What changed in this filing

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Item 9A. Controls and Procedures

2024-09-09 compared with 2023-09-12 · 647 added, 767 removed, 955 unchanged (60% of the section changed)

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Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)

We maintain disclosure controls and procedures (as defined in Rules 13a-15I

and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that

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to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive

Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023.

on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures

were not effective as of June 30, 2023 due to the material weaknesses identified and described below.

In light of the material weaknesses described below, management performed

additional analysis and other procedures to ensure that our interim and annual Consolidated Financial Statements were prepared in accordance

generally accepted accounting principles (“GAAP”).

Accordingly, management believes that the Consolidated Financial

Statements included in this Report fairly present, in all material respects, our financial position, results of operations, and cash flows

as of and for the periods presented, in accordance with U.S.

Our management, with the participation of our Chief Executive Officer and

our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024 and have concluded

they were not effective as of June 30, 2024 due to the material weakness described below.

Despite the material weakness, management believes

that the Consolidated Financial Statements included in this Report fairly present, in all material respects, our financial position, results

of operations, and cash flows as of and for the period presented, in accordance with U.S.

Management’s Report on Internal Control over Financial Reporting

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Our internal control over financial reporting includes those policies and procedures that:

· pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions

are recorded properly to allow for the preparation of financial statements in accordance with U.S.

GAAP and that our receipts and expenditures

are being made only in accordance with authorizations of our management and directors;

· provide reasonable assurance regarding prevention

or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the Consolidated

Financial Statements.

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with U.S.

GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the Consolidated Financial Statements.

Because of its inherent limitations, a system

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framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

We excluded Uplogix, Inc.

from our assessment of internal control over financial reporting as of June 30, 2023 because it was acquired in a business purchase acquisition

during the fiscal year ended June 30, 2023.

The total revenue excluded represented approximately 4% of our consolidated fiscal 2023 net

Based on its assessment, management concluded that the Company’s internal control over financial reporting was not effective

as of June 30, 2023 due to material weakness in our control environment whereby the Company did not maintain adequate information

technology (“IT”) general controls related to user access to the Company’s information systems that are relevant to

the preparation of financial statements to ensure appropriate segregation of duties and to adequately restrict access to financial applications

Notwithstanding that we did not identify any material misstatements to the consolidated financial statements and there were

no changes to previously released financial results as a result of the material weakness, the control deficiencies created a reasonable

possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis.

As a result, management believes that, as of June 30, 2023, our internal control over financial reporting was not effective.

Baker Tilly US, LLP, the independent registered public accounting

firm that audited the financial statements included in this Annual Report on Form 10-K, has provided an attestation report on Lantronix’s

As disclosed in Part II, Item 9A in the Company’s Annual Report

on Form 10-K for the fiscal year ended June 30, 2023, management concluded that the Company’s internal control over financial reporting

was not effective as of June 30, 2023.

Management identified deficiencies in the design and implementation of information technology general

controls (“ITGCs”), constituting a material weakness, related to the Company’s information systems relevant to preparing

consolidated financial statements.

Specifically, management did not design and maintain user access controls to ensure appropriate segregation

of duties and to adequately restrict user access to financial applications and data.

During the fiscal year ended June 30, 2024, management implemented

a previously disclosed remediation plan to enhance the design of ITGCs related to user access and proper segregation of duties.

· Modifying user rights to significantly restrict access to certain key financial

applications and functionality.

· Implementing additional review and approval requirements within the financial

systems workflow.

· Creating new audit reports that require management review and approval of

changes made to key attributes within the financial application.

· Improving and maintaining documentation underlying ITGCs to promote knowledge

transfer upon personnel and function changes.

· Implementing an IT management review and testing plan to monitor user access,

specifically focusing on financial applications.

As of June 30, 2024, management has implemented the remedial actions

and controls described above concerning the material weakness.

Due to the timing of the design and implementation of our remediation efforts

during the fourth quarter of fiscal 2024, there has been insufficient time to demonstrate consistent execution of certain controls.

such, management is unable to conclude on the operating effectiveness of the implemented remediations and therefore concludes that internal

control over financial reporting was not effective as of June 30, 2024.

We expect to continue to execute, test, and assess the effectiveness

of these controls as we progress into fiscal 2025.

Baker Tilly US, LLP, the independent registered public accounting firm

that audited the financial statements included in this Annual Report on Form 10-K, has provided an attestation report on Lantronix’s

internal control over financial reporting.

As a result of the material weaknesses described below, such report includes an adverse audit

As a result of the material weakness described above, their report includes an adverse audit

report on the effectiveness of internal control over financial reporting as of June 30, 2024.

Material Weakness in Internal Control Over Financial

In connection with the evaluation of the Company’s

internal control over financial reporting as described above, management has identified a deficiency constituting a material weakness

related to the design and implementation of information technology general controls related to the Company’s information systems

that are relevant to the preparation of consolidated financial statements.

Specifically, we did not design and maintain user access controls

to adequately restrict user access to the financial application and data to appropriate Company personnel.

Notwithstanding we did not identify any material

misstatements to the consolidated financial statements and there were no changes to previously released financial results as a result

of this material weakness, the control deficiencies created a reasonable possibility that a material misstatement to the consolidated

financial statements would not be prevented or detected on a timely basis.

Remediation Efforts to Address the Material

Weaknesses Existing in the Current Period

Management has initiated a remediation plan

to enhance the design of information technology general controls related to user access by implementing controls over user access including

monitoring controls and enforcing proper segregation of duties within IT environments based on roles and responsibilities.

weakness will not be considered remediated until the controls have operated effectively, as evidenced through testing, for a sufficient

number of instances.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting

identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter

ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial

Except for the changes in connection with our remediation plan discussed

above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by

Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2024 that have materially affected, or

are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

On September 11, 2023, Heidi Nguyen and Paul Folino notified the Company

of their decision not to stand for re-election at the Company’s 2023 annual meeting of stockholders (the “Annual Meeting”).

Their decision was not as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies

or practices.

The Company has selected Bernhard Bruscha as a nominee for election by stockholders at the Annual Meeting, and the size

of the board of directors has been reduced to five members, effective as of the Annual Meeting.

3 , 2024, we entered into a Fourth Amendment to Third Amended and Restated Loan and Security

Agreement (the “Fourth Amendment”) with Silicon Valley Bank, pertaining to our existing term loan and revolving credit facility

(together, the “Senior Credit Facilities”), which amends that certain Third Amended and Restated Loan and Security Agreement,

dated as of August 2, 2021, as amended by the First Amendment to Third Amended and Restated Loan and Security Agreement, dated as of October

21, 2021, as amended by the Second Amendment to Third Amended and Restated Loan and Security Agreement, dated as of February 15, 2022,

as amended by the Third Amendment to Third Amended and Restated Loan and Security Agreement, dated as of September 7, 2022.

the Fourth Amendment, the maturity of our Senior Credit Facilities was extended from August 2, 2025 to August 2, 2026.

