Delaware
|
33-0362767
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
Page
|
|||
PART
I.
|
FINANCIAL
INFORMATION
|
1
|
|
Item
1.
|
Financial
Statements.
|
1
|
|
Unaudited
Condensed Consolidated Balance Sheets at March 31, 2007 and June
30,
2006
|
1
|
||
Unaudited
Condensed Consolidated Statements of Operations for the Three and
Nine
Months Ended
|
|||
March
31, 2007 and 2006
|
2
|
||
Unaudited
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended
|
|||
March
31, 2007 and 2006
|
3
|
||
Notes
to Unaudited Condensed Consolidated Financial Statements.
|
4
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
8
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
18
|
|
Item
4.
|
Controls
and Procedures.
|
19
|
|
PART
II.
|
OTHER
INFORMATION
|
19
|
|
Item
1.
|
Legal
Proceedings
|
19
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
27
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
5.
|
Other
Information
|
27
|
|
Item
6.
|
Exhibits
|
28
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
ASSETS
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
7,483
|
$
|
7,729
|
|||
Marketable
securities
|
98
|
88
|
|||||
Accounts
receivable, net
|
2,755
|
3,087
|
|||||
Inventories,
net
|
9,834
|
8,113
|
|||||
Contract
manufacturers' receivable
|
1,354
|
1,049
|
|||||
Settlements
recovery
|
-
|
15,325
|
|||||
Prepaid
expenses and other current assets
|
532
|
577
|
|||||
Total
current assets
|
22,056
|
35,968
|
|||||
Property
and equipment, net
|
1,851
|
1,589
|
|||||
Goodwill
|
9,488
|
9,488
|
|||||
Purchased
intangible assets, net
|
545
|
610
|
|||||
Officer
loans
|
127
|
122
|
|||||
Other
assets
|
36
|
38
|
|||||
Total
assets
|
$
|
34,103
|
$
|
47,815
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable
|
$
|
10,268
|
$
|
7,865
|
|||
Accrued
payroll and related expenses
|
1,764
|
1,596
|
|||||
Warranty
reserve
|
445
|
693
|
|||||
Accrued
settlements
|
1,132
|
16,767
|
|||||
Other
current liabilities
|
3,145
|
3,675
|
|||||
Total
current liabilities
|
16,754
|
30,596
|
|||||
Long-term
liabilities
|
261
|
230
|
|||||
Long-term
capital lease obligations
|
118
|
211
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders'
equity:
|
|||||||
Common
stock
|
6
|
6
|
|||||
Additional
paid-in capital
|
184,613
|
182,857
|
|||||
Accumulated
deficit
|
(168,084
|
)
|
(166,450
|
)
|
|||
Accumulated
other comprehensive income
|
435
|
365
|
|||||
Total
stockholders' equity
|
16,970
|
16,778
|
|||||
Total
liabilities and stockholders' equity
|
$
|
34,103
|
$
|
47,815
|
|||
See
accompanying notes.
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
Net
revenues (1)
|
$
|
13,253
|
$
|
13,063
|
$
|
40,596
|
$
|
38,258
|
|||||
Cost
of revenues (2)
|
6,387
|
6,491
|
19,723
|
18,968
|
|||||||||
Gross
profit
|
6,866
|
6,572
|
20,873
|
19,290
|
|||||||||
Operating
expenses:
|
|||||||||||||
Selling,
general and administrative
|
6,001
|
6,046
|
17,556
|
18,336
|
|||||||||
Research
and development
|
1,898
|
1,572
|
5,498
|
4,285
|
|||||||||
Litigation
settlement costs (recovery)
|
-
|
(1,385
|
)
|
90
|
1,215
|
||||||||
Amortization
of purchased intangible assets
|
18
|
-
|
54
|
2
|
|||||||||
Restructuring
recovery
|
-
|
-
|
-
|
(29
|
)
|
||||||||
Total
operating expenses
|
7,917
|
6,233
|
23,198
|
23,809
|
|||||||||
(Loss)
income from operations
|
(1,051
|
)
|
339
|
(2,325
|
)
|
(4,519
|
)
|
||||||
Interest
income (expense), net
|
(11
|
)
|
16
|
(4
|
)
|
37
|
|||||||
Other
income (expense), net
|
6
|
57
|
733
|
(2
|
)
|
||||||||
(Loss)
income before income taxes
|
(1,056
|
)
|
412
|
(1,596
|
)
|
(4,484
|
)
|
||||||
Provision
for income taxes
|
14
|
13
|
38
