UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark one)
[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended	~~September 30, 2015~~March 31, 2016



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from		to



Commission File Number:	0-26844

RADISYS CORPORATION

(Exact name of registrant as specified in its charter)



OREGON		93-0945232
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5435 N.E. Dawson Creek Drive, Hillsboro, OR		97124
(Address of principal executive offices)		(Zip Code)

(503) 615-1100
(Registrant's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	[ ]		Accelerated filer	[x]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [x]

Number of shares of common stock outstanding as of ~~October 27, 2015: 36,915,821~~April 29, 2016: 37,077,130

RADISYS CORPORATION

FORM 10-Q

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~		3
Condensed Consolidated Statements of Comprehensive Loss – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~		43
Condensed Consolidated Balance Sheets – ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015		54
Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~		65
Notes to Condensed Consolidated Financial Statements		76
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1817
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30

PART II. OTHER INFORMATION
Item 1A. Risk Factors		31
Item 5. ~~Other Information~~		31
~~Item 6.~~ Exhibits		31
Signatures		32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Revenues	$	44,780		$	50,805		$	140,516		$	144,568		$	55,146		$	48,687
Cost of sales:
Cost of sales	29,812			34,052			96,347			100,551			40,435			34,067
Amortization of purchased technology	1,961			2,056			5,935			6,165			1,927			1,994
Total cost of sales	31,773			36,108			102,282			106,716			42,362			36,061
Gross margin	13,007			14,697			38,234			37,852			12,784			12,626
Research and development	6,054			7,657			19,618			24,484			5,653			6,724
Selling, general and administrative	7,561			8,554			22,536			27,103			7,639			7,500
Intangible asset amortization	1,260			1,260			3,780			3,817			1,260			1,260
Restructuring and other charges, net	148			1,329			4,842			3,444			682			4,135
Loss from operations	(2,016		)	(4,103		)	(12,542		)	(20,996		)	(2,450		)	(6,993		)
Interest expense	(97		)	(317		)	(417		)	(949		)	(117		)	(217		)
Other income, net	568			463			1,126			799			139			397
Loss before income tax expense	(1,545		)	(3,957		)	(11,833		)	(21,146		)	(2,428		)	(6,813		)
Income tax expense	521			512			1,405			1,968			537			240
Net loss	$	(2,066	)	$	(4,469	)	$	(13,238	)	$	(23,114	)	$	(2,965	)	$	(7,053	)
Net loss per share:
Basic	$	(0.06	)	$	(0.12	)	$	(0.36	)	$	(0.68	)	$	(0.08	)	$	(0.19	)
Diluted	$	(0.06	)	$	(0.12	)	$	(0.36	)	$	(0.68	)	$	(0.08	)	$	(0.19	)
Weighted average shares outstanding:
Basic	36,830			36,332			36,740			34,097			37,007			36,649
Diluted	36,830			36,332			36,740			34,097			37,007			36,649

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Net loss	$	(2,066	)	$	(4,469	)	$	(13,238	)	$	(23,114	)	$	(2,965	)	$	(7,053	)
Other comprehensive income (loss):
Translation adjustments loss	(527		)	(269		)	(860		)	(106		)
Translation adjustments gain (loss)													457			(447		)
Net adjustment for fair value of hedge derivatives, net of tax	(209		)	(455		)	(142		)	152			134			118
Other comprehensive income (loss)	(736		)	(724		)	(1,002		)	46			591			(329		)
Comprehensive loss	$	(2,802	)	$	(5,193	)	$	(14,240	)	$	(23,068	)	$	(2,374	)	$	(7,382	)

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	18,376		$	31,242		$	22,383		$	20,764
Accounts receivable, net	43,881			43,845			38,813			60,942
Other receivables	3,427			6,324			3,059			11,304
Deferred cost of sales							—			14,113
Inventories, net	15,609			18,475			30,095			16,812
Other current assets	2,778			3,276			2,005			2,794
Deferred tax assets, net	169			222
Total current assets	84,240			103,384			96,355			126,729
Property and equipment, net	6,828			9,786			5,400			6,134
Intangible assets, net	33,509			43,224			27,136			30,322
Long-term deferred tax assets, net	751			858			1,213			1,173
Other assets	2,859			3,468			2,934			2,711
Total assets	$	128,187		$	160,720		$	133,038		$	167,069

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,712		$	33,679		$	31,214		$	43,451
Accrued wages and bonuses	4,883			5,006			4,018			7,250
Deferred revenue	7,352			6,204			6,369			23,062
Line of credit	10,000			10,000			15,000			15,000
Convertible senior notes	—			18,000
Other accrued liabilities	8,608			7,255			9,203			9,404
Total current liabilities	58,555			80,144			65,804			98,167
Long-term liabilities:
Other long-term liabilities	2,977			2,800			2,898			2,985
Total long-term liabilities	2,977			2,800			2,898			2,985
Total liabilities	61,532			82,944			68,702			101,152
Commitments and contingencies (Note 8)
Shareholders’ equity:
Common stock — no par value, 100,000 shares authorized; 36,872 and 36,532 shares issued and outstanding at September 30, 2015 and December 31, 2014	337,143			334,024
Common stock — no par value, 100,000 shares authorized; 37,039 and 36,959 shares issued and outstanding at March 31, 2016 and December 31, 2015							338,958			338,165
Accumulated deficit	(269,909		)	(256,671		)	(274,314		)	(271,349		)
Accumulated other comprehensive income (loss):
Accumulated other comprehensive loss:
Cumulative translation adjustments	315			1,175			377			(80		)
Unrealized loss on hedge instruments	(894		)	(752		)	(685		)	(819		)
Total accumulated other comprehensive income (loss)	(579		)	423
Total accumulated other comprehensive (loss)							(308		)	(899		)
Total shareholders’ equity	66,655			77,776			64,336			65,917
Total liabilities and shareholders’ equity	$	128,187		$	160,720		$	133,038		$	167,069

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2015			2014			2016			2015
Cash flows from operating activities:
Net loss	$	(13,238	)	$	(23,114	)	$	(2,965	)	(7,053		)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	14,056			15,357			4,345			4,778
Inventory valuation allowance	1,078			2,219			266			(40		)
Deferred income taxes	427			940			12			170
Stock-based compensation expense	2,971			3,359			688			659
Other	(355		)	455			372			254
Changes in operating assets and liabilities:
Accounts receivable	(25		)	(2,332		)	22,134			2,064
Other receivables	2,874			(3,312		)	8,254			3,883
Inventories	1,745			6,179
Other current assets	269			1,516
Inventories and deferred cost of sales							578			2,769
Accounts payable	(5,910		)	(3,391		)	(12,155		)	(8,183		)
Accrued restructuring	(4		)	(1,646		)	435			2,354
Accrued wages and bonuses	(123		)	(669		)	(3,207		)	(834		)
Deferred revenue	1,148			(2,043		)	(16,693		)	1,251
Other accrued liabilities	2,189			(490		)
Net cash provided by (used in) operating activities	7,102			(6,972		)
Other							(382		)	1,556
Net cash provided by operating activities							1,682			3,628
Cash flows from investing activities:
Capital expenditures	(1,653		)	(1,861		)	(422		)	(640		)
Net cash used in investing activities	(1,653		)	(1,861		)	(422		)	(640		)
Cash flows from financing activities:
Borrowings on line of credit	8,500			—			18,000			7,000
Payments on line of credit	(8,500		)	(5,000		)	(18,000		)	(7,000		)
Repayment of convertible subordinated notes	(18,000		)	—			—			(18,000		)
Proceeds from issuance of common stock	250			21,081
Other financing activities	(102		)	(551		)	105			8
Net cash provided by (used in) financing activities	(17,852		)	15,530			105			(17,992		)
Effect of exchange rate changes on cash	(463		)	(241		)	254			(392		)
Net increase (decrease) in cash and cash equivalents	(12,866		)	6,456			1,619			(15,396		)
Cash and cash equivalents, beginning of period	31,242			25,482			20,764			31,242
Cash and cash equivalents, end of period	$	18,376		$	31,938		$	22,383		$	15,846
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	731		$	917		$	123		$	519
Income taxes	$	884		$	864		$	228		$	93

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Significant Accounting Policies

Radisys Corporation (the “Company” or “Radisys”) has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 in preparing the accompanying interim condensed consolidated financial statements. The preparation of these statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Additionally, the accompanying financial data as of ~~September 30, 2015~~March 31, 2016 and for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015.

Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total cash flows, total net revenues, operating loss, net loss, total assets, total liabilities or shareholders’ equity.

The financial information included herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for interim periods.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on the condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on the condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company is currently evaluating the requirements of ASU 2015-14 and have not yet determined its impact on the condensed consolidated financial statements.

Note 2 — Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures at fair value certain financial assets and liabilities. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1— Quoted prices for identical instruments in active markets;

Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Foreign currency forward contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they are classified within Level 2 of the valuation hierarchy.

The following table summarizes the fair value measurements for the Company's financial instruments (in thousands):

Fair Value Measurements as of September 30, 2015
Total Level 1 Level 2 Level 3
Foreign currency forward contracts $ (343 ) —
$ (343 ) —



	Fair Value Measurements as of March 31, 2016
	Total			Level 1	Level 2			Level 3
Foreign currency forward contracts	$	(4	)	—	$	(4	)	—

Fair Value Measurements as of December 31, 2014
Total Level 1 Level 2 Level 3
Foreign currency forward contracts $ (83 ) —
$ (83 ) —



	Fair Value Measurements as of December 31, 2015
	Total			Level 1	Level 2			Level 3
Foreign currency forward contracts	$	(277	)	—	$	(277	)	—

Note 3 — Accounts Receivable and Other Receivables

Accounts receivable consists of sales to the Company's customers which are generally based on standard terms and conditions. Accounts receivable balances consisted of the following (in thousands):


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
Accounts receivable, gross	$	43,990		$	43,969		$	38,920		$	61,045
Less: allowance for doubtful accounts	(109		)	(124		)	(107		)	(103		)
Accounts receivable, net	$	43,881		$	43,845		$	38,813		$	60,942

As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, the balance in other receivables was $~~3.4~~3.1 million and ~~$6.3~~$11.3 million. Other receivables consisted primarily of non-trade receivables including inventory sold to the Company's contract manufacturing partner onor other integration partners (on which the Company does not recognize ~~revenue~~revenue) and net receivables for value-added taxes.

Note 4 — Inventories and Deferred Cost of Sales

Inventories consisted of the following (in thousands):


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
Raw materials	$	12,470		$	9,219		$	27,610		$	14,546
Work-in-process	552			1,195			218			98
Finished goods	7,367			10,762			6,500			7,485
	20,389			21,176			34,328			22,129
Less: inventory valuation allowance	(4,780		)	(2,701		)	(4,233		)	(5,317		)
Inventories, net	$	15,609		$	18,475		$	30,095		$	16,812

Consigned inventory is held at third-party locations, which include the Company's contract manufacturing partner and customers. The Company retains title to the inventory until purchased by the third-party. Consigned inventory, consisting of raw materials and finished goods was ~~$8.5~~$9.3 million and ~~$2.6~~$11.5 million at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~.2015.

The Company’s consignment inventory with its contract manufacturer consists of inventory transferred from the Company’s prior contract manufacturer as well as inventory that has been purchased by the contract manufacturer as a result of the Company's forecasted demand. The Company is contractually obligated to purchase inventory transferred from the Company's prior contract manufacturer after the inventory ages for 365 days. The Company is also contractually obligated to purchase inventory that has been purchased by ~~the~~its contract manufacturer as a result of the Company's forecasted demand when the inventory ages beyond 180 days and has no forecasted demand. The Company’s consignment inventory at its contract manufacturing partner was ~~$6.4~~$8.1 million and ~~$0.1~~$8.7 million as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015. The Company records a liability for adverse purchase commitments of inventory owned by its contract manufacturing partner. See Note 8 - Commitments and Contingencies for additional information regarding the Company's adverse purchase commitment liability.