The foregoing

description of the Fourth Amendment is qualified in its entirety by the Fourth Amendment, a copy of which is filed as Exhibit 10.42 to

this Annual Report on Form 10-K and is incorporated herein by reference.

Insider Trading Arrangements

the year ended June 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1

trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of

Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Portions of our definitive Proxy Statement on Schedule 14A relating to

our 2023 annual meeting of stockholders (“Proxy Statement”), which will be filed with the SEC within 120 days after the end

of the fiscal year covered by this Report, are incorporated by reference into Part III of this Report, as indicated below.

Portions of our definitive Proxy Statement on Schedule 14A relating

to our 2024 annual meeting of stockholders (“Proxy Statement”), which will be filed with the SEC within 120 days after the

end of the fiscal year covered by this Report, are incorporated by reference into Part III of this Report, as indicated below.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The names of our executive officers and their ages, titles and biographies

as of the date hereof are set forth in Item 1 in the section entitled “Information About Our Executive Officers” in Part I,

Item 1 of this Report, which is incorporated herein by reference.

We have adopted a code of business conduct and ethics that applies to all

employees, including employees of our subsidiaries, as well as each member of our board of directors.

The code of business conduct and

ethics is available at our website at www.lantronix.com under the Investor Relations-Corporate Governance section.

as of the date hereof are set forth in the section entitled “Information About Our Executive Officers” in Part I, Item 1 of

this Report, which is incorporated herein by reference.

We have adopted a code of business conduct and ethics that applies

to all employees, including employees of our subsidiaries, as well as each member of our board of directors.

The code of business conduct

and ethics is available at our website at www.lantronix.com under the Investor Relations-Corporate Governance section.

We intend to satisfy

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EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to our

Proxy Statement.

The information required by this Item is incorporated by reference

to our Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to our

Proxy Statement.

The information required by this Item is incorporated by reference

to our Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference to our

Proxy Statement.

The information required by this Item is incorporated by reference

to our Proxy Statement.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to our

Proxy Statement.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

The following consolidated financial statements and related Report of Independent

Registered Public Accounting Firm are filed as part of this Report.

The information required by this Item is incorporated by reference

to our Proxy Statement.

AND FINANCIAL STATEMENT SCHEDULES

Consolidated Financial Statements

The following consolidated financial statements and related Report

of Independent Registered Public Accounting Firm are filed as part of this Report.

Report of Independent Registered Public Accounting Firm (PCAOB ID 23 )

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Lantronix, Inc.

2010 Inducement Equity Incentive Plan

Form of Stock Option Agreement under the Lantronix, Inc.

2010 Inducement Equity Incentive Plan

Lantronix, Inc.

Amended and Restated 2010 Stock Incentive Plan, as Amended on November 14, 2017

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Amended and Restated 2010 Stock Incentive Plan

Lantronix, Inc.

2020 Performance Incentive Plan, as amended and restated

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2020 Performance Incentive Plan

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

2020 Performance Incentive Plan

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

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2020 Performance Incentive Plan

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

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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Form of Executive Officer Retention Letter Agreement

Change in Control Agreement between Lantronix, Inc.

and Jeremy Whitaker, dated December 2, 2021

Lantronix, Inc.

2013 Employee Stock Purchase Plan, as amended and restated

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.

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

and Roger Holliday

Form of Inducement Stock Option Agreement

Form of Inducement Restricted Stock Unit Agreement

Intrinsyc Technologies Corporation Amended and Restated Incentive Stock Option Plan

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and Silicon Valley Bank

Offer Letter dated July 30, 2018 between Lantronix, Inc.

and Fathi Hakam

Change in Control Agreement between Lantronix, Inc.

and Fathi Hakam dated April 25, 2021

Offer Letter dated December 12, 2022 and countersigned January 24, 2023 between Lantronix, Inc.

Offer Letter dated December 12, 2022 between Lantronix, Inc.

and Eric Bass

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and Uplogix, Inc.

Employment agreement dated October 31, 2023 between Lantronix, Inc.

and Saleel Awsare

Change in Control Agreement between Lantronix, Inc.

and Jeremy Whitaker dated May 10, 202 4

Offer Letter dated February 23, 2024 between Lantronix, Inc.

and Kurt Hoff

Offer Letter dated April 2, 2024 between Lantronix, Inc.

and Mathi Gurusamy

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

2020 Performance Incentive Plan

Form of Performance Stock Unit Award Agreement (Financial Measure) under the Lantronix, Inc.

2020 Performance Incentive Plan

Form of Performance Stock Unit Award Agreement (Relative TSR) under the Lantronix, Inc.

2020 Performance Incentive Plan

Form of Inducement Restricted Stock Unit Agreement

Form of Inducement Performance Stock Unit Agreement (Relative TSR)

Form of Inducement Performance Stock Unit Agreement (Financial Measure)

Cooperation Agreement, dated August 9, 2024, between Lantronix, Inc.

and 180 Degree Capital Corp .

Fourth Amendment to Third Amended and Restated Loan and Security Agreement dated September 3, 2024 among Lantronix, Inc., Lantronix Holding Company, Lantronix Canada, ULC and Lantronix Technologies Canada (Taiwan) Ltd., Transition Networks, Inc., Uplogix, Inc.

and Silicon Valley Bank

Subsidiaries of Lantronix, Inc.

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LANTRONIX, INC.

/s/ JEREMY WHITAKER

Jeremy Whitaker

Interim Chief Executive Officer and Chief Financial Officer

/s/ SALEEL AWSARE

Saleel Awsare

President and Chief Executive Officer

September 9, 2024

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lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange

Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities

Pursuant to the requirements of the Securities

Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities

and on the dates indicated:

/s/ SALEEL AWSARE

President, Chief Executive Officer and Director

September 9, 2024

Saleel Awsare

(Principal Executive Officer)

/s/ JEREMY WHITAKER

Interim Chief Executive Officer and Chief Financial Officer

Chief Financial Officer

September 9, 2024

Jeremy Whitaker

(Principal Executive, Financial and Accounting Officer)

/s/ PAUL FOLINO

Chairman of the Board

September 12, 2023

/s/ PHILIP BRACE

September 12, 2023

(Principal Financial and Accounting Officer)

/s/ JASON COHENOUR

Director, Chairman of the Board

September 9, 2024

Jason Cohenour

/s/ PHU HOANG

/s/ PHILIP BRACE

September 9, 2024

/s/ HEIDI NGUYEN

/s/ PHU HOANG

September 9, 2024

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Hoshi Printer

/s/ CHRISTA STEELE

September 9, 2024

Christa Steele

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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in all material respects.

Our audits of the financial statements 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 risks.

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

consolidated 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 consolidated financial statements.

Our audit of internal control

over financial reporting included obtaining an understanding of internal

control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating

Our audits of the financial statements 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 risks.

Such procedures included examining, on a test basis, evidence regarding the

amounts and disclosures in the consolidated 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 consolidated financial

Our audit of internal control over financial reporting included obtaining an understanding of internal control over

financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered

necessary in the circumstances.