|
29
|
|||||||||
Net
(loss) income
|
$
|
(1,070
|
)
|
$
|
399
|
$
|
(1,634
|
)
|
$
|
(4,513
|
)
|
||
Basic
- net (loss) income per share
|
$
|
(0.02
|
)
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
||
Diluted
- net (loss) income per share
|
$
|
(0.02
|
)
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
||
Basic
- weighted average shares
|
59,709
|
58,758
|
59,511
|
58,643
|
|||||||||
Diluted
- weighted average shares
|
59,709
|
60,289
|
59,511
|
58,643
|
|||||||||
(1)
Includes net revenues from related party
|
$
|
209
|
$
|
430
|
$
|
790
|
$
|
1,036
|
|||||
(2)
Includes amortization of purchased intangible assets
|
$
|
5
|
$
|
31
|
$
|
11
|
$
|
551
|
|||||
Nine
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(1,634
|
)
|
$
|
(4,513
|
)
|
|
Adjustments
to reconcile net loss to net cash (used in)
|
|||||||
provided
by operating activities:
|
|||||||
Share-based
compensation
|
1,048
|
724
|
|||||
Depreciation
|
287
|
321
|
|||||
Amortization
of purchased intangible assets
|
65
|
551
|
|||||
Provision
(recovery) for doubtful accounts
|
23
|
(19
|
)
|
||||
Litigation
settlement costs
|
90
|
1,215
|
|||||
(Recovery)
provision for inventories
|
(141
|
)
|
68
|
||||
Gain
on disposal of fixed assets
|
-
|
(2
|
)
|
||||
Restructuring
recovery
|
-
|
(29
|
)
|
||||
Foreign
currency transaction loss
|
-
|
24
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
309
|
802
|
|||||
Inventories
|
(1,580
|
)
|
(117
|
)
|
|||
Contract
manufacturers' receivable
|
(305
|
)
|
(793
|
)
|
|||
Prepaid
expenses and other current assets
|
48
|
(265
|
)
|
||||
Other
assets
|
(3
|
)
|
(12
|
)
|
|||
Accounts
payable
|
2,403
|
3,441
|
|||||
Accrued
payroll and related expenses
|
171
|
(11
|
)
|
||||
Accrued
settlements
|
(400
|
)
|
-
|
||||
Warranty
reserve
|
(248
|
)
|
(483
|
)
|
|||
Other
liabilities
|
(644
|
)
|
19
|
||||
Net
cash (used in) provided by operating activities
|
(511
|
)
|
921
|
||||
Cash
flows from investing activities:
|
|||||||
Purchases
of property and equipment, net
|
(396
|
)
|
(463
|
)
|
|||
Proceeds
from sale of property and equipment
|
-
|
8
|
|||||
Net
cash used in investing activities
|
(396
|
)
|
(455
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Net
proceeds from issuances of common stock
|
708
|
348
|
|||||
Payment
of capital lease obligations
|
(111
|
)
|
(120
|
)
|
|||
Net
cash provided by financing activities
|
597
|
228
|
|||||
Effect
of foreign exchange rate changes on cash
|
64
|
(29
|
)
|
||||
(Decrease)
Increase in cash and cash equivalents
|
(246
|
)
|
665
|
||||
Cash
and cash equivalents at beginning of period
|
7,729
|
6,690
|
|||||
Cash
and cash equivalents at end of period
|
$
|
7,483
|
$
|
7,355
|
|||
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
(In
thousands, except per share
data)
|
|||||||||||||
Numerator:
|
|||||||||||||
Net
(loss) income
|
$
|
(1,070
|
)
|
$
|
399
|
$
|
(1,634
|
)
|
$
|
(4,513
|
)
|
||
Denominator:
|
|||||||||||||
Weighted-average
shares outstanding
|
59,709
|
59,090
|
59,511
|
58,975
|
|||||||||
Less:
Unvested common shares outstanding
|
-
|
(332
|
)
|
-
|
(332
|
)
|
|||||||
Basic
- weighted average shares
|
59,709
|
58,758
|
59,511
|
58,643
|
|||||||||
Effect
of dilutive shares:
|
|||||||||||||
Stock
options
|
-
|
1,531
|
-
|
-
|
|||||||||
Diluted
- weighted average shares
|
59,709
|
60,289
|
59,511
|
58,643
|
|||||||||
Basic
- net (loss) income per share
|
$
|
(0.02
|
)
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
||
Diluted
- net (loss) income per share
|
$
|
(0.02
|
)
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
Common
stock equivalents
|
2,161
|
1,281
|
2,594
|
1,857
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Raw
materials
|
$
|
3,032
|
$
|
3,863
|
|||
Finished
goods
|
7,201
|
6,518
|
|||||
Inventory
at distributors
|
1,605
|
1,690
|
|||||
Large
scale integration chips *
|
1,034
|
731
|
|||||
Inventories,
gross
|
12,872
|
12,802
|
|||||
Reserve
for excess and obsolete inventories
|
(3,038
|
)
|
(4,689
|
)
|
|||
Inventories,
net
|
$
|
9,834
|
$
|
8,113
|
|||
Nine
Months Ended
|
Year
Ended
|
||||||
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Beginning
balance
|
$
|
693
|
$
|
1,248
|
|||
Charged
(Recovered) to cost of revenues
|
19
|
(35
|
)
|
||||
Usage
|
(267
|
)
|
(520
|
)
|
|||
Ending
balance
|
$
|
445
|
$
|
693
|
Number
of
|
||||
Shares
|
||||
Balance
at June 30, 2006
|
5,467,753
|
|||
Options
granted
|
1,273,537
|
|||
Options
forfeited
|
(351,808
|
)
|
||
Options
expired
|
(54,732
|
)
|
||
Options
exercised
|
(344,393
|
)
|
||
Balance
at March 31, 2007
|
5,990,357
|
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
March
31,
|
March
31,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
Weighted-average
grant date fair value
|
$
|
1.29
|
$
|
1.70
|
$
|
1.25
|
$
|
1.62
|
|||||
Weighted-average
grant date exercise price
|
$
|
1.69
|
$
|
2.16
|
$
|
1.63
|
$
|
2.06
|
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
March
31,
|
March
31,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
(In
thousands)
|
(In
thousands)
|
|||||||||||
Cost
of revenues
|
$
|
25
|
$
|
24
|
$
|
61
|
$
|
65
|
|||||
Selling,
general and administrative
|
292
|
171
|
702
|
499
|
|||||||||
Research
and development
|
97
|
55
|
285
|
160
|
|||||||||
|
$
|
414
|
$
|
250
|
$
|
1,048
|
$
|
724
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Effective
tax rate
|
1%
|
|
3%
|
|
2%
|
|
1%
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
(In
thousands)
|
(In
thousands)
|
||||||||||||
Net
(loss) income
|
$
|
(1,070
|
)
|
$
|
399
|
$
|
(1,634
|
)
|
$
|
(4,513
|
)
|
||
Other
comprehensive income (loss):
|
|||||||||||||
Change
in net unrealized gain on investment, net of taxes of $0
|
2
|
(3
|
)
|
10
|
9
|
||||||||
Change
in translation adjustments, net of taxes of $0
|
21
|
31
|
60
|
(4
|
)
|
||||||||
Total
comprehensive (loss) income
|
$
|
(1,047
|
)
|
$
|
427
|
$
|
(1,564
|
)
|
$
|
(4,508
|
)
|
|
March
31,
|
June
30,
|
|||||
|
2007
|
2006
|
|||||
|
(In
thousands)
|
||||||
Accrued
settlements:
|
|
|
|||||
Class
Action and Synergetic
|
$
|
1,132
|
$
|
15,167
|
|||
Derivative
|
-
|
1,200
|
|||||
Patent
infringement
|
-
|
400
|
|||||
|
1,132
|
16,767
|
|||||
Settlements
recovery:
|
|||||||
Class
Action and Synergetic
|
-
|
14,125
|
|||||
Derivative
|
-
|
1,200
|
|||||
|
- |
15,325
|
|||||
Direct
settlement obligations of the Company
|
$
|
1,132
|
$
|
1,442
|
· |
Device
Enablement
-
We offer an array of embedded and external device enablement solutions
that enable integrators and manufacturers of electronic and
electro-mechanical products to add network connectivity, manageability
and
control. Our customers’ products originate from a wide variety of
applications within the machine-to-machine (“M2M”) market, from blood
analyzers that relay critical patient information directly to a hospital’s
information system, to simple devices such as time clocks, allowing
the
user to obtain information from these devices and to improve how
they are
managed and controlled. We also offer products such as multi-port
devices
servers that enable devices outside the data center to cost effectively
share the network connection and convert various protocols to industry
standard interfaces such as Ethernet and the
Internet.
|
· |
Device
Management -We
offer off-the-shelf appliances such as console servers, digital remote
KVM
extenders, and power control products that enable IT professionals
to
remotely connect, monitor and control network infrastructure equipment
and
large groups of servers using highly secure out-of-band management
technology. In addition, we offer off-the-shelf appliances that enable
IT
professionals to reliably, remotely and simply monitor, configure
and
manage multiple devices from a single point of
control.
|
· |
Non-core
Products
-
Over the years, we have innovated or acquired various product lines
that
are no longer part of our primary, core markets described above.
In
general, these non-core businesses represent decreasing markets and
we
minimize research and development in these product lines. Included
in this
category are terminal servers, visualization solutions, legacy print
servers, software and other miscellaneous products. We recently
end-of-lived our visualization solutions product family although
we
continue to sell our existing
inventories.
|
· |
Net
revenues of $13.3 million for the fiscal quarter ended March 31, 2007
increased by $190,000 or 1.5% as compared to $13.1 million reported
during the fiscal quarter ended March 31, 2006. The increase in net
revenues is primarily due to an increase of $1.0 million or 9.2%
in our
core product lines as a result of a $1.2 million or 13.5% increase
in our
device enablement product line, offset by a $194,000 or 10.1% decrease
in
our device management product line. Our non-core product line decreased
by
$790,000 or 32.2%.
|
· |
Gross
profit as a percentage of net revenues was 51.8% for the fiscal quarter
ended March 31, 2007, an increase of 1.5 percentage points as compared
to
50.3% reported in the fiscal quarter ended March 31, 2006. The increase
in
gross profit as a percent of net revenues was primarily due to a
decrease
in our cost of revenues as a result of product
mix.
|
· |
Loss
from operations was $1.1 million or 7.9% of net revenues for the
fiscal
quarter ended March 31, 2007 compared to income from operations of
$339,000 or 2.6% of net revenues for the fiscal quarter ended March
31,
2006. The income from operations during the same period last year
was
significantly impacted by a litigation settlement recovery of $1.4
million
or 10.6% of net revenues.
|
· |
Net
loss of $1.1 million, or $0.02 per basic and diluted share, in the
fiscal quarter ended March 31, 2007, increased from net income of
$399,000, or $0.01 per basic and diluted share, in the fiscal quarter
ended March 31, 2006. Net income for the quarter ended March 31,
2006 was
significantly impacted by a litigation settlement recovery of $1.4
million
or 10.6% of net revenues.
|
· |
Cash,
cash equivalents and marketable securities decreased to $7.6 million
as of
March 31, 2007 as compared to $7.8 million as of June 30, 2006.
|
· |
Accounts
receivable, net were $2.8 million as of March 31, 2007 as compared to
$3.1 million as of June 30, 2006. Annualized days sales outstanding
(“DSO”) in receivables as of March 31, 2007 increased to 20 days
from 16 days as of June 30, 2006. Our accounts receivable and DSO are
primarily affected by the timing of shipments within a quarter, our
collections performance and the fact that a significant portion of
our
revenues are recognized on a sell-through basis (upon shipment from
distributor inventories rather than as goods are shipped to distributors).
|
· |
Inventories,
net were $9.8 million as of March 31, 2007 as compared to
$8.1 million as of June 30, 2006. Our annualized inventory turns
decreased to 2.8 annualized turns during the fiscal quarter ended
March
31, 2007 compared to 3.4 annualized turns during the fiscal quarter
ended June 30, 2006. Inventories,
net increased primarily due to (i) lower than anticipated revenues
(ii) a
buildup of external device enablement products in connection with
a new
product release and the stocking of high growth products and (iii)
an
increase of large scale integration chips that are both sold individually
and embedded into our products.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||
March
31,
|
March
31,
|
|||||||
2007
|
2006
|
2007
|
2006
|
|||||
Net
revenues
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
||||
Cost
of revenues
|
48.2%
|
49.7%
|
48.6%
|
49.6%
|
||||
Gross
profit
|
51.8%
|
50.3%
|
51.4%
|
50.4%
|
||||
Operating
expenses:
|
||||||||
Selling,
general and administrative
|
45.3%
|
46.3%
|
43.2%
|
47.9%
|
||||
Research
and development
|
14.3%
|
12.0%
|
13.5%
|
11.2%
|
||||
Litigation
settlement costs (recovery)
|
0.0%
|
(10.6%)
|
0.2%
|
3.2%
|
||||
Amortization
of purchased intangible assets
|
0.1%
|
0.0%
|
0.1%
|
0.0%
|
||||
Restructuring
recovery
|
0.0%
|
0.0%
|
0.0%
|
(0.1%)
|
||||
Total
operating expenses
|
59.7%
|
47.7%
|
57.0%
|
62.2%
|
||||
(Loss)
income from operations
|
(7.9%)
|
2.6%
|
(5.6%)
|
(11.8%)
|
||||
Interest
income (expense), net
|
(0.1%)
|
0.1%
|
0.0%
|
0.1%
|
||||
Other
income (expense), net
|
0.0%
|
0.4%
|
1.8%
|
0.0%
|
||||
(Loss)
income before income taxes
|
(8.0%)
|
3.1%
|
(3.8%)
|
(11.7%)
|
||||
Provision
for income taxes
|
0.1%
|
0.1%
|
0.1%
|
0.1%
|
||||
Net
(loss) income
|
(8.1%)
|
3.0%
|
(3.9%)
|
(11.8%)
|
||||
Three
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Device
enablement
|
$
|
9,864
|
74.4%
|
|
$
|
8,690
|
66.5%
|
|
$
|
1,174
|
13.5%
|
|
|||||||
Device
management
|
1,725
|
13.0%
|
|
1,919
|
14.7%
|
|
(194
|
)
|
(10.1%)
|
|
|||||||||
Core
|
11,589
|
87.4%
|
|
10,609
|
81.2%
|
|
980
|
9.2%
|
|
||||||||||
Non-core
|
1,664
|
12.6%
|
|
2,454
|
18.8%
|
|
(790
|
)
|
(32.2%)
|
|
|||||||||
$
|
13,253
|
100.0%
|
|
$
|
13,063
|
100.0%
|
|
$
|
190
|
1.5%
|
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenue
|
2006
|
Revenue
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Device
enablement
|
$
|
29,700
|
73.2%
|
|
$
|
25,922
|
67.8%
|
|
$
|
3,778
|
14.6%
|
|
|||||||
Device
management
|
5,999
|
14.7%
|
|
5,758
|
15.0%
|
|
241
|
4.2%
|
|
||||||||||
Core
|
35,699
|
87.9%
|
|
31,680
|
82.8%
|
|
4,019
|
12.7%
|
|
||||||||||
Non-core
|
4,897
|
12.1%
|
|
6,578
|
17.2%
|
|
(1,681
|
)
|
(25.6%)
|
|
|||||||||
$
|
40,596
|
100.0%
|
|
$
|
38,258
|
100.0%
|
|
$
|
2,338
|
6.1%
|
|
Three
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Americas
|
$
|
8,247
|
62.2%
|
|
$
|
8,005
|
61.3%
|
|
$
|
242
|
3.0%
|
|
|||||||
EMEA
|
3,484
|
26.3%
|
|
3,601
|
27.6%
|
|
(117
|
)
|
(3.2%)
|
|
|||||||||
Asia
Pacific
|
1,522
|
11.5%
|
|
1,457
|
11.1%
|
|
65
|
4.5%
|
|
||||||||||
$
|
13,253
|
100.0%
|
|
$
|
13,063
|
100.0%
|
|
$
|
190
|
1.5%
|
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenue
|
2006
|
Revenue
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Americas
|
$
|
25,476
|
62.8%
|
|
$
|
24,077
|
62.9%
|
|
$
|
1,399
|
5.8%
|
|
|||||||
EMEA
|
10,195
|
25.1%
|
|
10,169
|
26.6%
|
|
26
|
0.3%
|
|
||||||||||
Asia
Pacific
|
4,925
|
12.1%
|
|
4,012
|
10.5%
|
|
913
|
22.8%
|
|
||||||||||
$
|
40,596
|
100.0%
|
|
$
|
38,258
|
100.0%
|
|
$
|
2,338
|
6.1%
|
|
Three
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Gross
profit
|
$
|
6,866
|
51.8%
|
|
$
|
6,572
|
50.3%
|
|
$
|
294
|
4.5%
|
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Gross
profit
|
$
|
20,873
|
51.4%
|
|
$
|
19,290
|
50.4%
|
|
$
|
1,583
|
8.2%
|
|
Three
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Personnel-related
expenses
|
$
|
3,323
|
$
|
2,959
|
$
|
364
|
12.3%
|
|
|||||||||||
Professional
fees & outside services
|
678
|
1,258
|
(580
|
)
|
(46.1%)
|
|
|||||||||||||
Advertising
and marketing
|
527
|
662
|
(135
|
)
|
(20.4%)
|
|
|||||||||||||
Facilities
|
522
|
494
|
28
|
5.7%
|
|
||||||||||||||
Share-based
compensation
|
291
|
169
|
122
|
72.2%
|
|
||||||||||||||
Depreciation
|
68
|
74
|
(6
|
)
|
(8.1%)
|
|
|||||||||||||
Other
|
592
|
430
|
162
|
37.7%
|
|
||||||||||||||
Selling,
general and administrative
|
$
|
6,001
|
45.3%
|
|
$
|
6,046
|
46.3%
|
|
$
|
(45
|
)
|
(0.7%)
|
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenue
|
2006
|
Revenue
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Personnel-related
expenses
|
$
|
9,373
|
$
|
8,467
|
$
|
906
|
10.7%
|
|
|||||||||||
Professional
fees & outside services
|
2,283
|
4,205
|
(1,922
|
)
|
(45.7%)
|
|
|||||||||||||
Advertising
and marketing
|
1,879
|
2,137
|
(258
|
)
|
(12.1%)
|
|
|||||||||||||
Facilities
|
1,539
|
1,463
|
76
|
5.2%
|
|
||||||||||||||
Share-based
compensation
|
702
|
499
|
203
|
40.7%
|
|
||||||||||||||
Depreciation
|
211
|
244
|
(33
|
)
|
(13.5%)
|
|
|||||||||||||
Other
|
1,569
|
1,321
|
248
|
18.8%
|
|
||||||||||||||
Selling,
general and administrative
|
$
|
17,556
|
43.2%
|
|
$
|
18,336
|
47.9%
|
|
$
|
(780
|
)
|
(4.3%)
|
|
Three
Months Ended March 31,
|
|
||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Personnel-related
expenses
|
$
|
1,352
|
$
|
1,152
|
$
|
200
|
17.4%
|
|
|||||||||||
Facilities
|
176
|
152
|
24
|
15.8%
|
|
||||||||||||||
Professional
fees & outside services
|
178
|
96
|
82
|
85.4%
|
|
||||||||||||||
Share-based
compensation
|
97
|
55
|
42
|
76.4%
|
|
||||||||||||||
Depreciation
|
10
|
12
|
(2
|
)
|
(16.7%)
|
|
|||||||||||||
Other
|
85
|
105
|
(20
|
)
|
(19.0%)
|
|
|||||||||||||
Research
and development
|
$
|
1,898
|
14.3%
|
|
$
|
1,572
|
12.0%
|
|
$
|
326
|
20.7%
|
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenue
|
2006
|
Revenue
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Personnel-related
expenses
|
$
|
3,965
|
$
|
3,173
|
$
|
792
|
25.0%
|
|
|||||||||||
Facilities
|
490
|
423
|
67
|
15.8%
|
|
||||||||||||||
Professional
fees & outside services
|
396
|
246
|
150
|
61.0%
|
|
||||||||||||||
Share-based
compensation
|
285
|
160
|
125
|
78.1%
|
|
||||||||||||||
Depreciation
|
30
|
36
|
(6
|
)
|
(16.7%)
|
|
|||||||||||||
Other
|
332
|
247
|
85
|
34.4%
|
|
||||||||||||||
Research
and development
|
$
|
5,498
|
13.5%
|
|
$
|
4,285
|
11.2%
|
|
$
|
1,213
|
28.3%
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Effective
tax rate
|
1%
|
|
3%
|
|
2%
|
|
1%
|
|
Three
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Other
income (expense), net
|
$
|
6
|
0.0%
|
|
$
|
57
|
0.4%
|
|
$
|
(51
|
)
|
(89.5%
|
)
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenues
|
2006
|
Revenues
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Other
income (expense), net
|
$
|
733
|
1.8%
|
|
$
|
(2
|
) |
0.0%
|
|
$
|
735
|
|
(36750.0%
|
)
|
March
31,
|
June
30,
|
Increase
|
||||||||
2007
|
2006
|
(Decrease)
|
||||||||
(In
thousands)
|
||||||||||
Working
capital
|
$
|
5,302
|
$
|
5,372
|
$
|
(70
|
)
|
|||
Cash
and cash equivalents
|
$
|
7,483
|
$
|
7,729
|
$
|
(246
|
)
|
|||
Marketable
securities
|
98
|
88
|
10
|
|||||||
$
|
7,581
|
$
|
7,817
|
$
|
(236
|
)
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Available
borrowing capacity
|
$
|
2,253
|
$
|
2,221
|
|||
Outstanding
letters of credit
|
$
|
1,280
|
$
|
1,594
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
March
31,
|
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
(In
thousands)
|
(In
thousands)
|
||||||||||||
Net
cash (used in) provided by:
|
|||||||||||||
Net
(loss) income
|
$
|
(1,070
|
)
|
$
|
399
|
$
|
(1,634
|
)
|
$
|
(4,513
|
)
|
||
Non-cash
operating expenses, net
|
461
|
(863
|
)
|
1,372
|
2,853
|
||||||||
Changes
in operating assets and liabilities:
|
|||||||||||||
Accounts
receivable
|
710
|
649
|
309
|
802
|
|||||||||
Inventories
|
(1,235
|
)
|
(430
|
)
|
(1,580
|
)
|
(117
|
)
|
|||||
Contract
manufacturers' receivable
|
(321
|
)
|
(605
|
)
|
(305
|
)
|
(793
|
)
|
|||||
Prepaid
expenses and other current assets
|
73
|
22
|
48
|
(265
|
)
|
||||||||
Other
assets
|
3
|
(40
|
)
|
(3
|
)
|
(12
|
)
|
||||||
Accounts
payable
|
1,131
|
2,342
|
2,403
|
3,441
|
|||||||||
Accrued
payroll and related expenses
|
(133
|
)
|
(174
|
)
|
171
|
(11
|
)
|
||||||
Accrued
settlements
|
-
|
-
|
(400
|
)
|
-
|
||||||||
Warranty
reserve
|
(29
|
)
|
(207
|
)
|
(248
|
)
|
(483
|
)
|
|||||
Other
liabilities
|
(27
|
)
|
(800
|
)
|
(644
|
)
|
19
|
||||||
Net
cash (used in) provided by operating activities
|
(437
|
)
|
293
|
(511
|
)
|
921
|
|||||||
Net
cash used in investing activities
|
(125
|
)
|
(323
|
)
|
(396
|
)
|
(455
|
)
|
|||||
Net
cash provided by financing activities
|
280
|
107
|
597
|
228
|
|||||||||
Effect
of foreign exchange rate changes on cash
|
21
|
84
|
64
|
(29
|
)
|
||||||||
(Decrease)
Increase in cash and cash equivalents
|
$
|
(261
|
)
|
$
|
161
|
$
|
(246
|
)
|
$
|
665
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Cash
and cash equivalents
|
$
|
7,483
|
$
|
7,729
|
|||
Marketable
securities
|
98
|
88
|
|||||
$
|
7,581
|
$
|
7,817
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
(In
thousands)
|
|||||||
Cash
held in foreign currencies
|
$
|
2,292
|
$
|
2,554
|
· |
changes
in the mix of net revenues attributable to higher-margin and lower-margin
products;
|
· |
customers’
decisions to defer or accelerate
orders;
|
· |
variations
in the size or timing of orders for our
products;
|
· |
changes
in demand for our products;
|
· |
fluctuations
in exchange rates;
|
· |
defects
and other product quality problems;
|
· |
loss
or gain of significant customers;
|
· |
short-term
fluctuations in the cost or availability of our critical
components;
|
· |
announcements
or introductions of new products by our
competitors;
|
· |
effects
of terrorist attacks in the U.S. and abroad;
and
|
· |
changes
in demand for devices that incorporate our
products.
|
· |
be
time-consuming, costly and/or result in
litigation;
|
· |
divert
management’s time and attention from developing our
business;
|
· |
require
us to pay monetary damages, including treble damages if we are held
to
have willfully infringed;
|
· |
require
us to enter into royalty and licensing agreements that we would not
normally find acceptable;
|
· |
require
us to stop selling or to redesign certain of our products;
or
|
· |
require
us to satisfy indemnification obligations to our
customers.
|
· |
These
locations do not afford the same level of protection to intellectual
property as do domestic or many foreign countries. If our products
were
reverse-engineered or our intellectual property were otherwise pirated
(reproduced and duplicated without our knowledge or approval), our
revenues would be reduced;
|
· |
Delivery
times are extended due to the distances involved, requiring more
lead-time
in ordering and increasing the risk of excess
inventories;
|
· |
We
could incur ocean freight delays because of labor problems, weather
delays
or customs problems; and
|
· |
U.S.
foreign relations with these locations have, historically, been subject
to
change. Political considerations and actions could interrupt our
expected
supply of products from these
locations.
|
March
31,
|
|||||||
2007
|
2006
|
||||||
Top
five customers (1)
|
34%
|
|
41%
|
|
|||
Ingram
Micro
|
12%
|
|
13%
|
|
|||
Tech
Data
|
7%
|
|
12%
|
|
|||
· |
reduced
control over delivery schedules, quality assurance, manufacturing
yields
and production costs;
|
· |
lack
of guaranteed production capacity or product supply;
and
|
· |
reliance
on these manufacturers to maintain competitive manufacturing
technologies.
|
Nine
Months Ended March 31,
|
|||||||||||||||||||
%
of Net
|
%
of Net
|
Change
|
|||||||||||||||||
2007
|
Revenue
|
2006
|
Revenue
|
$
|
%
|
||||||||||||||
(In
thousands, except percentages)
|
|||||||||||||||||||
Americas
|
$
|
25,476
|
62.8% |
$
|
24,077
|
62.9% |
$
|
1,399
|
5.8%
|
|
|||||||||
EMEA
|
10,195
|
25.18% |
10,169
|
26.6% |
26
|
|
0.3%
|
|
|||||||||||
Asia
Pacific
|
4,925
|
12.1% |
4,012
|
10.5% |
913
|
|
22.8%
|
|
|||||||||||
|
$
|
40,596
|
100.0%
|
|
$
|
38,258
|
100.0%
|
|
$
|
2,338
|
|
6.1%
|
|
· |
unexpected
changes in regulatory requirements, taxes, trade laws and
tariffs;
|
· |
reduced
protection for intellectual property rights in some
countries;
|
· |
differing
labor regulations;
|
· |
compliance
with a wide variety of complex regulatory
requirements;
|
· |
changes
in a country’s or region’s political or economic
conditions;
|
· |
effects
of terrorist attacks in the U.S. and
abroad;
|
· |
greater
difficulty in staffing and managing foreign operations;
and
|
· |
increased
financial accounting and reporting burdens and
complexities.
|
March
31,
|
June
30,
|
||||||
2007
|
2006
|
||||||
|
(In
thousands)
|
||||||
Raw
materials
|
$
|
3,032
|
$
|
3,863
|
|||
Finished
goods
|
7,201
|
6,518
|
|||||
Inventory
at distributors
|
1,605
|
1,690
|
|||||
Large
scale inregration chips *
|
1,034
|
731
|
|||||
Inventories,
gross
|
12,872
|
12,802
|
|||||
Reserve
for excess and obsolete inventories
|
(3,038
|
)
|
(4,689
|
)
|
|||
Inventories,
net
|
$
|
9,834
|
$
|
8,113
|
· |
laws
and contractual restrictions might not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar
technologies;
|
· |
other
companies might claim common law trademark rights based upon use
that
precedes the registration of our
marks;
|
· |
other
companies might assert other rights to market products using our
trademarks;
|
· |
policing
unauthorized use of our products and trademarks is difficult, expensive
and time-consuming, and we might be unable to determine the extent
of this
unauthorized use;
|
· |
courts
may determine that our software programs use open source software
in such
a way that deprives the entire programs of intellectual property
protection; and
|
· |
current
federal laws that prohibit software copying provide only limited
protection from software pirates.
|
Exhibit
|
|
Number
|
Description
of Document
|
10.1
|
Consulting,
Severance and Release Agreement effective as of January 22, 2007
between
Lantronix, Inc. and James Kerrigan (incorporated by reference to
Exhibit
10.1 filed with Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 27, 2007).
|
31.1
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act
Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act
Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
|
Date: May 3, 2007 |
LANTRONIX,
INC.
(Registrant)
|
|
|
|
|
By: | /s/ Marc H. Nussbaum | |
|
||
Marc
H.
Nussbaum
Chief
Executive
Officer
(Principal
Executive
Officer)
|
|
|
|
By: | /s/ Reagan Y. Sakai | |
|
||
Reagan
Y.
Sakai
Chief Financial Officer and
Secretary
(Principal Financial
Officer)
|