy, monitor, manage and automate

across their global deployments, all from a single platform login, virtually and seamlessly connected as if located directly on each device.

Our platform eliminates the need to have 24/7 personnel on site and makes it easy to observe and address issues quickly, even in large-scale

We leverage our deep engineering expertise and product development best

practices to deliver high-quality, innovative products cost-effectively and on schedule.

Our engineering services model is flexible, offering

either turnkey product development or team augmentation to accelerate complex product development challenges, such as camera tuning, voice

control, machine learning, AI, computer vision, augmented/virtual reality, and more.

We also provide extended warranty, support and maintenance services related

to our OOB and certain other product families.

Recent Accounting Pronouncements

Refer to Note 1 of Notes to Unaudited Condensed Consolidated

Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of recent

accounting pronouncements.

Refer to Note 1 of Notes to Unaudited Condensed Consolidated Financial

Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of recent accounting

pronouncements.

Critical Accounting Policies and Estimates

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our Annual Report on Form 10-K for the year ended June 30, 2024 and filed with the Securities and Exchange Commission (the “SEC”)

on September 12, 2023 (the “Form 10-K”) and have not changed significantly during the nine months ended March 31, 2024 as

compared to what was previously disclosed in the Form 10-K.

Results of Operations – Three Months

Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

In the three months ended March 31, 2024, our net revenue increased

by $8,219,000 or 24.9%, compared to the three months ended March 31, 2023.

on September 9, 2024 (the “Form 10-K”) and have not changed significantly during the three months ended September 30, 2024

as compared to what was previously disclosed in the Form 10-K.

Results of Operations – Three Months Ended

September 30, 2024 Compared to the Three Months Ended September 30, 2023

In the three months ended September 30, 2024, our net revenue increased

by $1,392,000 or 4.2%, compared to the three months ended September 30, 2023.

The increase in net revenue was driven by a 17.7% increase

in net revenue in our IoT System Solutions product line, partially offset by a 22.4% decrease in net revenue in our Embedded IoT Solutions

product line and a 32.5% decrease in our Software & Services product line.

in net revenue in our Embedded IoT Solutions product line, partially offset by a 13.2% decrease in net revenue in our Software & Services

product line and a 1.5% decrease in our IoT System Solutions product line.

We had a net loss of $2,502,000 for the three months ended

March 31, 2024 compared to a net loss of $3,065,000 for the three months ended March 31, 2023.

The decrease in net loss was primarily

driven by the increase in revenues for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, combined

with a decrease in operating expenses of $468,000 related to a decreases in (i) restructuring and severance charges, (ii) amortization,

and (iii) charges related to earnout fair value remeasurement.

These changes were partially offset by a reduction in gross margin percentage.

The following tables present our net revenue by

product line and by geographic region:

Three Months Ended March 31,

September 30, 2024 compared to a net loss of $1,886,000 for the three months ended September 30, 2023.

The increase in net loss was primarily

driven by an increase in operating expenses of $932,000 for the three months ended September 30, 2024 compared to the three months ended

September 30, 2023, which mostly related to an increase in restructuring and severance charges.

These changes were partially offset by

the increase in revenue.

The following tables present our net revenue by product

line and by geographic region:

Three Months Ended September 30,

(In thousands, except percentages)

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Software & Services

Three Months Ended March 31,

Three Months Ended September 30,

(In thousands, except percentages)

Embedded IoT Solutions

Net revenue decreased primarily due to (i)

lower unit sales of our embedded compute product line in the Americas and APJ regions and (ii) lower unit sales of our network interface

cards and our wireless communication products across all regions.

Net revenue increased primarily due to higher

unit sales of our embedded compute product line in the APJ and Americas regions.

This was partially offset by lower unit sales of our

embedded ethernet connectivity products and network interface cards across all regions.

IoT System Solutions

Net revenue increased primarily due to increased

unit sales related to our custom solutions in our EMEA region, as we continued to ramp volume production for a European smart energy grid

provider, as well as an increase in unit sales of our out-of-band products across all regions.

These increases were partially offset by

decreases in sales of certain network switches products across all regions.