Our audits also included performing such other procedures as we

considered necessary in the circumstances.

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

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assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

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

Because of its inherent limitations, internal control over

financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with

the policies or procedures may deteriorate.

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

(1) relates 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.

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.

INVENTORIES – EXCESS AND OBSOLETE RESERVE

Critical Audit Matter Description

As described in Note 1 and 4 to the consolidated financial

As described in Note 1 to the consolidated financial

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

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challenging and highly judgmental because of (i) Inherent estimation uncertainty relating to assumptions used by management in

the inventory reserve model which involved a high degree of subjectivity.

(ii) the uncertainties

the inventory reserve model which involved a high degree of subjectivity, (ii) the uncertainties

in determining demand for aging inventory and (iii) future market conditions .

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

VALUATION OF INTANGIBLE ASSETS IN ACQUISITION OF UPLOGIX, INC.

Critical Audit Matter Description

As described in Note 3 to the consolidated financial statements,

on September 12, 2022, the Company acquired Uplogix, Inc.

The transaction was accounted for as business

combination and the assets acquired and liabilities assumed have been recorded based on the final assessment of fair value.

intangible assets included approximately $1.0 million in customer relationships and approximately $0.6 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 .

We identified auditing of management’s valuation of

intangible assets in the acquisition of Uplogix, Inc.

as a critical audit matter.

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:

§ Obtaining an understanding and evaluating 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 .

§ Evaluating the Company's selection of the valuation methodology and testing significant assumptions

and inputs used by the Company in the valuation of the intangible assets by evaluating the sensitivity of changes in assumptions to the

fair value of the intangible assets and comparing the significant assumptions to current industry and market and economic trends .

§ Evaluating the competency and objectivity of third-party specialists engaged by the Company

to assist in developing management’s assumptions .

§ Involving firm employed valuation specialists to assist with our evaluation of the methodology

and significant underlying assumptions used by management in determining the fair value estimates .

§ Testing the mathematical accuracy of the models used to determine the fair values of assets

/s/ Baker Tilly US, LLP

We have served as the Company’s auditors since

We have served as the Company’s auditors

Irvine, California

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Property and equipment, net

Purchased intangible assets, net

Intangible assets, net

Lease right-of-use assets

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Fair value remeasurement of earnout consideration

Amortization of purchased intangible assets

Amortization of intangible assets

Total operating expenses

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Interest expense, net

Loss on extinguishment of debt

Other income (expense), net

Loss before income taxes

Provision (benefit) for income taxes

Provision for income taxes

Net loss and comprehensive loss

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Weighted-average common shares - basic and diluted

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

LANTRONIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Accumulated Other

Comprehensive

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$ ( 209,525 )

Shares issued pursuant to equity

offering, net

Shares issued pursuant to stock

Tax withholding paid on behalf

of employees for restricted shares

Fair value of warrants to purchase

common stock issued with bank credit facility

Shares issued pursuant to stock awards, net

Tax withholding paid on behalf of employees for restricted shares

Share-based compensation

Balance at June 30, 2023

$ ( 209,525 )

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

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$ ( 223,021 )

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

LANTRONIX, INC.

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Operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Share-based compensation

Amortization of purchased intangible assets

Amortization of intangible assets

Depreciation and amortization

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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

Accounts receivable, net

Inventories, net

Contract manufacturers' receivable

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Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

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Payment of lease liabilities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

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Income taxes paid

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

LANTRONIX, INC.

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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, our target applications include Smart Cities infrastructure, Infotainment

systems and Video Surveillance all supplemented with a comprehensive Out of Band Management products offering for Cloud and Edge Computing.

We were incorporated in California in 1989 and re-incorporated

in Delaware in 2000.

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

Company, Lantronix, we, our, or us, is a global leader in compute and connectivity solutions, targeting high-growth industries such as

Smart Cities, Automotive, and Enterprise markets.

Our products and services empower companies to capitalize on the expanding internet

of things (“IoT”) market by delivering customizable solutions that address each layer of the IoT stack.

We were incorporated in California

in 1989 and re-incorporated in Delaware in 2000.

Basis of Presentation

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compensation, restructuring charges and warranty reserves.

In the macroeconomic environment affected by COVID-19, our estimates could

require increased judgement and carry a higher degree of variability volatility.

To the extent there are material differences between

our estimates and actual results, future results of operations will be affected.

To the extent there are material differences between our estimates and actual

results, future results of operations will be affected.

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 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.

Refer to Note 2 below for a discussion of our significant

accounting policy over revenue recognition.

Accounts Receivable and Allowance for Credit

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

which is net of an allowance for credit losses 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.

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against amounts due based on those particular circumstances.

For all other customers, we estimate an allowance for doubtful accounts based

For all other customers, we estimate an allowance for credit losses based

on various considerations, including the length of time the receivables are past due and our historical bad debt collection experience.

We also consider our understanding of current economic and industry conditions that may affect the collectability of customer receivables.

Accounts that are deemed uncollectible are written off against the allowance for doubtful accounts.

We also consider our understanding of current economic and industry conditions, as well as reasonable and supportable forecasts of future

economic conditions that may affect the collectability of customer receivables.

Accounts that are deemed uncollectible are written off

against the allowance for credit losses.

Concentration of Credit Risk

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As of June 30, 2024 we do not have any assets or liabilities that were measured at fair value on a non-recurring

We believe all of our financial instruments’ recorded values approximate

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

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

The functional currency for all our foreign subsidiaries is currently

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

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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 operations.

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 or net realizable value,

cost being determined on a weighted-average cost basis that approximates the first-in, first-out method.

We provide reserves for excess

and obsolete inventories determined primarily based upon estimates of future demand for our products.

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.

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

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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.

Depreciation 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.

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.

Business Combinations

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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, 2023, 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,

When an IPR&D project is completed, the IPR&D is reclassified as an amortizable 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 as of the last day of 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, 2024, 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.

Intangible Assets

Included within “intangible assets, net" at June 30, 2024

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.

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.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, including intangible

assets, whenever events or changes in circumstances indicate that the carrying amount of long-lived assets within an asset group 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 over its remaining useful life and eventual disposition.

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

the carrying amount of those assets, we estimate the fair value of the asset group and 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.

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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

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

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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 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.

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.

If actual return rates and/or replacement

costs differ significantly from our estimates, adjustments to recognize additional warranty expense in cost of revenue may be required

in future periods.

Restructuring Charges

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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.

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

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

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

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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 to the

market terms or a liability if the terms are unfavorable relative to the market terms.

Refer to Note 9 below for additional information regarding our leases.

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.

Refer to Note 9 below for additional information regarding our

Advertising Expenses

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$ 237,000 and $ 262,000 for the fiscal years ended June 30, 2024 and 2023, respectively.

The costs are included in selling, general and administrative

expenses in the consolidated statements of operations.

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:

the development,

marketing, and sale of industrial and enterprise IoT products and services.

