What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-08-29 compared with 2021-08-27 · 935 added, 661 removed, 689 unchanged (70% of the section changed)

32 unchanged sentences

ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial

Although we have modified our workplace practices globally due to the COVID-19 pandemic, resulting in many of our employees

working remotely since March 2020, this has not materially affected our internal controls over financial reporting.

We continue to monitor

and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

OTHER INFORMATION

On December 2, 2021, we entered into a change in control agreement

with Jeremy Whitaker, our Chief Financial Officer (the “Agreement”), providing for certain severance benefits in the event

of a change in control of Lantronix.

Under the Agreement, if Mr.

Whitaker’s employment is terminated by us without Cause or by him

for Good Reason within 60 days prior to or 12 months following a Change in Control (as defined in the Agreement) and such a termination

of his employment occurs on or prior to May 31, 2024, (i) all of his outstanding equity awards will accelerate and become fully vested;

(ii) he will receive a cash severance payment in a lump sum (in lieu of the cash severance benefit described above, if applicable) equal

to 6 months of his base salary plus an amount equal to 100% of the amount of bonuses (if any) paid to Mr.

Whitaker during the 12 months

preceding termination (or 12 months of his base salary plus an amount equal to 100% of his target bonus if the consideration paid to Lantronix’s

stockholders in the transaction is $5.00 or more per share);

and (iii) he and his eligible dependents will be entitled to continued participation

in Lantronix’s group health, dental and vision insurance plans on the same terms as existed at the time of his termination for up

to 6 months thereafter (or up to 12 months if the consideration paid to Lantronix’s stockholders in the transaction is $5.00 or

more per share).

Whitaker’s right to receive the severance benefits described

above is subject to his executing and not revoking a general release of claims in favor of Lantronix and his resignation from any Lantronix-affiliated

board positions.

Cash severance payments would be made on the 53 rd day following Mr.

Whitaker’s employment termination

date or such later date as required by Section 409A of the Code.

Should benefits payable to Mr.

Whitaker trigger excise taxes under Section

4999 of the Code, Mr.

Whitaker will either be entitled to the full amount of his benefits or, if a cut-back in the benefits would result

in greater net (after-tax) benefit to Mr.

Whitaker, the benefits will be cut-back to the extent necessary to avoid such excise taxes.

The foregoing description of the Agreement is qualified in its entirety

by the Agreement, a copy of which is filed as Exhibit 10.19 to this Annual Report on Form 10-K and is incorporated herein by reference.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Portions of our definitive Proxy Statement on Schedule 14A relating

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to our Proxy Statement.

EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

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Exhibit Description

Filed Herewith

Share Purchase Agreement, dated July 5, 2019, by and among Lantronix

Holding Company, Maestro Wireless Solutions Limited, Fargo Telecom Asia Limited and Maestro & FALCOM Holdings Limited

Arrangement Agreement, dated October 30, 2019, by and between Lantronix and Intrinsyc

Provided Herewith

Amended and Restated Certificate of Incorporation of Lantronix, Inc., as amended

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2020 Performance Incentive Plan

Form of Performance Stock Unit Award Agreement under the Lantronix, Inc.

2020 Performance Incentive Plan (2022 Grants)

Letter Agreement dated September 8, 2011 between Lantronix, Inc.

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Annual Bonus Program

Lantronix, Inc.

Non-Employee Director Compensation Policy, as revised

Form of Inducement Stock Option Agreement by and between Lantronix, Inc.

and Kevin Yoder

Offer Letter dated January 22, 2016 between Lantronix, Inc.

and Kevin Yoder

Transition and Separation Agreement, dated as of January 17, 2020, by and between Lantronix, Inc.

and Kevin Yoder.

Letter Agreement dated August 31, 2016 between Lantronix, Inc.

and Jeremy Whitaker

Change in Control Agreement between Lantronix, Inc.

and Jeremy Whitaker, dated December 2, 2021

Lantronix, Inc.

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Offer Letter dated March 23, 2019 between Lantronix, Inc.

Inducement Stock Option Agreement, dated April 22, 2019,

between Lantronix, Inc.

Inducement Restricted Stock Unit Agreement, effective as

of May 1, 2019, between Lantronix, Inc.

Inducement Stock Option Agreement, dated April 22, 2019, between Lantronix, Inc.

Inducement Restricted Stock Unit Agreement, effective as of May 1, 2019, between Lantronix, Inc.

Offer Letter dated January 4, 2020, between Lantronix, Inc.

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Form of Inducement Stock Option Agreement

Form of Inducement Restricted Stock Unit

Form of Inducement Restricted Stock Unit Agreement

Intrinsyc Technologies Corporation Amended and Restated Incentive Stock Option Plan

Intrinsyc Technologies Corporation Restricted Share Unit Plan

Lease dated January 9, 2015 between Lantronix, Inc.

and The Irvine Company, LLC

First Amendment to Lease Agreement dated May 7, 2020 between Lantronix, Inc.

and The Irvine Company, LLC

Second Amended and Restated Loan and Security

Agreement dated as of November 12, 2019, by and among Lantronix, Inc., Lantronix Holding Company and Silicon Valley Bank

First Lien Commitment Letter, dated April 28, 2021, between Lantronix, inc.

and Silicon Valley Bank.

Second Lien Commitment Letter, dated April 28, 2021, between Lantronix, inc.

and SVB Innovation Credit Fund VIII, L.P.

Third Amended and Restated Loan and Security Agreement

with Silicon Valley Bank, dated August 2, 2021, by and between Lantronix, Inc., Lantronix Holding Company, Lantronix Canada ULC and

Lantronix Technologies Canada (Taiwan) Ltd.

Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank, dated August 2, 2021, by and between Lantronix, Inc., Lantronix Holding Company, Lantronix Canada ULC and Lantronix Technologies Canada (Taiwan) Ltd.

and Transition Networks, Inc.

Mezzanine Loan and Security Agreement, dated August

2, 2021, by and between Lantronix, Inc.

Mezzanine Loan and Security Agreement, dated August 2, 2021, by and between Lantronix, Inc.

and SVB Innovation Credit Fund VIII, L.P.

2020 Non-Employee Director Compensation Policy

Non-Employee Director Compensation Policy, as revised August 8, 2022 to be effective November 8, 2022

Warrant to Purchase Common Stock issued to SVB Innovation Credit Fund VIII, L.P.

Warrant to Purchase Common Stock issued to Innovation Credit Fund VIII-A, L.P.

Lease dated November 5, 2021 between Lantronix, Inc.

and Discovery Business Center LLC

Lease dated January 20, 2022 between Lantronix, Inc.

and Jet 55 Property Owner LLC

First Amendment to Third and Restated Loan Security Agreement dated February 15, 2022, among Lantronix, Inc., Lantronix Holding Company, Lantronix Canada, ULC and Lantronix Technologies Canada (Taiwan) Ltd.

and Transition Networks, Inc.

Second Amendment to Third and Restated Loan Security Agreement dated February 15, 2022, among Lantronix, Inc., Lantronix Holding Company, Lantronix Canada, ULC and Lantronix Technologies Canada (Taiwan) Ltd.

and Transition Networks, Inc.

Subsidiaries of Lantronix, Inc.

Consent of Independent Registered Public Accounting Firm, Squar Milner LLP

Consent of Independent

Registered Public Accounting Firm, Baker Tilly US, LLP

Power of Attorney (included on the signature page)

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Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document - the instance document

does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

XBRL Taxonomy Extension Schema Document

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(Principal Financial and Accounting Officer)

/s/ BERNHARD BRUSCHA

/s/ PAUL FOLINO

Chairman of the Board

August 25, 2022

Bernhard Bruscha

/s/ MARGARET EVASHENK

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Margaret Evashenk

/s/ PAUL FOLINO

/s/ HEIDI NGUYEN

August 25, 2022

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Hoshi Printer

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Stockholders and Board of Directors

Lantronix, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the shareholders and the board of directors of Lantronix, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Lantronix, Inc.

and its subsidiaries (the Company) as of June 30, 2021 and 2020, the related consolidated statements

of operations, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial

statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Lantronix,

and its subsidiaries (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders'

equity and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended June

30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

These consolidated financial statements are the responsibility of the

Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control

over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is

a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the

audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially

challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the

financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions

on the critical audit matter or on the accounts or disclosures to which it relates.

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

INVENTORY – EXCESS AND OBSOLETE RESERVE

Critical Audit Matter Description

As discussed in Note 1 and Note 4 to

the consolidated financial statements, inventories are stated at the lower of cost or net realizable value and the Company’s consolidated

inventory balance was approximately $15 million at June 30, 2021, net of reserve.

The Company provides for reserves for excess and obsolete

inventories primarily based upon estimates of future demand of products, the age of the inventory, and considering contractual supplier

protection provisions and distributor stock rotation privileges.

As discussed in Note 1 and Note 4 to the consolidated financial

statements, inventories are stated at the lower of cost or net realizable value and the Company’s consolidated inventory balance

was approximately $37.7 million at June 30, 2022, net of reserves.

The Company provides for reserves for excess and obsolete inventories

primarily based upon estimates of future demand of products, the age of the inventory, and considering contractual supplier protection

provisions and distributor stock rotation privileges.

We identified the auditing of management’s lower of

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audit matter included:

· Obtaining an understanding and evaluating the design of the controls over

the determination of the lower of cost or net realizable value for excess and obsolete inventories.

§ Obtaining an understanding and evaluating the design of the controls over the determination of the lower of cost or net realizable

value for excess and obsolete inventories.

§ Reviewing manufacturer contracts for contractual supplier protection provisions.

· Testing the completeness and accuracy of the underlying data used in management’s

reserve calculation.

· Evaluating the reasonableness of management’s assumptions by performing

a retrospective review of the prior year assumptions to actual activity.

· Evaluating the appropriateness and consistency of management’s methods

and assumptions used in developing estimates around forecasted sales and expected stock rotation privileges.

§ Testing the completeness and accuracy of the underlying data used in management’s reserve calculation.

§ Evaluating the reasonableness of management’s assumptions relating to future demand of products by performing a retrospective

review of the prior year assumptions to actual activity.

§ Evaluating the appropriateness and consistency of management’s methods and assumptions used in developing estimates around forecasted

sales and expected stock rotation privileges.

VALUATION OF INTANGIBLE ASSETS IN TRANSITION NETWORKS AND NET2EDGE

BUSINESSES OF COMMUNICATION SYSTEMS, INC.

Critical Audit Matter Description

As discussed in Note 3 to the consolidated financial statements,

on August 2, 2021, the Company acquired the Transition Networks and Net2Edge businesses of Communication Systems, Inc.

The transactions

were accounted for as business combinations and the assets acquired and liabilities assumed have been recorded based on the final assessment

of fair value.

The acquired intangible assets included approximately $7.5 million in customer relationships and approximately $1.9 million

in acquired technology.

The significant assumptions used to estimate the fair value of these intangible assets included revenue growth

rates, customer attrition rates and discount rates.