Net revenue decreased primarily due to (i) decreased

unit sales of our OOB products in the Americas and EMEA regions and (ii) decreased unit sales of our network switches in the Americas

and APJ regions.

These reductions were mostly offset by sales of our custom solutions to a European smart energy grid provider that we

ramped production for in the second half of the prior fiscal year.

Software & Services

Net revenue decreased primarily due to a decrease

in our engineering services revenue in the EMEA region as two of our large design services projects recently transitioned from the design

phase to full production.

in our engineering services revenue in the EMEA region as two of our large design services projects transitioned in the prior year from

the design phase to full production.

Gross profit represents net revenue less cost of revenue.

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The following table presents our gross profit:

Three Months Ended March 31,

Three Months Ended September 30,

(In thousands, except percentages)

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

decreased due primarily to (i) our product sales mix, (ii) higher various overhead charges, and (iii) higher freight and logistics costs

in the current quarter.

decreased slightly due primarily to our product sales mix as embedded compute products contribute to a larger portion of revenues in the

current period.

Selling, General and Administrative

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and administrative expenses:

Three Months Ended March 31,

Three Months Ended September 30,

(In thousands, except percentages)

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Selling, general and administrative

Selling, general and administrative expenses decreased primarily

due to a lower professional and outside services expenses related to (i) audit and accounting compliance costs that were higher in

the prior year as we implemented Section 404(b) of the Sarbanes-Oxley Act, (ii) new facility costs for our California and Minnesota

facilities incurred in the prior year period, and (iii) reduced current year costs for outsourced sales and marketing resources.

decrease in professional and outside services expenses was partially offset by an increase in personnel-related expenses for certain variable compensation costs.

Selling, general and administrative expenses increased primarily due to

an increase in personnel-related costs resulting from year-over-year compensation increases and changes in headcount.

was partially offset by (i) reduced share-based compensation costs mostly from reversals of certain forfeited awards and (ii) lower facilities

and related costs from previous restructurings of certain non-essential operations.

Research and Development

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The following table presents our research and development expenses:

Three Months Ended March 31,

(In thousands, except percentages)

Personnel-related expenses

Outside services

Product certifications

Share-based compensation

Research and development

Research and development expenses increased primarily due to an increase

in personnel-related expenses for certain variable compensation costs, partially offset by (i) lower costs for outsourced resources and

(ii) lower product certification expenses resulting from the timing of costs incurred on various ongoing development projects.

Results of Operations – Nine Months Ended

March 31, 2024 Compared to the Nine Months Ended March 31, 2023

In the nine months ended March 31, 2024, our net revenue increased

by $14,987,000 or 15.6%, compared to the nine months ended March 31, 2023.

The increase in net revenue was driven by a 58.0% increase

in net revenue in our IoT System Solutions product line, partially offset by a 20.6% decrease in net revenue in our Embedded IoT Solutions

product line as well as a 13.5% decrease in revenue in our Software & Services product line.

We had a net loss of $4,902,000 for the

nine months ended March 31, 2024 compared to a net loss of $7,327,000 for the nine months ended March 31, 2023.

The decrease in net loss

was primarily driven by the increase in revenues, partially offset by an increase in operating expenses of $680,000 coupled with a reduction

in gross margin percentage for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023.

The following tables present our net revenue by

product line and by geographic region:

Nine Months Ended March 31,

(In thousands, except percentages)

Embedded IoT Solutions

IoT System Solutions

Software & Services

Nine Months Ended March 31,

(In thousands, except percentages)

Embedded IoT Solutions

Net revenue decreased primarily due to lower

units sales of (i) our embedded compute product line in the Americas and APJ regions, (ii) our network interface cards across all regions,

and (iii) our embedded ethernet connectivity products in the Americas and EMEA regions.

IoT System Solutions

Net revenue increased primarily due to increases

in units sales of (i) our custom solutions, as we continued to ramp volume production for a European smart energy grid provider in the

current period, (ii) our out-of-band products in the Americas and EMEA 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 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 recently transitioned from

the design phase to full production, partially offset by growth in our extended warranty services across all regions.