Our chief executive officer was identified as our chief operating

decision-maker (CODM), and reviews financial information presented on a consolidated basis for the purpose of allocating resources and

evaluating financial performance.

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.

Lantronix adopted this ASU in the first quarter of our fiscal year ended June 30,

2023, and as such, we recorded applicable contract assets and liabilities acquired in the Uplogix acquisition (see Note 3 ) in accordance

with this ASU.

Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”)

issued a final standard on improvements to income tax disclosures.

The new standard requires disaggregated information about a company’s

effective tax rate reconciliation and information on income taxes paid.

The standard will be effective for Lantronix beginning with our

annual financial statements for the fiscal year ending June 30, 2026.

We have not yet determined the impact of adopting this guidance

on our financial statements.

Segment Disclosures

In November 2023, the FASB issued a new Accounting Standards Update

(“ASU”) requiring incremental disclosures related to a public company’s reportable segments.

The new guidance was issued

primarily to provide financial statement users with more disaggregated expense information about a company’s reportable segments.

The guidance does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating

segments into reportable segments.

The guidance is effective for Lantronix on a retrospective basis beginning with our annual financial

statements for the fiscal year ending June 30, 2025.

We are evaluating this guidance and currently do not anticipate its adoption to materially

impact our financial statements.

Current Expected Credit Losses

In June 2016, the FASB issued a new ASU requiring financial assets measured

In June 2016, the FASB issued an ASU 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

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and reasonable and supportable forecasts that affect the collectability of the financial assets.

The ASU is effective for Lantronix beginning

in the first quarter of fiscal year 2024.

The adoption of this guidance is not expected to have a material effect on our consolidated

The ASU became effective for Lantronix

at the beginning of our first quarter of fiscal year 2024.

The adoption of this guidance did not have a material effect on our consolidated

financial statements.

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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 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.

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 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

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

Revenues from our extended warranty and services are

generally recognized ratably over the applicable service period.

Revenues from sales of our software-as-a-service (“SaaS”)

products are recognized ratably over the applicable service period as well.

We prepay sales commissions related to certain of these contracts, which

are incremental costs of obtaining the contract.

We capitalize these costs and expense them ratably on a straight-line basis over the

life of the contract.

Revenues from our extended warranty, technical

support, and maintenance services are generally recognized ratably over the applicable service period.

Revenues from sales of our software-as-a-service

(“SaaS”) solutions are recognized ratably over the applicable service period as well.

We prepay sales commissions related to certain of these contracts,

which are incremental costs of obtaining the contract.

We capitalize these costs and expense them ratably on a straight-line basis over

the life of the contract.

At June 30, 2024, prepaid sales commissions included in prepaid expenses and other current assets totaled $ 194,000

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of the contract and reassess the estimate each reporting period.

We determined that this method best represents the transfer of services

We have 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.

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 have 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.

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

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products include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing

secure network connectivity, power for IoT end devices through Power over Ethernet (PoE), application hosting, protocol conversion, media

conversion, secure access for distributed IoT deployments and many other functions.

Our Software & Services products can be classified

as either (i) our SaaS platform, which enables customers to easily deploy, monitor, manage, and automate across their global deployments,

all from a single platform login, virtually connected as though directly on each device, (ii) engineering services, which is a flexible

business model that allows customers to select from turnkey product development or team augmentation for accelerating complex areas of

product development or (iii) extended warranty, support and maintenance.

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

secure network connectivity, power for IoT end devices through Power over Ethernet, application hosting, protocol conversion, media conversion,

secure access for distributed IoT deployments and many other functions.

Our Software & Services products can be classified as either

(i) our SaaS platform, which enables customers to easily deploy, monitor, manage, and automate across their global deployments, all from

a single platform login, virtually connected as though directly on each device, (ii) engineering services, which is a flexible business

model that allows customers to select from turnkey product development or team augmentation for accelerating complex areas of product

development or (iii) extended warranty, support and maintenance.

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

geographic regions:

the Americas;

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and Asia Pacific Japan (“APJ”).

The following tables present our net revenue by product line and by geographic

The following tables present our net revenue by product line and by

geographic region.

Net revenues by geographic region are generally based on the “bill-to” location of our customers:

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(In thousands)

The following table presents product revenues and service revenues as

a percentage of our total net revenue:

The following table presents product revenues and service revenues

as a percentage of our total net revenue:

Schedule of percentage total net revenues

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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, support and maintenance 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 deferred revenue balance

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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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Current portion, June 30, 2024

We expect to recognize substantially all of the non-current portion of

deferred revenue over the next 2 to 5 years.

Acquisition of Uplogix

On September 12, 2022 (the “Closing Date”),

we entered into a Merger Agreement with Uplogix, Inc.

(“Uplogix”) pursuant to which Uplogix became a wholly-owned subsidiary

of Lantronix.

Pursuant to the Merger Agreement, all of the issued and outstanding shares of Uplogix were cancelled and converted into

the right to receive an applicable portion of the Consideration Pool Amount (as defined in the Merger Agreement).

In addition, the holders

of promissory notes issued by Uplogix entered into note termination agreements with Uplogix, which provided, among other things, that

the issued and outstanding promissory notes were cancelled and terminated upon the closing of the Merger.

Holders of Company Junior-Only

Notes (as defined in the Merger Agreement) received, in connection with their cancellation and termination of such notes, the full payment

of principal and interest.

Holders of Company Senior Notes (as defined in the Merger Agreement), including those holders of Company Senior

Notes and Company Junior Notes (as defined in the Merger Agreement) (the “Company Senior Noteholders”), received the applicable

portions of the Estimated Merger Consideration (as defined in the Merger Agreement).

The aggregate consideration payable by Lantronix

under the Merger Agreement was equal to $8,000,000 (inclusive of payments to satisfy the Company Junior-Only Notes), subject to certain

adjustments, including, without limitation, for cash, debt, transaction expenses (including the Bonus Amount (as defined below)) and net

working capital.

Prior to the Closing Date, Uplogix entered into an amended and restated bonus plan, which provided that certain of its

employees would be entitled to receive, in the aggregate, 15% of the consideration otherwise payable to the holders of Company Senior

Notes (the “Bonus Amount”) under the Merger Agreement, with the terms of such bonus payments (including the amounts per employee

and the timing of such payments) as specified in such bonus plan.

In addition, the Company Senior Noteholders and

former Uplogix employees have the right to receive up to an additional $4,000,000 in the aggregate (the “Earnout Amount”),

payable after the closing of the Merger based on revenue targets for the business of Uplogix as specified in the Merger Agreement.

Earnout Amount will be based on Uplogix achieving revenue (subject to certain adjustments as specified in the Merger Agreement) of $7,000,000

to $14,000,000 for the period beginning at the Closing Date and ending on September 30, 2023.

The Company Senior Noteholders are entitled

to an advance of the Earnout Amount if the revenue of the Uplogix business for the period beginning at the closing of the Merger and ending

on March 31, 2023 is between $7,000,000 to $14,000,000, but in no event will the Earnout Amount, together with any such advance of the

Earnout Amount, exceed $4,000,000.