The Company recorded the following charges associated with the valuation of inventory and the adverse purchase commitment liability (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Inventory, net	$	806	$	875	$	1,078	$	2,219	$	266	$	(40	)
Adverse purchase commitments	527		378		1,534		532		279		576

8Deferred cost of sales, which are directly associated with deferred revenue on shipments to customers, was $0.0 million and $14.1 million at March 31, 2016 and December 31, 2015.

Note 5 — Restructuring and Other Charges

The following table summarizes the Company's restructuring and other charges as presented in the Condensed Consolidated Statement of Operations (in thousands):


	Three Months Ended					Nine Months Ended					Three Months Ended
	September 30,					September 30,					March 31,
	2015		2014			2015		2014			2016		2015
Employee-related restructuring expenses	$	14	$	258		$	3,779	$	1,514		$	682	$	4,033
Integration-related and other non-recurring expenses	134		728			562		1,671			—		(7		)
Facility reductions	—		—			392		(6		)
Fair value adjustments to Continuous Computing contingent consideration liability	—		(29		)	—		(156		)
Non-recurring legal expenses	—		372			109		421			—		109
Restructuring and other charges, net	$	148	$	1,329		$	4,842	$	3,444		$	682	$	4,135

Restructuring and other charges includes expenses incurred for employee terminations due to a reduction of personnel resources resulting from modifications of business strategy or business emphasis. Employee-related restructuring expenses

include severance benefits, notice pay and outplacement services. Restructuring and other charges may also include expenses incurred associated with acquisition or divestiture activities, facility abandonments and other expenses associated with business restructuring actions.

For the three months ended ~~September 30, 2015~~March 31, 2016, the Company recorded the following restructuring charge:

$~~0.1~~0.7 million ~~integration-related~~ net expense ~~principally associated~~relating to the severance for 21 employees primarily in connection with ~~asset disposals and transfer-related costs resulting from resource and site consolidation actions.~~a reduction to our hardware engineering presence in Shenzhen.

For the three months ended ~~September 30, 2014~~,March 31, 2015, the Company recorded the following restructuring and other charges:

$~~0.3~~4.0 million net expense relating to the severance of employees in connection with the previously reported Penang site closure, as well as severance for four additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs; and

$0.7 million integration-related net expense principally associated with asset write-offs and personnel overlap resulting from resource consolidations primarily associated with the Shanghai and Penang site closures; and

~~$0.4~~0.1 million legal expenses associated with non-operating strategic projects.

~~For the nine months ended September 30, 2015, the Company recorded the following restructuring charges:~~

$3.8 million net expense relating to the severance of 122 employees primarily within Asia and North America. These actions were in connection with the restructuring of the Company's Embedded Products and Hardware Services segment's research and development and sales and general administrative functions and are presented net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

~~$0.6 million~~ ~~integration-related net expense principally associated with asset disposals and transfer-related costs resulting from resource and site consolidation actions;~~

~~$0.4 million~~ ~~lease abandonment expense associated with reductions in certain of our international sites; and~~

~~$0.1 million legal expenses associated with non-operating strategic projects, which processes were concluded in the first quarter of 2015.~~

~~For the nine months ended September 30, 2014, the Company recorded the following restructuring and other charges:~~

$1.5 million net expense relating to the severance of employees in connection with the previously reported Penang site closure, as well as severance for 14 additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

$1.7 million integration-related net expense principally associated with asset disposals and personnel overlap resulting from resource consolidations primarily associated with the Penang site closures;

~~$0.4 million~~ ~~legal expenses associated with non-operating strategic projects; and~~

~~$0.2 million gain due to the decrease in fair value of the Continuous Computing contingent liability.~~

Accrued restructuring, which is included in other accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, consisted of the following (in thousands):


	Severance, payroll taxes and other employee benefits			Facility reductions			Total			Severance, payroll taxes and other employee benefits			Facility reductions			Total
Balance accrued as of December 31, 2014	$	166		$	587		$	753
Balance accrued as of December 31, 2015										$	82		$	582		$	664
Additions	4,318			392			4,710			682			—			682
Reversals	(539		)	—			(539		)	—			—			—
Expenditures	(3,935		)	(240		)	(4,175		)	(106		)	(141		)	(247		)
Balance accrued as of September 30, 2015	$	10		$	739		$	749
Balance accrued as of March 31, 2016										$	658		$	441		$	1,099

Of the $~~0.7~~1.1 million accrued restructuring at ~~September 30, 2015~~, ~~$0.3~~March 31, 2016, $0.1 million is included in other long-term liabilities, with the remaining balance being included in other accrued liabilities on the Condensed Consolidated Balance Sheets.

The Company evaluates the adequacy of the accrued restructuring charges on a quarterly basis. Reversals are recorded in the period in which the Company determines that expected restructuring obligations are less than the amounts accrued.

Note 6 — Short-Term Borrowings

Silicon Valley Bank

On March 14, 2014, the Company entered into an amended and restated $25.0 million revolving line of credit agreement with Silicon Valley Bank ("SVB") ~~(as amended, the~~(the "2014 Agreement") which has a stated maturity date of July 28, 2016. On May 30, 2014, the 2014 Agreement was amended to increase the letter of credit sublimit under the secured revolving credit facility from ~~$1,000,000~~$1.0 million to ~~$2,000,000 or the net borrowing availability.~~$2.0 million. On April 23, 2015, the 2014 Agreement was amended to further increase the letter of credit sublimit under the secured revolving credit facility from ~~$2,000,000~~$2.0 million to ~~$5,000,000~~$5.0 million or the net borrowing availability. On February 8, 2016, the 2014 Agreement was amended to increase the revolving line of credit to $35.0 million (as amended, the "Amended Agreement") and to extend the stated maturity date to February 8, 2018. The secured revolving credit facility under the ~~2014~~Amended Agreement is available for cash borrowings and is subject to a borrowing formula based upon eligible accounts receivable less outstanding letters of credit (aggregate letters of credit are not to exceed ~~$5,000,000)~~$5.0 million). Eligible accounts receivable include 80% of U.S. and ~~65%~~75% of foreign accounts receivable (80% in certain cases), not greater than 60 days past original invoice date. The interest rate is dependent upon the Company's Liquidity (as defined in the ~~2014~~Amended Agreement) when compared to a pre-determined threshold (the "Liquidity Threshold"), which is defined in the ~~2014~~Amended Agreement as $15.0 million, with the exception of the last month end of each quarter, where it is defined as $20.0 million. Liquidity is calculated under the ~~2014~~Amended Agreement as unrestricted cash plus unused availability on the revolving line of ~~credit reduced by the outstanding principal amount of the 2015 convertible senior notes.~~credit. The calculation of interest under the 2014 Agreement is as follows:

When Liquidity is above the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 0.75%; and

When Liquidity is below the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 2.25%.

Under the ~~2014~~Amended Agreement, the Company is required to make interest payments monthly. The Company ~~was~~is further required to pay a loan modification fee of $35,000 and pay a ~~commitment~~facility fee of $52,500 annually. The Company paid a prorated facility fee equal to ~~$35,000 on July 29, 2014~~$48,000 in February 2016 and will ~~be required to~~ pay the ~~commitment~~full facility fee of $52,500 annually thereafter. Under the ~~2014~~Amended Agreement, the Company is required to pay the higher of actual monthly interest incurred or the interest equivalent of $10.0 million in average monthly borrowings. If the Company terminates the commitment under the ~~2014~~Amended Agreement prior to the maturity date, the Company is required to pay a cancellation fee equal to 1.5% of the commitment under the ~~2014~~Amended Agreement. ~~As of September 1, 2014, and at all times thereafter,~~The Amended Agreement removed the ~~Company is required~~former requirement to maintain a deposit account balance of at least ~~$4,000,000~~$4.0 million with SVB or its affiliates and the ~~Company is required to have~~former requirement that at least 50% of ~~its~~the Company's cash must be deposited with SVB or its affiliates or in an account where SVB has a control agreement. The Amended Agreement did not otherwise change the requirement to maintain all the Company's US domestic cash accounts with SVB or an SVB affiliate.

The ~~2014~~Amended Agreement requires the Company to make certain representations, warranties and other agreements that are customary in credit agreements of this type. The ~~2014~~Amended Agreement also includes a financial ~~covenant~~covenants that requires the Company to maintain minimum Liquidity of $10.0 million, which is tested monthly. Additionally, the Amended Agreement requires the Company to maintain a minimum adjusted EBITDA of at least $10.0 million if the outstanding principal balance is greater than $15.0 million or maintain a minimum adjusted EBITDA of at least $7.5 million if the outstanding principal balance is equal to or less than $15.0 million, which is tested quarterly. The Amended Agreement defines Adjusted EBITDA as net income plus interest expense, depreciation expense, amortization expense, income tax expense, non-cash stock compensation expense and restructuring expense (limited to $1.7 million, $1.14 million, $1.0 million at the first, second and third quarter 2016 measurement dates and $0 thereafter).

As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, the Company had an outstanding balance of $~~10.0~~15.0 million under the ~~2014~~Amended Agreement. At ~~September 30, 2015,~~March 31, 2016, the Company had ~~$13.5~~$11.6 million of total borrowing availability remaining under the ~~2014~~Amended Agreement. At ~~September 30, 2015,~~March 31, 2016, the Company was in compliance with all covenants under the ~~2014~~Amended Agreement.

Note 7 — Convertible Debt

2015 Convertible Senior Notes

On February 17, 2015, the Company repaid at maturity the entire outstanding balance of the 4.5% convertible senior notes due 2015 (the "2015 convertible senior notes") in accordance with the terms thereof. No convertible senior notes were converted to common stock.

Note 8 — Commitments and Contingencies

Adverse Purchase Commitments

The Company is contractually obligated to reimburse its contract manufacturer for the cost of excess inventory used in the manufacture of the Company's products if there is no alternative use. Estimates for adverse purchase commitments are derived from reports received on a quarterly basis from the Company's contract manufacturer. Increases to this liability are charged to cost of sales. If and when the Company takes possession of inventory reserved for in this liability, the liability is transferred from other accrued liabilities to the excess and obsolete inventory valuation allowance (Note 4 —Inventories and Deferred Cost of Sales).

The adverse purchase commitment liability is included in other accrued liabilities in the accompanying Condensed Consolidated Balance Sheets and was ~~$2.1~~$2.5 million and ~~$1.7~~$2.2 million as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015.

Guarantees and Indemnification Obligations

As permitted under Oregon law, the Company has agreements whereby it indemnifies its officers, directors and certain finance employees for certain events or occurrences while an officer, director or employee is or was serving in such capacity at the request of the Company. The term of the indemnification period is for the officer's, director's or employee's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification

agreements is unlimited; however, the Company has a Director and Officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. To date, the Company has not incurred any costs associated with these indemnification agreements and, as a result, management believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of ~~September 30, 2015~~March 31, 2016.

The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company's business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to the Company's current products, as well as claims relating to property damage or personal injury resulting from the performance of services by us or the Company's subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is generally limited. Historically, the Company's costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal.

Accrued Warranty

The Company provides for the estimated cost of product warranties at the time it recognizes revenue. Products are generally sold with warranty coverage for a period of 12 or 24 months after shipment. Parts and labor are covered under the terms of the warranty agreement. The workmanship of the Company’s products produced by the contract manufacturer is covered under warranties provided by the contract manufacturer for 12 to 24 months. The warranty provision is based on historical experience by product family. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its components suppliers; however ongoing failure rates, material usage and

service delivery costs incurred in correcting product failure, as well as specific product class failures out of the Company’s baseline experience, affect the estimated warranty obligation. If actual product failure rates, material usage or service delivery costs differ from estimates, revisions to the estimated warranty liability would be required.