The following table presents our gross profit:

Nine Months Ended March 31,

(In thousands, except percentages)

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

decreased due primarily to our (i) product sales mix and (ii) higher freight and logistics costs in the current year period.

Selling, General and Administrative

The following table presents our selling, general

and administrative expenses:

Nine Months Ended March 31,

(In thousands, except percentages)

Personnel-related expenses

Professional fees and outside services

Advertising and marketing

Facilities and insurance

Share-based compensation

Selling, general and administrative

Selling, general and administrative expenses increased primarily due

to (i) an increase in personnel-related expenses arising from certain variable compensation costs, (ii) an increase in depreciation expense

related to new equipment and certain business analysis tools that we added in the current year, and (iii) increases in insurance premiums

and various facility-related costs.

These increases were partially offset by reductions in professional fees and outside services related

to (i) audit and accounting compliance costs that were higher in the prior year as we implemented Section 404(b) of the Sarbanes-Oxley

Act, (ii) new facility costs for our California and Minnesota facilities incurred in the prior year period, and (iii) reduced current

year costs for outsourced sales and marketing resources.

Research and Development

The following table presents our research and development expenses:

Nine Months Ended March 31,

Three Months Ended September 30,

(In thousands, except percentages)

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Research and development

Research and development expenses increased primarily due to an increase

in personnel-related costs related to variable compensation expenses and increased share-based compensation costs for various equity award

grants made in the current fiscal year.

These increases were partially offset by a reduction in product certification expenses resulting

from the timing of costs incurred on various ongoing development projects and lower costs for outsourced resources.

Research and development expenses decreased primarily due to lower product

certification expenses resulting from the timing of costs incurred on various ongoing development projects.

Restructuring, Severance and Related Charges

During the three and nine months ended March 31, 2024, we incurred

charges of approximately $350,000 and $900,000, respectively, related to headcount reductions and restructuring of certain non-essential

During the three and nine months ended March 31, 2023, we incurred $490,000 and $664,000, respectively, of restructuring,

severance and related charges.

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 the three and nine months ended March 31, 2024 and during the

three months ended March 31, 2023, we did not incur any acquisition-related costs.

During the nine months ended March 31, 2023, we incurred

approximately $315,000 of costs related to the acquisition of Uplogix.

These costs were mainly comprised of banking, legal and other professional

Interest Income (Expense), Net

For the three and nine months ended March 31, 2024 and March 31, 2023,

we incurred net interest expense due to borrowings on our credit facilities.

During the three months ended September 30, 2024, we incurred charges of

$900,000 related to headcount reductions.

During the three months ended September 30, 2023, we incurred $20,000 of restructuring, severance

and related charges.

We may incur additional restructuring, severance and related charges in

future periods as we continue to identify cost savings and efficiencies related to our business.

Interest Expense, Net

For the three months ended September 30, 2024 and September 30, 2023, we

incurred net interest expense due to borrowings on our credit facilities.

We also earn interest income on our domestic cash balance.

Other Income (Expense), Net

Our 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.

Our 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

Refer to Note 8 of Notes to Unaudited Condensed Consolidated

Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding

our provision for income taxes.

Refer to Note 7 of Notes to Unaudited Condensed Consolidated Financial

Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding our provision

for income taxes.

Liquidity and Capital Resources

The following table presents details of our working capital and cash

and cash equivalents:

The following table presents details of our working capital and cash and

cash equivalents:

September 30,

(In thousands)

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Cash and cash equivalents

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

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.

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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

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

our cash and cash equivalents balance at Silicon Valley Bank (“SVB”) and our other banking institutions.

Our emphasis is primarily

on safety of principal and secondarily on maximizing yield on those funds.

In April 2023, we entered into the Letter Agreement (as defined

in Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 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:

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 crisis.

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

cash and cash equivalents balance at Silicon Valley Bank and our other banking institutions.

Our emphasis is primarily on safety of principal

and secondarily on maximizing yield on those funds.