The acquisition of Uplogix brings immediate scale to our out-of-band remote

management solutions, adding a complementary high-end product offering that includes high-margin maintenance and licensing revenues.

A summary of the purchase consideration for the Uplogix acquisition is

as follows (in thousands):

We currently expect to recognize substantially all of the non-current

portion of deferred revenue over the next 2 to 5 years.

On September 12, 2022 (the “Closing Date”), we entered

into a merger agreement (the “Merger Agreement”) with Uplogix, Inc.

(“Uplogix”) pursuant to which Uplogix became

a wholly-owned subsidiary of Lantronix (the “Merger”).

Pursuant to the Merger Agreement, all of the issued and outstanding

shares of Uplogix were cancelled and converted into the right to receive an applicable portion of the Consideration Pool Amount (as defined

in the Merger Agreement).

In addition, the holders of promissory notes issued by Uplogix entered into note termination agreements with

Uplogix, which provided, among other things, that the issued and outstanding promissory notes were cancelled and terminated upon the closing

of the Merger.

Holders of Company Junior-Only Notes (as defined in the Merger Agreement) received, in connection with their cancellation

and termination of such notes, the full payment of principal and interest.

Holders of Company Senior Notes (as defined in the Merger Agreement),

including those holders of Company Senior Notes and Company Junior Notes (as defined in the Merger Agreement) (the “Company Senior

Noteholders”), received the applicable portions of the Estimated Merger Consideration (as defined in the Merger Agreement).

The aggregate consideration payable by Lantronix under the Merger Agreement

was equal to $8,000,000 (inclusive of payments to satisfy the Company Junior-Only Notes), subject to certain adjustments, including, without

limitation, for cash, debt, transaction expenses (including the Bonus Amount (as defined below)) and net working capital.

Closing Date, Uplogix entered into an amended and restated bonus plan, which provided that certain of its employees would be entitled

to receive, in the aggregate, 15% of the consideration otherwise payable to the holders of Company Senior Notes (the “Bonus Amount”)

under the Merger Agreement, with the terms of such bonus payments (including the amounts per employee and the timing of such payments)

as specified in such bonus plan.

In addition, the Company Senior Noteholders and former Uplogix employees

with the right to receive up to an additional $4,000,000 in the aggregate (the “Earnout Amount”), payable after the closing

of the Merger based on revenue targets for the business of Uplogix as specified in the Merger Agreement.

The Earnout Amount was based

on Uplogix achieving revenue of $7,000,000 to $14,000,000 for the period beginning at the Closing Date and ending on September 30, 2023.

The acquisition of Uplogix brought immediate scale to our out-of-band

remote management solutions, adding a complementary high-end product offering that includes high-margin maintenance and licensing revenues.

A summary of the purchase consideration for the Uplogix acquisition

is as follows (in thousands):

Schedule of purchase consideration

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

to the valuation of certain assets acquired and liabilities assumed may result in changes to the recorded amounts of assets and liabilities,

with corresponding adjustments to goodwill in subsequent periods.

As of June 30, 2023, the measurement period is complete.

During the fiscal year ended June 30, 2023, based on additional analysis

and refinements to our estimates, we adjusted the preliminary purchase price allocation as of the Closing Date to (i) decrease the estimated

fair value of intangible assets acquired by $ 660,000 , (ii) increase the fair value of other current liabilities by a net amount of $ 12,000 .

These adjustments resulted in an increase to goodwill of $ 672,000 .

measurement period for assessing the valuation of acquired assets and assumed liabilities was complete as of June 30, 2023.

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

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Total consideration

As discussed above, the purchase consideration and resulting purchase price

allocation for this acquisition included various adjustments for transaction expenses, the Bonus Amount, payment of Company Junior-Only

As discussed above, the purchase consideration and resulting purchase

price allocation for this acquisition included various adjustments for transaction expenses, the Bonus Amount, payment of Company Junior-Only

Notes and certain other accrued expenses paid shortly after the Closing Date.

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related to this acquisition are 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:

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

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Trademarks and trade names

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

weighted-average useful lives.

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

estimated weighted-average useful lives.

Valuation Methodology

The customer relationships 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

The customer relationships 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.

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discounted to present value.

Assumptions used in forecasting cash flows for each

of the identified intangible assets included consideration of the following:

Assumptions used in forecasting cash flows for

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

Historical performance including sales and profitability

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Remeasurement of Earnout Consideration

During the year ended June 30, 2023, we remeasured the estimated fair value

of the earnout consideration based on our updated expectations of achieving the revenue targets for the business of Uplogix.

The following table presents the change in the earnout consideration liability

(in thousands):

During the fiscal year ended June 30, 2024, we finalized the fair value

of the earnout consideration based on financial results through September 30, 2023.

The earnout liability was paid out in full in December

The table below presents the change in the earnout consideration liability

during the current fiscal year (in thousands):

Schedule of change in the earnout consideration liability

Preliminary estimated fair value of earnout consideration

Remeasurement estimates

Balance at June 30, 2023

The remeasurement of the earnout consideration liability was recorded within

our operating expenses in the accompanying consolidated statement of operations for the fiscal year ended June 30, 2023.

The balance of

this liability is recorded in other current liabilities on the accompanying consolidated balance sheet at June 30, 2023.

Final remeasurement estimate

Balance at June 30, 2024

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 Uplogix as of the first day of our fiscal year ended June 30, 2022.

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

In accordance with the pro forma acquisition date, we recorded in the year ended June 30, 2022 supplemental pro forma data (i)

cost of goods sold from manufacturing profit in acquired inventory of $ 225,000 , (ii) acquisition related restructuring costs of $ 315,000

and (iii) acquisition-related costs of $ 315,000 , with a corresponding reduction in the year ended June 30, 2023 supplemental pro forma

Additionally, we recorded $ 506,000 of amortization expense in the year ended June 30, 2022 supplemental pro forma data, and a reduction

of amortization expense of $ 79,000 in the year ended June 30, 2023 supplemental pro forma data to represent amortization for the full

fiscal year period.

Net revenue related to products and services from the acquisition of Uplogix

contributed just under 4% of our total net revenue for the year ended June 30, 2023.

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 earnings on a standalone basis.

The following supplemental pro forma data summarizes our results of

operations for the periods presented, as if we completed the acquisition of Uplogix as of the first day of our fiscal year ended June

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 year ended June 30, 2022 supplemental pro

forma data (i) cost of goods sold from manufacturing profit in acquired inventory of $ 225,000 , (ii) acquisition related restructuring

costs of $ 315,000 and (iii) acquisition-related costs of $ 315,000 , with a corresponding reduction in the year ended June 30, 2023 supplemental

pro forma data.

Additionally, we recorded $ 506,000 of amortization expense in the year ended June 30, 2022 supplemental pro forma data,

and a reduction of amortization expense of $ 79,000 in the year ended June 30, 2023 supplemental pro forma data to represent amortization

for the full fiscal year period.