These significant assumptions are forward-looking and could be affected by future

economic and market conditions.

The procedures used to audit the valuation of the acquired

technology and customer relationship assets acquired include (i) a high degree of auditor judgment and subjectivity in applying procedures

relating to the fair value measurement of intangible assets acquired due to the significant amount of judgment by management when developing

the estimate;

(ii) significant audit effort in evaluating the significant assumptions relating to the estimate, such as revenue growth

rates, the customer attrition rate, and discount rates;

and (iii) the use of professionals with specialized skill and knowledge to assist

in performing these procedures and evaluating the audit evidence.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical

audit matter included:

§ Obtained an understanding and evaluated the design and implementation of the Company's controls over its estimation process supporting

the recognition and measurement of the customer and technology intangible assets, including controls over management’s evaluation

of the methodology and underlying assumptions used in determining the fair value.

§ Evaluated the Company's selection of the valuation methodology and significant assumptions used by the Company in the valuation of

the intangible assets, and the reasonableness of significant assumptions and estimates.

For example, we performed analyses to evaluate

the sensitivity of changes in assumptions to the fair value of the customer relationships intangible asset and compared the significant

assumptions to current industry and market and economic trends.

§ Evaluated the competency and objectivity of third-party specialists engaged by the Company to assist in developing management’s

§ Involved firm employed valuation specialists to assist with our evaluation of the methodologies used by the Company and significant

assumptions included in the fair value estimates.

§ Tested the mathematical accuracy of the models used to determine the fair values of assets acquired.

/s/ Baker Tilly US, LLP

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Cash and cash equivalents

Accounts receivable (net of allowance for doubtful accounts of $ 321 and $ 460 at June 30, 2021 and 2020, respectively)

Accounts receivable (net of allowance for doubtful accounts of

$ 340 and $ 321 at

June 30, 2022 and 2021, respectively)

Inventories, net

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Accrued payroll and related expenses

Short-term debt, net

Current portion of long-term debt, net

Other current liabilities

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Acquisition-related costs

Fair value remeasurement of earnout consideration

Amortization of purchased intangible assets

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Loss from operations

Interest income (expense), net

Other expense, net

Interest expense, net

Loss on extinguishment of debt

Other income (expense), net

Loss before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Net loss and comprehensive loss

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$ ( 200,119 )

Shares issued pursuant to stock

Tax withholding paid on behalf

of employees for restricted shares

Shares issued pursuant to stock awards, net

Tax withholding paid on behalf of employees for restricted shares

Share-based compensation

Issuance of shares related to acquisition

Balance at June 30, 2021

Shares issued pursuant to stock

Tax withholding paid on behalf

of employees for restricted shares

Shares issued pursuant to equity offering, net

Shares issued pursuant to stock awards, net

Tax withholding paid on behalf of employees for restricted shares

Fair value of warrants to purchase common stock issued with bank credit facility

Share-based compensation

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Amortization of deferred debt issuance costs

Changes in operating assets and liabilities:

Fair value remeasurement of earnout consideration

Loss on extinguishment of debt

Changes in operating assets and liabilities, net of assets and liabilities acquired:

Accounts receivable

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Other liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities

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Tax withholding paid on behalf of employees for restricted shares

Earnout consideration paid

Net proceeds from issuance of debt

Payment of borrowings on term loan

Net proceeds from borrowing on line of credit

Payment of borrowings on line of credit

Payment of lease liabilities

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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JUNE 30, 2022

of Significant Accounting Policies

Lantronix, Inc., which we refer to herein as

the Company, Lantronix, we, our, or us, is a global provider of software as a service (“SaaS”), engineering services,

and hardware for Edge Computing, the Internet of Things (“IoT”), and Remote Environment Management (“REM”).

Lantronix enables its customers to provide reliable and secure solutions while accelerating their time to market.

products and services dramatically simplify operations through the creation, development, deployment and management of customer

projects at scale while providing quality, reliability and security.

We were incorporated in California in 1989 and re-incorporated in Delaware

Company and Significant Accounting Policies

Lantronix, Inc., which we refer to herein as the Company, Lantronix,

we, our, or us, is a global Industrial and Enterprise internet of things (“IoT”) provider of solutions that target diversified

verticals ranging from Smart Cities, Utilities and Healthcare to Enterprise, Intelligent Transportation, and Industrial Automation.

on a long history of connectivity and video processing competence, target applications include Video Surveillance, Traffic management,

Infotainment systems, Robotics, Edge Computing and Remote Environment Management (“REM”).

We were incorporated in California in 1989 and

re-incorporated in Delaware in 2000.

Basis of Presentation

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Impact of COVID-19

The spread of the COVID-19 virus has caused an economic downturn on

a global scale, as well as significant volatility in the financial markets.

The extent to which the COVID-19 pandemic impacts our business,

operations and financial results continues to depend on numerous evolving factors that we may not be able to accurately predict and which

may cause the actual results to differ from the estimates and assumptions we are required to make in the preparation of financial statements

according to U.S.

In order to protect our employee population and comply with local directives,

most of our employees transitioned to remote working arrangements commencing in March 2020, and many continue to primarily work remotely

as of the date hereof.

To facilitate the increased data traffic associated with remote access, we have upgraded some of our information

technology systems.

We have also made changes relating to videoconferencing by providing most of our employees with a new videoconferencing

and collaboration platform to accommodate better remote collaboration and communication.

To date, remote working has not had an adverse

impact on our financial results or our operations, including financial reporting and disclosure controls and procedures.

The spread of the COVID-19 virus has caused an

economic downturn on a global scale, as well as significant volatility in the financial markets.

The extent to which the COVID-19 pandemic

impacts our business, operations and financial results continues to depend on numerous evolving factors that we may not be able to accurately

predict and which may cause the actual results to differ from the estimates and assumptions we are required to make in the preparation

of financial statements according to U.S.

In order to protect our employee population and

comply with local directives, most of our employees transitioned to remote working arrangements commencing in March 2020, and many continue

to primarily work remotely as of the date hereof.

To facilitate the increased data traffic associated with remote access, we have upgraded

some of our information technology systems.

We have also made changes relating to videoconferencing by providing most of our employees

with a new videoconferencing and collaboration platform to accommodate better remote collaboration and communication.

To date, remote

working has not had an adverse impact on our financial results or our operations, including financial reporting and disclosure controls

and procedures.

Reclassifications

Certain reclassifications have been made to the prior fiscal year financial

information to conform to the current fiscal year presentation.

Certain reclassifications have been made to the

prior fiscal year financial information to conform to the current fiscal year presentation.

Revenue Recognition

Refer to Note 2 below for a discussion of our significant

accounting policy over revenue recognition.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at the amount we expect to collect,

which is net of an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required

Our evaluation of the collectability of customer accounts receivable is based on various factors, including the length of time

the receivables are past due, our history of bad debts and general industry conditions.

Accounts that are deemed uncollectible are written

off against the allowance for doubtful accounts.

Refer to Note 2 below for a discussion

of our significant accounting policy over revenue recognition.

Accounts Receivable and Allowance for Doubtful

Accounts receivable are stated at the amount we

expect to collect, which is net of an allowance for doubtful accounts for estimated losses resulting from the inability of our customers

to make required payments.

Our evaluation of the collectability of customer accounts receivable is based on various factors, including

the length of time the receivables are past due, our history of bad debts and general industry conditions.

Accounts that are deemed uncollectible

are written off against the allowance for doubtful accounts.

Concentration of Credit Risk

Our accounts receivable are primarily derived from revenue earned from

customers located throughout North America, Europe and Asia.

We perform periodic credit evaluations of our customers’ financial

condition and maintain allowances for potential credit losses.

Our accounts receivable are primarily derived

from revenue earned from customers located throughout North America, Europe and Asia.

We perform periodic credit evaluations of our customers’

financial condition and maintain allowances for potential credit losses.

Credit losses have historically been within our expectations.

do not require collateral or other security from our customers.

We generally do not require collateral or other security from our customers.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents,

accounts receivable, contract manufacturers’ receivable, accounts payable, and accrued liabilities.

The fair value of a financial

instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated

market participants.

Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in

the market and the degree to which the inputs are observable.

The categorization of financial instruments within the valuation hierarchy

is based upon the lowest level of input that is significant to the fair value measurement.

The hierarchy is prioritized into three levels

(with Level 3 being the lowest) defined as follows:

Our financial instruments consist primarily of

cash and cash equivalents, accounts receivable, contract manufacturers’ receivable, accounts payable, and accrued liabilities.

fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly

transaction between unaffiliated market participants.

Assets and liabilities measured at fair value are categorized based on whether or

not the inputs are observable in the market and the degree to which the inputs are observable.

The categorization of financial instruments

within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The hierarchy

is prioritized into three levels (with Level 3 being the lowest) defined as follows:

are based on quoted market prices for identical assets and liabilities in active markets at the measurement date.

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The inputs are unobservable in the market and significant to the instrument’s valuation.

The hierarchy noted above requires us to minimize the use of unobservable

inputs and to use observable market data, if available, when determining fair value.

We do not have any assets or liabilities that were

measured at fair value on a recurring basis, and during the fiscal years ended June 30, 2021 and 2020 we did not have any assets or liabilities

that were measured at fair value on a non-recurring basis.

We believe all of our financial instruments’ recorded values

approximate their current fair values because of the nature and short duration of these instruments.

The hierarchy noted above requires us to minimize

the use of unobservable inputs and to use observable market data, if available, when determining fair value.

Other than earnout consideration

liabilities (see Note 3), during the fiscal years ended June 30, 2022 and 2021 we did not have any assets or liabilities that were measured

at fair value on a non-recurring basis.

As of June 30, 2022 we do not have any assets or liabilities that were measured at fair value

on a recurring basis,

We believe all of our financial instruments’

recorded values approximate their current fair values because of the nature and short duration of these instruments.

Foreign Currency Remeasurement

The functional currency for all our foreign subsidiaries is currently

The functional currency for all our foreign subsidiaries

is currently the U.S.

Non-monetary and monetary foreign currency assets and liabilities are valued in U.S.

dollars at historical and end-of-period

exchange rates, respectively.

Exchange gains and losses from foreign currency transactions and remeasurements are recognized in the consolidated

statements of operations.

Translation adjustments for foreign subsidiaries whose functional currencies were previously their respective

local currencies are suspended in accumulated other comprehensive income.

dollars at historical

and end-of-period exchange rates, respectively.

Exchange gains and losses from foreign currency transactions and remeasurements are recognized

in the consolidated statements of operations.

Translation adjustments for foreign subsidiaries whose functional currencies were previously

their respective local currencies are suspended in accumulated other comprehensive income.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income is composed of accumulated translation

adjustments as of June 30, 2021 and 2020.

We did not have any other comprehensive income or losses during the fiscal years ended June

30, 2021 or 2020.

Accumulated other comprehensive income is composed

of accumulated translation adjustments as of June 30, 2022 and 2021.