The following is a summary of the change in the Company's warranty accrual reserve (in thousands):


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2015			2014			2016			2015
Warranty liability balance, beginning of the period	$	2,600		$	3,328		$	2,553		$	2,600
Product warranty accruals	1,607			1,843			385			623
Utilization of accrual	(1,593		)	(2,480		)	(603		)	(517		)
Warranty liability balance, end of the period	$	2,614		$	2,691		$	2,335		$	2,706

At ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, ~~$2.1~~$1.9 million and $2.0 million of the warranty liability balance was included in other accrued liabilities and $0.5 million and ~~$0.6~~$0.5 million was included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

Note 9 — Basic and Diluted Net Loss per Share

A reconciliation of the numerator and the denominator used to calculate basic and diluted net loss per share is as follows (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Numerator
Net loss	$	(2,066	)	$	(4,469	)	$	(13,238	)	$	(23,114	)	$	(2,965	)	$	(7,053	)
Denominator — Basic
Weighted average shares used to calculate net loss per share, basic	36,830			36,332			36,740			34,097			37,007			36,649
Denominator — Diluted
Weighted average shares used to calculate net loss per share, basic	36,830			36,332			36,740			34,097			37,007			36,649
Effect of dilutive restricted stock units ^(A)	—			—			—			—			—			—
Effect of dilutive stock options ^(A)	—			—			—			—			—			—
Weighted average shares used to calculate net loss per share, diluted	36,830			36,332			36,740			34,097			37,007			36,649
Net loss per share
Basic	$	(0.06	)	$	(0.12	)	$	(0.36	)	$	(0.68	)	$	(0.08	)	$	(0.19	)
Diluted	$	(0.06	)	$	(0.12	)	$	(0.36	)	$	(0.68	)	$	(0.08	)	$	(0.19	)


(A)	For the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015, the following equity awards, by type, were excluded from the calculation, as their effect would have been anti-dilutive (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2015	2014	2015	2014	2016	2015
Stock options	3,019	3,005	3,019	3,005	2,808	2,721
Restricted stock units	192	172	192	172	122	105
Performance based restricted stock units^(B)	1,550	284	1,550	284	2,305	1,450
Total equity award shares excluded	4,761	3,461	4,761	3,461	5,235	4,276

(B)

~~2014 performance~~Performance based restricted stock units are presented based on attainment of 100% of the performance goals being ~~met. The~~met which is the maximum ~~multiplier for a given semi-annual performance period was 2.75x the original grant and overall achievement was limited to a maximum of 2.5x of the target award over the entire performance period (Note~~amount that can be earned.

~~11 —Stock-based Compensation). Based on this formula, the maximum number of shares that could have been earned was 0.7 million for the~~ ~~three~~ ~~and nine months ended September 30, 2014. The 2015 performance based restricted stock units do not have a multiplier feature (Note 11 —Stock-based Compensation)~~ ~~and are presented based on attainment of 100% of the performance goals being met.~~

Note 10 — Income Taxes

The Company's effective tax rate for the three months ended ~~September 30, 2015~~March 31, 2016 differs from the statutory rate due to a full valuation allowance provided against its United States (“U.S.”) net deferred tax assets, and taxes on foreign income that differ from the U.S. tax rate.

The Company utilizes the asset and liability method of accounting for income taxes. The Company records deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon the Company's review of all positive and negative evidence, including its three year U.S. cumulative pre-tax book loss and taxable loss, it concluded that a full and a partial valuation allowance should continue to be recorded against its U.S. and Canadian net deferred tax assets at ~~September 30, 2015~~March 31, 2016. In certain other foreign jurisdictions, where the Company does not have cumulative losses or other negative evidence, the Company had net deferred tax assets of ~~$0.9 million and $1.1~~$1.2 million at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015. In the future, if the Company determines that it is more likely than not that it will realize its U.S. and Canadian net deferred tax assets, it will reverse the applicable portion of the valuation allowance and recognize an income tax benefit in the period in which such determination is made.

The ending balance for the unrecognized tax benefits was approximately $3.7 million at ~~September 30, 2015~~March 31, 2016. The related interest and penalties were ~~$0.6~~$0.7 million and $0.3 million. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

The Company is currently under tax examination in India. The periods covered under examination are the Company's financial years 2006, ~~through 2008~~2007 and 2010 through 2012. The examination is in various stages of appellate proceedings and all material uncertain tax positions associated with the examination have been taken into account in the ending balance of the unrecognized tax benefits at ~~September 30, 2015~~March 31, 2016. As of ~~September 30, 2015~~March 31, 2016, the Company is not under examination by tax authorities in any other jurisdictions.

Note 11 — Stock-based Compensation

The following table summarizes awards granted under the Radisys Corporation 2007 and LTIP Stock Plans (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2015	2014	2015	2014	2016	2015
Stock options	205	25	760	94	1,036	555
Restricted stock units	47	—	212	92	—	5
Performance based restricted stock awards ^(A)	100	—	1,550	172	680	1,450
Total	352	25	2,522	358	1,716	2,010

(A)

On March ~~2, 2015,~~28, 2016, the ~~Company granted performance based~~Compensation Committee approved grants of performance-based restricted stock units ("PRSUs") ~~with a~~to certain senior executives. The PRSUs will vest only on satisfaction of certain annual performance criteria during the performance period ~~starting on March 2, 2015 and ending on March 2, 2019, which provides that~~beginning on the grant date. Specifically, 50% of shares will vest on meeting targets of strategic revenue during fiscal year 2016 and 50% of shares will vest during fiscal year 2017 on meeting targets of strategic revenue, subject to the attainment of achieving certain operating income thresholds defined by the Company's ratified 2017 annual operating plans. The awards have two separate annual performance ~~measurement date following the~~ achievement periods in 2016 and 2017 and vest upon attainment and approval of the ~~following market condition stock price hurdles:~~performance conditions.

On March 2, 2015, the Compensation Committee approved PRSUs with a performance period starting on March 2, 2015 and ending on March 2, 2019, which provides that on the performance measurement date following the achievement of the following market condition stock price hurdles:

50% of the awards will be earned if Radisys’ average closing stock price over a 30-trading day period is equal to or greater than $3.45 during a 3-year performance period.

50% of the awards will be earned if Radisys’ average closing stock price over a 30-trading day period is equal to or greater than $4.25 during a 4-year performance period.

If either of the stock price hurdles is not met during their respective performance period, that portion of the award will be forfeited.

In 2014, the performance based restricted stock awards were presented based on attainment of 100% of the performance goals being met. These awards provided for the grants of awards payable in shares of common stock upon the achievement of performance goals set by the Company's Compensation and Development Committee. In addition to the performance conditions, the awards contained market-based multipliers based on the average price of the Company's common stock thirty days prior to the end of each semi-annual performance period. The maximum multiplier for a given semi-annual performance period was 2.75x the original grant and overall achievement was limited to a maximum of 2.5x of the target award over the entire performance period.

Stock-based compensation was recognized and allocated as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Cost of sales	$	86	$	44	$	228	$	326	$	46	$	53
Research and development	252		131		641		684		153		132
Selling, general and administrative	834		603		2,102		2,349		489		474
Total	$	1,172	$	778	$	2,971	$	3,359	$	688	$	659

Note 12 — Hedging

The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates. The Company manages these risks through the use of forward exchange contracts, designated as ~~foreign-currency~~foreign-

currency cash flow hedges, in an attempt to reduce the potentially adverse effects of foreign currency exchange rate fluctuations that occur in the normal course of business. As such, the Company’s hedging activities are employed solely for risk management purposes. All hedging transactions are conducted with, in the opinion of management, financially stable and reputable financial institutions. As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, the only hedge instruments executed by the Company are associated with its exposure to fluctuations in the Indian Rupee, which result from obligations such as payroll and rent paid in this currency.

These derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets and unrealized loss positions are recorded as other current liabilities. Changes in the fair values of the outstanding derivatives that are highly effective are recorded in other comprehensive income until net income (loss) is affected by the variability of the cash flows of the hedged transaction. Typically, hedge ineffectiveness could result when the amount of the Company’s hedge contracts exceed the Company’s forecasted or actual transactions for which the hedge contracts were designed to hedge. Once a hedge contract matures, the associated gain (loss) on the contract will remain in other comprehensive income (loss) until the underlying hedged transaction affects net income (loss), at which time the gain (loss) will be reclassified out of accumulated other comprehensive income (loss) and recorded to the expense line item being hedged. The Company only enters into derivative contracts in order to hedge foreign currency exposure, and these contracts do not exceed two years from inception. If the Company entered into a contract for speculative reasons or if the Company’s current hedge position becomes ineffective, changes in the fair values of the derivatives would be recognized in earnings in the current period.

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives are expected to remain highly effective in future periods. For the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015, the Company had no hedge ineffectiveness.

During the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 the Company entered into 1612 new foreign currency forward contracts, with total contractual values of ~~$7.5~~$3.6 million. During the three ~~and nine~~ months ended ~~September 30, 2014,~~March 31, 2015, the Company ~~entered~~did not enter into 18any new foreign currency ~~forward contracts with a notional value of $11.6 million.~~contracts.

A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at ~~September 30, 2015~~March 31, 2016 is as follows (in thousands):


	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value					Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)						Asset		(Liability)
Foreign currency forward exchange contracts	$	12,441	Other accrued liabilities	$	—	$	(343	)	$	13,872	Other accrued liabilities	$	—	$	(4	)

A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at December 31, ~~2014~~2015 is as follows (in thousands):


	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value					Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)						Asset		(Liability)
Foreign currency forward exchange contracts	$	14,193	Other accrued liabilities	$	—	$	(83	)	$	14,024	Other accrued liabilities	$	—	$	(277	)

There were no ineffective hedges for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015. The following table summarizes the effect of derivative instruments on the consolidated financial statements as a loss (gain) as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Cost of sales	$	75	$	25	$	104	$	138	$	108	$	(4	)
Research and development	122		41		171		228		173		(6		)
Selling, general and administrative	91		21		83		118		67		1
Total	$	288	$	87	$	358	$	484	$	348	$	(9	)

The following is a summary of changes to comprehensive income (loss) associated with the Company's hedging activities (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Beginning balance of unrealized loss on forward exchange contracts	$	(685	)	$	(268	)	$	(752	)	$	(875	)	$	(819	)	$	(752	)
Other comprehensive loss before reclassifications	(497		)	(542		)	(500		)	(332		)	(214		)	127
Amounts reclassified from other comprehensive income	288			87			358			484			348			(9		)
Other comprehensive income (loss)	(209		)	(455		)	(142		)	152			134			118
Ending balance of unrealized loss on forward exchange contracts	$	(894	)	$	(723	)	$	(894	)	$	(723	)	$	(685	)	$	(634	)

Over the next twelve months, the Company expects to reclassify into earnings a loss of approximately ~~$0.7~~$0.8 million currently recorded as accumulated other comprehensive income (loss), as a result of the maturity of currently held forward exchange contracts.

The bank counterparties in these contracts expose the Company to credit-related losses in the event of their nonperformance. However, to mitigate that risk, the Company only contracts with counterparties who meet its minimum requirements regarding counterparty credit worthiness. In addition, the Company monitors credit ratings, credit spreads and potential downgrades prior to entering into any new hedging contracts.