Net revenue related to products and services from the acquisition of

Uplogix contributed just under 4% of our total net revenue for the year ended June 30, 2023.

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 earnings on a standalone basis.

Supplemental pro forma data is as follows:

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Basic and Diluted

Acquisition of Transition Networks

April 28, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Communications Systems, Inc.,

a Minnesota corporation (“CSI”), pursuant to which we agreed to purchase from CSI the Transition Networks (“TNI”)

and Net2Edge businesses of CSI (the “Transaction”).

The Transaction closed on August 2, 2021 (the “Closing Date”),

with Lantronix acquiring all outstanding shares of the common 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

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.

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.

The acquisition of the TN Companies provided Lantronix with complementary

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

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

(in thousands):

Schedule 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

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 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.

Supplemental Financial Information

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Accounts receivable

Allowance for doubtful accounts

Allowance for credit losses

Accounts receivable, net

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Property and Equipment

The following table presents details of property

The following table presents details of our property

and equipment:

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Property and equipment, net

Purchased Intangible Assets

The following table presents details of purchased

The following table presents details of our goodwill

Schedule of goodwill

June 30, 2024

(In thousands)

Balance at June 30, 2023

Current year activity

Balance at June 30, 2024

Intangible Assets

Schedule of purchased intangible assets

The following table presents details of our intangible

Schedule of intangible assets

June 30, 2024

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Customer relationships

Order backlog

Non-compete agreements

Trademark and trade name

We do not currently have any purchased intangible

assets with indefinite useful lives.

We do not currently have any intangible assets

with indefinite useful lives.

As of June 30, 2024, future estimated amortization

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(In thousands)

Total amortization

The following table presents details of our goodwill

Schedule of goodwill

June 30, 2023

(In thousands)

Balance at June 30, 2022

Acquisition of Uplogix

Balance at June 30, 2023

Total amortization expense

Warranty Reserve

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Beginning balance

Warranty reserve assumed from acquisition of the TN Companies

Charged to cost of revenues

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Net loss per share - basic and diluted

The following table presents the common stock equivalents excluded from

the diluted net loss per share calculation because they were anti-dilutive for the periods presented.

These excluded common stock equivalents

could be dilutive in the future.

The following table presents the common stock equivalents excluded

from the diluted net loss per share calculation because they were anti-dilutive for the periods presented.

These excluded common stock

equivalents could be dilutive in the future.

Schedule of antidilutive securities

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Severance and Related Charges

The following table presents details of the liability we recorded related

to restructuring, severance and related activities during the current fiscal year:

The following table presents details of the liability we recorded

related to restructuring, severance and related activities during the current fiscal year:

Schedule of severance and related charges

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Accrued property and equipment paid for in the subsequent period

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

On September 7, 2022 we entered into a Third Amendment

to the Third Amended and Restated Loan and Security Agreement (the “Amendment”) with Silicon Valley Bank (“SVB”),

pertaining to our existing term loan and revolving credit facility (together, the “Senior Credit Facilities”), which amends

that certain Third Amended and Restated Loan and Security Agreement, dated as of August 2, 2021, as amended by the First Amendment to

Third Amended and Restated Loan and Security Agreement, dated as of October 21, 2021, as amended by the Second Amendment to Third Amended

and Restated Loan and Security Agreement, dated as of February 15, 2022 by and among Lantronix and SVB (collectively with the Amendment,

the “Loan Agreement”).

The Amendment, among other things, provided for an additional term

loan in the original principal amount of $ 5,000,000

that matures on August

The Senior Credit Facilities bears interest at Term Secured Overnight

Financing Rate (“ 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 1.50% and a Prime Rate floor of 3.25%.

The Amendment reduces the minimum liquidity requirement from $ 5,000,000

to $ 4,000,000 .

On September 7, 2022 we entered into a Third Amendment to the Third

Amended and Restated Loan and Security Agreement (the “Amendment”) with Silicon Valley Bank (“SVB”), pertaining

to our existing term loan and revolving credit facility (together, the “Senior Credit Facilities”), which amends that certain

Third Amended and Restated Loan and Security Agreement, dated as of August 2, 2021, as amended by the First Amendment to Third Amended

and Restated Loan and Security Agreement, dated as of October 21, 2021, as amended by the Second Amendment to Third Amended and Restated

Loan and Security Agreement, dated as of February 15, 2022 by and among Lantronix and SVB (collectively with the Amendment, the “Loan

The Amendment, among other things, provided for an additional

term loan in the original principal amount of $ 5,000,000 that

matures on August 2, 2025 .

Senior Credit Facilities bears interest at Term Secured Overnight Financing Rate (“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 1.50% and a Prime Rate floor of 3.25%.

The Amendment reduced

the minimum liquidity requirement from $ 5,000,000 to

$ 4,000,000 .

As a condition to entering into the Amendment, we were obligated to pay a nonrefundable facility increase fee in the amount of

The Senior Credit Facilities mature on August

The Senior Credit Facilities are secured by substantially all of our assets.

On September 7, 2022, we borrowed $ 2,000,000

on our revolving credit facility.

We subsequently paid this amount back to the bank in full in February 2023.

Pursuant to the Amendment, the Senior Credit Facilities were scheduled to mature on August

On September 3, 2024, we entered into a Fourth Amendment to our Loan Agreement, pursuant to which the maturity of

our Senior Credit Facilities was extended to August 2, 2026 .

See Part II, Item 9B of this Report.

The Senior Credit Facilities are

secured by substantially all of our assets.

On April 3, 2023, we entered into a Letter Agreement

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Non-current portion

During the year ended June 30, 2023, we recognized $ 1,610,000 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.

On March 10, 2023, SVB was closed by the California Department of

Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

13, 2023, the FDIC announced that it had transferred all insured and uninsured deposits and substantially all assets of SVB to a newly

created, full-service FDIC-operated “bridge bank” called Silicon Valley Bridge Bank, N.A., where depositors would have full

access to their money immediately.

On March 27, 2023, First Citizens Bank announced that it entered into an agreement with the FDIC to

purchase all of the assets and liabilities of Silicon Valley Bridge Bank.

We currently have full control of our cash and cash equivalents

balance at SVB and our other banking institutions.

We frequently monitor the third-party depository institutions that hold our cash and

cash equivalents.

Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds.

During the year ended June 30, 2024, we recognized $ 1,697,000

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.

Financial Covenants

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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.

(iii) 2.00 to 1.00 for the calendar quarter ending 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,

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

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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

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.

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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 (“PSUs”).

New shares are issued to satisfy stock

option exercises and share issuances.

At June 30, 2023, approximately 2,465,000 shares remain available for issuance under the 2020 Plan.

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

An additional 2,500,000 shares our common stock were also made

available at that time for award grants under the 2020 Plan, and shares of common stock subject to outstanding awards under the 2010 Plan

that expired, were cancelled, or otherwise terminate after the expiration date of the 2010 Plan became available for award grant purposes

under the 2020 Plan.