We did not have any other comprehensive income or losses during the

fiscal years ended June 30, 2022 or 2021.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term investments,

with original maturities of 90 days or less.

Inventories are stated at the lower of cost (on a first-in, first-out

basis) or net realizable value.

We provide reserves for excess and obsolete inventories determined primarily based upon estimates of future

demand for our products.

Shipping and handling costs are classified as a component of cost of revenue in the consolidated statements of

Inventory Sale and Purchase Transactions with Contract Manufacturers

Under certain circumstances, we sell raw materials to our contract

manufacturers and subsequently repurchase finished goods from the contract manufacturers which contain such raw materials.

raw materials to the contract manufacturers are recorded on the consolidated balance sheets as contract manufacturers’ receivables

and are eliminated from net revenue as we intend to repurchase the raw materials from the contract manufacturers in the form of finished

We have contractual arrangements with certain of our contract manufacturers

that require us to purchase unused inventory that the contract manufacturer has purchased to fulfill our forecasted manufacturing demand.

To the extent that inventory on-hand at one or more of these contract manufacturers exceeds our contractually reported forecasts, we record

the amount we may be required to purchase as part of other current liabilities and inventories on the consolidated balance sheets.

Cash and cash equivalents consist of cash and

short-term investments, with original maturities of 90 days or less.

Inventories are stated at the lower of cost (on

a first-in, first-out basis) or net realizable value.

We provide reserves for excess and obsolete inventories determined primarily based

upon estimates of future demand for our products.

Shipping and handling costs are classified as a component of cost of revenue in the

consolidated statements of operations.

Inventory Sale and Purchase Transactions with

Contract Manufacturers

Under certain circumstances, we sell raw materials

to our contract manufacturers and subsequently repurchase finished goods from the contract manufacturers which contain such raw materials.

Net sales of raw materials to the contract manufacturers are recorded on the consolidated balance sheets as contract manufacturers’

receivables and are eliminated from net revenue as we intend to repurchase the raw materials from the contract manufacturers in the form

of finished goods.

We have contractual arrangements with certain

of our contract manufacturers that require us to purchase unused inventory that the contract manufacturer has purchased to fulfill our

forecasted manufacturing demand.

To the extent that inventory on-hand at one or more of these contract manufacturers exceeds our contractually

reported forecasts, we record the amount we may be required to purchase as part of other current liabilities and inventories on the consolidated

balance sheets.

Property and Equipment

Property and equipment are carried at cost.

Depreciation is provided

using the straight-line method over the assets’ estimated useful lives, generally ranging from three to five years.

and amortization of leasehold improvements are computed using the shorter of the remaining lease term or five years.

Major renewals and

betterments are capitalized, while replacements, maintenance and repairs, which do not improve or extend the estimated useful lives of

the respective assets, are expensed as incurred.

is provided using the straight-line method over the assets’ estimated useful lives, generally ranging from three to five years.

Depreciation and amortization of leasehold improvements are computed using the shorter of the remaining lease term or five years.

renewals and betterments are capitalized, while replacements, maintenance and repairs, which do not improve or extend the estimated useful

lives of the respective assets, are expensed as incurred.

Business Combinations

We allocate the fair value of the purchase consideration of a business

acquisition to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development (“IPR&D”),

based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable

assets and liabilities is recorded as goodwill.

IPR&D is initially capitalized at fair value as an intangible asset with an indefinite

life and assessed for impairment thereafter.

When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased

intangible asset and amortized over the asset’s estimated useful life.

Acquisition-related expenses and related restructuring costs

are recognized separately from the business combination and are expensed as incurred.

Goodwill is recorded as the difference, if any, between the aggregate

consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired.

We evaluate goodwill

for impairment on an annual basis in our fiscal fourth quarter or more frequently if we believe indicators of impairment exist that would

more likely than not reduce the fair value of our single reporting unit below its carrying amount.

We begin by assessing qualitative factors

to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value.

on that qualitative assessment, if we conclude that it is more likely than not that the fair value of our single reporting unit is less

than its carrying value, we conduct a quantitative goodwill impairment test, which involves comparing the estimated fair value of our

single reporting unit with its carrying value, including goodwill.

We estimate the fair value of our single reporting unit using a combination

of the income and market approach.

If the carrying value of the reporting unit exceeds its estimated fair value, we recognize an impairment

loss for the difference.

During the fourth quarter of the fiscal year ended June 30, 2021, we

performed a qualitative assessment of whether goodwill impairment existed and did not determine that it was more likely than not that

the fair value of our single reporting unit was less than its carrying amount.

We allocate the fair value of the purchase consideration

of a business acquisition to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development

(“IPR&D”), based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair

values of these identifiable assets and liabilities is recorded as goodwill.

IPR&D is initially capitalized at fair value as an intangible

asset with an indefinite life and assessed for impairment thereafter.

When an IPR&D project is completed, the IPR&D is reclassified

as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life.

Acquisition-related expenses

and related restructuring costs are recognized separately from the business combination and are expensed as incurred.

Goodwill is recorded as the difference, if any,

between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired.

We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if we believe indicators of impairment

exist that would more likely than not reduce the fair value of our single reporting unit below its carrying amount.

We begin by assessing

qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its

carrying value.

Based on that qualitative assessment, if we conclude that it is more likely than not that the fair value of our single

reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment test, which involves comparing the estimated

fair value of our single reporting unit with its carrying value, including goodwill.

We estimate the fair value of our single reporting

unit using a combination of the income and market approach.

If the carrying value of the reporting unit exceeds its estimated fair value,

we recognize an impairment loss for the difference.

During the fourth quarter of the fiscal year ended

June 30, 2022, we performed a qualitative assessment of whether goodwill impairment existed and did not determine that it was more likely

than not that the fair value of our single reporting unit was less than its carrying amount.

Purchased Intangible Assets

Included within "purchased intangible assets, net" at June

30, 2021 are customer lists, developed technology, tradenames, and other intangible assets acquired in connection with various business

combinations.

Included within "purchased intangible assets,

net" at June 30, 2022 are customer lists, developed technology, tradenames, and other intangible assets acquired in connection with

various business combinations.

Such capitalized costs and intangible assets are being amortized over a period of one to five years.

Long-Lived Assets and Intangible Assets

We assess the impairment of long-lived

assets and intangible assets whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not

be recoverable.

We estimate the future cash flows, undiscounted and without interest charges, expected to be generated by the assets

from its use or eventual disposition.

If the sum of the expected undiscounted future cash flows is less than the carrying amount of those

assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Income taxes are computed under the liability method.

This method requires

the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis

of our assets and liabilities.

The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during

which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment.

A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

Financial statement effects of a tax position are initially recognized

when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority.

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount

of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing authority.

potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.

We assess the impairment of long-lived assets

and intangible assets whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable.

We estimate the future cash flows, undiscounted and without interest charges, expected to be generated by the assets from its use or eventual

If the sum of the expected undiscounted future cash flows is less than the carrying amount of those assets, we recognize

an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Income taxes are computed under the liability

This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting

basis and the tax basis of our assets and liabilities.

The impact on deferred taxes of changes in tax rates and laws, if any, are applied

to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements

in the period of enactment.

A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will

not be realized.

Financial statement effects of a tax position

are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination

by a taxing authority.

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured

as the largest amount of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing

We recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Share-Based Compensation

We account for share-based compensation by expensing the estimated

grant date fair value of our shared-based awards ratably over the requisite service period.

We recognize the impact of forfeitures on our share-based compensation

expense as such forfeitures occur.

Previously recognized expense is reversed for the portion of awards forfeited prior to vesting.

We account for share-based compensation by expensing

the estimated grant date fair value of our shared-based awards ratably over the requisite service period.

We recognize the impact of forfeitures on our

share-based compensation expense as such forfeitures occur.

Previously recognized expense is reversed for the portion of awards forfeited

prior to vesting.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income

(loss) by the weighted-average number of common shares outstanding during the fiscal year.

Diluted net income (loss) per share is calculated

by adjusting the weighted-average number of common shares outstanding, assuming any dilutive effects of outstanding share-based awards

using the treasury stock method.

Basic net income (loss) per share is calculated

by dividing net income (loss) by the weighted-average number of common shares outstanding during the fiscal year.

Diluted net income (loss)

per share is calculated by adjusting the weighted-average number of common shares outstanding, assuming any dilutive effects of outstanding

share-based awards using the treasury stock method.

Research and Development Costs

Costs incurred in the research and development of new products and

enhancements to existing products are expensed as incurred.

Development costs of computer software to be sold, leased or otherwise marketed

are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product

is available for general release to customers.

In most instances, we believe our current process for developing products is essentially

completed concurrently with the establishment of technological feasibility and thus, software development costs have been expensed as

The standard warranty periods we provide for our products typically

range from one to five years.

We establish reserves for estimated product warranty costs at the time revenue is recognized based upon

our historical warranty experience, and for any known or anticipated product warranty issues.

Costs incurred in the research and development

of new products and enhancements to existing products are expensed as incurred.

Development costs of computer software to be sold, leased

or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and

ending when a product is available for general release to customers.

In most instances, we believe our current process for developing

products is essentially completed concurrently with the establishment of technological feasibility and thus, software development costs

have been expensed as incurred.

The standard warranty periods we provide for our

products typically range from one to five years.

We establish reserves for estimated product warranty costs at the time revenue is recognized

based upon our historical warranty experience, and for any known or anticipated product warranty issues.

Restructuring Charges

We recognize costs and related liabilities for restructuring activities

when they are incurred.

Our restructuring charges are primarily comprised of employee separation costs, asset impairments and contract

Employee separation costs include one-time termination benefits that are recognized as a liability at estimated fair value,

at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the

future service period.

Ongoing termination benefits are recognized as a liability at estimated fair value when the amount of such benefits

are probable and reasonably estimable.

Contract exit costs include contract termination fees and right-of-use asset impairments recognized

on the date that we have vacated the premises or ceased use of the leased facilities.

A liability for contract termination fees is recognized

in the period in which we terminate the contract.

We determine if an arrangement is a lease, or contains a lease, at

the inception of the arrangement and evaluate whether the lease is an operating lease or a finance lease at the commencement date.

recognize right-of-use (“ROU”) assets and lease liabilities for operating and finance leases with terms greater than 12 months.

ROU assets represent our right to use an asset for the lease term, while lease liabilities represent our obligation to make lease payments.

To the extent a lease includes a renewal option, we include such options in the calculation of the ROU asset and lease liability if it

is reasonably assured that we will exercise the option.

Operating and finance lease ROU assets and liabilities are recognized based on

the present value of lease payments over the lease term at the lease commencement date.

To determine the present value of lease payments,

we use the implicit interest rate, if it is readily determinable.

Many of our leases do not provide an implicit rate, and therefore we

generally use our collateralized incremental borrowing rate based on the information available at the lease commencement date, including

lease term, in determining the present value of lease payments.

Operating and finance lease ROU assets are recognized net of any lease

prepayments and incentives.

Operating lease expense is recognized on a straight-line basis over the lease term.