Note 13 — Segment Information

~~During the first quarter~~The Company is made up of ~~2015, the Company implemented strategic and organizational changes that resulted in measuring the performance of the Company's business in~~ two operating segments: Software-Systems and Embedded Products and Hardware Services. The Company's Chief Executive Officer, or chief operating decision maker, regularly reviews discrete financial information for purposes of allocating resources and assessing the performance of each segment:

Software-Systems. Software-Systems ~~products are~~is comprised of three product lines: FlowEngine, MediaEngine and CellEngine.

Embedded Products and Hardware Services. These ~~hardware based~~hardware-centric products ~~provide platforms to~~enable both the control and ~~move~~ data inplane within the core of the telecom ~~network.~~networks and also includes the DCEngine data center product line.

Cost of sales, research and development and selling, general and administrative expenses are allocated to Software-Systems and Embedded Products and Hardware Services. Expenses, reversals, gains and losses not allocated to Software-Systems or Embedded Product and Hardware Services include amortization of acquired intangible assets, stock-based compensation, restructuring and other charges, and other one-time non-recurring events. These items are allocated to corporate and other.

The Company recorded the following revenues, gross margin and income (loss) from operations by operating segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~ (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Revenue
Software-Systems	$	15,477	$	11,620	$	39,336	$	29,861	$	14,059	$	9,689
Embedded Products and Hardware Services	29,303		39,185		101,180		114,707		41,087		38,998
Total revenues	$	44,780	$	50,805	$	140,516	$	144,568	$	55,146	$	48,687


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Gross margin
Software-Systems	$	9,081		$	7,857		$	22,354		$	18,871		$	8,788		$	5,328
Embedded Products and Hardware Services	5,973			8,940			22,043			25,472			5,969			9,344
Corporate and other	(2,047		)	(2,100		)	(6,163		)	(6,491		)	(1,973		)	(2,046		)
Total gross margin	$	13,007		$	14,697		$	38,234		$	37,852		$	12,784		$	12,626


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
Income (loss) from operations
Software-Systems	$	743		$	13		$	(3,126	)	$	(4,699	)	$	780		$	(2,902	)
Embedded Products and Hardware Services	1,782			1,307			8,112			488			1,327			3,957
Corporate and other	(4,541		)	(5,423		)	(17,528		)	(16,785		)	(4,557		)	(8,048		)
Total loss from operations	$	(2,016	)	$	(4,103	)	$	(12,542	)	$	(20,996	)	$	(2,450	)	$	(6,993	)

Assets are not allocated to segments for internal reporting presentations. A portion of depreciation is allocated to the respective segment. It is impracticable for the Company to separately identify the amount of depreciation by segment that is included in the measure of segment profit or loss.

Revenues by geographic area were as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
United States	$	18,353	$	17,476	$	57,997	$	52,207	$	37,765	$	21,172
Other North America	186		254		473		1,957		78		45
China	5,859		7,172		26,414		22,152		3,330		11,693
India	6,549		5,878		12,494		7,505
Other Asia Pacific	6,798		8,253		19,108		24,741		4,288		5,492
Asia Pacific ("APAC")	19,206		21,303		58,016		54,398		7,618		17,185
Netherlands	3,404		7,861		10,591		19,030		7,235		4,362
Other EMEA	3,631		3,911		13,439		16,976		2,450		5,923
Europe, the Middle East and Africa (“EMEA”)	7,035		11,772		24,030		36,006		9,685		10,285
Foreign Countries	26,427		33,329		82,519		92,361		17,381		27,515
Total	$	44,780	$	50,805	$	140,516	$	144,568	$	55,146	$	48,687

Long-lived assets by geographic area are as follows (in thousands):


	September 30, 2015		December 31, 2014		March 31, 2016		December 31, 2015
Property and equipment, net
United States	$	3,381	$	4,558	$	2,717	$	3,061
Other North America	308		672		238		257
China	1,447		2,427		994		1,231
Other APAC	—		11
Total APAC	1,447		2,438		994		1,231
India	1,690		2,115		1,450		1,584
Other EMEA	2		3		1		1
Total EMEA	1,692		2,118		1,451		1,585
Foreign Countries	3,447		5,228		2,683		3,073
Total property and equipment, net	$	6,828	$	9,786	$	5,400	$	6,134

Intangible assets, net
United States	$	33,509	$	43,224	$	27,136	$	30,322
Total intangible assets, net	$	33,509	$	43,224	$	27,136	$	30,322

The following customers accounted for more than 10% of the Company's total revenues:

Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Nokia Networks 14.1 % 13.0 % 19.5 % 16.5 %
Philips Healthcare N/A
18.7 % N/A
16.4 %
An Asian Carrier 14.2 % 10.6 % N/A
N/A



The following customers accounted for more than 10% of the Company's total revenues:
	Three Months Ended
	March 31,
	2016		2015
Customer A	42.3	%	N/A
Customer B	14.3	%	11.9	%
Customer C	N/A		26.2	%



~~The following customers accounted for more than 10% of accounts receivable:~~
	~~September 30, 2015~~		~~December 31, 2014~~
~~Nokia Networks~~	~~N/A~~		~~18.5~~	%
~~Philips Healthcare~~	~~N/A~~		~~13.9~~	%
~~An Asian Carrier~~	~~25.7~~	%	~~N/A~~
~~Sanmina SCI Corp~~ ^(A)	~~10.0~~	%	~~N/A~~



The following customers accounted for more than 10% of accounts receivable:
	March 31, 2016		December 31, 2015
Customer D	21.6	%	14.7	%
Customer B	15.7	%	N/A
Customer A	13.7	%	36.0	%
Customer E	10.6	%	N/A

~~(A) Sanmina SCI Corp is an integrator for certain of Radisys' customers, with the accounts receivable balance principally comprised of shipments to Nokia Networks.~~

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and the related notes included in this Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015. Unless required by context, or as otherwise indicated, “we,” “us,” “our” and similar terms, as well as references to the “Company” and “Radisys” refer to Radisys Corporation and include all of our consolidated subsidiaries.

Overview

Radisys Corporation (NASDAQ: RSYS), the services acceleration company, helps communications and content providers as well as their strategic partners create new revenue streams and drive cost out of their services delivery infrastructure. Radisys’ application aware traffic distribution platforms, real-time media processing engines and wireless access technologies enable service providers to maximize, virtualize and monetize their networks. These products ~~in addition to our Embedded Products and expert professional services organization,~~ help accelerate our customer's ability to bring high-value telecom applications to market faster and with lower investment and risk. Our products and services ~~are broken into~~fall within two operating segments: Software-Systems and Embedded Products and Hardware Services.

Software-Systems ~~is comprised~~products are targeted at delivering differentiated solutions for service providers in their deployment of next generation networks and technologies. Software-Systems products include the following three product families:

◦

FlowEngine products target the communication service provider traffic management market and is a family of products designed to rapidly classify millions of data flows and then distribute these flows to thousands of Virtualized Network Functions ("VNF"). FlowEngine offloads the processing for packet classification and distribution, improving virtualized function utilization and making the overall Network Functions Virtualization ("NFV") architecture more efficient. A FlowEngine system consists of FlowEngine software running on a Traffic Distribution Engine ("TDE") platform. FlowEngine Software enables communication service providers to efficiently transition towards NFV and software-defined networking ("SDN") architectures allowing increased service agility and quicker time to revenue for new service offerings. FlowEngine accomplishes this by integrating a targeted subset of edge routing, data center switching, and load balancing functionality, coupled with standards based SDN protocols, enabling our customers to significantly reduce the investment necessary to efficiently process data flows in virtualized communications environments.

◦

MediaEngine products are designed into the IP Multimedia Subsystem ("IMS") core of telecom networks, ~~and provide~~providing the necessary media processing capabilities required for a broad range of applications ~~such as audio conferencing,~~including Voice over Long-Term Evolution ("VoLTE"), Voice over WiFi (“VoWifi”), ~~Rich Communications Services (“RCS”) and~~ Web Real-Time Communication ("WebRTC")., multimedia conferencing, as well as the transcoding required to achieve interoperability between legacy and new generation devices using disparate audio and video codecs. Our MediaEngine OneMRF strategy helps service providers consolidate their real-time IP media processing into a vendor and application agnostic platform, which drives cost out of their service delivery platform and enables accelerated deployment and introduction of new services. We sell a ~~complete~~turnkey high density system, the MediaEngine MPX-12000, as well as a virtualized software-only vMRF ~~when our~~for customers ~~choose other~~who require media processing in an NFV architecture or lower-density processing platforms. As carriers consolidate network capacity from older (3G and 2G) architectures onto new LTE architectures, they will deploy IMS and VoLTE applications. Our MediaEngine provides the ~~needed~~essential media processing capability that ~~delivers~~enables service providers to deliver audio, video or other multimedia ~~modalities~~services over ~~LTE wireless~~their all-IP networks.

◦

FlowEngine targets the communication and content provider networking infrastructure market and is a family of products designed to classify and intelligently distribute session data flows to appropriate processing resources in network data centers. FlowEngine products enable communication and content providers to efficiently transition towards Network Functions Virtualization ("NFV") architectures by integrating a targeted subset of edge routing, data center switching, and load balancing functionality along with software-defined networking ("SDN") control. Our software-programmable appliances include specific functionality typically found in distinct stand-alone devices, which enables our customers to significantly reduce the investment necessary to efficiently process data flows in large scale communication environments.

◦

CellEngine software, which includes our TOTALeNodeB LTE and Femtotality 3G software products, ~~is targeted at providing~~provides the communication linkage between wireless end user devices and mobile core networks through small cell base stations that mobile carriers are deploying to optimize wireless network spectrum utilization and coverage. Our focus is providing software protocol stacks and applications ~~which~~that enable small 3G and LTE operator-controlled, low-power wireless base stations (known as small cells, femtocells, enterprise femtocells and picocells) ~~that~~, which enable improved cellular coverage and capacity for homes and enterprises as well as metropolitan and rural areas. CellEngine software technology is typically sold to small cell access point solution vendors requiring a common software and baseband processing platform that is already pre-integrated with leading eNodeB System on Chip ("SOC") vendors. Additionally, we leverage our CellEngine technology to enable small cell applications to capture share in adjacent markets such as aerospace and defense, public safety and test and measurement.

~~Additionally, we leverage our CellEngine technology to enable small cell applications to capture share in adjacent markets such as aerospace and defense as well as manufacturing and test environments.~~

◦

Also included in this segment is our Professional ~~Service~~Services organization ~~which~~that is staffed with telecommunications experts who are available to assist ~~accelerated deployments~~our customers as ~~we jointly~~they develop ~~our customers'~~their own unique telecommunications ~~solutions~~products and ~~applications.~~applications as well as accelerating specific features developed across our Software-Systems product families. Our strategy is to enable the efficient and ~~cost effective~~cost-effective adoption of our Software-Systems products as customers integrate them into complete systems.

Embedded Products and Hardware Services are predominantly ~~hardware based~~hardware-based products, including our newly-launched data center product, DCEngine, that enable the control and movement of data in both 3G and LTE telecom ~~networks.~~networks as well as bring the economies of the data center and the agility of the cloud to service provider infrastructure. DCEngine is a compute, storage and networking platform built on open hardware standards and open source software to drive innovation and the rapid delivery of new services such as video on demand, Internet Protocol Television ("IPTV") and parental control capabilities. Our products also enable network elements for applications such as Deep Packet Inspection ("DPI"), policy management and intelligent gateways (security, femto and LTE gateways). as well as accelerate the transformation to cloud based hyper scale compute, storage and network fabrics. Additionally, our products enable image processing capabilities for healthcare markets and enable cost-effective and

energy-efficient computing capabilities dedicated for industrial deployments. Our professional service organization of systems architects, hardware designers, and network experts accelerates our customers' time to market on these revenue generating assets.

