LTRX 10-K & 10-Q changes, risk factors and insider trading

We depend upon a relatively small number of distributordistributors and end-user customers for a large portion of our revenue, and a decline in sales to these major customers would materially adversely affect our business, financial condition, and results of operations.

Some of our integrated circuits are only available from a single source and in some cases, are no longer being manufactured. From time to time, integrated circuits, and potentially other components used in our products, will be phased out of production by the manufacturer. When this happens, we attempt to purchase sufficient inventory to meet our needs until a substitute component can be incorporated into our products. Nonetheless, we may be unable to purchase sufficient components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components. In addition, our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations, whether due to a pandemic or epidemic, the war between Ukraine and Russia, conflict in the Middle East, hostilities in the Red Sea, tensions between China and Taiwan, increased tariffs and changes in U.S. trade policies or otherwise. For instance, the market is currently experiencing memory supply shortages, which has led to higher costs and constrained availability of memory components. From time to time, we have been unable to meet customer orders because we were unable to purchase necessary components for our products. We do not have long-term supply arrangements arrangements with most of our vendors to obtain necessary components, including semiconductor chips, or technology for our products and instead purchase components on a purchase order basis. If we are unable to purchase components from these suppliers, our product shipments could be prevented or delayed, which could result in a loss of sales. If we are unable to meet existing orders or to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations.

From time to time, we may transition the manufacturing of certain products from one contract manufacturer to another. For example, in connection to the recently increased tariffs proposed to be imposed by the U.S. against China, we continue to transitionhave transitioned our remainingcontract manufacturing out of China.China for U.S.-bound products. We have and may in the future incur substantial expenses, expenses, risk material delays or encounter other unexpected issues in connection with this transition or future transitions.

We have a lengthy sales cycle for many of our products that generally extends between threesix and 24 months and sometimes longer due to a lengthy customer evaluation and approval process. The length of this process can can be affected by factors over which we have little or no control, including the customer’s budgetary constraints, timing of the customer’s customer’s budget cycles, and concerns by the customer about the introduction of new products by us or by our competitors. As a result, sales cycles for customer orders vary substantially among different customers. The lengthy sales cycle is one of the factors that has caused, and may continue to cause, our revenues and operating results to vary significantly from quarter to quarter. In addition, we may incur substantial expenses and devote significant management effort to develop potential relationships that do not result in agreements or revenues, which may prevent us from pursuing other opportunities. Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations.

We have in the past and may in the future pursue acquisitions, strategic partnerships and joint ventures that we believe would allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets, broaden our technology and intellectual property and strengthen our relationships with distributors, OEMs and original design manufacturers. For instance, we acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses of Communication Systems, Inc., Uplogix, Inc. (“Uplogix”), and Netcomm Wireless Pty Ltd (“Netcomm”) in calendar years 2019, 2020, 2021, 2022 and 2024, respectively. Our previous acquisitions have required, and any future acquisition, partnership, joint venture or investment may also require, that we pay significant cash, issue equity and/or incur substantial debt. Acquisitions, partnerships or joint ventures may also result in the loss of key personnel and the dilution of existing stockholders to the extent we are required to issue equity securities. In addition, acquisitions, partnerships or joint ventures require significant managerial attention, which may be diverted from our other operations. These capital, equity and managerial commitments may impair the operation of our business. Furthermore, Furthermore, acquired businesses may not be effectively integrated, may be unable to maintain key pre-acquisition business relationships, may not result in expected synergies, an increase in revenues or earnings or the delivery of new products, may contribute to increased fixed costs, and may expose us to unanticipated liabilities. If any of these occur, we may fail to meet our business objectives and our business, financial condition and operating results could be materially and adversely affected.

Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced, and we expect to continue experiencing, threats to our data and systems, including malware, phishing and computer virus attacks, and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. In addition, due to the fast pace and unpredictability of cybersecurity threats, including from emerging technologies, such as advanced forms of machine learning, AIAI, and quantum computing, long-term implementation plans designed to address cybersecurity risks become obsolete quickly and, in some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause. In addition, such threats could be introduced as a result of our customers and business partners incorporating the output of an AI tool that includes a threat, such as introducing malicious code by incorporating AI generated source code. Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees, on our networks and third-party cloud software providers. If there is unauthorized access to such information, we may incur significant costs or liabilities and lose customer confidence in us, which would harm our reputation and results of operations. In addition, we could be subject to liabilityliability, or our reputation could be harmed if technologies integrated into our products, or our products, fail to prevent cyberattacks, or if our partners or customers fail to safeguard the systems with security policies that conform to industry best practices. In addition, any cyberattack or security breach that affects a competitor’s products could lead to the negative perception that our solutions are or could be subject to similar attacks or breaches.

There is also the possibility of federal privacy legislation and increased enforcement by the Federal Trade Commission under its power to regulate unfair and deceptive trade practices. Markets in the Asia Pacific region have also recently adopted GDPR-like legislation, including China’s new Personal Information Protection Law. Failure to meet Privacy and Data Protection Law requirements could result in significant civil penalties (including fines up to 4% of annual worldwide revenue under the GDPR) as well as criminal penalties. Privacy and data protection law requirements also confer a private right of action in some countries, including under the GDPR.

In addition, our operations and those of our suppliers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, cybersecurity breaches, IT systems failure, terrorist attacksattacks, climate change and other events beyond our control, including the effects of climate change.control. A substantial portion of our facilities, including our corporate headquarters and other critical business operations, are located near major earthquake faults and, therefore, may be more susceptible to damage if an earthquake occurs. We do not carry earthquake insurance for direct earthquake-related losses. If a business interruption occurs, whether due to a natural disaster or otherwise, our business could be materially and adversely affected.

The terms of our amendedAmended and restatedRestated creditLoan facilityAgreement may restrict our financial and operational flexibility and, in certain cases, our ability to operate.

The terms of our amendedFifth Amended and restatedRestated creditLoan facilityand Security Agreement (the “Amended Loan Agreement”) restrict, among other things, our ability to incur liens or indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain transactions with our affiliates. Further, we are currently and may in the future be required to maintain specified financial ratios, including pursuant to a minimum interest coverage ratio, and to satisfy a minimum liquidity test. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet those tests. Pursuant to our amendedAmended creditLoan facility,Agreement, we have pledged substantially all of our assets to our senior lender, SVB. In addition, our loanAmended agreementLoan with SVB currentlyAgreement requires us to hold 75% of our US cash balances at SVB, which may limit our ability to manage our cash holdings effectively.

RisingFuture concernimposition regarding internationalof tariffs could materially and adversely affect our business and results of operations.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies. In an effort to combat inflation, a number of central banks around the world, including the U.S., raisedHigher interest rates and may raise them in the future. Higher interest rates may hinder the economic growthopportunities in markets where we do business, and has and may continue to have negative impacts on the global economy. Higheconomy, interest rates mayor lead customers to decrease or delay spending on products and projects, including on products that we sell, which may in each case have a material adverse effect on our business, financial condition and results of operations. In addition, higher interest rates impact the amount of interest we pay for our debt obligations and leases and continuecontinued and sustained increases in interest rates could has in the past and may in the future negatively impact our financing costs or cash flow.

LantronixLantronix, Inc. (Nasdaq: LTRX) is a global leader in Edge AI and Industrial IoT solutions,solutions that deliveringpower NDAA-compliant unmanned systems, critical infrastructure and resilient enterprise networks. We deliver intelligent computing, secure connectivity, and remote management for mission-critical applications.applications, Serving high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems, we enableenabling customers to optimize operations, enhance security operations and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and servicesservices, powers applications ranging from frommission-critical secureautonomous videoplatforms and edge analytics for critical infrastructure to intelligent surveillance and intelligent utility infrastructure to resilient out-of-bandsecure 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 organize our portfolio services and products into the following product product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Engineering Services. Refer to “Products and Solutions” included included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion.

For fiscal 2025,2026, our net revenue decreased by $37,404,000,$2,024,000, or 23.3%,1.6%, compared to fiscal 2024.2025. The decrease in net revenue was driven by a 34.2%15.2% decrease in net revenue in our IoT System Solutions product line,line aspartially welloffset asby decreasesa 15.6% increase in net revenue in our Embedded IoT Solutions product line ofand 1.2%a and15.5% increase in our Software and Services product lineline. We had a net loss of 12.5%. We$4,181,000 hadfor fiscal 2026 compared to a net loss of $11,373,000 for fiscal 2025, compared to a net loss of $4,516,000 for fiscal 2024.2025. The increasedecrease in net loss was primarily driven by the decrease in revenues partially offset by a reduction in operating expenses of $4,516,000$5,656,000 combined with the increase in gross profit for fiscal 2025 2026 compared to fiscal 2024. 2025.

Net revenue decreasedincreased primarily due to lowerhigher engineeringSaaS solutions in the Americas and EMEA regions, as well as higher design services revenue in the EMEA regionregion. asThis twoincrease ofwas ourpartially largeoffset design services projects transitioned in the prior year from the design phase to full production. We also sawby a moderate decrease in our extended warranty services in the Americas region, primarily related to lower service volumes in our OOB products.region.

Gross profit as a percentage of revenue (referred to as “gross margin”) increased primarily as a resultbecause of lower overhead costs and our product sales mix. This was primarily driven by the absence of lower-margin revenue from Gridspertise in fiscal 2026, and also a slightly higher percentage of our current year revenue derived from software and services.

Research and development expenses consistsconsist of personnel-related expenses, 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.

Research and development expenses decreased primarily due to (i) lower personnel-related expenses in our engineering groupsteam resulting from restructuring activities during the current and prior fiscal year and years, (ii) reduced share-based compensation costs based on the value of new and outstanding awards.awards, and (iii) lower facilities-related equipment and software costs. 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 certainoutside prototypeservices, primarily related to outsourced product development and materialscontractor costs, which are included in the “other” category in the table above.costs.

We acquired certain intangible assets through our recentprior acquisitions, which we recorded at fair-valuefair value as of the acquisition dates. These assets are generally amortized on a straight-line basis over their their estimated useful lives and resulted in charges of $3,951,000$1,561,000 and $5,314,000$3,951,000 during fiscal 20252026 and 2024,2025, respectively.

Interest Expense,Income (expense), Net

For fiscal 20252026 and 2024,2025, we earned interest income on our domestic cash balances and incurred net interest expense from interest incurred on borrowings on our credit facilities. We also earn interest on our domestic cash balances.

Cash provided by operating activities during fiscal 20252026 decreasedincreased compared to fiscal 2024.2025 Cashprimarily fromas operationsa increasedresult of a reduction in our net loss 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.period. For fiscal 2025,2026, our net loss included $12,306,000 $9,535,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $6,352,000.$4,523,000.

Accrued payroll and related expenses decreasedincreased by $2,365,000$1,349,000 or 40.5%38.9% from June 30, 20242025 to June 30, 2025.2026. The decreaseincrease was primarily due to accruedthe accrual of variable compensation paid out duringin the current fiscal year.

Net cash usedprovided inby financing activities during fiscal 20252026 resulted primarily from the net proceeds from our equity offerings of $44,090,000 partially offset by net principal payments ofand $4,512,000borrowings on our termLoan debt, Agreement, as well as from tax withholdings paid on behalf of employees for restricted shares of $2,093,000.shares.

Net cash used in financing activities during fiscal 20242025 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,shares weas usedwell cashas ofprincipal $1,262,000payments toon payour theprevious contingentterm considerationloan earned related to the Uplogix acquisition.borrowings.

The risks and uncertainties discussed below update and supersede the risks and uncertainties previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which was filed with the SEC on August 29, 2025. There have been no material changes to the risks and uncertainties previously disclosed in such Annual Report on Form 10-K.10-K, except for those risks marked with an asterisk (*) below.

Some of our integrated circuits are only available from a single source and in some cases, are no longer being manufactured. From time to time, integrated circuits, and potentially other components used in our products, will be phased out of production by the manufacturer. When this happens, we attempt to purchase sufficient inventory to meet our needs until a substitute component can be incorporated into our products. Nonetheless, we may be unable to purchase sufficient components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components. In addition, our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations, whether due to a pandemic or epidemic, the war between Ukraine and Russia, conflict in the Middle East, hostilities in the Red Sea, tensions between China and Taiwan, increased tariffs and changes in U.S. trade policies or otherwise. For instance, the market is currently experiencing memory supply shortages, which mayhas leadled to higher costs and constrained availability of memory components. From time to time, we have been been unable to meet customer orders because we were unable to purchase necessary components for our products. We do not have long-term supply supply arrangements with most of our vendors to obtain necessary components, including semiconductor chips, or technology for our products and and instead purchase components on a purchase order basis. If we are unable to purchase components from these suppliers, our product shipments could be prevented or delayed, which could result in a loss of sales. If we are unable to meet existing orders or to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations.

We believe that the continued growth of our presence in the drone and defense technology markets will depend, to a certain degree, on the ability of our customers to win government contracts and subcontracts, in particular from the U.S. Department of Defense.War. The funding of U.S. government programs is uncertain and dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process. Many government customers are subject to budgetary constraints and our continued performance under these contracts or subcontracts, or award of additional contracts or subcontracts from these agencies, has in the past and could in the future be impacted by spending reductions, budget cutbacks, or government shutdowns. A significant decline in government expenditures generally, or with respect to programs for which we provide products, could lead to delays in negotiations of contracts or increased costs and could adversely affect our business.

From time to time, we may transition the manufacturing of certain products from one contract manufacturer to another. For example, in connection to the increased tariffs imposed by the U.S. against China, we have transitioned our contract manufacturing out of China for U.S.-bound products. Although all of our contract manufacturers are now located outside of China, weWe have and may in the future incur substantial expenses, risk material delays or encounter other unexpected issues in connection with this transition or future transitions.

We have a lengthy sales cycle for many of our products that generally extends between threesix and 24 months and sometimes longer due to a lengthy customer evaluation and approval process. The length of this process process can be affected by factors over which we have little or no control, including the customer’s budgetary constraints, timing of the customer’s budget cycles, and concerns by the customer about the introduction of new products by us or by our competitors. As a result, sales cycles for customer orders vary substantially among different customers. The lengthy sales cycle is one of the factors that that has caused, and may continue to cause, our revenues and operating results to vary significantly from quarter to quarter. In addition, we may incur substantial expenses and devote significant management effort to develop potential relationships that do not result in agreements or revenues, which may prevent us from pursuing other opportunities. Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations.

We have in the past and may in the future pursue acquisitions, strategic partnerships and joint ventures that we believe would allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets, broaden our technology and intellectual property and strengthen our relationships with distributors, OEMs and original design manufacturers. We acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses of Communication Systems, Inc., Uplogix, Inc. (“Uplogix”),Inc., and Netcomm Wireless Pty Ltd (“Netcomm”) in calendar years 2019, 2020, 2021, 2022 and 2024, respectively. Our previous acquisitions have required, and any future acquisition, partnership, joint venture or investment may also require, that we pay significant cash, issue equity and/or incur substantial debt. Acquisitions, partnerships or joint ventures may also result in the loss of key personnel and the dilution of existing stockholders to the extent we are required to issue equity securities. In addition, acquisitions, partnerships or joint ventures require significant managerial attention, which may be diverted from our other operations. These capital, equity and managerial commitments may impair the operation of our business. Furthermore, acquired businesses may not be effectively integrated, may be unable to maintain key pre-acquisition business relationships, may not result in expected synergies, an increase in revenues or earnings or the delivery of new products, may contribute to increased fixed costs, and may expose us to unanticipated liabilities. If any of these occur, we may fail to meet our business objectives and our business, financial condition and operating results could be materially and adversely affected.

Future imposition of tariffs could materially and adversely affect our business 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 DecemberMarch 31, 20252026 (this “Report”). This 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. These statements involve numerous 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 set forth in “Risk Factors” in Part II, Item 1A of this Report.

LantronixLantronix, Inc. 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 (including drones), 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.

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgments are those relating to revenue recognition, sales returns and allowances, inventory valuation, valuation of deferred income taxes, and valuation of goodwill and long-lived and intangible assets. These policies are are described in further detail in our Annual Report on Form 10-K for the ficsalfiscal year ended June 30, 2025 and filed with the SEC on August 29, 2025 (the “Form 10-K”) and have not changed significantly during the sixnine months ended DecemberMarch 31, 20252026 as compared to what what was previously disclosed in the Form 10-K.