Finance lease expense

is recognized based on the effective-interest method over the lease term.

For leases that we acquire in acquisition transactions, we generally

elect not to recognize assets or liabilities at the acquisition date for leases that, at the acquisition date, have a remaining lease

term of 12 months or less.

We recognize costs and related liabilities for

restructuring activities when they are incurred.

Our restructuring charges are primarily comprised of employee separation costs, asset

impairments and contract exit costs.

Employee separation costs include one-time termination benefits that are recognized as a liability

at estimated fair value, at the time of communication to employees, unless future service is required, in which case the costs are recognized

ratably over the future service period.

Ongoing termination benefits are recognized as a liability at estimated fair value when the amount

of such benefits are probable and reasonably estimable.

Contract exit costs include contract termination fees and right-of-use asset impairments

recognized on the date that we have vacated the premises or ceased use of the leased facilities.

A liability for contract termination

fees is recognized in the period in which we terminate the contract.

We determine if an arrangement is a lease, or

contains a lease, at the inception of the arrangement and evaluate whether the lease is an operating lease or a finance lease at the commencement

We recognize right-of-use (“ROU”) assets and lease liabilities for operating and finance leases with terms greater than

ROU assets represent our right to use an asset for the lease term, while lease liabilities represent our obligation to make

lease payments.

To the extent a lease includes a renewal option, we include such options in the calculation of the ROU asset and lease

liability if it is reasonably assured that we will exercise the option.

Operating and finance lease ROU assets and liabilities are recognized

based on the present value of lease payments over the lease term at the lease commencement date.

To determine the present value of lease

payments, we use the implicit interest rate, if it is readily determinable or estimable.

To the extent that we are unable to utilize an

interest rate implicit in the lease, we generally use our collateralized incremental borrowing rate based on the information available

at the lease commencement date, including lease term, in determining the present value of lease payments.

Operating and finance lease

ROU assets are recognized net of any lease prepayments and incentives.

Operating lease expense is recognized on a straight-line basis

over the lease term.

Finance lease expense is recognized based on the effective-interest method over the lease term.

For leases that we acquire in acquisition transactions,

we generally elect not to recognize assets or liabilities at the acquisition date for leases that, at the acquisition date, have a remaining

lease term of 12 months or less.

This includes not recognizing an intangible asset if the terms of an operating lease are favorable relative

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Advertising Expenses

Advertising expenses are recorded in the period incurred and totaled

$ 231,000 and $ 185,000 for the fiscal years ended June 30, 2021 and 2020, respectively.

Advertising expenses are recorded in the period

incurred and totaled $ 253,000 and $ 231,000

for the fiscal years ended June 30, 2022 and 2021, respectively.

The costs are included in selling, general and administrative

expenses in the consolidated statements of operations.

Segment Information

We have one operating and reportable business segment.

We have one operating and reportable business

Recent Accounting Pronouncements

Revenue Contracts

In October 2021, the Financial Accounting Standards

Board (“FASB”) issued an Accounting Standards Update (“ASU”) to improve the accounting for acquired revenue contracts

with customers in a business combination by addressing diversity and inconsistency related to (i) recognition of an acquired contract

liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer.

The amendments in this ASU require

that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance

with existing revenue recognition guidance under Accounting Standard Codification Topic (“ASC”) 606.

At the acquisition date,

an acquirer would assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts.

Generally, this

would result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were

recognized and measured in the acquiree’s financial statements.

The ASU is effective for Lantronix beginning in the first quarter

of fiscal year 2024, however early adoption is permitted.

The adoption of this guidance may have a material effect on our consolidated

financial statements.

Current Expected Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”)

issued a new standard requiring financial assets measured at amortized cost be presented at the net amount expected to be collected, through

an allowance for credit losses that is deducted from the amortized cost basis.

The standard eliminates the threshold for initial recognition

in current U.S.

GAAP and reflects an entity’s current estimate of all expected credit losses.

The measurement of expected credit

losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability

of the financial assets.

The standard is effective beginning in the first quarter of our fiscal year 2024.

The adoption of this guidance

is not expected to have a material effect on our consolidated financial statements.

Revenue is recognized upon the transfer of control of promised products

or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

In June 2016, the FASB issued a new standard requiring

financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses

that is deducted from the amortized cost basis.

The standard eliminates the threshold for initial recognition in current U.S.

reflects an entity’s current estimate of all expected credit losses.

The measurement of expected credit losses is based on historical

experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

is effective beginning in the first quarter of our fiscal year 2024.

The adoption of this guidance is not expected to have a material

effect on our consolidated financial statements.

Revenue is recognized upon the transfer of control

of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those

products or services.

We apply the following five-step approach in determining the amount and timing of revenue to be recognized:

(i) identifying the contract

with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating

the transaction price to the performance obligations in the contract and (v) recognizing revenue when the performance obligation

is satisfied.

On occasion we enter into contracts that can include various combinations of products and services, which are generally

capable of being distinct and accounted for as separate performance obligations.

Revenue is recognized net of (i) any taxes collected from customers,

which are subsequently remitted to governmental authorities and (ii) shipping and handling costs collected from customers.

Most of our product revenue is recognized as a distinct single performance

obligation when products are tendered to a carrier for delivery, which represents the point in time that our customer obtains control

(i) identifying

the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction

price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when

the performance obligation is satisfied.

On occasion we enter into contracts that can include various combinations of products and services,

which are generally capable of being distinct and accounted for as separate performance obligations.

Revenue is recognized net of (i) any taxes collected

from customers, which are subsequently remitted to governmental authorities and (ii) shipping and handling costs collected from customers.

Most of our product revenue is recognized as a

distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that our

customer obtains control of the promised products.

A smaller portion of our product revenue is recognized when our customer receives delivery

of the promised products.

A smaller portion of our product revenue is recognized when our customer receives delivery of the promised products.

A significant portion of our products are sold to distributors under

agreements which contain (i) limited rights to return unsold products and (ii) price adjustment provisions, both of which are accounted

for as variable consideration when estimating the amount of revenue to recognize.

We base our estimates for returns and price adjustments

primarily on historical experience;

however, we also consider contractual allowances, approved pricing adjustments and other known or

anticipated returns and price adjustments in a given period.

Such estimates are generally made at the time of shipment to the customer

and updated at the end of each reporting period as additional information becomes available and only to the extent that it is probable

that a significant reversal of any incremental revenue will not occur.

Our estimates of accrued variable consideration are included in

other current liabilities in the accompanying consolidated balance sheets.

A significant portion of our products are sold

to distributors under agreements which contain (i) limited rights to return unsold products and (ii) price adjustment provisions, both

of which are accounted for as variable consideration when estimating the amount of revenue to recognize.

We base our estimates for returns

and price adjustments primarily on historical experience;

however, we also consider contractual allowances, approved pricing adjustments

and other known or anticipated returns and price adjustments in a given period.

Such estimates are generally made at the time of shipment

to the customer and updated at the end of each reporting period as additional information becomes available and only to the extent that

it is probable that a significant reversal of any incremental revenue will not occur.

Our estimates of accrued variable consideration

are included in other current liabilities in the accompanying consolidated balance sheets.

Revenues from our extended warranty and services

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recognized as services are performed.

We derive a portion of our revenues from engineering and related consulting

service contracts with customers.

These contracts generally include performance obligations in which control is transferred over time

because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates or enhances

an asset that the customer controls.

We derive a portion of our revenues from engineering

and related consulting service contracts with customers.

These contracts generally include performance obligations in which control is

transferred over time because the customer either simultaneously receives and consumes the benefits provided or our performance on the

contract creates or enhances an asset that the customer controls.

These contracts typically provide services on the following basis:

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Fixed Price – arrangements to render specific consulting and software modification services which tend to be more complex.

Performance obligations for T&M contracts qualify for the "Right

to Invoice" practical expedient within the revenue guidance.

Under this practical expedient, we may recognize revenue, over time,

in the amount to which we have a right to invoice.

In addition, we are not required to estimate variable consideration upon inception

of the contract and reassess the estimate each reporting period.

We determined that this method best represents the transfer of services

as, upon billing, we have a right to consideration from a customer in an amount that directly corresponds with the value to the customer

of our performance completed to date.

We recognize revenue on fixed price contracts, over time, using an

input method based on the proportion of our actual costs incurred (generally labor hours expended) to the total costs expected to complete

the contract performance obligation.

We determined that this method best represents the transfer of services as the proportion closely

depicts the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation.

Performance obligations for T&M contracts

qualify for the "Right to Invoice" practical expedient within the revenue guidance.

Under this practical expedient, we may recognize

revenue, over time, in the amount to which we have a right to invoice.

In addition, we are not required to estimate variable consideration

upon inception of the contract and reassess the estimate each reporting period.

We determined that this method best represents the transfer

of services as, upon billing, we have a right to consideration from a customer in an amount that directly corresponds with the value to

the customer of our performance completed to date.

We recognize revenue on fixed price contracts,

over time, using an input method based on the proportion of our actual costs incurred (generally labor hours expended) to the total costs

expected to complete the contract performance obligation.

We determined that this method best represents the transfer of services as the

proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation.

Multiple Performance Obligations

From time to time, we may enter into contracts with customers that

include promises to transfer multiple deliverables that may include sales of products, professional engineering services and other product

qualification or certification services.

Determining whether the deliverables in such arrangements are considered distinct performance

obligations that should be accounted for separately versus together often requires judgment.

We consider performance obligations to be

distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily available

and when the promised good or service is separately identifiable from other promised goods or services in the contract.

In such arrangements,

we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone

selling price for each performance obligation.

Net Revenue by Product Line and Geographic Region

We organize our products and solutions into three product lines:

REM and Other.

Our IoT products typically connect to one or more existing machines or are built into new industrial devices to provide

network connectivity.

Our REM product line includes out-of-band management, console management, power management, and IP connected keyboard-video-mouse

(commonly referred to as “IPKVM”) products that provide remote access to Information Technology (“IT”) and networking

infrastructure deployed in test labs, data centers, branch offices and server rooms.

We categorize products that are non-focus or end-of-life

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

geographic regions:

From time to time, we may enter into contracts

with customers that include promises to transfer multiple deliverables that may include sales of products, professional engineering services

and other product qualification or certification services.

Determining whether the deliverables in such arrangements are considered distinct

performance obligations that should be accounted for separately versus together often requires judgment.

We consider performance obligations

to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily

available and when the promised good or service is separately identifiable from other promised goods or services in the contract.

arrangements, we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine

the standalone selling price for each performance obligation.

Net Revenue by Product Line and Geographic

To more closely align the categorization of our product lines with

how we position them in the marketplace, we have re-organized our products and solutions into three product lines:

Embedded IoT Solutions,

IoT System Solutions, and Software & Services.

Until this recent change, we had organized our products and solutions into three different

product lines:

IoT, REM and Other.

Going forward, we do not plan to disclose our net revenue by the old categorizations.