~~Third~~First Quarter ~~2015~~2016 Summary

~~The third~~During the quarter, we formally launched our new data center product, DCEngine, a hyper-scale infrastructure solution for both telecom and cable operators that enables the virtualization of existing networks by providing the hardware and software basic building blocks necessary to deploy SDN and NFV. DCEngine is strategically important as it positions us with a more complete offering of software, systems and services which all support the migration of operators towards virtualization of their networks.

In the first quarter of ~~2015 built on~~2016 consolidated revenue grew $6.5 million, or 13%, year-on-year as the result of continued momentum ~~we experienced throughout the first half~~across all of ~~2015 as we~~our growth initiatives. We realized revenue growth in both of our segments including growth of $4.4 million or 45% in our Software-Systems segment ~~revenue growth of $3.9~~and $2.1 million or ~~33.2% over the same period~~5.4% in ~~2014, and continued to improve operating margins within~~ our Embedded Products and Hardware Services segment. Revenue growth in Software-Systems was the result of continued strong FlowEngine shipments in support of the commercial deployment by a tier-one U.S. service provider as well as MediaEngine demand in support of both VoLTE deployments. Specifically, the demand was tied to fulfilling the remaining $11 million order secured from a large Asian carrier in the second quarter of 2015 as well as sales to an existing customer transitioning itsdeployments and audio conferencing ~~platform~~ to ~~support HD-Audio and other advanced conferencing capabilities.~~cloud-based installations. In our Embedded Products and Hardware Services segment, ~~income from operations increased $0.5 million~~growth was driven by the recognition of previously deferred DCEngine revenues relating to $1.8 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. While Embedded Products and Hardware Services revenue declined $9.9 million from the same quarter in 2014, income from operations growth improved duesales to a ~~$3.4 million reduction in operating expenses year-over-year. Additionally,~~tier-one U.S. service provider which were recognized upon installation and commissioning of initial systems during fiscal year 2015 to date, we strengthened our balance sheet by generating $7.1 million in cash from operations, net of $3.9 million in payments associated with employee severance associated with our restructuring plan announced in the first quarter of ~~2015.~~2016.

The following is a summary-level comparison of the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014:~~2015:

Revenues ~~decreased $6.0~~increased $6.5 million to ~~$44.8~~$55.1 million for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~$50.8~~$48.7 million for the three months ended ~~September 30, 2014.~~March 31, 2015. Software-Systems revenue increased ~~$3.9~~$4.4 million due to a continued strong MediaEngine ~~demand in support of VoLTE deployments.~~and FlowEngine demand. Embedded Products and Hardware Services revenue ~~decreased $9.9~~increased $2.1 million, ~~and was the result of expected~~due to meaningful revenue in our new DCEngine product line offset by declines ~~from our largest customer and last time orders for~~in non-core legacy ~~products in the prior year.~~products.

Our gross margin ~~remained consistent~~decreased 270 basis points to 23.2% for the three months ended ~~September 30,~~March 31, 2016 from 25.9% for the three months ended March 31, 2015, ~~and September 30, 2014 at 29.0%,~~ which iswas the result of ~~continued growth~~a lower margin product mix as we recognized $19.7 million of lower margin DCEngine sales in ~~our Software-Systems segment and offset by a credit from a vendor claim on faulty components that was realized in 2014 and not repeated in 2015.~~the current quarter combined with higher initial costs associated with the initial deployment of DCENgine systems.

R&D expense decreased ~~$1.6~~$1.1 million to ~~$6.1~~$5.7 million for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~$7.7~~$6.7 million for the three months ended ~~September 30, 2014.~~March 31, 2015. The expense decrease is attributable to our restructuring efforts including the ~~closure of our Penang site in the second half of 2014 and~~2015 headcount reduction in our Embedded Products and Hardware Services ~~segment, which were completed in the first half of 2015.~~segment.

SG&A expense ~~decreased~~increased $~~1.0~~0.1 million to $7.6 million for the three months ended ~~September 30, 2015~~March 31, 2016 from $~~8.6~~7.5 million for the three months ended ~~September 30, 2014~~March 31, 2015. This ~~decrease was the result of payroll,~~is due to a $0.3 million increase in commissions and ~~facility~~incentive compensation offset by salary expense reductions that resulted from our 2015 restructuring activities, including the closure of our Penang development site in the second half of 2014 as well as reductions to our Asian and North American sites at the beginning of 2015 tied to reductions in our Embedded Products and Hardware Services segment.activities.

Cash and cash equivalents on ~~September 30, 2015~~March 31, 2016 ~~decreased~~increased $~~12.9~~1.6 million to $~~18.4~~22.4 million from $~~31.2~~20.8 million at December 31, ~~2014.~~2015. The ~~decrease~~increase was the result of ~~repaying $18.0 million of convertible notes and capital expenditures of $1.7 million. The decrease was offset by~~ cash generation from operations of ~~$7.1~~$1.7 million, ~~net~~offset by capital expenditures of ~~$3.9 million in cash severance payments. Net of debt, our cash balance has increased $5.2~~$0.4 million.

Deferred revenue on March 31, 2016 decreased $16.7 million to ~~$36.4~~$6.4 million from ~~$31.2~~$23.1 million at December 31, ~~2014.~~

2015 and deferred cost of sales decreased $14.1 million over the same period. These decreases were primarily attributable to the recognition of previously deferred DCEngine revenues relating to sales to a tier-one U.S. service provider which were recognized upon installation and commissioning of initial systems during the first quarter of 2016.

Accounts receivable on March 31, 2016 decreased $22.1 million to $38.8 million from $60.9 million at December 31, 2015. The decrease was primarily attributable to collections associated with the aforementioned DCEngine shipments during the first quarter of 2016.

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, ~~2015~~2016 and ~~2014~~2015

Results of Operations

The following table sets forth certain operating data as a percentage of revenues for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2015~~2016 and ~~2014~~2015:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales:
Cost of sales	66.6		67.0		68.6		69.6		73.3		70.0
Amortization of purchased technology	4.4		4.0		4.2		4.2		3.5		4.1
Total cost of sales	71.0		71.0		72.8		73.8		76.8		74.1
Gross margin	29.0		29.0		27.2		26.2		23.2		25.9
Research and development	13.5		15.1		14.0		16.9		10.3		13.8
Selling, general, and administrative	16.9		16.8		16.0		18.7		13.9		15.4
Intangible asset amortization	2.8		2.5		2.7		2.5		2.3		2.6
Restructuring and other charges, net	0.3		2.6		3.4		2.4		1.1		8.5
Loss from operations	(4.5	)	(8.0	)	(8.9	)	(14.3	)	(4.4	)	(14.4	)
Interest expense	(0.2	)	(0.6	)	(0.3	)	(0.7	)	(0.2	)	(0.4	)
Other income, net	1.3		0.9		0.8		0.5		0.2		0.8
Loss before income tax expense	(3.4	)	(7.7	)	(8.4	)	(14.5	)	(4.4	)	(14.0	)
Income tax expense	1.2		1.0		1.0		1.4		1.0		0.5
Net loss	(4.6	)%	(8.7	)%	(9.4	)%	(15.9	)%	(5.4	)%	(14.5	)%

Revenues

The following table sets forth operating segment revenues for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2015~~2016 and ~~2014~~2015 (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015		2014		Change		2015		2014		Change		2016		2015		Change
Revenue
Software-Systems	$	15,477	$	11,620	33.2	%	$	39,336	$	29,861	31.7	%	$	14,059	$	9,689	45.1	%
Embedded Products and Hardware Services	29,303		39,185		(25.2	)	101,180		114,707		(11.8	)	41,087		38,998		5.4
Total revenues	$	44,780	$	50,805	(11.9	)%	$	140,516	$	144,568	(2.8	)%	$	55,146	$	48,687	13.3	%

Software-Systems. Revenues in the Software-Systems segment increased ~~$3.9 million and $9.5~~$4.4 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. Revenue growth of ~~$1.0 million and $4.9~~$1.9 million in the three ~~and nine~~ months ended ~~September 30, 2015,~~March 31, 2016 was attributable to ~~sales to a~~follow-on orders from the large Asian carrier currently deploying our MediaEngine products ~~associated with~~in support of their ~~VoLTE roll-out. Revenue from~~greenfield LTE network rollout. Additionally, over the same period, we increased our FlowEngine ~~product line increased $0.4~~shipments by $3.2 million ~~and $2.0 million~~to a tier-one U.S. service provider in ~~the three and nine months ended September 30, 2015 resulting from attaining customer acceptance~~support of ~~systems deployed~~their commercial deployment. These increases were offset by a decline in the lab of a large North American carrier. Additionally, an increase of $1.4 million in both periods was attributable to shipments to an existing customer transitioning its audio conferencing platform to support HD-Audio and other advanced conferencing capabilities.CellEngine license sales.

Embedded Products and Hardware Services. Revenues in the Embedded Products and Hardware Services product group ~~decreased $9.9 million and $13.5~~increased $2.1 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. The increase is a result of $19.7 million growth in our new data center product, DCEngine, in sales to a tier-one U.S. service provider. This was ~~attributable to~~offset by a decrease of $17.6 million in ~~sales~~non-core legacy hardware products, which is a result of the strategic changes implemented early in 2015 to focus on key customers who have adequate scale to meet our ~~legacy embedded systems~~profitability objectives and ~~COM Express~~to enable us to generate steady levels of profitability and ~~Rackmount Server~~cash flow over the coming years.

product families due to last time buys in 2014 resulting from management's decisions to discontinue certain products as we streamlined our product offerings concurrently with the transfer to our new contract manufacturer.

Revenue by Geography

The following tables outline overall revenue dollars and the percentage of revenues, by geographic region, for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015		2014		Change		2015		2014		Change		2016		2015		Change
North America	$	18,539	$	17,730	4.6	%	$	58,470	$	54,164	7.9	%	$	37,843	$	21,217	78.4	%
Asia Pacific	19,206		21,303		(9.8	)	58,016		54,398		6.7		7,618		17,185		(55.7	)
Europe, the Middle East and Africa ("EMEA")	7,035		11,772		(40.2	)	24,030		36,006		(33.3	)	9,685		10,285		(5.8	)
Total	$	44,780	$	50,805	(11.9	)%	$	140,516	$	144,568	(2.8	)%	$	55,146	$	48,687	13.3	%


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
North America	41.4	%	34.9	%	41.6	%	37.5	%	68.6	%	43.6	%
Asia Pacific	42.9		41.9		41.3		37.6		13.8		35.3
EMEA	15.7		23.2		17.1		24.9		17.6		21.1
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

North America. Revenues from the North America region increased ~~$0.8~~$16.6 million for the three months ended ~~September 30, 2015~~March 31, 2016 from the comparable period in ~~2014 due~~2015. This is primarily attributable to a $1.6 million increase in MediaEngine sales to an existing customer transitioning its audio conferencing platform to support HD-Audio and other advanced conferencing capabilities. This increase was offset by decreases in COM Express and Rackmount Serverincreased sales to a ~~North American customer due to last time buys~~tier-one U.S. service provider purchasing both DCEngine and FlowEngine products in ~~2014 resulting from management's decisions to discontinue certain products.~~

~~For the nine months ended September 30, 2015, revenues from the North America region increased $4.3 million from the comparable period in 2014. This was due to a $2.6 million last-time buy~~support of legacy ATCA products to a single North American customer and a $2.0 million increase in our FlowEngine product family resulting from the sale of lab units to a large North American carrier. These increases were offset by decreases in COM Express and Rackmount Server sales to a North American customer due to last time buys in 2014 resulting from management's decisions to discontinue certain products.various commercial deployments.

Asia Pacific. Revenues from the Asia Pacific region decreased ~~$2.1~~$9.6 million for the three months ended ~~September 30, 2015~~March 31, 2016 from the comparable period in ~~2014. We experienced an increase of $1.0~~2015. The decrease was primarily attributed to a $9.1 million decrease in sales of non-core legacy Embedded Products and Hardware Services that have been trending to ~~a major~~end-of-life from two of our larger Asian ~~carrier who is currently deploying our MediaEngine product as part of their VoLTE roll-out. This increase was more than offset by decreases in legacy platforms sales to a top five customer.~~customers.

Revenues from the Asia Pacific region increased $3.6 million for the nine months ended September 30, 2015 from the comparable periods in 2014. The increase was driven by a $4.9 million increase in sales to a major Asian carrier who is currently deploying our MediaEngine product as part of their VoLTE roll-out. This increase was offset by decreases in legacy platforms sales to a top five customer.

EMEA. Revenues from the EMEA region decreased ~~$4.7 million and $12.0~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. The decrease was attributable to ~~the~~a $1.5 million reduction in ~~revenue for~~sales to an Embedded Products and Hardware Services customer which had a large deployment in the ~~three and nine months ended September 30,~~first quarter of 2015 that was not repeated in the current quarter. This was offset by continued strong demand from a top five customer ~~who made last-time buys of discontinued COM Express and Rackmount Server~~deploying our products in ~~2014.~~medical imaging and related markets.

We currently expect continued fluctuations in the revenue contribution from each geographic region. Additionally, we expect non-U.S. revenues to remain a significant portion of our revenues.

Gross Margin

The following table sets forth operating segment gross margins for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 (in thousands):


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
	2015			2014			Change		2015			2014			Change		2016			2015			Change
Gross margin
Software-Systems	$	9,081		$	7,857		15.6	%	$	22,354		$	18,871		18.5	%	$	8,788		$	5,328		64.9	%
Embedded Products and Hardware Services	5,973			8,940			(33.2	)	22,043			25,472			(13.5	)	5,969			9,344			(36.1	)
Corporate and other	(2,047		)	(2,100		)	(2.5	)	(6,163		)	(6,491		)	(5.1	)	(1,973		)	(2,046		)	3.6
Total gross margin	$	13,007		$	14,697		(11.5	)%	$	38,234		$	37,852		1.0	%	$	12,784		$	12,626		1.3	%


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015		2014		Change		2015		2014		Change		2016		2015		Change
Gross margin
Software-Systems	58.7	%	67.6	%	(13.2	)%	56.8	%	63.2	%	(10.1	)%	62.5	%	55.0	%	13.6	%
Embedded Products and Hardware Services	20.4		22.8		(10.5	)	21.8		22.2		(1.8	)	14.5		24.0		(39.6	)
Corporate and other	—		—		—		—		—		—		—		—		—
Total gross margin	29.0	%	28.9	%	0.3	%	27.2	%	26.2	%	3.8	%	23.2	%	25.9	%	(10.4	)%

Software-Systems. Gross margin ~~decreased 890~~increased 750 basis points to ~~58.7%~~62.5% for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~67.6%~~55.0% in the comparable period of ~~2014. A decrease~~2015 largely as the result of ~~390 basis points is attributable to a credit from a vendor claim on faulty components that was realized~~improved product mix and growth in ~~2014 and not repeated~~overall product sales. Product related revenue in ~~2015. The balance~~this segment grew by $4.8 million driving the improvement of the ~~decrease is attributable to a change in sales mix of the specific products shipped over the comparable periods.~~

~~For the nine months ended September 30, 2015,~~overall gross margin decreased 640 basis points to 56.8% from 63.2% in the comparable period of 2014. A decrease of 510 basis points is attributable to a credit from a vendor claim on faulty components that was realized in 2014 and not repeated in 2015. The balance of the decrease is attributable to the composition of product sales.margin.

Embedded Products and Hardware Services. Gross margin decreased ~~240~~950 basis points to ~~20.4%~~14.5% for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~22.8%~~24.0% in the comparable period in ~~2014.~~2015. This was primarily attributable to the ~~$9.9~~$19.7 million ~~decrease~~increase in DCEngine sales to a tier-one U.S. service provider, as this product line carries proportionately lower margins than other products within the Embedded Products and Hardware Services segment, ~~revenue, which absorbed a lower percentage~~coupled with meaningful expenses associated with the initial installation and commissioning of our fixed costs, and charges taken on excess and obsolete inventory. The excess and obsolete charges were the result of rationalizing our product portfolio tied to our strategy focusing on core customers and products.these systems.

For the nine months ended September 30, 2015, gross margin decreased 40 basis points to 21.8% from 22.2% in the comparable period in 2014. The decrease is attributable to the $13.5 million decrease in segment revenue which absorbed a lower percentage of our fixed costs and charges taken on excess and obsolete inventory. This decrease was somewhat offset by the utilization of a credit from our contract manufacturer in the first quarter of 2015 that was applied to repair and service work that otherwise would be a component of cost of sales.

Corporate and other. Gross margin ~~increased $0.1 million and $0.3 million to~~was flat at a deficit of $2.0 million ~~and $6.2 million~~ for the three ~~and nine~~ months ended ~~September 30, 2015 from a deficit of $2.1 million~~March 31, 2016 and ~~$6.5 million from the comparable period~~2015. Items in ~~2014. The majority of~~ Corporate and other ~~gross margin results from the~~cost of sales include amortization of intangible assets, stock compensation and restructuring and other expenses which are not allocated to our operating ~~intangible assets. Due to amortization being recognized on a straight-line basis, there have not been significant period over period changes.~~segments.

Operating Expenses

The following table summarizes our operating expenses for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 (in thousands):


	Three Months Ended					Nine Months Ended					Three Months Ended
	September 30,					September 30,					March 31,
	2015		2014		Change	2015		2014		Change	2016		2015		Change
Research and development	$	6,054	$	7,657	(20.9)%	$	19,618	$	24,484	(19.9)%	$	5,653	$	6,724	(15.9)%
Selling, general and administrative	7,561		8,554		(11.6)	22,536		27,103		(16.9)	7,639		7,500		1.9
Intangible asset amortization	1,260		1,260		—	3,780		3,817		(1.0)	1,260		1,260		—
Restructuring and other charges, net	148		1,329		(88.9)	4,842		3,444		40.6	682		4,135		(83.5)
Total	$	15,023	$	18,800	(20.1)%	$	50,776	$	58,848	(13.7)%	$	15,234	$	19,619	(22.4)%

Research and Development

R&D expenses consist primarily of personnel costs, product development costs, and related equipment expenses. R&D expenses decreased $~~1.6~~1.1 million ~~and $4.9 million~~ for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. The expense reductions are due to our restructuring efforts within our Embedded Products and Hardware Services segment which included ~~the closure of our Penang development site in the second half of 2014 and further~~ personnel reductions in the first half of 2015 primarily in Asia and North America. This resulted in reductions to salary ~~and temporary help~~ expense by ~~$1.7 million and $4.8~~$1.1 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. R&D headcount decreased year over year to ~~316~~301 at ~~September 30, 2015~~March 31, 2016 from ~~417~~360 at ~~September 30, 2014.~~March 31, 2015.

Selling, General, and Administrative

SG&A expenses consist primarily of salary, commissions, bonuses and benefits for sales, marketing and administrative personnel, as well as professional service providers and the costs of other general corporate activities. SG&A expenses ~~decreased~~ ~~$1.0 million~~ ~~and $4.6~~increased $0.1 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. Restructuring efforts in ~~2014 and~~ the first half of 2015 within our Embedded Products and Hardware Service segment drove headcount reductions and contributed to a decrease in employee salary ~~related expenses~~ of ~~$0.5 million and $3.0 million and facility related costs of $0.2 million and $0.5~~$0.3 million for the three ~~and nine~~ months ended ~~September 30, 2015. Further, depreciation~~March 31, 2016. This was offset by an increase of ~~fixed assets decreased $0.2~~$0.3 million in commissions driven by higher revenues and ~~$0.6 million for the three and nine months ended September 30, 2015 from the comparable periods in 2014 as a result of more disciplined capital spending in 2015.~~incentive compensation. SG&A headcount decreased to 114 at ~~September 30, 2015~~March 31, 2016 from ~~168~~124 at ~~September 30, 2014.~~March 31, 2015.

Intangible Asset Amortization

Intangible asset amortization for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 was comparable with the same ~~periods~~period in ~~2014~~2015 due to routine amortization of acquired intangible assets. No triggering events occurred during the quarter ended ~~September 30, 2015~~March 31, 2016 that could potentially result in management performing an impairment evaluation of our intangible assets.

Restructuring and Other Charges, Net

Restructuring and other charges, net includes expenses associated with restructuring activities and other non-recurring gains and losses which are not indicative of our ongoing business operations. We evaluate the adequacy of the accrued restructuring charges on a quarterly basis. As a result, we record reversals to the accrued restructuring in the period in which we determine that expected restructuring and other obligations are less than the amounts accrued.

~~The change in restructuring~~Restructuring and other charges, net decreased $3.5 million to $0.7 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from $4.1 million in the comparable period in 2014 is primarily due to 2014 restructuring actions associated with our Penang development site closures, Burnaby and Shenzhen site reductions and other actions associated with restructuring efforts in our Embedded Products and Hardware Services segment.2015.

Restructuring and other charges, net for the three months ended ~~September 30, 2015~~March 31, 2016 include the following:

a reduction to our hardware engineering presence in Shenzhen.

Restructuring and other charges for the three months ended ~~September 30, 2014~~March 31, 2015 include the following:

$~~0.3~~4.0 million net expense relating to the severance of employees in connection with the previously reported Penang development site closure, as well as severance for four additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

~~$0.4 million legal expenses associated with non-operating strategic projects; and~~

~~$0.7 million integration-related net expense principally associated with asset write-offs and personnel overlap resulting from resource consolidation primarily associated with our Penang site closure.~~

~~Restructuring and other charges, net for the nine months ended September 30, 2015 include the following:~~

~~$0.6 million integration-related net expense principally associated with asset disposals and transfer-related costs resulting from resource and site consolidation actions;~~

~~$0.4 million lease abandonment expense associated with reductions in certain of our international sites;~~ and

$0.1 million legal expenses associated with non-operating strategic ~~projects, which processes were concluded in the first quarter of 2015.~~

~~Restructuring and other charges for the nine months ended September 30, 2014 include the following:~~

~~$0.4 million legal expenses associated with non-operating strategic projects; and~~

~~$0.2 million gain due to decrease in fair value of the Continuous Computing contingent liability.~~projects.

Stock-based Compensation Expense

Included within cost of sales, R&D and SG&A are stock-based compensation expenses that consist of the amortization of unvested stock options, performance-based awards, restricted stock units and employee stock purchase plan ("ESPP") expense. We incurred and recognized stock-based compensation expense as follows (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015		2014		Change		2015		2014		Change		2016		2015		Change
Cost of sales	$	86	$	44	95.5	%	$	228	$	326	(30.1	)%	$	46	$	53	(13.2	)%
Research and development	252		131		92.4		641		684		(6.3	)	153		132		15.9
Selling, general and administrative	834		603		38.3		2,102		2,349		(10.5	)	489		474		3.2
Total	$	1,172	$	778	50.6	%	$	2,971	$	3,359	(11.6	)%	$	688	$	659	4.4	%

Stock-based compensation expense ~~increased $0.4 million~~was flat for the three months ended ~~September 30, 2015~~March 31, 2016 ~~from the comparable periods in~~ ~~2014. This was due to $0.4 million higher performance stock awards expense recognized in the three months ended September 30, 2015~~ from the comparable period in ~~2014. The 2014 performance~~2015. Performance based ~~share~~ awards and stock options were ~~primarily based~~granted during the final weeks of the first quarter 2016, resulting in a nominal impact on management performance while the 2015 performance based share awards are based on the Company's stock price performance. These differences in achievement percentages, valuation techniques, expense valuation and amortization periods are the underlying factors in the periodquarter over ~~period change.~~quarter expenses.

Stock-based compensation expense decreased $0.4 million for the nine months ended September 30, 2015 from the comparable periods in 2014. This was due to a $0.5 million decrease in stock option and restricted stock compensation expense as the result of fewer option or restricted stock grants in 2015 compared to prior years. This decrease was offset by increases in performance stock awards expense driven by factors described above.

Income (Loss) from Operations

The following table summarizes our income (loss) from operations (in thousands):


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
	2015			2014			Change		2015			2014			Change		2016			2015			Change
Income (loss) from operations
Software-Systems	$	743		$	13		5,615.4	%	$	(3,126	)	$	(4,699	)	33.5	%	$	780		$	(2,902	)	126.9	%
Embedded Products and Hardware Services	1,782			1,307			36.3		8,112			488			1,562.3		1,327			3,957			(66.5	)
Corporate and other	(4,541		)	(5,423		)	16.3		(17,528		)	(16,785		)	(4.4	)	(4,557		)	(8,048		)	43.4
Total income (loss) from operations	$	(2,016	)	$	(4,103	)	50.9	%	$	(12,542	)	$	(20,996	)	40.3	%	$	(2,450	)	$	(6,993	)	65.0	%

Software-Systems. Income (loss) from operations improved by ~~$0.7 million and $1.6~~$3.7 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. This was driven by ~~$1.2 million~~the previously described 45.1% year on year revenue growth and $3.5 million ~~increases~~increase in gross margin for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period of 2014 as the result of increased revenues within this segment and offset by increased operating expenses of $0.5 million and $1.9 million respectively from additional investment in our FlowEngine product line.2015.

Embedded Products and Hardware Services. Income from operations ~~improved~~decreased by ~~$0.5 million and $7.6~~$2.6 million for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 from the comparable ~~periods~~period in ~~2014.~~2015. The ~~increase in income from operations~~decrease was primarily driven by the ~~result~~$3.4 million decrease in gross margin for the three months ended March 31, 2016 driven by a lower margin product mix and offset by the decrease in operating expenses resulting from the rationalization of ~~rationalizing our~~ spending within this ~~segment to achieve operating income targets of eight to ten percent of revenue.~~segment.

Corporate and other. Corporate and other loss from operations include amortization of intangible assets, stock compensation, restructuring and other expenses. Loss from operations ~~decreased $0.9~~improved $3.5 million to ~~$4.5~~$4.6 million for the three months ended ~~September 30, 2015~~March 31, 2016 from ~~$5.4~~$8.0 million in the comparable period in ~~2014~~2015 as the result of the previously described restructuring actions.

For the nine months ended September 30, 2015 loss from operations increased $0.7 million to $17.5 million for the nine months ended September 30, 2015 from $16.8 million in the comparable period of 2014. The increase is attributable to a $1.4 million increase in restructuring and other expenses related to the previously described restructuring accounts, which was offset by a $0.4 million decrease in stock compensation expense due to less performance stock awards expense being recognized.

Non-Operating Expenses

The following table summarizes our non-operating expenses (in thousands):


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
	2015			2014			Change		2015			2014			Change		2016			2015			Change
Interest expense	$	(97	)	$	(317	)	(69.4	)%	$	(417	)	$	(949	)	(56.1	)%	$	(117	)	$	(217	)	46.1	%
Interest income	6			15			(60.0	)	85			25			240.0		38			47			(19.1	)
Other income, net	562			448			25.4		1,041			774			34.5		101			350			(71.1	)
Total	$	471		$	146		222.6	%	$	709		$	(150	)	(572.7	)%	$	22		$	180		(87.8	)%

Interest Expense

Interest expense includes interest incurred on our convertible senior notes and our revolving line of credit. We repaid the $18 million 2015 ~~Convertible Notes~~convertible senior notes on February 17, 2015 which resulted in lower interest expense in the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 compared to the same ~~periods~~period in the prior year.

Other Income, Net

For the three ~~and nine~~ months ended ~~September 30, 2015,~~March 31, 2016, other income ~~increased $0.1 million and~~decreased $0.2 million from the comparable periods in ~~2014~~2015 primarily due to ~~favorable~~unfavorable cash flow hedge exchange rates between the Indian Rupee and the US Dollar and ~~favorable~~unfavorable currency movements due to ~~strengthening~~weakening of the US Dollar.

Income Tax Provision

The following table summarizes our income tax provision (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 Change 2015 2014 Change
Income tax expense $ 521
$ 512
1.8 % $ 1,405
$ 1,968
(28.6 )%



	Three Months Ended
	March 31,
	2016		2015		Change
Income tax expense	$	537	$	240	123.8	%

We recorded tax expense of $0.5 million ~~and $1.4 million~~ for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016. Our effective tax rates for the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 were ~~33.7%~~22.1% and ~~12.9%~~3.5%, respectively. The effective tax rate fluctuation is due to an improvement of ~~$2.4~~$4.4 million in net loss before income tax expense as well as income tax rate differences among the jurisdictions in which pretax income (loss) is generated, ~~as well as~~coupled with the impact of the full valuation allowance against our U.S. net deferred tax assets.

Liquidity and Capital Resources

The following table summarizes selected financial information as of the dates indicated (in thousands):


	September 30, 2015		December 31, 2014		September 30, 2014		March 31, 2016		December 31, 2015		March 31, 2015
Cash and cash equivalents	$	18,376	$	31,242	$	31,938	$	22,383	$	20,764	$	15,846
Working capital	25,685		23,240		24,444		30,551		28,562		21,175
Accounts receivable, net	43,881		43,845		43,860		38,813		60,942		41,716
Inventories, net	15,609		18,475		17,046		30,095		16,812		15,727
Accounts payable	27,712		33,679		31,559		31,214		43,451		23,385
Line of credit	10,000		10,000		10,000		15,000		15,000		10,000
2015 convertible senior notes	—		18,000		18,000

Cash Flows

As of ~~September 30, 2015~~March 31, 2016, the amount of cash held by our foreign subsidiaries was ~~$7.1~~$7.7 million. It is not our intent to permanently reinvest funds in certain of our foreign entities, and we expect to repatriate cash from these foreign entities on an ongoing basis in future periods. Repatriation of funds from these foreign entities is not expected to result in significant cash tax payments due to the utilization of previously generated operating losses of our U.S. entity.

Cash and cash equivalents ~~decreased~~increased by $~~12.9~~1.6 million to $~~18.4~~22.4 million as of ~~September 30, 2015~~March 31, 2016 from $~~31.2~~20.8 million as of December 31, ~~2014~~2015. Activities impacting cash and cash equivalents were as follows (in thousands):


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2015			2014			2016			2015
Operating Activities
Net loss	$	(13,238	)	$	(23,114	)	$	(2,965	)	$	(7,053	)
Non-cash adjustments	18,177			22,330			5,683			5,821
Changes in operating assets and liabilities	2,163			(6,188		)	(1,036		)	4,860
Cash provided by (used in) operating activities	7,102			(6,972		)	1,682			3,628
Cash used in investing activities	(1,653		)	(1,861		)	(422		)	(640		)
Cash provided by (used in) financing activities	(17,852		)	15,530			105			(17,992		)
Effects of exchange rate changes	(463		)	(241		)	254			(392		)
Net increase (decrease) in cash and cash equivalents	$	(12,866	)	$	6,456		$	1,619		$	(15,396	)

Cash generated by operating activities during the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$7.1~~$1.7 million. For the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016, primary impacts to changes in our working capital consisted of the following:

~~Other receivables~~Accounts receivable decreased ~~$2.9~~by $22.1 million ~~as the result of the collection of receivables~~driven by $19.3 million in collections from ~~the sale of inventory~~a tier-one U.S. service provider primarily related to ~~our new contract manufacturer;~~DCEngine shipments;

Inventories and deferred costs of goods sold net decreased by ~~$1.7~~$0.6 million. Deferred cost of sales decreased $14.1 million due to ~~close management~~recognition of the associated deferred DCEngine revenue. This was offset by a $13.3 million increase in inventories primarily due to the purchase of component inventory to support order backlog for our ~~finished goods levels~~DCEngine products;

Accounts payable decreased $12.2 million due to a decrease in payables related to the DCEngine during the prior quarter as well as a ~~strategic shift~~decrease in ~~our Embedded Products and Hardware Services operations model by shifting to a build-to-order strategy with many of our customers;~~

~~Accounts payable decreased $5.9 million due to fewer~~ payables to our contract ~~manufacturing partners and improvement of our days payable outstanding from 95.3 to 79.6 as our past due payables decreased $5.8 million from the prior year; and~~manufacturer;

Deferred revenue ~~increased $1.1~~decreased $16.7 million due to the ~~deferral of certain product sales at the end~~recognition of the ~~third quarter of 2015 that we expect to recognize in the fourth quarter.~~$17.8 million balance associated with DCEngine orders deferred at year end.

Cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 of ~~$1.7~~$0.4 million was associated with ongoing capital expenditures.

Cash ~~used~~generated in financing activities during the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 of $~~17.9~~0.1 million is due to the ~~repayment~~proceeds from issuance of common stock. During the ~~$18.0 million outstanding balance~~first quarter of ~~the 2015 convertible senior notes. During 2015,~~2016, we borrowed ~~an additional $8.5~~gross draws of $18.0 million on our Silicon Valley Bank line of credit to meet intra-period cash requirements and repaid the borrowing within the period. ~~We did not borrow on the line during the third quarter.~~ We may continue to borrow additional funds against our line of credit to meet short term intra-quarter needs on an ongoing basis; however, we expect to repay any such borrowings within the quarter as we navigate the timing of customer payments and payables to our contract manufacturer.

Line of Credit

Silicon Valley Bank

On March 14, 2014, wethe Company entered into an amended and restated $25.0 million ~~secured~~ revolving line of credit agreement with Silicon Valley Bank ("SVB") ~~(as amended, the~~(the "2014 Agreement"), which has a stated maturity date of July 28, 2016. On May 30, 2014, the 2014 Agreement was amended to increase the letter of credit sublimit under the secured revolving credit facility from ~~$1,000,000~~$1.0 million to ~~$2,000,000 or the net borrowing availability.~~$2.0 million. On April 23, 2015, the 2014 Agreement was amended to further increase the letter of credit sublimit under the secured revolving credit facility from ~~$2,000,000~~$2.0 million to ~~$5,000,000~~$5.0 million or the net borrowing availability. On February 8, 2016, the 2014 Agreement was amended to increase the revolving line of credit to $35.0 million (as amended, the "Amended Agreement") and to extend the stated maturity date to February 8, 2018. The secured revolving credit facility under the ~~2014~~Amended Agreement is available for cash borrowings and is subject to a borrowing formula based upon eligible accounts receivable less outstanding letters of credit (aggregate letters of credit are not to exceed ~~$5,000,000)~~$5.0 million). Eligible accounts receivable include 80% of ~~U.S~~U.S. and ~~65%~~75% of foreign accounts receivable (80% in certain cases), not greater than 60 days past original invoice date. The interest rate is dependent upon ~~our~~the Company's Liquidity (as defined in the ~~2014~~Amended Agreement) when compared to a pre-determined threshold (the "Liquidity Threshold"), which is defined in the ~~2014~~Amended Agreement as $15.0 million, with the exception of the last month end of each quarter, where it is defined as $20.0 million. Liquidity is

calculated under the ~~2014~~Amended Agreement as unrestricted cash plus unused availability on the revolving line of

~~credit reduced by the outstanding principal amount of the 2015 convertible senior notes.~~ credit. The calculation of interest under the 2014 Agreement is as follows:

When Liquidity is above the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 0.75%; and

When Liquidity is below the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 2.25%.