Results of Operations – Three Months Ended DecemberMarch 31, 20252026 Compared to the Three Months Ended DecemberMarch 31, 20242025

In the three months ended DecemberMarch 31, 2025,2026, our net revenue decreasedincreased by $1,387,000$1,677,000 or 4.5%,5.9%, compared to the three months ended DecemberMarch 31, 2024.2025. The decreaseincrease in net revenue was driven by a 28.6%21.9% increase in net revenue in our Embedded IoT Solutions product line and a 31.0% increase in our Software and Services product line, and was partially offset by a 10.2% decrease in net revenue in our IoT System Solutions product line, partially offset by increases in net revenue in our Embedded IoT Solutions product line of 28.6% and our Software and Services product line of 47.2%.line. We had a net loss of $1,330,000$1,181,000 for the three months ended December March 31, 20252026 compared to a net loss of $2,372,000$3,868,000 for the three months ended DecemberMarch 31, 2024.2025. The improvementdecrease in net loss was primarily driven by athe decreaseincrease in revenues and reduction in operating expenses of $1,403,000$1,849,000 for the three months ended DecemberMarch 31, 20252026 compared to the three months ended December March 31, 2024.2025.

Net revenue increased primarily due to (i) higher unit sales of our embedded compute products, which includes our drone and aerospace and defense programs,products, in the Americas and EMEA regionsregions, and (ii) higher unit sales of our embedded ethernetwired connectivity products across all regions, reflecting continued customer demand for embedded ethernet and wirelesscompute communicationsolutions. productsThese increases were partially offset by lower unit sales of certain legacy products, including our network interface cards and optics, primarily in the Americas and APJEMEA regions.

Software and& Services

Net revenue increased primarily due to higher SaaS solutions revenue in the Americas and increased engineering services in EMEA..the EMEA region.

Gross profit as a percentage of revenue (referred to as “gross margin”) increaseddecreased primarily as a result of our product sales mix.mix, Thisand wascertain primarilyinventory drivenand byoverhead costs that were higher than the absenceprior of revenue from Gridspertise in the current period, and a slightly higher percentage of our current period revenue derived from software and services.year.

Selling, general and administrative expenses decreasedincreased slightlyprimarily due to lower(i) legalhigher feespersonnel-related andexpenses, variousmostly professionalvariable andcompensation outside services costs. We recovered certain previously written-off receivables, the benefit of which is included in the “other” category in the table above. This was partially offset byaccruals, (iii) increased share-based compensation costs driven by new stock awards granted during the current fiscal year, and (iiiii) slightly higher personal-relatedadvertising expenses.and marketing related to promotional and trade show spending. These increases were partially offset by a decrease in professional fees, particularly legal expenditures.

Research and development expenses decreased primarily due to (i) lower personnel-related expenses in our engineering groups driventeam byresulting from restructuring activities during the previouscurrent and prior fiscal year, years, (ii) lower facilities-related equipment and software costs, (iii) reduced share-based compensation costs based on the value of new and outstanding awards.awards, Theseand decreases(iii) werelower partiallyfacilities-related offsetequipment byand increasedsoftware spending on outsourced product development, which is included in the “outside services” category in the table above.costs.

Results of Operations – SixNine Months Ended DecemberMarch 31, 20252026 Compared to the SixNine Months Ended DecemberMarch 31, 20242025

In the sixnine months ended DecemberMarch 31, 2025,2026, our net revenue decreased by $6,016,000$4,339,000, or 9.2%,4.6%, compared to the sixnine months ended DecemberMarch 31, 2024.2025. The decrease in net revenue was driven by ana 20.4%17.5% decrease in net revenue in our IoT System Solutions product line. These decreases wereline, partially offset by a 4.8%10.5% increase in net revenue in our Embedded IoT Solutions product line and as well as a 10.7%16.9% increase in our Software and Services product line. We had a net loss of $2,731,000 $3,912,000 for the sixnine months ended DecemberMarch 31, 2025 2026, compared to a net loss of $4,874,000$8,742,000 for the sixnine months ended DecemberMarch 31, 2024.2025. The decrease improvement in net loss was primarily driven by a reduction decrease in operating expenses of $3,133,000$4,982,000 for the sixnine months ended DecemberMarch 31, 20252026 compared to the sixnine months ended DecemberMarch 31, 2024.2025, partially offset by the decrease in gross profit over the same period.

Net revenue increased primarily due to higher unit sales of (i) our embedded compute product line in the Americas and EMEA regions,regions and (ii) our legacy embedded ethernet connectivity products in the Americas and APJ regions, and (iii) our wireless communications products inacross the Americas and APJall regions. This increase was partially offset by lower unit sales of (i) our network interface cardcards and optics products in the Americas and EMEA regions and (ii) our OOBembedded productsGNSS modules in the Americas and EMEA regions.region.

Net revenue decreased primarily due to reduced sales to Gridspertise. We did not haverecognize any shipmentsrevenue tofrom this customer induring the in the sixnine months ended DecemberMarch 31, 2025,2026, as compared to just over $11 million of revenue duringin the sixprior-year months ended December 31, 2024.period. The year-over-year decrease in net revenue from this customer was partially offset by (i) increased unit sales of our network switches in the Americas and APJ regions and (ii) increasedhigher unit sales of our telematic gateways in the Americas, APJAmericas and EMEA regions.

Net revenue increased primarily due to higher SaaS solutions in the Americas and EMEA regions.regions, as well as higher design services revenue in the EMEA region. This increase was partially offset by a decrease in our extended warranty services in the Americas region.

Gross margin increased primarily as a resultbecause of lower overhead costs and our product sales mix. This was primarily driven by the absence of lower-margin revenue from Gridspertise in the current period, and also a slightly higher percentage of our current period revenue derived from software and services.

Research and development expenses decreased primarily due to (i) lower personnel-related expenses in our engineering groups resulting from restructuring activities induring the previouscurrent and prior fiscal year, years, (ii) lower facilities-related equipment and software costs, and (iii) reduced share-based compensation costs based on stock award activity in the current fiscal year.year, and (iii) lower facilities-related equipment and software costs. These decreases were partially offset by increased(i) higher spending on outside services, primarily related to outsourced product development,development whichand iscontractor included in the “outside services” category in the table above.costs.

During the three and sixnine months ended DecemberMarch 31, 2025,2026, we incurred charges of $43,000$288,000 and $136,000,$424,000, respectively, related to headcount reductions. During the three and sixnine months ended DecemberMarch 31, 2024,2025, we incurred $193,000$1,581,000 and $1,093,000,$2,674,000, respectively, of restructuring, severance and related charges.

For the three and sixnine months ended DecemberMarch 31, 20252026 and DecemberMarch 31, 2025, 2024, we incurred net interest expense duerelated to borrowings on our credit facilities. We also earn interest income on our domestic cash balance.

Our other income (expense), net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currenciescurrency areis the U.S. dollar.

The following table presents details of our working capital and cash and cash equivalents balances:

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our Loan Agreement (as defined in Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report), 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 Loan 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 Loan Agreement. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirementsrequirements, payments of principal and interest on our borrowings, payments to satisfy employees’ tax withholding obligations for restricted shares, and capital expenditures.

Bank Loan AgreementAgreements

Cash provided by operating activities during the sixnine months ended March December 31, 20252026 increased compared to the prior year period primarily as a result of strongthe timing of our collections on accounts receivable, payments on accounts payable, and a reduction in our net loss in the current period. For the sixnine months ended DecemberMarch 31, 2025,2026, our net loss included $5,448,000$7,647,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $3,066,000.$4,215,000.

Accounts receivable decreased by $1,831,000, or 7.3%,$1,582,000 from June 30, 2025 to December March 31, 2025. The decrease was2026, primarily due to the timing of paymentscustomer from certain customers.collections.

Contract manufacturers’ receivables decreased by $1,957,000,$2,187,000, or 63.7%, from June 30, 2025 to December 31, 2025. The decrease is primarily duerelated to timing ofdifferences shipmentsbetween ofinventory componentspurchases and payments to contract manufacturers during the fiscal period.suppliers.

Net cash used in investing activities for the sixnine months ended DecemberMarch 31, 20252026 and 20242025 consisted of purchases of equipment totaling $166,000$403,000 and $241,000,$362,000, respectively, primarily for computer hardware and tooling at our contract manufacturersmanufacturers, business analysis tools, and certain research and development projects.equipment. Net cash used in investing activities for the six nine months ended DecemberMarch 31, 20242025 also includes the acquisition of Netcomm, which used cash of $6,458,000.

Net cash used in financing activities during the sixnine months ended March December 31, 20252026 resulted primarily from net principal payments and borrowings on our Loan Agreement, as well as from tax withholdings paid on behalf of employees for restricted shares. Net cash used in financing activities during the six months ended December 31, 2024 resulted primarily from tax withholdings paid on behalf of employees for restricted shares as well as principal payments on our previous term loan borrowings.shares.