In November 2022, our stockholders voted to approve amendments to the 2020 Plan that, among other things, increased

the aggregate number of shares of our common stock available for award grants under the plan by 1,800,000 shares.

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.

2024, approximately 1,107,000 shares remain available for issuance under the 2020 Plan.

We have also granted stock options, RSUs and PSUs

under individual inducement award agreements.

The Compensation Committee of our board of directors determines eligibility,

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during the fiscal years ended June 30, 2024 and 2023.

Restricted Stock Units

The fair value of our RSUs is based on the closing market price of

our common stock on the grant date.

The following table presents a summary of activity with respect to

Schedule of RSU activity

Number of Shares

Weighted-Average Grant Date Fair Value per Share

(In thousands)

Balance of RSUs outstanding at June 30, 2023

Balance of RSUs outstanding at June 30, 2024

Performance Shares

The fair value of our PSUs is estimated as of the grant date based

upon the expected achievement of the performance metrics specified in the grant and the closing market price of our common stock on the

date of grant.

To the extent a grant of PSUs contains a market condition, the grant date fair value is estimated using a Monte Carlo

simulation with the following weighted average assumptions:

Schedule of valuation assumptions

Years Ended June 30,

Volatility of common stock

Average correlation coefficient of peer companies

Risk-free interest rate

Contract term (in years)

Dividend yield

The following table presents a summary of activity with respect to

Schedule of PSU activity

Number of Shares

Weighted Average Grant Date Fair Value

(In thousands)

Balance of PSUs outstanding at June 30, 2023

Balance of PSUs outstanding at June 30, 2024

Stock Option Awards

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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

Years Ended June 30,

Expected term (in years)

Expected volatility

Risk-free interest rate

Dividend yield

The following table presents a summary of activity for all of our stock

Schedule of option activity

The following table presents a summary of activity for all of our

stock options:

Schedule of stock option

Weighted-Average

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Options exercisable at June 30, 2024

The following table presents a summary of grant date fair value and intrinsic

value information for all of our stock options:

Summary of option grant-date fair value and intrinsic value information

The following table presents a summary of grant date fair value and

intrinsic value information for all of our stock options:

Schedule of option grant-date fair value and intrinsic value information

Years Ended June 30,

(In thousands, except per share data)

(In thousands,

except per share data)

Weighted-average grant date fair value per share

Intrinsic value of options exercised

Restricted Stock Units

The fair value of our RSUs is based on the closing market price of our

common stock on the grant date.

The following table presents a summary of activity with respect to our

Summary of other than option

Number of Shares

Weighted-Average Grant Date Fair Value per Share

(In thousands)

Balance of RSUs outstanding at June 30, 2022

Balance of RSUs outstanding at June 30, 2023

Performance Shares

The following table presents a summary of activity with respect to our

Summary of other than option

Number of Shares

(In thousands)

Balance of PSUs outstanding at June 30, 2022

Balance of PSUs outstanding at June 30, 2023

The following weighted-average assumptions were used to estimate the

fair value of all of our stock option grants during the year ended June 30, 2023:

Schedule of valuation assumptions

Expected term (in years)

Expected volatility

Risk-free interest rate

Dividend yield

Employee Stock Purchase Plan

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

The per share fair value of stock purchase rights granted under the ESPP

was estimated using the following weighted-average assumptions:

Schedule of Valuation Assumptions

The ESPP limits the number of shares of common stock that

may be issued under the plan to 1,800,000 shares.

The per share fair value of stock purchase rights granted under the

ESPP was estimated using the following weighted-average assumptions:

Schedule of valuation

Years Ended June 30,

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

Summary of other than option activity

Schedule of employee stock

purchase plan activity

June 30, 2024

1 unchanged sentence

Shares available for issuance at June 30, 2023

Shares reserved for issuance

Shares issued

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Share-Based Compensation Expense

The following table presents a summary of share-based compensation expense

included in each applicable functional line item on our consolidated statements of operations:

Schedule of share-based compensation expense by functional line item

The following table presents a summary of share-based compensation

expense included in each applicable functional line item on our consolidated statements of operations:

Schedule of share-based compensation expense

Years Ended June 30,

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Total share-based compensation expense

The following table presents a summary of the remaining unrecognized share-based

compensation expense related to our outstanding share-based awards as of June 30, 2023:

The following table presents a summary of the remaining unrecognized

share-based compensation expense related to our outstanding share-based awards as of June 30, 2024:

Schedule of unrecognized share-based compensation expense

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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

$ 411,000 and $ 373,000 in matching contributions to participants in the Plan during the fiscal years ended June 30, 2023 and 2022, respectively.

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

to limitations.

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 $ 376,000 and $ 411,000 in matching contributions to participants in the Plan during the fiscal years ended June 30, 2024

and 2023, respectively.

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

subject to limitations.

During the fiscal years ended June 30, 2024 and 2023, we made no such contributions to the Plan.

The provision (benefit) for income taxes consists of the following components:

The provision (benefit) for income taxes consists of the following

Schedule of components of income tax expense

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Total Current taxes

Provision (benefit) for income taxes

Provision for income taxes

The following table presents U.S.

and foreign income (loss) before income

Schedule of Income before Income Tax, Domestic and Foreign

and foreign income (loss) before

income taxes:

Schedule of income before income taxes

Years Ended June 30,

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Loss before income taxes

The tax effects of temporary differences that give rise to deferred tax

assets and liabilities are as follows:

The tax effects of temporary differences that give rise to deferred

tax assets and liabilities are as follows:

Schedule of deferred tax assets and liabilities

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Right-of-use assets

Identified intangibles

Depreciation and amortization

1 unchanged sentence

Net deferred tax assets (liabilities)

As required by the 2017 Tax Cuts and Jobs Act (the “2017 Act”),

research and experimental (“R&E”) expenses under Internal Revenue Code Section 174 are required to be capitalized

beginning in our fiscal year ended June 30, 2023.

R&E expenses are required to be amortized over five years for domestic

expenses and 15 years for foreign expenses.

Our net deferred tax liability of $ 146,000

at June 30, 2023 represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred tax

assets, and is recorded in other non-current liabilities on the accompanying consolidated balance sheet at June 30, 2023.

Our net deferred tax liability of $ 179,000 and $ 146,000 at June 30,

2024 and 2023, respectively, represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred

tax assets, and are recorded in other non-current liabilities on the accompanying consolidated balance sheets at June 30, 2024 and 2023.

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, 2023.

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 during the fiscal year

ended June 30, 2022, 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 fiscal 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.

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, 2024 and 2023.

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.

The following table presents a reconciliation of the provision (benefit)

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Stock options

Other permanent differences

Change in valuation allowance

Change in state tax rate

Global intangible low-tax income inclusion

Foreign tax rate variances

Acquisition costs

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 NOL carryforwards:

Summary of Operating Income (Loss) Carryforwards

(In thousands)

Our federal NOL carryforwards generated for tax years beginning before

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

Pursuant to the 2017 Act, we also have federal NOL carryforwards

of $ 6,788,000 that will not expire but can only be used to offset 80 % of future taxable income.

For state income tax purposes, our NOL

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

Provision for income taxes

We continue to assert that our foreign earnings are indefinitely reinvested

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for the fiscal year ended June 30, 2024:

Summary of uncertain tax position

Schedule of uncertain tax position

June 30, 2024

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Balance as of June 30, 2024

At June 30, 2023, we had $ 4,813,000

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

our valuation allowance of $ 4,813,000 .

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, 2023 and 2022, we recorded an immaterial expense for interest and penalties

related to income tax matters in the provision for income taxes.

At June 30, 2023, we had approximately $ 303,000

of accrued interest and penalties related to uncertain tax positions.

At June 30, 2023, our fiscal years ended June 30, 2020 through 2023 remain

open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2019 through 2023 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, 2015 through 2023 remain open

to examination by foreign taxing authorities.

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

2023 will significantly increase or decrease within the next 12 months.

At June 30, 2024, we had $ 4,289,000 of gross unrecognized tax benefits

which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our valuation allowance of $ 4,289,000 .

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

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, 2024 and 2023, we recorded an immaterial expense for interest and penalties related

to income tax matters in the provision for income taxes.

At June 30, 2024, we had approximately $ 333,000 of accrued interest and penalties

related to uncertain tax positions.

At June 30, 2024, our fiscal years ended June 30,

2021 through 2024 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2020 through 2024

remain open to examination by the state taxing jurisdictions.

However, we have NOLs beginning in the fiscal year ended June 30, 2005

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,

2016 through 2024 remain open to examination by foreign taxing authorities.

We currently do not anticipate that the amount of unrecognized

tax benefits as of June 30, 2024 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.

Components of lease expense and supplemental cash flow information:

Components of lease expense

We also have financing leases related to some office equipment in the U.S.

The following presents components of lease expense and supplemental

cash flow information:

Schedule of components of lease expense

(In thousands)

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

The weighted-average remaining lease term is 3.76 years.

The weighted-average

discount rate is 4.6 percent.

As of June 30, 2024 and 2023, the weighted average

discount rate for leases was 4.6 %

and 4.6 %, respectively,

and the weighted average remaining lease term for leases was 3.4

years and 3.8

years, respectively.

Maturities of lease liabilities as of June 30, 2024 were as follows:

Maturities of lease liabilities

Schedule of maturities of lease liabilities

Years ending June 30,

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Non-current liabilities

California Corporate Headquarters Lease

In July 2022, we commenced the lease of approximately 14,000 square

feet of office space for our corporate headquarters in Irvine, California.

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.

We accounted for this lease as an operating lease in accordance with ASC

Upon commencement of the lease, we recorded a right-of-use asset of $2,852,000 and lease liability of $2,852,000 at the inception

of the lease based upon a discount rate of 4.6% over a term of 7 years.

Commitments and Contingencies

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

ordinary course of business.

On February 23, 2024, a purported class action, brought on behalf of

a putative class who purchased or otherwise acquired shares of Lantronix between May 11, 2023 and February 8, 2024, was filed in the United

States District Court for the Central District of California against the Company, its former chief executive officer, and its chief financial

The action, styled Neilsen v.

Lantronix, Inc.

, asserted securities fraud claims under Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with statements made in the Company’s

annual report, quarterly reports and earnings releases during the period of May 11, 2023 through February 8, 2024.

On May 7, 2024, the

court appointed Robert Ratliff and Hana Touati as co-lead plaintiffs and Levi & Korsinsky and Pomerantz as co-lead counsel.

14, 2024, the parties filed a joint stipulation to dismiss the case pursuant to voluntary dismissal.

On April 11, 2024, a purported stockholder of Lantronix filed a derivative

lawsuit styled Jernigan derivatively on behalf of Lantronix, Inc.

Cohenour et al., in the United States District Court for

the Central District of California against the Company, as the nominal defendant, former and current directors of the Company, its former

chief executive officer, and its chief financial officer, alleging breach of fiduciary duties, mismanagement, waste of corporate assets,

unjust enrichment, aiding and abetting, insider trading and violations of Section 14(a) of the Exchange Act in connection with statements

made in the Company’s annual and quarterly reports, earnings releases, and proxy statement beginning May 11, 2023.

The plaintiff

did not make a demand on the Board before instituting the lawsuit and alleged such demand would have been futile.

On May 28, 2024, the

plaintiff voluntarily dismissed Christa Steele as a defendant from the lawsuit.

On June 26, 2024, the plaintiff voluntarily dismissed

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.

insurance policies for settlements and judgments, as well as legal defense costs, although the amount of insurance coverage that we maintain

may not be adequate to cover all claims or liabilities that may arise.

In addition, provisions of the Company’s Certificate of Incorporation,

Bylaws and indemnification agreements entered into with current and former directors and officers require us, among other things, to indemnify

these directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers

and to advance expenses to such directors or officers in connection therewith.

Significant Geographic, Customer and Supplier Information

The following table presents our sales within geographic regions as a

percentage of net revenue, which is generally based on the “bill-to” location of our customers:

Schedule of revenue by geographic area

Years Ended June 30,

Europe, Middle East, and Africa

Asia Pacific Japan

Long-lived assets, which consists of property and equipment, net, lease

right-of-use assets, purchased intangible assets, net, and goodwill by geographic area are as follows:

Long-lived Assets by Geographic Areas

Long-lived assets, which consists of property and equipment, net,

lease right-of-use assets, intangible assets, net, and goodwill by geographic area are as follows:

Schedule of long-lived assets by geographic areas

(In thousands)

Rest of world

The following table presents sales to our significant customers as a percentage

of net revenue:

The following table presents sales to our significant customers as

a percentage of net revenue:

Schedule of revenue by major customers

1 unchanged sentence

Top five customers (1)

Includes Ingram Micro and Amtran in the fiscal years ended June 30, 2023 and 2022.

Includes Customer A, Customer B, and Customer C in the fiscal year ended June 30, 2024 and Customer C in the fiscal year ended June 30, 2023.

Less than 10%

No other customer represented more than 10% of our annual net revenue during

these fiscal years.

The following table shows customers that had an outstanding receivable balance that represented

at least 10% of our total net accounts receivable:

Schedule of accounts

receivable net customers

Less than 10%

Related Party Transactions

We had no net revenue from related parties for the fiscal years ended June

30, 2023 and 2022.

We had no net revenue from related parties for the fiscal years ended

June 30, 2024 and 2023.

We do not own or operate a manufacturing facility.

5 unchanged sentences

could adversely affect our consolidated results of operations.

Subsequent Event

On September 3, 2024, we entered into a Fourth Amendment to our Loan

Agreement, pursuant to which the maturity of our Senior Credit Facilities was extended from August 2, 2025 to August 2, 2026.

II, Item 9B of this Report.

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