As of the date of this Report, we are in compliance with all covenants of the Loan

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

research and development expenses;

selling, general and administrative expenses;

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Bank Loan Agreements

Refer to Note 6 of Notes to Unaudited Condensed Consolidated

Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our loan

Refer to Note 5 of Notes to Unaudited Condensed Consolidated Financial

Statements, included in Part I, Item 1 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 unaudited condensed consolidated statements of cash flows:

Nine Months Ended

Three Months Ended

September 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 (used in) provided by financing activities

Net cash used in financing activities

Operating Activities

Cash provided by operating activities during the nine months ended

March 31, 2024 increased compared to the prior year period.

We used cash from operations in the prior year due to the build-up of our

inventories and decreases in our accounts payable and accrued liabilities.

For the nine months ended March 31, 2024, our net loss included

$12,163,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $9,087,000.

Our net inventories decreased by $9,184,000, or 18.5%, from June 30,

2023 to March 31, 2024.

The decrease resulted primarily from increased shipments on certain existing large customer contracts for which

we had been building up our stock levels in recent periods.

Accounts payable decreased by $1,444,000, or 11.6%, from June 30, 2023

to March 31, 2024.

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

Accounts receivable increased by $860,000, or 3.1%, from June 30, 2023

to March 31, 2024.

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

from our customers.

Accrued payroll and related expenses increased by $2,108,000 or 86.7%

from June 30, 2023 to March 31, 2024.

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

Other current liabilities decreased by $6,625,000, or 23.0%, from June

30, 2023 to March 31, 2024.

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

Cash provided by operating activities during the three months ended September

30, 2024 decreased compared to the prior year period.

Cash from operations increased in the prior year period due to our reduction of

inventories and receipt of customer deposits relating to the delivery to our European smart grid provider customer.

In the current year

period, inventories increased slightly, and we also made payments against previously accrued variable compensation balances, as discussed

further below.

For the three months ended September 30, 2024, our net loss included $3,418,000 of non-cash charges, while the changes

in operating assets and liabilities provided net cash of $1,747,000.

Our net inventories increased by $1,835,000, or 6.6%, from June 30, 2024

to September 30, 2024.

The increase resulted primarily due to the timing of various material receipts during the current quarter as compared

to our shipments to customers.

Accounts payable increased by $6,802,000, or 65.7%, from June 30, 2024

to September 30, 2024.

The increase is primarily due to the timing of inventory receipts near the end of the current quarter, as well

as payments made to our vendors.

Contract manufacturers’ receivables increased by $1,321,000, or 94.3%,

from June 30, 2024 to September 30, 2024.

The increase is primarily due to timing of shipments of components to contract manufacturers

during the current quarter.

Accrued payroll and related expenses decreased by $2,396,000 or 41.1% from

June 30, 2024 to September 30, 2024.

The decrease is primarily due to accrued variable compensation paid out during the current quarter.

Investing Activities

Net cash used in investing activities for the nine months ended March

31, 2024 consisted of purchases of equipment amounting to $1,325,000, primarily for research and development and certain business analysis

Cash used during the nine months ended March 31, 2023 included the acquisition of Uplogix, which used net cash of $4,650,000, as

well as purchases of plant and equipment of $2,325,000 primarily related to building out and furnishing our new lease facilities in California

and Minnesota.

Net cash used in investing activities for the three months ended September

30, 2024 consisted of purchases of equipment totaling $157,000, primarily for tooling at our contract manufacturers and certain research

and development projects.

Cash used during the three months ended September 30, 2023 consisted of purchases of plant and equipment of

$486,000 primarily for research and development and certain business analysis tools.

Financing Activities

Net cash used in financing activities during the nine months ended

March 31, 2024 resulted primarily from principal payments on the Senior Credit Facilities as well as 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

Net cash provided by financing activities during the nine months ended March 31, 2023 resulted primarily

from $7,000,000 in gross proceeds received from our Senior Credit Facilities with SVB partially offset by payments on the term loan as

well as tax withholdings paid on behalf of employees for restricted shares.

Net cash used in financing activities during the three months ended September

30, 2024 and the three months ended September 30, 2023 resulted primarily from tax withholdings paid on behalf of employees for restricted

shares as well as principal payments on the Senior Credit Facilities.

Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the

information required by this Item 3.

As a smaller reporting company, we are not required to provide the information

required by this Item 3.

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-Q

Item 2. Management’s Discussion and Analysis