LANTRONIX INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (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 Note Regarding Forward-Looking Statements” at the beginning of this Report. Overview Lantronix Inc. (Nasdaq: LTRX) is a global leader in Edge AI and Industrial IoT solutions, delivering intelligent computing, secure connectivity, and remote management for mission-critical applications. Serving high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems, we enable customers to optimize operations and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and services powers applications from secure video surveillance and intelligent utility infrastructure to resilient out-of-band network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and a competitive edge in today’s AI-driven world. We conduct our business globally and manage our sales teams by three geographic regions: the Americas; EMEA; and APJ. References to “fiscal 2025” refer to the fiscal year ended June 30, 2025 and references to “fiscal 2024” refer to the fiscal year ended June 30, 2024. 25 Products and Solutions We organize our portfolio services and products into the following product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Engineering Services. 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 Acquisition In December 2024, we finalized the acquisition of Netcomm Wireless Pty Ltd (“Netcomm”), a subsidiary of DZS Inc., for $6,458,000 in cash. Netcomm operated an enterprise IoT business. The acquisition complements our focus on Enterprise and Smart City vertical markets and adds products to enhance our connectivity solutions in areas such as critical infrastructure, asset monitoring and telecommunications. 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 discussion regarding the acquisition. 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 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, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets. 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 Revenue is recognized upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We apply the following five-step approach in determining the amount and timing of revenue to be recognized: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when the performance obligation is satisfied. 26 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. Establishing accruals for product returns and pricing adjustments requires the use of judgment and estimates that impact the amount and timing of revenue recognition. When product revenue is recognized, we establish an estimated allowance for future product returns based primarily on historical returns experience and other known or anticipated returns. We also record reductions of revenue for pricing adjustments, such as competitive pricing programs and rebates, in the same period that the related revenue is recognized, based primarily on approved pricing adjustments and our historical experience. 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. These contracts typically provide services on the following basis: · Time & Materials (“T&M”) – services consist of revenues from software modification, consulting implementation, training and integration services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary depending on the actual time and materials incurred based on the customer’s needs. · Fixed Price – arrangements to render specific consulting and software modification services which tend to be more complex. Performance obligations for T&M contracts qualify for the “Right to Invoice” practical expedient within the revenue guidance. Under this practical expedient, we may recognize revenue, over time, in the amount to which we have a right to invoice. In addition, we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period. We determined that this method best represents the transfer of services as, upon billing, we have a right to consideration from a customer in an amount that directly corresponds with the value to the customer 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 available and when the promised good or service is separately identifiable from other promised goods or services in the contract. In these arrangements, we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation. Additionally, estimating standalone selling prices for separate performance obligations within a contract may require significant judgment and consideration of various factors including market conditions, items contemplated during negotiation of customer arrangements and internally developed pricing models. Changes to performance obligations that we identify, or the estimated selling prices pertaining to a contract, could materially impact the amounts of earned and unearned revenue that we record. 27 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 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 to 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 for excess and obsolete inventory. In the future, if our inventory is determined to be overvalued, we would be required to recognize such costs in our cost of goods sold, resulting in a reduction in our gross margins, at the time of such determination. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our results of operations. 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. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that it is more likely than not that we will realize a deferred tax asset that currently has a valuation allowance, we would be required to reverse the valuation allowance, which would be reflected as an income tax benefit in our consolidated statements of operations at that time. Business Combinations We allocate the fair value of the purchase consideration of a business acquisition to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development (“IPR&D”), if applicable, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The valuation of acquired assets and assumed liabilities requires significant judgment and estimates, especially with respect to intangible assets. The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach. The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates. We estimate the fair value based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from our estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred. Goodwill Impairment Testing We evaluate goodwill for impairment on an annual basis on May 31, 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. 28 We begin our evaluation of goodwill for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value. Some factors that we consider important in the qualitative assessment which could trigger a goodwill impairment review include: · significant underperformance relative to historical or projected future operating results; · significant changes in the manner of our use of the acquired assets or the strategy for our overall business; · significant negative industry or economic trends; · a significant decline in our stock price for a sustained period; and · 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 test, which involves comparing the estimated fair value of our single reporting unit with its carrying value, including goodwill. We estimate the fair value of our single reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, we recognize an impairment loss for the difference. Significant management judgment is required in estimating the reporting unit’s fair value and in the creation of the forecasts of future operating results that are used in the discounted cash flow method of valuation. These include (i) estimation of future cash flows, which is dependent on internal forecasts, (ii) estimation of the long-term rate of growth of our business, (iii) estimation of the period during which cash flows will be generated and (iv) the determination of our weighted-average cost of capital, which is a factor in determining the discount rate. Our estimate of the reporting unit’s fair value would also generally include the consideration of a control premium, which is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share (i.e., market capitalization) to acquire a controlling interest. If our actual financial results are not consistent with our assumptions and judgments used in estimating the fair value of our reporting unit, we may be exposed to goodwill impairment losses. We performed our annual goodwill impairment test as of May 31, 2025, using a quantitative assessment for our single reporting unit. The fair value of the reporting unit was estimated using a combination of the income approach (discounted cash flow method) and the market approach (guideline public companies and guideline transactions methods). Key assumptions included revenue growth, EBITDA margins, a long-term growth rate, and a discount rate. These assumptions reflect management’s best estimates of future financial performance, current market conditions, and a market participant perspective. The results of the impairment test indicated that the estimated fair value exceeded the carrying amount by approximately 9%. No impairment of goodwill was recognized for the year ended June 30, 2025. 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 that could trigger a review include, but are not limited to the following: · significant decreases in the market price of the asset; · significant adverse changes in the business climate or legal factors; · accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; · current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or · 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. 29 Results of Operations - Fiscal Years Ended June 30, 2025 and 2024 Summary For fiscal 2025, our net revenue decreased by $37,404,000, or 23.3%, compared to fiscal 2024. The decrease in net revenue was driven by a 34.2% decrease in net revenue in our IoT System Solutions product line, as well as decreases in net revenue in our Embedded IoT Solutions product line of 1.2% and our Software and Services product line of 12.5%. We had a net loss of $11,373,000 for fiscal 2025, compared to a net loss of $4,516,000 for fiscal 2024. The increase in net loss was primarily driven by the decrease in revenues partially offset by a reduction in operating expenses of $4,516,000 for fiscal 2025 compared to fiscal 2024. Net Revenue The following tables present our net revenue by product lines and by geographic region: Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Embedded IoT Solutions $ 46,380 37.7% $ 46,953 29.3% $ (573 ) (1.2% ) IoT System Solutions 68,735 55.9% 104,450 65.1% (35,715 ) (34.2% ) Software & Services 7,808 6.4% 8,924 5.6% (1,116 ) (12.5% ) $ 122,923 100.0% $ 160,327 100.0% $ (37,404 ) (23.3% ) Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Americas $ 70,126 57.0% $ 78,203 48.8% $ (8,077 ) (10.3% ) EMEA 30,898 25.1% 64,025 39.9% (33,127 ) (51.7% ) APJ 21,899 17.9% 18,099 11.3% 3,800 21.0% $ 122,923 100.0% $ 160,327 100.0% $ (37,404 ) (23.3% ) Embedded IoT Solutions Net revenue decreased primarily due to lower unit sales in some of our legacy embedded ethernet connectivity products across all regions and lower volume sales of our network interface cards in the Americas and APJ regions. These decreases were largely offset by higher unit sales of our embedded compute product line driven by a video conferencing customer in the APJ region. 