We conduct our business globally and manage our

sales teams by three geographic regions:

the Americas;

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(In thousands)

Embedded IoT Solutions

IoT System Solutions

Software & Services

Net revenue by geographic region

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(In thousands)

For comparative purposes, the following tables present our product

line categorizations prior to our decision to reorganize how we present this information during the fourth quarter of fiscal 2022.

discussed above, going forward we do not plan to disclose our net revenue by these categorizations.

Net revenue by product lines

Years Ended June 30,

(In thousands)

The following table presents product revenues and service revenues

as a percentage of our total net revenue:

Schedule of percentage total net revenue

Schedule of percentage total net revenues

Year Ended June 30,

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Service revenues

Service revenue is comprised primarily of professional services, software

license subscriptions, and extended warranties.

Service revenue is comprised primarily of professional

services, software license subscriptions, and extended warranties.

Contract Balances

In certain instances, the timing of revenue recognition may differ

from the timing of invoicing to our customers.

We record a contract asset receivable when revenue is recognized prior to invoicing, and

a contract or deferred revenue liability when revenue is recognized subsequent to invoicing.

With respect to product shipments, we expect

to fulfill contract obligations within one year and so we have elected not to separately disclose the amount nor the timing of recognition

of these remaining performance obligations.

For contract balances related to contracts that include services and multiple performance

obligations, refer to the deferred revenue discussion below.

In certain instances, the timing of revenue recognition

may differ from the timing of invoicing to our customers.

We record a contract asset receivable when revenue is recognized prior to invoicing,

and a contract or deferred revenue liability when revenue is recognized subsequent to invoicing.

With respect to product shipments, we

expect to fulfill contract obligations within one year and so we have elected not to separately disclose the amount nor the timing

of recognition of these remaining performance obligations.

For contract balances related to contracts that include services and multiple

performance obligations, refer to the deferred revenue discussion below.

Deferred Revenue

Deferred revenue is primarily comprised of unearned revenue related

to our extended warranty services and certain software services.

These services are generally invoiced at the beginning of the contract

period and revenue is recognized ratably over the service period.

Current and non-current deferred revenue balances represent revenue

allocated to the remaining unsatisfied performance obligations at the end of a reporting period and are respectively included in other

current liabilities and other non-current liabilities in the accompanying consolidated balance sheets.

Deferred revenue is primarily comprised of unearned

revenue related to our extended warranty services and certain software services.

These services are generally invoiced at the beginning

of the contract period and revenue is recognized ratably over the service period.

Current and non-current deferred revenue balances represent

revenue allocated to the remaining unsatisfied performance obligations at the end of a reporting period and are respectively included

in other current liabilities and other non-current liabilities in the accompanying consolidated balance sheets.

The following table presents the changes in our

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New performance obligations

Performance obligations acquired from acquisitions

Recognition of revenue as a result of satisfying performance obligations

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stock of TNI and all of the outstanding ordinary shares of Transition Networks Europe Limited (such entity, together with TNI, the “TN

Companies”) for an aggregate purchase price of up to approximately $ 32,028,000 consisting of (i) $ 25,028,000 paid in cash on the

Closing Date, plus (ii) earnout payments of up to $ 7.0 million, payable following two successive 180-day intervals after the Closing Date

Companies”) for an aggregate purchase price of up to approximately $ 32,028,000 consisting of (i) $ 25,028,000 in cash paid on the

Closing Date, plus (ii) earnout payments of up to $ 7,000,000 , payable following two successive 180-day intervals after the Closing Date

based on revenue targets for the business of the TN Companies as specified in the Purchase Agreement, subject to certain adjustments and

allocations as further described in the Purchase Agreement.

Concurrently with the closing of the Purchase Agreement, CSI and Lantronix

entered in a Transition Services Agreement under which CSI will perform administrative and IT services, and lease office, warehouse and

production space to Lantronix for the TN Companies for a period of up to twelve months.

Based on preliminary working capital estimates of the TN Companies at the

Closing Date, we paid $24,160,000 in cash consideration on the Closing Date.

In September 2021, pursuant to working capital adjustments

as outlined in the Purchase Agreement, the net cash consideration paid as of the Closing Date was adjusted to approximately $ 23,651,000 .

Concurrently with the closing of the Transaction, CSI and Lantronix

entered in a Transition Services Agreement under which CSI performed administrative and IT services, and lease office, warehouse and production

space to Lantronix for the TN Companies for a period of up to twelve months.

The acquisition of the TN Companies provides Lantronix with complementary

IoT connectivity products and capabilities, including switching, power over ethernet and media conversion and adapter products.

We are currently evaluating the fair value of acquired assets and liabilities,

including any identifiable intangible assets.

We have not yet completed the initial accounting related to the Transaction as we are compiling

and evaluating all of the necessary information.

We expect to present a preliminary allocation of the fair value of the acquired assets

and liabilities and pro forma disclosure in our Form 10-Q filing for the quarter ending September 30, 2021.

Financial Information

A summary of the purchase consideration for the TN Companies is as

follows (in thousands):

Summary of purchase consideration

Cash consideration paid to CSI

Estimated fair value of earnout consideration

Total purchase consideration

We recorded the TN Companies’ tangible and intangible assets

and liabilities based on their estimated fair values as of the Closing Date and allocated the remaining purchase consideration to goodwill.

Our valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible

Subsequent to the Closing Date, we made certain

measurement period adjustments to the preliminary purchase price allocation, based on clarification of information utilized in our

analysis and estimates to determine the fair value of assets acquired and liabilities assumed.

These adjustments resulted in a net

increase to goodwill of $ 2,498,000 ,

and were driven by the following:

an increase in deferred income tax liabilities of $ 2,036,000 related to the finalization of our conclusions regarding non-tax-deductible

intangible assets acquired,

an increase in the estimated fair value of earnout consideration of $ 47,000 ,

a decrease in amortizable intangible assets of $ 440,000 ,

an increase in acquired net accounts receivable of $ 121,000 , and

a decrease in acquired net inventories of $ 96,000

As of June 30, 2022, the measurement period is complete.

The final purchase price allocation is as follows (in thousands):

Schedule of purchase price allocation

Cash and cash equivalents

Accounts receivable, net

Inventories, net

Prepaid expense and other current assets

Property and equipment, net

Amortizable intangible assets

Accounts payable

Accrued payroll

Deferred tax liability

Other current liabilities

Total consideration

The factors that contributed to a purchase price resulting in the recognition

of goodwill include our belief that the Transaction will create a more diverse IoT company with respect to product offerings and our belief

that we are committed to improving cost structures in accordance with our operational and restructuring plans which should result in a

realization of cost savings and an improvement of overall efficiencies.

Depending on the structure of a particular acquisition, goodwill and

identifiable intangible assets may not be deductible for tax purposes.

We have determined that goodwill and identifiable intangible assets

related to the Transaction are not deductible.

Acquisition-related costs were expensed in the periods in which the

costs were incurred.

The valuation of identifiable intangible assets and their estimated

useful lives are as follows:

Schedule of intangible assets of useful lives

Asset Fair Value

Weighted Average Useful Life

(In thousands)

Customer relationships

Developed technology

Order backlog

Trademarks and trade names

The intangible assets are amortized on a straight-line basis over the

estimated weighted-average useful lives.

Valuation Methodology

The customer relationships and order backlog were valued using the

multi-period excess earnings method, which estimates revenues and cash flows derived from this asset and also considers portions of the

cash flows that can be attributed to the use of other supporting assets.

The useful lives of customer relationships are estimated based

primarily upon customer turnover data.

Order backlog was estimated to be substantially fulfilled within a year of the Closing Date.

Developed technology and trademarks and trades names were valued using

the relief-from-royalty method.

This method is an income approach that estimates the portion of a company’s earnings attributable

to an asset based on the royalty rate the company would have paid for the use of the asset if it did not own it.

Royalty payments are

estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset.

The resulting annual royalty payments

are tax-affected and then discounted to present value.

Assumptions used in forecasting cash flows for

each of the identified intangible assets included consideration of the following:

Historical performance including sales and profitability

Business prospects and industry expectations

Estimated economic life of the asset

Development of new technologies

Acquisition of new customers

Attrition of existing customers

Obsolescence of technology over time

The fair value of earnout consideration was estimated based on applying

a Monte Carlo simulation method to forecast achievement of the revenue targets.

This method involves many possible value outcomes which

are evaluated to establish an estimated value.

Key inputs in the valuation include forecasted revenue, revenue volatility and discount

Remeasurement of Earnout Consideration

During the fiscal year ended June 30, 2022, we remeasured the estimated

fair value of the earnout consideration to a total of $ 1,500,000 based on the achievement of certain revenue targets for the business

of the TN Companies during the earnout period.

As compared to the originally recorded estimated value of $ 393,000 ,

the remeasurement of the earnout consideration resulted in an upward adjustment of $ 1,107,000 that was recorded within our operating expenses

in the accompanying consolidated statement of operations for the year ended June 30, 2022.

Supplemental Pro Forma Information (Unaudited)

The following supplemental pro forma data summarizes our results

of operations for the periods presented, as if we completed the acquisition of the TN Companies as of the first day of our

fiscal year ended June 30, 2021.

The supplemental pro forma data reports actual operating results adjusted to include the pro forma

effect and timing of the impact of amortization expense of identified intangible assets, restructuring costs, the purchase

accounting effect on inventories acquired, and transaction costs.

In accordance with the pro forma acquisition date, we recorded in

the twelve months ended June 30, 2021 supplemental pro forma data (i) cost of goods sold from manufacturing profit in acquired

inventory of $ 380,000 ,

(ii) acquisition related restructuring costs of $ 508,000

and (iii) acquisition-related costs of $ 629,000 ,

with a corresponding reduction in the year ended June 30, 2022 supplemental pro forma data.

Additionally, we recorded $ 3,675,000

of amortization expense in the year ended June 30, 2021 supplemental pro forma data, and a reduction to amortization expense of

in the year ended June 30, 2022 supplemental pro forma data to represent amortization for the full fiscal year period.

Net sales related to products from the acquisition of the TN Companies

contributed approximately 28% of our total net sales for the year ended June 30, 2022.

As of the Closing Date, we began to immediately

integrate the acquisition into existing operations, engineering groups, sales distribution networks and management structure, making it

generally impracticable to determine the post-acquisition net sales and earnings on a standalone basis.

Supplemental pro forma data is as follows:

Schedule of supplemental pro forma data

Year Ended June 30,

(In thousands, except per share amounts)

Pro forma net revenue

Pro forma net loss

Pro forma net loss per share:

Basic and Diluted

Supplemental Financial Information

The following table presents details of our inventories:

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and equipment:

Schedule of Property and Equipment

Schedule of property

and equipment

(In thousands)

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expense is as follows:

Intangible Assets Amortization Expense

Schedule of future estimated amortization expense

Years Ending June 30,

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Total amortization expense

Our goodwill balance at June 30, 2021 and 2020

was $ 15,810,000 .