Under the ~~2014~~Amended Agreement, ~~we are~~the Company is required to make interest payments monthly. ~~We were~~The Company is further required to pay a loan modification fee of $35,000 and pay a ~~commitment~~facility fee of $52,500 annually. The Company paid a prorated facility fee equal to ~~$35,000 on July 29, 2014~~$48,000 in February 2016 and will ~~be required to~~ pay the ~~commitment~~full facility fee of $52,500 annually thereafter. Under the ~~2014~~Amended Agreement, ~~we are~~the Company is required to pay the higher of actual monthly interest incurred or the interest equivalent of $10.0 million in average monthly borrowings. If ~~we terminate~~the Company terminates the commitment under the ~~2014~~Amended Agreement prior to the maturity date, ~~we are~~the Company is required to pay a cancellation fee equal to 1.5% of the commitment under the ~~2014~~Amended Agreement. ~~As of September 1, 2014, and at all times thereafter, we are required~~The Amended Agreement removed the former requirement to maintain a deposit account balance of at least ~~$4,000,000~~$4.0 million with SVB or its affiliates and ~~we are required to have~~the former requirement that at least 50% of ~~our~~the Company's cash must be deposited with SVB or its affiliates or in an account where SVB has a control agreement. The Amended Agreement did not otherwise change the requirement to maintain all the Company's US domestic cash accounts with SVB or an SVB affiliate.

The ~~2014~~Amended Agreement requires usthe Company to make certain representations, warranties and other agreements that are customary in credit agreements of this type. The ~~2014~~Amended Agreement also includes a financial ~~covenant~~covenants that requires usthe Company to maintain minimum Liquidity of $10.0 million, which is tested monthly. Additionally, the Amended Agreement requires the Company to maintain a minimum adjusted EBITDA of at least $10.0 million if the outstanding principal balance is greater than $15.0 million or maintain a minimum adjusted EBITDA of at least $7.5 million if the outstanding principal balance is equal to or less than $15.0 million, which is tested quarterly. The Amended Agreement defines Adjusted EBITDA as net income plus interest expense, depreciation expense, amortization expense, income tax expense, non-cash stock compensation expense and restructuring expense (limited to $1.7 million, $1.14 million, $1.0 million at the first, second and third quarter 2016 measurement dates and $0 thereafter).

As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~,2015, we had an outstanding balance of ~~$10.0~~$15.0 million under the ~~2014~~Amended Agreement. At ~~September 30, 2015~~,March 31, 2016, we had ~~$13.5~~$11.6 million of total borrowing availability remaining under the Agreement. At ~~September 30, 2015~~,March 31, 2016, we were in compliance with all covenants under the ~~2014~~Amended Agreement.

Contractual Obligations

Our contractual obligations as of December 31, ~~2014~~2015 are summarized in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations,"of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2014~~.2015. For the ~~nine~~three months ended ~~September 30, 2015~~,March 31, 2016, there have been no material changes in our contractual obligations outside the ordinary course of business. As of ~~September 30, 2015~~,March 31, 2016, we have agreements regarding foreign currency forward contracts with total contractual values of ~~$12.4~~$13.9 million that mature through 2016.

In addition to the above, we have approximately $3.7 million associated with unrecognized tax benefits. We are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but do not believe the ultimate settlement of our obligations will materially affect our liquidity.

Off-Balance Sheet Arrangements

We do not engage in any activity involving special purpose entities or off-balance sheet financing.

Liquidity Outlook

At ~~September 30, 2015~~,March 31, 2016, our cash and cash equivalents amounted to ~~$18.4 million. On February 17, 2015, we repaid at maturity the $18.0 million balance of the 2015 convertible senior notes.~~$22.4 million. We believe our current cash and cash equivalents, cash expected to be generated from operations and borrowings under our Silicon Valley Bank line of credit will satisfy our short and long-term expected working capital needs, capital expenditures, acquisitions, stock repurchases, and other liquidity requirements associated with our present business operations. We believe our current working capital, plus availability under the SVB line of credit, provides sufficient liquidity to operate the business at normal levels; however, if available liquidity is not sufficient to meet our operating requirements, we may, among other available options, pursue alternative financing arrangements or reduce expenditures as necessary to meet our cash requirements throughout ~~2015.~~2016.

Recent Accounting Pronouncements

In March 2016, the the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. We are currently evaluating the requirements of ASU 2015-14 and have not yet determined its impact on our condensed consolidated financial statements.

Critical Accounting Policies and Estimates

We reaffirm our critical accounting policies and use of estimates as reported in our Annual Report on Form 10-K for the year ended December 31, ~~2014~~.2015. There have been no significant changes during the three months ended ~~September 30, 2015~~March 31, 2016 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2014~~.2015.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This report contains forward-looking statements including:

the Company's business strategy;

changes in reporting segments;

expectations and goals for revenues, gross margin, research and development ("R&D") expenses, selling, general and administrative ("SG&A") expenses and profits;

the impact of our restructuring events on future operating results, including statements related to future growth, expense savings or reduction or operational and administrative efficiencies;

timing of revenue recognition;

expected customer orders;

our projected liquidity;

future operations and market conditions;

industry trends or conditions and the business environment;

future levels of inventory and backlog and new product introductions;

financial performance, revenue growth, management changes or other attributes of Radisys following acquisition or divestiture ~~activities;~~activities

continued implementation of the Company's next-generation datacenter product; and

other statements that are not historical facts.

All statements that relate to future events or to our future performance are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expect,” “plans,” “seeks,” “anticipate,” ~~“believe,~~

“believe,” “estimate,” “predict,” “potential,” “continue,” “seek to continue,” “consider,” “intends,” or other comparable terminology. These forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries’ actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

These factors include, among others, the ~~Company's high degree of customer concentration, the use of a single contract manufacturer for a significant portion~~continued implementation of the ~~production of our products, as well as the success of transitioning contract manufacturing partners,~~Company’s next-generation datacenter product, customer implementation of traffic management solutions, the outcome of product ~~trends,~~trials, the market success of customers' products and solutions, the development and transition of new products and solutions, the enhancement of existing products and solutions to meet customer needs and respond to emerging technological trends, ~~key employee attrition, the anticipated amount and timing of revenues from design wins and product orders due to~~ the Company's ~~customers' product development schedule, cancellations or delays, market conditions,~~dependence on certain customers and high degree of customer concentration, the Company's use of one contract manufacturer for a significant portion of the production of its products, including the success of transitioning contract manufacturing partners, matters affecting the software and embedded ~~system~~product industry, including changes in industry standards, changes in customer requirements and new product introductions, ~~currency exchange rate fluctuations,~~actions by regulatory authorities or other third parties, cash generation, changes in tariff and trade policies and other risks associated with foreign operations, ~~actions by regulatory authorities or other third parties, cash generation,~~fluctuations in currency exchange rates, key employee attrition, the ~~Company's~~ ability of the Company to successfully complete any restructuring, acquisition or divestiture activities, risks relating to fluctuations in the Company's operating results, the uncertainty of revenues and profitability and the potential need to raise additional funding and other factors described in "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, as updated in the subsequent quarterly reports on Form 10-Q. Although forward-looking statements help provide additional information about us, investors should keep in mind that forward-looking statements are only predictions, at a point in time, and are inherently less reliable than historical information.

We do not guarantee future results, levels of activity, performance or achievements, and we do not assume responsibility for the accuracy and completeness of these statements. The forward-looking statements contained in this report are made and based on information as of the date of this report. We assume no obligation to update any of these statements based on information after the date of this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity trading prices, which could affect our financial position and results of operations.

Foreign Currency Risk. We pay the expenses of our international operations in local currencies, namely, the Canadian Dollar, Euro, Chinese Yuan, Indian Rupee, ~~Japanese Yen, Malaysian Ringgit,~~ and British Pound Sterling. Our international operations are subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, foreign exchange rate volatility and other regulations and restrictions. Accordingly, future results could be materially and adversely affected by changes in these or other factors. We are also exposed to foreign exchange rate fluctuations as the balance sheets and income statements of our foreign subsidiaries are translated into U.S. Dollars during the consolidation process. Because exchange rates vary, these results, when translated, may vary from expectations and adversely affect overall expected profitability.

Based on our policy, we have established a foreign currency exposure management program which uses derivative foreign exchange contracts to address nonfunctional currency exposures. In order to reduce the potentially adverse effects of foreign currency exchange rate fluctuations, we have entered into forward exchange contracts. These hedging transactions limit our exposure to changes in the U.S. Dollar to the Indian Rupee exchange rate, and as of ~~September 30, 2015~~March 31, 2016 the total notional or contractual value of the contracts we held was ~~$12.4~~$13.9 million. These contracts will mature over the next 15 months.

Holding other variables constant, a 10% adverse fluctuation, in relation to our hedge positions, of the U.S. Dollar relative to the Indian Rupee would require an adjustment of ~~$1.3~~$1.4 million, decreasing our Indian Rupee hedge asset as of ~~September 30, 2015~~March 31, 2016, to a liability of ~~$1.6~~$1.4 million. A 10% favorable fluctuation, in relation to our hedge positions, of the U.S. Dollar relative to the Indian Rupee would result in an adjustment of ~~$1.2~~$1.3 million, increasing our hedge asset as of ~~September 30, 2015~~March 31, 2016 to ~~$0.9~~$1.3 million. We do not expect a 10% fluctuation to have any material impact on our operating results as the underlying hedged transactions will move in an equal and opposite direction. If there is an unfavorable movement in the Indian Rupee relative to our hedged positions this would be offset by reduced expenses, after conversion to the U.S. Dollar, associated with obligations paid for in the Indian Rupee.

Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

During our most recent fiscal quarter ended ~~September 30, 2015~~March 31, 2016, no change occurred in the Company's "internal control over financial reporting" (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There are many factors that affect our business and the results of our operations, many of which are beyond our control. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015, which could materially affect our business, financial condition or future results. The risks described in this report and our Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Item 5. Other Information~~

On October 27, 2015, The Company announced that Ron de Lange will become the Chairman of the Board of Directors effective April 1, 2016, with C. Scott Gibson moving from Chairman into a Director role. Mr. Gibson has served as the Company’s Chairman since October 2002.

Item 6.5. Exhibits

(a) Exhibits



Exhibit 10.1	Amendment No. 3 to the Third Amended and Restated Loan and Security Agreement, dated February 8, 2016, between Radisys Corporation and Silicon Valley Bank. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 9, 2016 (SEC File No. 000-26844).
Exhibit 31.1*	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2*	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1**	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2**	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase
101.DEF*	XBRL Taxonomy Definition Linkbase



*	Filed herewith
**	Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		RADISYS CORPORATION
Dated:	~~October 30, 2015~~May 4, 2016	By:	/s/ Brian Bronson
			Brian Bronson
			President and Chief Executive Officer

Dated:	~~October 30, 2015~~May 4, 2016	By:	/s/ Jon Wilson
			Jon Wilson
			Chief Financial Officer and Vice President of Finance (Principal Financial and Accounting Officer)

EXHIBIT INDEX



Exhibit 10.1	Amendment No. 3 to the Third Amended and Restated Loan and Security Agreement, dated February 8, 2016, between Radisys Corporation and Silicon Valley Bank. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 9, 2016 (SEC File No. 000-26844).
Exhibit 31.1*	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2*	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1**	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2**	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase
101.DEF*	XBRL Taxonomy Definition Linkbase



*	Filed herewith
**	Furnished herewith