30 IoT System Solutions The decrease in net revenue was substantially driven by our custom solution to our European smart energy grid customer. In fiscal 2024, this customer represented just over 25% of our net revenue. By comparison, in fiscal 2025, we recognized approximately $11 million from this customer in the first half of the year. Separately, compared to the prior year, we experienced (i) decreased unit sales of our network switches in the Americas region, and (ii) decreased unit sales of our OOB products across all regions, as revenues from these products can be dependent on project-based capital spending. These decreases were partially offset by higher unit sales of (i) our gateways, routers, and modems products, which was largely driven by contributions from our Netcomm acquisition, and (ii) our telematic gateways in the Americas region. Software & Services Net revenue decreased primarily due to lower 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. We also saw a moderate decrease in our extended warranty services in the Americas region, primarily related to lower service volumes in our OOB products. Gross Profit Gross profit represents net revenue less cost of revenue. Cost of revenue consists primarily of the cost of raw material components, subcontract labor assembly from contract manufacturers, direct and indirect personnel expenses related to professional services, manufacturing overhead, inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation. The following table presents our gross profit: Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Gross profit $ 51,699 42.1% $ 64,354 40.1% $ (12,655 ) (19.7% ) Gross profit as a percentage of revenue (referred to as “gross margin”) increased primarily as a result of lower overhead costs and our product sales mix. We currently expect that gross margin will fluctuate in the future, from period-to-period, based on changes in our product mix, average selling prices, and average manufacturing costs. Selling, General and Administrative Selling, general and administrative expenses consist 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. 31 The following table presents our selling, general and administrative expenses: Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 20,387 $ 21,316 $ (929 ) (4.4% ) Professional fees and outside services 4,878 5,037 (159 ) (3.2% ) Advertising and marketing 2,239 2,346 (107 ) (4.6% ) Facilities and insurance 1,794 2,754 (960 ) (34.9% ) Share-based compensation 4,424 6,248 (1,824 ) (29.2% ) Depreciation 1,360 1,393 (33 ) (2.4% ) Other 1,164 1,112 52 4.7% Selling, general and administrative $ 36,246 29.5% $ 40,206 25.1% $ (3,960 ) (9.8% ) Selling, general and administrative expenses decreased primarily due to (i) reduced share-based compensation costs based on the value of new and outstanding awards, (ii) lower spending on various sales conferences, IT infrastructure and related facilities costs, and (iii) lower personnel-related expenses resulting from less variable compensation and restructuring activities during the current fiscal year. Research and Development 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. Our costs from period-to-period related to outside services and product certifications vary depending on our level and timing of development activities. The following table presents our research and development expenses: Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 12,164 $ 14,022 $ (1,858 ) (13.3% ) Facilities 2,597 2,523 74 2.9% Outside services 636 505 131 25.9% Product certifications 499 462 37 8.0% Share-based compensation 1,522 1,852 (330 ) (17.8% ) Other 1,179 918 261 28.4% Research and development $ 18,597 15.1% $ 20,282 12.7% $ (1,685 ) (8.3% ) Research and development expenses decreased primarily due to (i) lower personnel-related expenses in our engineering groups resulting from restructuring activities during the current fiscal year and (ii) reduced share-based compensation costs based on the value of new and outstanding awards. These decreases were partially offset by (i) higher facilities-related equipment and software costs, (ii) increased costs for third party contract labor, which are included in the “outside services” category in the table above, and (iii) increased spending on certain prototype and materials costs, which are included in the “other” category in the table above. 32 Restructuring, Severance and Related Charges During fiscal 2025 and 2024, we incurred restructuring, severance and related charges of $3,535,000 and $1,423,000, respectively, due to various headcount reduction efforts during these years. The most significant of these actions occurred in January 2025, in which we reduced our headcount by approximately 12% worldwide, primarily in the U.S. and India. The severance and related charges resulting from this action totaled approximately $1,400,000. In addition, during fiscal 2025 we downsized the usage of certain sites, resulting in a charge of approximately $379,000, which is included in the total restructuring charges above. 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. Acquisition-Related Costs During fiscal 2025 we incurred approximately $371,000 of costs primarily in connection with the acquisition of Netcomm. 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, which we recorded at fair-value as of the acquisition dates. These assets are generally amortized on a straight-line basis over their estimated useful lives and resulted in charges of $3,951,000 and $5,314,000 during fiscal 2025 and 2024, respectively. Interest Expense, Net For fiscal 2025 and 2024, we incurred net interest expense from interest incurred on borrowings on our credit facilities. We also earn interest on our domestic cash balances. 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. dollar. Provision for Income Taxes The following table presents our provision for income taxes: Years Ended June 30, % of Net % of Net Change 2025 Revenue 2024 Revenue $ % (In thousands, except percentages) Provision for (benefit from) income taxes $ (239 ) (0.2% ) $ 745 0.5% $ (984 ) (132.1% ) 33 The following table presents our effective tax rate based upon our provision for income taxes: Years Ended June 30, 2025 2024 Effective tax rate 2.1% (19.8% ) We utilize the liability method of accounting for income taxes. The differences between our effective tax rate and the federal statutory rate in fiscal 2025 and 2024 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. Additionally, in fiscal 2025, we reversed a portion of our liability for uncertain tax positions as a result of the dissolution of one of our foreign subsidiaries. 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 $172,000 and $179,000 that we recorded as of June 30, 2025 and 2024, 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, 2025 and 2024. 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 Liquidity The following table presents our working capital and cash and cash equivalents: June 30, 2025 2024 Change (In thousands) Working capital $ 46,971 $ 58,794 $ (11,823 ) Cash and cash equivalents $ 20,098 $ 26,237 $ (6,139 ) Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our existing bank borrowing agreement, and cash generated from operations. We are subject to a variable amount of interest on the principal balance of our borrowings and could be adversely impacted by rising interest rates in the future. We believe that our current cash holdings, net cash provided by operating activities, and expected availability under our bank borrowing agreement 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 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 current borrowing agreement. Refer to Note 5 of Notes to Consolidated Financial Statements, including in Part II, Item 8 of this Report, for additional information. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures. 34 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. 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; selling, general and administrative expenses; and expenses associated with any strategic partnerships, acquisitions or infrastructure investments. From time to time, we may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources in order to (i) develop or enhance our products, (ii) take advantage of strategic opportunities, (iii) respond to competition or (iv) continue to operate our business. We currently have a Form S-3 shelf registration statement on file with the SEC. If we issue equity securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funds, we may incur debt service obligations, become subject to additional restrictions that limit or restrict our ability to operate our business, or be required to further encumber our assets. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all. Cash Flows The following table presents the major components of the consolidated statements of cash flows: Years Ended June 30, 2025 2024 Decrease (In thousands) Net cash provided by operating activities $ 7,285 $ 18,623 $ (11,338 ) Net cash used in investing activities (6,963 ) (1,479 ) $ (5,484 ) Net cash used in financing activities (6,461 ) (4,359 ) $ (2,102 ) Operating Activities Cash provided by operating activities during fiscal 2025 decreased compared to fiscal 2024. Cash from operations increased in the prior fiscal year due to (i) reduction of our inventories and higher net revenues and (ii) the receipt of customer deposits. In the current fiscal year, we made payments against previously accrued variable compensation balances, as discussed further below. For fiscal 2025, our net loss included $12,306,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $6,352,000. Accounts receivable decreased by $6,187,000, or 19.8%, from June 30, 2024 to June 30, 2025. The decrease was primarily due to lower net revenue levels in the current fiscal year, as well as the timing of payments from certain customers. Accounts payable increased by $2,912,000, or 28.1%, from June 30, 2024 to June 30, 2025 primarily due to the timing of inventory receipts and payments made to our vendors. 35 Accrued payroll and related expenses decreased by $2,365,000 or 40.5% from June 30, 2024 to June 30, 2025. The decrease was primarily due to accrued variable compensation paid out during the current fiscal year. Investing Activities Net cash used in investing activities for fiscal 2025 consisted primarily of the acquisition of Netcomm, which used cash of $6,458,000. We also paid for property and equipment totaling $505,000, primarily for tooling at our contract manufacturers as well as certain research and development projects. 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. Financing Activities Net cash used in financing activities during fiscal 2025 resulted primarily from principal payments of $4,512,000 on our term debt, as well as tax withholdings paid on behalf of employees for restricted shares of $2,093,000. Net cash used in financing activities during fiscal 2024 resulted primarily from $2,853,000 of principal payments on our term debt 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for a “smaller reporting company.”