The following table presents details of our goodwill

Schedule of goodwill

June 30, 2022

(In thousands)

Balance at June 30, 2021

Acquisition of TN Companies

Balance at June 30, 2022

Warranty Reserve

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Beginning balance

Warranty reserve assumed from acquisition of Intrinsyc

Warranty reserve assumed from acquisition of the TN Companies

Charged to cost of revenues

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equivalents could be dilutive in the future.

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

Schedule of antidilutive securities

Years Ended June 30,

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excluded from the consolidated statements of cash flows:

Schedule of Supplemental Cash Flow Information

Schedule of non-cash transactions

Years Ended June 30,

(In thousands)

Share consideration for acquisition of Intrinsyc

Acquisition of property through operating leases

Accrued property and equipment paid for in the subsequent period

Loan Agreements

On November 12, 2019, we entered into a Second Amended and Restated

Loan and Security Agreement (“Amended Agreement”) with Silicon Valley Bank (“SVB”), which amended, restated and

superseded our previous agreement with SVB in its entirety.

Pursuant to the Amended Agreement, SVB made available

to us a senior secured revolving line of credit of up to $ 6,000,000

(“Revolving Facility”) and a senior secured term loan of $6,000,000 (“Term Loan Facility”).

Advances under

the Revolving Facility could be borrowed from time to time prior to November 12, 2021, subject to the satisfaction of certain conditions,

and could be used to fund our working capital and general business requirements.

The $6,000,000 proceeds of the Term Loan Facility were

drawn in full in November 2019 and were used to fund our acquisition of Intrinsyc, which occurred in January 2020.

The Revolving Facility

was scheduled to mature on November

There were no borrowings on the Revolving Facility at June 30, 2021.

The Term Loan Facility was repayable over a 48

month period commencing January

The interest rate on the Revolving Facility floats at a rate per annum

equal to the greater of the prime rate and 5.00 percent .

The interest rate on the Term Loan Facility floats at a rate per annum equal

to the greater of 1.00 percent above the prime rate and 6.00 percent .

We could elect to repay and reborrow the amounts outstanding under

the Revolving Facility at any time prior to the maturity date of the Revolving Facility without premium or penalty.

We could elect to

repay the Term Loan Facility at any time without premium or penalty in minimum amounts equal to at least $1,000,000.

Warrants to purchase common stock issued with bank credit facility

Fair value adjustment of earnout consideration for TN companies at acquisition date

Bank Loan Agreements

In connection with the Transaction on the Closing Date (refer to Note

3 ), we entered into (i) a Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”), pursuant

to which SVB made a term loan of $ 17,500,000 on the Closing Date and made available a revolving credit facility of up to $2,500,000 (the

term loan facility and the revolving credit facility, the “Senior Credit Facilities”) and (ii) Mezzanine Loan and Security

Agreement with SVB Innovation Credit Fund VIII, L.P.

(“Lender”), pursuant to which Lender funded on the Closing Date a $ 12,000,000

term loan facility (the “Mezzanine Credit Facility”).

As part of the Mezzanine Credit Facility, we issued the Lender two warrants,

each to purchase approximately 64,000 shares of our common stock at a price per share of $4.695.

The estimated fair value of the warrants

was recorded to stockholders’ equity with the offset recorded as a discount against the Mezzanine Credit Facility debt balance.

Substantially all of our tangible and intangible assets are pledged as collateral against these credit facilities.

The proceeds of the Senior Credit Facilities were used to refinance

our outstanding obligations owing to SVB under our prior Second Amended and Restated Loan and Security Agreement with SVB, and the remaining

proceeds of the Senior Credit Facilities and the proceeds from the Mezzanine Credit Facility were used to fund the purchase price of the

TN Companies, to pay related fees and expenses, and also separately for working capital and general corporate purposes.

The Senior Credit Facilities mature on August 2, 2025 and the

Mezzanine Credit Facility matures on February

Advances under the Senior Credit Facilities bore interest at the London interbank offered rate (“LIBOR”) or the Prime

Rate, at the option of Lantronix, plus a margin that ranged from 3.00% to 4.00% in the case of LIBOR and 1.50% to 2.50% in the case

of the Prime Rate, depending on our total leverage with a LIBOR floor of 0.50% and a Prime Rate floor of 3.25%.

Advances under the

Mezzanine Credit Facility bore interest at LIBOR or the Prime Rate, at the option of Lantronix, plus a margin of 9.00% with a floor

of 1.00% in the case of LIBOR and a margin of 7.50% with a floor of 3.50% in the case of the Prime Rate.

We are also obligated to

pay other customary facility fees for credit facilities of similar size and type.

In January 2022, we terminated the Mezzanine Credit Facility with the

Lender, for which we repaid a total of $ 12,152,500 to pay off the Mezzanine Credit Facility in full.

There was no requirement to pay a

termination fee.

Pursuant to the applicable accounting guidance, we recognized a non-cash loss on the extinguishment of this debt of $ 764,000 ,

representing the write-off of unamortized deferred financing costs.

This was recorded in Loss on extinguishment of debt in the accompanying

consolidated statements of operations for the fiscal year ended June 30, 2022.

In February 2022, we entered into an amendment to our Senior Credit

Facilities which (i) increased the amount available under the revolving credit facility from $2,500,000 to $ 7,500,000 , (ii) removed and

replaced LIBOR benchmark provisions with Term Secured Overnight Financing Rate (“SOFR”) benchmark provisions and (iii) provided

that advances under the Senior Credit Facilities bear interest at Term SOFR or the Prime Rate, at the option of Lantronix, plus a margin

that ranges from 3.10% to 4.10% in the case of Term SOFR and 1.50% to 2.50% in the case of the Prime Rate, depending on our total leverage

with a Term SOFR floor of 0.00% and a Prime Rate floor of 3.25%.

We paid a nonrefundable fee of $ 25,000 in connection with this amendment

to our Senior Credit Facilities.

The following table summarizes our outstanding debt:

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Non-current portion

During the year ended June 30, 2021 we recognized $ 278,000 of

interest expense in our consolidated statements of operations related to interest and amortization of debt issuance associated with the

outstanding Term Loan Facility.

As discussed further below in the section entitled “New Financing Arrangements” the balance

of the Term Loan Facility was fully paid off in August 2021.

The Amended Agreement included a financial covenant that required that

we maintain a minimum cash balance of $3,000,000 at SVB, as measured at the end of each month.

The Amended Agreement also required that

we did not exceed a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before

interest, taxes, depreciation and amortization, and certain other allowable exclusions of (i) 3.0 to 1.0 for each calendar quarter ending

December 31, 2019 through and including December 31, 2020, (ii) 2.5 to 1.0 for each calendar quarter ending March 31, 2021 through and

including December 31, 2021, and (iii) 2.0 to 1.0 for each calendar quarter ending after January 1, 2022.

We were in compliance with all

covenants under the Amended Agreement as of June 30, 2021.

The following table presents certain information with respect to the

Revolving Facility:

Availability under the Line of Credit

(In thousands)

Outstanding borrowings on the line of credit

Available borrowing capacity on the line of credit

Outstanding letters of credit

Our outstanding letters of credit at June 30,

2021 and 2020 were used as security deposits.

New Financing Arrangements

In connection with the Transaction on the Closing

Date (refer to Note 3 ), we entered into (i) a Third Amended and Restated Loan and Security Agreement with SVB, pursuant to which

SVB made a term loan of $ 17,500,000

on the Closing Date and will make available a revolving credit facility of up to $ 2,500,000

(the term loan facility and the revolving credit facility, the “Senior Credit Facilities”) and (ii) Mezzanine Loan

and Security Agreement with SVB Innovation Credit Fund VIII, L.P.

(“Lender”), pursuant to which Lender funded on the Closing

Date a $12,000,000 term loan facility (the “Mezzanine Credit Facility”).

The proceeds of the Senior Credit Facilities were

used to refinance our outstanding obligations owing to SVB under our existing Amended Agreement discussed above, and the remaining proceeds

of the Senior Credit Facility and the proceeds from the Mezzanine Facilities were used to fund the purchase price of the TN Companies,

to pay related fees and expenses, and will be available for working capital and general corporate purposes.

The Senior Credit Facilities mature on August 2, 2025 and the Mezzanine

Credit Facility matures on February 2, 2026 .

Advances under the Senior Credit Facilities bear interest at LIBOR or the Prime Rate, at

the option of Lantronix, plus a margin that ranges from 3.00% to 4.00% in the case of LIBOR and 1.50% to 2.50% in the case of the Prime

Rate, depending on the total leverage of the Borrowers and their subsidiaries with a LIBOR floor of 0.50% and a Prime Rate floor of 3.25%.

Advances under the Mezzanine Credit Facility bear interest at LIBOR or the Prime Rate, at the option of Lantronix, plus a margin of 9.00%

with a floor of 1.00% in the case of LIBOR and a margin of 7.50% with a floor of 3.50% in the case of the Prime Rate.

We are also obligated

to pay other customary facility fees for credit facilities of the similar size and type.

The Senior Credit Facilities and Mezzanine Credit Facility require

Lantronix and its subsidiaries, on a consolidated basis, to comply with a maximum senior leverage ratio, a minimum fixed charge coverage

ratio and a minimum liquidity test.

In addition, the Senior Credit Facilities and the Mezzanine Credit Facility contain customary representations

During the year ended June 30, 2022, we recognized

of interest expense in the accompanying consolidated statement of operations related to interest and amortization of debt issuance

associated with the borrowings under the Senior Credit Facilities and Mezzanine Credit Facility.

Financial Covenants

The Senior Credit Facilities require Lantronix to comply with a minimum

liquidity test, a maximum leverage ratio and a minimum fixed charge coverage ratio.

We were in compliance with all financial covenants

as of June 30, 2022.

The Senior Credit Facilities require that we maintain a minimum liquidity

of $5,000,000 and $3,000,000, respectively, at SVB, as measured at the end of each month.

Maximum leverage ratio

The Senior Credit Facilities require that we maintain a maximum leverage

ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and

amortization, and certain other allowable exclusions of (i) 2.50 to 1.00 for each calendar quarter ending June 30, 2021 through and including

September 30, 2022, (ii) 2.25 to 1.00 for each calendar quarter ending December 31, 2022 through and including September 30, 2023, and

(iii) 2.00 to 1.00 for the calendar quarter December 31, 2023 and each calendar quarter thereafter.

Minimum fixed charge coverage ratio

The Senior Credit Facilities require that we maintain a minimum fixed

charge coverage ratio, calculated as the ratio of consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization,

and certain other allowable exclusions, less capital expenditures and taxes paid, to the trailing twelve month principal and interest

payments on all funded debt of 1.25 to 1.00 as measured at the end of each calendar quarter.

In addition, the Senior Credit Facilities contain customary representations

and warranties, affirmative and negative covenants, including covenants that limit or restrict Lantronix and its subsidiaries’ ability

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into certain speculative hedging arrangements.

The Senior Credit Facilities and Mezzanine Credit Facility include a number of events of

default, including, among other things, non-payment defaults, covenant defaults, cross-defaults to other materials indebtedness, bankruptcy

and insolvency defaults and material judgment defaults.

If any event of default occurs (subject, in certain instances, to specified grace

periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Senior

Credit Facilities and Mezzanine Credit Facility may become due and payable immediately.

Stockholders’

The Senior Credit Facilities include a number of events of default, including, among other

things, non-payment defaults, covenant defaults, cross-defaults to other materials indebtedness, bankruptcy and insolvency defaults and

material judgment defaults.

If any event of default occurs (subject, in certain instances, to specified grace periods), the principal,

premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Senior Credit Facilities may

become due and payable immediately.

Stockholders’ Equity

Public Offering

On November 18, 2021, we entered into an underwriting agreement (the

“Underwriting Agreement”) with TL Investment GmbH (“TL Investment”) and Canaccord Genuity LLC, as representative

of the several underwriters named therein (together, the “Underwriters”), relating to our offer and sale of 4,700,000 shares

(the “Firm Shares”) of our common stock at an initial price to the public of $ 7.50 per share.

In addition, TL Investment granted

the Underwriters a 30-day option to purchase up to an additional 705,000 shares (the “Option Shares”) of our common stock

held by TL Investment at the public offering price, less the underwriting discounts.

On November 18, 2021, the Underwriters exercised

their option to purchase the Option Shares from TL Investment in full.

On November 22, 2021, we issued and delivered the Firm Shares and

TL Investment delivered the Option Shares.

Net proceeds to Lantronix from the offering of the Firm Shares, after

deducting the underwriting discount and offering expenses, were approximately $ 32,600,000 .

Stock Incentive Plans

We have stock incentive plans in effect under which non-qualified and

incentive stock options to purchase shares of Lantronix common stock (“stock options”) have been granted to employees, non-employees

and board members.

In addition, we have previously granted restricted common stock awards (“non-vested shares”) to employees

and board members under these plans.

In November 2020, our stockholders voted to approve the 2020 Performance Incentive Plan (the “2020

Plan”), replacing our Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”), which expired in September 2020.

At the 2010 Plan’s expiration date, approximately 1,097,000 shares of our common stock that remained available for award grants

under the 2010 Plan became available for award grants under the 2020 Plan.

An additional 2,500,000 shares our common stock are also available

for award grants under the 2020 Plan.

In addition, any shares of common stock subject to outstanding awards under the 2010 Plan that expire,

are cancelled, or otherwise terminate after the expiration date of the 2010 Plan will be available for award grant purposes under the

The 2020 Plan authorizes awards of stock options (both non-qualified and incentive), stock appreciation rights, non-vested

shares, restricted stock units (“RSUs”) and performance shares.

New shares are issued to satisfy stock option exercises and

share issuances.

At June 30, 2021, approximately 2,995,000 shares remain available for issuance under the 2020 Plan.

We have also granted

stock options and RSUs under individual inducement award agreements.

The Compensation Committee of our board of directors determines eligibility,

vesting schedules and exercise prices for stock options and shares granted under the plans.

Stock options are generally granted with an

exercise price equal to the market price of our common stock on the grant date.

Stock options generally have a contractual term of seven

to ten years.

We have stock incentive plans in effect under

which non-qualified and incentive stock options to purchase shares of Lantronix common stock (“stock options”) have been granted

to employees, non-employees and board members.

In addition, we have previously granted restricted common stock awards (“non-vested

shares”) to employees and board members under these plans.

In November 2020, our stockholders voted to approve the 2020 Performance

Incentive Plan (the “2020 Plan”), replacing our Amended and Restated 2010 Stock Incentive Plan (the “2010 Plan”),

which expired in September 2020.

At the 2010 Plan’s expiration date, approximately 1,097,000 shares of our common stock that remained

available for award grants under the 2010 Plan became available for award grants under the 2020 Plan.

An additional 2,500,000 shares our

common stock are also available for award grants under the 2020 Plan.

In addition, any shares of common stock subject to outstanding awards

under the 2010 Plan that expire, are cancelled, or otherwise terminate after the expiration date of the 2010 Plan will be available for

award grant purposes under the 2020 Plan.

The 2020 Plan authorizes awards of stock options (both non-qualified and incentive), stock appreciation

rights, non-vested shares, restricted stock units (“RSUs”) and performance shares (“PSUs”).

New shares are issued

to satisfy stock option exercises and share issuances.

At June 30, 2022, approximately 2,088,000 shares remain available for issuance

under the 2020 Plan.

We have also granted stock options and RSUs under individual inducement award agreements.

The Compensation Committee of our board of directors

determines eligibility, vesting schedules and exercise prices for stock options and shares granted under the plans.

Stock options are

generally granted with an exercise price equal to the market price of our common stock on the grant date.

Stock options generally have

a contractual term of seven to ten years.

Share-based awards generally vest and become exercisable over a one to four-year service period.

As of June 30, 2021, no

stock appreciation rights or non-vested stock was outstanding.

No income tax benefit was realized from activity in the share-based plans

during the fiscal years ended June 30, 2021 and 2020.

As of June 30, 2022, no stock appreciation rights or non-vested stock was outstanding.

No income tax benefit was realized from activity

in the share-based plans during the fiscal years ended June 30, 2022 and 2021.

Stock Option Awards

The fair value of each stock option grant is estimated on the grant

date using the Black-Scholes-Merton option-pricing formula.

Expected volatilities are based on the historical volatility of our stock

The expected term of stock options granted is estimated using the simplified method, as permitted by guidance issued by the Securities

and Exchange Commission.

We use the simplified method because we believe we are unable to rely on our limited historical exercise data

or alternative information as a reasonable basis upon which to estimate the expected term of such options.

The risk-free interest rate

assumption is based on the U.S.

Treasury interest rates appropriate for the expected term of our stock options.

The fair value of each stock option grant is estimated

on the grant date using the Black-Scholes-Merton option-pricing formula.

Expected volatilities are based on the historical volatility

of our stock price.

The expected term of stock options granted has historically been estimated using the simplified method, as permitted

by guidance issued by the Securities and Exchange Commission.

We have used the simplified method because we were generally unable to rely

on our limited historical exercise data or alternative information as a reasonable basis upon which to estimate the expected term of such

For new stock options granted beginning in the fiscal year ended June 30, 2022, we estimated the expected term based on our recent

historical exercise data.

The risk-free interest rate assumption is based on the U.S.

Treasury interest rates appropriate for the expected

term of our stock options.

The following weighted-average assumptions were used to estimate the

fair value of all of our stock option grants:

Schedule of Valuation Assumptions

Schedule of weighted-average assumptions

Years Ended June 30,

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stock options:

Summary of stock option activity

Schedule of option activity

Weighted-Average

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The following table presents a summary of activity with respect to

our RSUs during the fiscal year ended June 30, 2021:

Summary of other-than-option activity

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Balance of RSUs outstanding at June 30, 2022

Performance Stock Units

Fiscal 2021 Grant

In November 2020, we granted 415,000 RSUs with performance-based vesting

requirements (“performance stock units” or “PSUs”) to certain executive employees.

One third of the PSUs are eligible

to vest in each of the three years beginning with the fiscal year ended June 30, 2021 if certain earnings per share and revenue targets

Fiscal 2020 Grants

In October 2019, we granted 975,000 PSUs to certain executive employees.

In February 2020, we granted an additional 70,000 PSUs with performance-based vesting requirements and vesting schedule identical to those

granted in October 2019.

One third of the PSUs are eligible to vest in each of the three years beginning in fiscal 2020 if certain earnings

per share, revenue targets and market conditions are met.

The estimate of the grant date fair value and related share-based compensation

expense of these awards included the use of a Monte Carlo simulation.

The Monte Carlo simulation incorporates estimates of the potential

outcomes of the market condition of these awards, which is based on the relative total shareholder return of the Company as compared to

that of the Russell Microcap Index.

Performance Shares

The following table presents a summary of activity

with respect to our PSUs during the fiscal year ended June 30, 2021:

with respect to our PSUs:

Summary of other-than-option activity

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Employee Stock Purchase Plan

Our 2013 Employee Stock Purchase Plan (“ESPP”) is intended

to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions at the end of a specified

purchase period.

Each of our employees (including officers) is eligible to participate in our ESPP, subject to certain limitations as

set forth in our ESPP.

The ESPP currently operates with six month offering periods commencing

on the first trading day on or after May 16 and November 16 of each year (an “Offering Period”).

Common stock may be purchased

under the ESPP at the end of each six-month Offering Period unless the participant withdraws or terminates employment earlier.

of the Company’s common stock may be purchased under the ESPP at a price not less than 85% of the lesser of the fair market value

of our common stock on the first or last trading day of each Offering Period.

Our 2013 Employee Stock Purchase Plan (“ESPP”)

is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions at the end of

a specified purchase period.

Each of our employees (including officers) is eligible to participate in our ESPP, subject to certain limitations

as set forth in our ESPP.

The ESPP currently operates with six month offering

periods commencing on the first trading day on or after May 16 and November 16 of each year (an “Offering Period”).

stock may be purchased under the ESPP at the end of each six-month Offering Period unless the participant withdraws or terminates employment

Shares of the Company’s common stock may be purchased under the ESPP at a price not less than 85% of the lesser of the

fair market value of our common stock on the first or last trading day of each Offering Period.

The per share fair value of stock purchase rights

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The following table presents a summary of activity under our ESPP:

during the fiscal year ended June 30, 2021:

Summary of other-than-option activity

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Common stock purchase rights under ESPP

If there are any modifications or cancellations of the underlying unvested

share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation expense.

Future share-based

compensation expense and unearned share-based compensation expense will increase to the extent that we grant additional share-based awards.

We have a retirement savings plan (the “Plan”) to which

eligible employees may elect to make contributions through salary deferrals up to 100% of their base pay, subject to limitations.

approximately $ 280,000 and $ 219,000 in matching contributions to participants in the Plan during the fiscal years ended June 30, 2021

If there are any modifications or cancellations

of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation

Future share-based compensation expense and unearned share-based compensation expense will increase to the extent that we grant

additional share-based awards.

Retirement Plan

We have a retirement savings plan (the “Plan”)

to which eligible employees may elect to make contributions through salary deferrals up to 100% of their base pay, subject to limitations.

We made approximately $ 373,000 and $ 280,000 in matching contributions to participants in the Plan during the fiscal years ended June 30,

2022 and 2021, respectively.

In addition, we may make discretionary profit-sharing contributions,

subject to limitations.

In addition, we may make discretionary profit-sharing

contributions, subject to limitations.

During the fiscal years ended June 30, 2022 and 2021, we made no such contributions to the Plan.

The provision for income taxes consists of the

following components:

The provision (benefit) for income taxes consists

of the following components:

Schedule of Components of Income Tax Expense

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Total Current taxes

Provision for income taxes

Provision (benefit) for income taxes

The following table presents U.S.

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Right-of-use assets

Identified intangibles

Deferred tax liabilities

Net deferred tax assets (liabilities)

We have recorded a valuation allowance against our deferred tax

assets, due to uncertainties surrounding the realization of the deferred tax assets.

The following table presents a reconciliation of the provision for

income taxes to taxes computed at the U.S.

Realization of deferred tax assets is dependent upon the generation

of future taxable income.

As required by ASC 740, we have evaluated the positive and negative evidence bearing upon our ability to realize

the deferred tax assets as of June 30, 2022.

We have determined that it was more likely than not that Lantronix would not realize

the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income.

As a result of the acquisition of the TN Companies (refer to Note

3 ), we recorded U.S.

deferred tax liabilities in the purchase accounting related to non-tax-deductible intangible assets recognized

in our consolidated financial statements.

The acquired deferred tax liabilities are a source of income to support recognition of our existing

deferred tax assets.

Pursuant to ASC 805, the impact on our existing deferred tax assets and liabilities caused by an acquisition should

be recorded in the consolidated financial statements outside of acquisition accounting.

Accordingly, we recorded an income tax benefit

during the year ended June 30, 2022 of $ 2,036,000 for the partial release of the valuation allowance as a result of such purchase accounting

considerations.

The following table presents a reconciliation of the provision

(benefit) for income taxes to taxes computed at the U.S.

federal statutory rate:

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Global intangible low-tax income inclusion

Controlled foreign corporation inclusion

Foreign tax rate variances

Acquisition costs

Provision for income taxes

Due to the “change of ownership” provision of the Tax Reform

Act of 1986, utilization of our net operating loss (“NOL”) carryforwards and tax credit carryforwards may be subject to an

annual limitation against taxable income in future periods.

Due to the annual limitation, a portion of these carryforwards may expire

before ultimately becoming available to reduce future income tax liabilities.

Provision (benefit) for income taxes

Due to the “change of ownership” provision

of the Tax Reform Act of 1986, utilization of our net operating loss (“NOL”) carryforwards and tax credit carryforwards may

be subject to an annual limitation against taxable income in future periods.

Due to the annual limitation, a portion of these carryforwards

may expire before ultimately becoming available to reduce future income tax liabilities.

The following table presents our NOLs:

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(In thousands)

For federal income tax purposes, our NOL carryovers generated for tax

years beginning before July 1, 2018 began to expire in the fiscal year ended June 30, 2021.

Of our federal NOLs as of June 30, 2021 in

the table above, approximately $ 51,862,000 will expire by June 30, 2023 .

Pursuant to the Tax Cuts and Jobs Act (the “2017 Act”)

enacted by the U.S.

federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning

after June 30, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation.

For state income tax purposes,

our NOLs began to expire in the fiscal year ended June 30, 2013.

We continue to assert that our foreign earnings are indefinitely reinvested

in our overseas operations and as such, deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries.

The 2017 Act created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (“GILTI”),

must be included in the gross income of their U.S.

The FASB allows an accounting policy election of either recognizing deferred

taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when

During the fiscal years ended June 30, 2021 and 2021, we elected to treat the tax effect of GILTI as a current-period expense

when incurred.

For federal income tax purposes, our NOL carryovers

generated for tax years beginning before July 1, 2018 began to expire in the fiscal year ended June 30, 2021.

Of our federal NOLs as of

June 30, 2022 in the table above, approximately $ 26,500,000 will expire by June 30, 2023 .

Pursuant to the Tax Cuts and Jobs Act (the “2017

Act”) enacted by the U.S.

federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our

tax years beginning after June 30, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation.

income tax purposes, our NOLs began to expire in the fiscal year ended June 30, 2013.

We continue to assert that our foreign earnings

are indefinitely reinvested in our overseas operations and as such, deferred income taxes were not provided on undistributed earnings

of certain foreign subsidiaries.

The 2017 Act created a requirement that certain income earned by foreign subsidiaries, known as global

intangible low-tax income (“GILTI”), must be included in the gross income of their U.S.

The FASB allows an accounting

policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing

such taxes as a current-period expense when incurred.

During the fiscal years ended June 30, 2022 and 2021, we elected to treat the tax

effect of GILTI as a current-period expense when incurred.

Unrecognized Tax Benefits

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Balance as of June 30, 2022

At June 30, 2021, we had $6,600,000 of gross unrecognized tax benefits

which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our valuation allowance of $ 6,600,000 .

extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would

reduce the effective tax rate.

Our continuing practice is to recognize interest and penalties related to income tax matters in income

During the fiscal years ended June 30, 2021 and 2020, we recorded an immaterial expense for interest and penalties related

to income tax matters in the provision for income taxes.

At June 30, 2021, we had approximately $ 265,000 of accrued interest and penalties

related to uncertain tax positions.

At June 30, 2021, our fiscal years ended June 30, 2018 through 2021

remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2017 through 2021 remain open to examination

by the state taxing jurisdictions.

However, we have NOLs beginning in the fiscal year ended June 30, 2001 which would cause the statute

of limitations to remain open for the year in which the NOL was incurred.

Our fiscal years ended June 30, 2014 through 2021 remain open

to examination by foreign taxing authorities.

We currently do not anticipate that the amount of unrecognized tax benefits as of June 30,

2021 will significantly increase or decrease within the next 12 months.

Our leases include office buildings for various facilities worldwide

which are all classified as operating leases.

At June 30, 2022, we had $ 5,652,000

of gross unrecognized tax benefits which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our

valuation allowance of $ 5,652,000 .

The balance decreased from the prior year due to the expiration of certain federal research and development tax credit

carryforwards.

To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer

exists, the recognition would reduce the effective tax rate.

Our continuing practice is to recognize interest and penalties related

to income tax matters in income tax expense.

During the fiscal years ended June 30, 2022 and 2021, we recorded an immaterial expense

for interest and penalties related to income tax matters in the provision for income taxes.

At June 30, 2022, we had approximately

of accrued interest and penalties related to uncertain tax positions.

At June 30, 2022, our fiscal years ended June

30, 2019 through 2022 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2017 through 2021

remain open to examination by the state taxing jurisdictions.

However, we have NOLs beginning in the fiscal year ended June 30, 2001 which

would cause the statute of limitations to remain open for the year in which the NOL was incurred.

Our fiscal years ended June 30, 2014

through 2021 remain open to examination by foreign taxing authorities.

We currently do not anticipate that the amount of unrecognized

tax benefits as of June 30, 2022 will significantly increase or decrease within the next 12 months.

In general, our leases include office buildings for various facilities

worldwide which are all classified as operating leases.

We also have financing leases related to some office equipment in the United States.

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Right-of-use assets obtained in exchange for lease obligation

The weighted-average remaining lease term is 1.3 years.

weighted-average discount rate is 6.11 percent.

The weighted-average remaining lease term is 4.76

The weighted-average discount rate is 4.2

Maturities of lease liabilities as of June 30, 2022 were

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Non-current liabilities

and Contingencies

From time to time, we are subject to legal proceedings and claims in

the ordinary course of business.

We are currently not aware of any such legal proceedings or claims that we believe will have, individually

or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or cash flows.

Geographic, Customer and Supplier Information

California Corporate Headquarters Lease

In November 2021, we entered into a building lease agreement pursuant

to which we will lease approximately 13,767 square feet of office space for our corporate headquarters in Irvine, California.

commenced in July 2022 when we took possession of the premises.

During the fiscal quarter ending September 30, 2022, we will account for

this lease as an operating lease in accordance with ASC 842.

The term of the lease is 84 months from the commencement date, with

an option to extend the lease for one 60-month extension period at a basic rent to be agreed upon by the parties or determined pursuant

to the lease.

The initial basic rent payable is $28,900 per month and is subject to customary annual rent increases.

The aggregate basic

rent payable under the lease during the 84-month term is approximately $ 2,700,000 .

We are also obligated to pay as additional rent our

proportionate share of operating expenses, including property taxes.

Additionally, the lease required us to deliver to the landlord an

irrevocable stand-by letter of credit in the amount of $ 50,000 as security in the case of default.

Minnesota Facility Lease

On January 20, 2022, we entered into a lease agreement (the “Lease”)

to lease approximately 66,000 square feet in a building in Plymouth, Minnesota (the “Premises”) to house the operations of

the TN Companies purchased from CSI in August 2021 and to serve as a central warehouse and shipping hub for all USA-based business of

We took possession of the Premises commencing on the date of the Lease.

Beginning on May 1, 2022 (the “Rent Commencement Date”), the initial basic rent payable under the Lease is $46,738 per month

(with the first three months of rent abated), subject to annualized rent increases of 3% over the period of the Lease.

The initial term

of the Lease (the “Initial Term”) commences on the date of the Lease and ends on July 31, 2032.

The aggregate basic rent payable

under the Lease during the Initial Term is approximately $6,500,000.

We are also obligated to pay as additional rent for our proportionate

share of operating expenses, including property taxes.

The Lease contains an option to extend the lease for one 60-month extension

period at the net rent rate for the last year of the Initial Term or the then-market net rent, as determined pursuant to the Lease, as

well as a right of first offer for Lantronix on any space adjacent to the Premises during the Initial Term.

We also have the right to

terminate the Lease at the end of the 87th full calendar month after the Rent Commencement Date (the “Early Termination Date”)

by delivery of a written notice at least six months prior to the Early Termination Date and payment of a termination fee.

the landlord will reimburse Lantronix for its actual out-of-pocket costs for certain tenant improvements to the Premises, with an allowance

of up to $1,500,000 to be paid in three installments in accordance with the Lease.

We have accounted for this lease as an operating lease in accordance

with ASC 842.

We recorded a right-of-use asset of $6,954,000 and lease liability of $6,954,000 at the inception of the lease based upon

a discount rate of 3.9% over a term of 10.5 years.

Commitments and Contingencies

From time to time, we are subject to legal proceedings

and claims in the ordinary course of business.

We are currently not aware of any such legal proceedings or claims that we believe will

have, individually or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or

Significant Geographic, Customer and Supplier Information

The following table presents our sales within

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Top five customers (1)

Includes Ingram Micro the fiscal years ended June 30, 2021 and 2020.

Includes Ingram Micro in the fiscal years ended June 30, 2022 and 2021 and Amtran in the fiscal year ended June 30, 2021.

Less than 10%

No other customer represented more than 10% of our annual net revenue

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We do not own or operate a manufacturing facility.

All of our products

are manufactured by third-party contract manufacturers and foundries primarily located in Thailand, Taiwan and China.

We have several

single-sourced supplier relationships, either because alternative sources are not available or because the relationship is advantageous

If these suppliers are unable to provide a timely and reliable supply of components, we could experience manufacturing delays that

could adversely affect our consolidated results of operations.

All of our products are manufactured by third-party contract manufacturers and foundries primarily located in Thailand, Taiwan and China.

We have several single-sourced supplier relationships, either because alternative sources are not available or because the relationship

is advantageous to us.

If these suppliers are unable to provide a timely and reliable supply of components, we could experience manufacturing

delays that could adversely affect our consolidated results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures