What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-05-02 · 216 added, 301 removed, 365 unchanged (59% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

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LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue

3 unchanged sentences

Restructuring, severance and related charges

Acquisition-related costs

Fair value remeasurement of earnout consideration

5 unchanged sentences

Loss before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Net loss per share - basic and diluted

3 unchanged sentences

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Three Months Ended March 31, 2024

Comprehensive

Stockholders'

Balance at December 31, 2023

$ ( 222,984 )

Shares issued pursuant to stock awards, net

Tax withholding paid on behalf of employees for restricted shares

Share-based compensation

Balance at March 31, 2024

$ ( 223,407 )

Three Months Ended March 31, 2023

Comprehensive

Stockholders'

Balance at December 31, 2022

$ ( 213,787 )

Shares issued pursuant to stock awards, net

Tax withholding paid on behalf of employees for restricted shares

Share-based compensation

Balance at March 31, 2023

$ ( 216,852 )

Nine Months Ended March 31, 2024

Months Ended September 30, 2024

Comprehensive

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Share-based compensation

Balance at March 31, 2024

Balance at September 30, 2024

$ ( 225,523 )

Nine Months Ended March 31, 2023

Months Ended September 30, 2023

Comprehensive

5 unchanged sentences

Share-based compensation

Balance at March 31, 2023

Balance at September 30, 2023

$ ( 220,391 )

2 unchanged sentences

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH

(In thousands)

Nine Months Ended

Three Months Ended

September 30,

Operating activities

4 unchanged sentences

Amortization of manufacturing profit in acquired inventory associated with acquisitions

Loss on disposal of property and equipment

Amortization of deferred debt issuance costs

8 unchanged sentences

Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

Purchases of property and equipment

Cash payment for acquisition, net of cash and cash equivalents acquired

Net cash used in investing activities

2 unchanged sentences

Tax withholding paid on behalf of employees for restricted shares

Earnout consideration paid for acquisition

Net proceeds from issuance of debt

Payment of borrowings on term loan

Net proceeds from borrowing on line of credit

Payment of borrowings on line of credit

Payment of lease liabilities

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Net cash used in financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

March 31, 2024

September 30, 2024

Company and Significant Accounting Policies

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

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

verticals ranging from smart cities, utilities and healthcare to enterprise, intelligent transportation, and industrial automation.

on a long history of connectivity and video processing competence, target applications include video surveillance, traffic management,

infotainment systems, robotics, edge computing and remote environment management.

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.

Basis of Presentation

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recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial position

of Lantronix at March 31, 2024, the consolidated results of our operations for the three and nine months ended March 31, 2024 and our

consolidated cash flows for the nine months ended March 31, 2024.

of Lantronix at September 30, 2024, the consolidated results of our operations for the three months ended September 30, 2024 and our consolidated

cash flows for the three months ended September 30, 2024.

All intercompany accounts and transactions have been eliminated.

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estimates than at year-end.

The results of operations for the three and nine months ended March

The results of operations for the three months ended September 30, 2024

are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Recent Accounting Pronouncements

Disaggregated Expenses Disclosures

In November 2024, the Financial Accounting Standards Board (“FASB”)

issued final guidance requiring public business entities to disclose, on an annual and interim basis, disaggregated information about

certain income statement expense line items.

The required information includes purchases of inventory, employee compensation, depreciation,

intangible asset amortization and depletion.

The standard will be effective for Lantronix beginning with our annual financial statements

for the fiscal year ending June 30, 2028.

We have not yet determined the impact of adopting this guidance on our financial statements.

Income Tax Disclosures

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

In December 2023, the FASB

issued a final standard on improvements to income tax disclosures.

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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 have not yet determined the impact of adopting this guidance on our financial

Current Expected Credit Losses

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

the amortized cost basis.

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

GAAP and reflects an entity’s

current estimate of all expected credit losses.

The measurement of expected credit losses is based on historical experience, current conditions,

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

The 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.

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

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

Revenue is recognized upon the transfer of control of promised products

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

A significant portion of our products are sold to distributors under

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

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

We base our estimates for returns and price adjustments

primarily on historical experience;

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

anticipated returns and price adjustments in a given period.

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

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

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

Our estimates of accrued variable consideration are included in

other current liabilities in the accompanying unaudited condensed consolidated balance sheets.

A significant portion of our products are sold to distributors under agreements

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

consideration when estimating the amount of revenue to recognize.

We base our estimates for returns and price adjustments primarily on

historical experience;

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

and price adjustments in a given period.

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

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

reversal of any incremental revenue will not occur.

Our estimates of accrued variable consideration are included in other current liabilities

in the accompanying unaudited condensed consolidated balance sheets.

Revenues from our extended warranty, technical support and maintenance

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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 March 31, 2024, prepaid sales commissions included in prepaid expenses and other current assets totaled $ 171,000

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 September 30, 2024, prepaid sales commissions included in prepaid expenses and other current assets totaled $ 254,000

and those included in other assets totaled $ 186,000 .

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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 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

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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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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:

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

the Americas;

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and Asia Pacific Japan (“APJ”).

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

geographic region.

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

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

We present net revenues by geographic region generally based on the “ship-to” location of our customers for product

sales and the “bill-to” location for services.

Schedule of net revenue by product lines

Three Months Ended March 31,

Nine Months Ended March 31,

(In thousands)

Three Months Ended September 30,

(In thousands)

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Schedule of net revenue by geographic region

Three Months Ended March 31,

Nine Months Ended March 31,

(In thousands)

Three Months Ended September 30,

(In thousands)

Asia Pacific Japan

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 of our total net revenues

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Product revenues

Service revenues

Service revenues are comprised primarily of professional services,

software license subscriptions, and extended warranties.

Service revenues are comprised primarily of professional services, software

license subscriptions, and extended warranties.

Contract Balances

In certain instances, the timing of revenue recognition may differ

from the timing of invoicing to our customers.

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

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

With respect to product shipments, we expect

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

of these remaining performance obligations.

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

obligations, refer to the deferred revenue discussion below.

In certain instances, the timing of revenue recognition may differ from

the timing of invoicing to our customers.

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

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

With respect to product shipments, we expect to fulfill

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

these remaining performance obligations.

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

refer to the deferred revenue discussion below.

Deferred Revenue

Deferred revenue is primarily comprised of unearned revenue related

to our extended warranty, 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 unaudited condensed 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 unaudited condensed consolidated balance sheets.

The following table presents the changes in our deferred revenue balance

for the nine months ended March 31, 2024 (in thousands):

for the three months ended September 30, 2024 (in thousands):

Schedule of changes in deferred revenue

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Recognition of revenue from satisfying performance obligations

Balance, March 31, 2024

Balance, September 30, 2024

non-current portion of deferred revenue

Current portion, March 31, 2024

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

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

Remeasurement of Earnout Consideration from Uplogix Acquisition

Our September 12, 2022 merger agreement with Uplogix, Inc.

provided for the holders of Uplogix note agreements, and certain 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 acquisition 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 September 12, 2022 closing date and ending on September 30, 2023.

The earnout liability

was paid out in full in December 2023.

The table below presents the change in the earnout consideration liability

through March 31, 2024 (in thousands):

Schedule of change in the earnout consideration liability

Balance at June 30, 2023

Final remeasurement estimate

Balance at March 31, 2024

Reclassification of Cash Flows from Operating to Financing Activities

In connection with the preparation of our unaudited condensed consolidated

financial statements for the three and nine months ended March 31, 2024, we identified an error in the unaudited condensed consolidated

statement of cash flows for our second fiscal quarter ended December 31, 2023 whereby we had incorrectly classified the $ 1,262,000 earnout

payment as part of operating activities.

We believe that the impact of the error was not material to the financial statements for the

three and six months ended December 31, 2023, based on an evaluation of both quantitative and qualitative factors.

As a result, we

determined that correcting the prior period financial statements would not require the Form 10-Q for the three and six months ended December 31,

2023 to be amended.

We have reclassified the payment in the accompanying unaudited condensed consolidated statement of cash flows

for the nine months ended March 31, 2024 to financing activities.

This reclassification has no impact on the Company’s results of

operations or financial position.

The following table summarizes the impact of reclassifying the earnout

payment from operating activities to financing activities:

Schedule of earnout payment from operating activities to financing activities

Six Months Ended

December 31, 2023

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Current portion, September 30, 2024

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

of deferred revenue over the next 2 to 5 years.

Supplemental Financial Information

Schedule of inventories

September 30,

(In thousands)

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Schedule of other liabilities

September 30,

(In thousands)

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Total other non-current liabilities

The customer deposits and refunds balances in the table above include

a significant deposit from a customer as prepayment for expected future shipments under their contract.

Computation of Net Loss per Share

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Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per share data)

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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 anti dilutive securities

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Schedule of intangible assets

March 31, 2024

September 30, 2024

June 30, 2024

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Customer relationships

Trademark and trade name

We do not currently have any intangible assets

with indefinite useful lives.

As of March 31, 2024, future estimated amortization

We do not currently have any intangible assets with

indefinite useful lives.

As of September 30, 2024, future estimated amortization

expense is as follows:

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Restructuring, Severance and Related Charges

The following table presents details of the liability we recorded

related to restructuring, severance and related activities:

During the three months ended September 30, 2024, we incurred charges

of approximately $ 900,000 related to certain headcount reductions in our sales, engineering, and operations groups.

We may incur additional

charges in future periods as we identify additional cost savings and efficiencies related to our business.

The following table presents details of the liability we recorded related

to restructuring, severance and related activities:

Schedule of severance and related charges

Nine Months Ended

Three Months Ended

September 30,

(In thousands)

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Ending balance

These balances are recorded in accrued payroll and related expenses

in the accompanying unaudited condensed consolidated balance sheets.

These balances are recorded in accrued payroll and related expenses in

the accompanying unaudited condensed consolidated balance sheets.

Supplemental Cash Flow Information

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Schedule of non-cash investing transactions

Nine Months Ended

Three Months Ended

September 30,

(In thousands)

Accrued property and equipment paid for in the subsequent period

Fair value of earnout consideration from acquisitions at the closing dates

Warranty Reserve

The standard warranty periods we provide for our products typically

range from one to five years.

The standard warranty periods we provide for our products typically range

from one to five years.

Certain products carry a limited lifetime warranty, which requires us to repair or replace a defective product

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warranty issues.

The following table presents details of our warranty

reserve, which is included in other current liabilities in the unaudited condensed consolidated balance sheets:

The following table presents details of our warranty reserve, which is

included in other current liabilities in the unaudited condensed consolidated balance sheets:

Schedule of warranty reserve

Nine Months Ended

Three Months Ended

September 30,

(In thousands)

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Bank Loan Agreements

In September 2022 we entered into a Third

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

In September 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

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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 2, 2025 .

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 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 $ 25,000 .

The Senior Credit Facilities mature on August 2, 2025 .

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

in the original principal amount of $ 5,000,000 that was originally scheduled to mature on August 2, 2025.

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 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 $ 25,000 .

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

In April 2023, we entered into a Letter Agreement (the “Letter

Agreement”) with SVB, which, among other matters, amended the Loan Agreement to reduce the former requirement to hold 85% of our

company-wide cash balances at SVB to 50%, and provided a waiver of any event of default under the Loan Agreement for any failure to comply

with this covenant prior to the date of the Letter Agreement.

The following table summarizes our outstanding debt under the Senior

Credit Facilities:

In April 2023, we entered into a Letter Agreement (the “Letter Agreement”)

with SVB, which, among other matters, amended the Loan Agreement to reduce the former requirement to hold 85% of our company-wide cash

balances at SVB to 50%, and provided a waiver of any event of default under the Loan Agreement for any failure to comply with this covenant

prior to the date of the Letter Agreement.

In September 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 .

The following table summarizes our outstanding debt under the Senior Credit

Summary of outstanding debt

September 30,

(In thousands)

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Non-current portion

Outstanding borrowings on revolving credit facility

During the three and nine months ended March 31, 2024, we recognized

$ 416,000 and $ 1,301,000 , respectively, of interest expense in the accompanying unaudited condensed consolidated statements of operations

related to interest and amortization of debt issuance associated with the borrowings under the Senior Credit Facilities.

During the three months ended September 30, 2024, we recognized $ 380,000

of interest expense in the accompanying unaudited condensed consolidated statements 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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Maximum leverage ratio

The Senior Credit Facilities require that

we maintain a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest,

taxes, depreciation and amortization, and certain other allowable exclusions of (i) 2.50 to 1.00 for each calendar quarter ending June

30, 2021 through and including September 30, 2022, (ii) 2.25 to 1.00 for each calendar quarter ending December 31, 2022 through and including

September 30, 2023, and (iii) 2.00 to 1.00 for the calendar quarter ending December 31, 2023 and each calendar quarter thereafter.

The Senior Credit Facilities require that we maintain

a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes,

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

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

30, 2023, and (iii) 2.00 to 1.00 for the calendar quarter 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, and certain other allowable exclusions, less capital expenditures and taxes paid, to the trailing

twelve month principal and interest payments on all funded debt of 1.25 to 1.00 as measured at the end of each calendar quarter.

In addition, the Senior Credit Facilities

contain customary representations and warranties, affirmative and negative covenants, including covenants that limit or restrict Lantronix

and its subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments,

The Senior Credit Facilities require that we maintain

a minimum fixed charge coverage ratio, calculated as the ratio of consolidated trailing 12 month earnings before interest, taxes, depreciation

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

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

In addition, the Senior Credit Facilities contain

customary representations and warranties, affirmative and negative covenants, including covenants that limit or restrict Lantronix and

its subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments,

merge or consolidate and enter into certain speculative hedging arrangements.

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Stockholders’ Equity

Stock Options

The following table presents a summary of activity with respect to

our stock options:

Schedule of option activity

Exercise Price

(In thousands)

Balance of options outstanding at June 30, 2023

Balance of options outstanding at March 31, 2024

Restricted Stock Units (“RSUs”)

The following table presents a summary of activity with respect to

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

Schedule of RSU activity

1 unchanged sentence

Balance of RSUs outstanding at June 30, 2024

Balance of RSUs outstanding at March 31, 2024

Balance of RSUs outstanding at September 30, 2024

Performance Stock Units (“PSUs”)

The following table presents a summary of activity with respect to

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

Schedule of PSU activity

Number of Shares

(In thousands)

Balance of PSUs outstanding at June 30, 2024

Balance of PSUs outstanding at March 31, 2024

Balance of PSUs outstanding at September 30, 2024

Stock Options

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

stock options:

Schedule of option activity

Exercise Price

(In thousands)

Balance of options outstanding at June 30, 2024

Balance of options outstanding at September 30, 2024

Employee Stock Purchase Plan (“ESPP”)

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Shares issued

Shares available for issuance at March 31, 2024

Shares available for issuance at September 30, 2024

Share-Based Compensation Expense

The following table presents a summary of share-based compensation

expense included in each functional line item on our accompanying unaudited condensed consolidated statements of operations:

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

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

Schedule of share-based compensation expense

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total share-based compensation expense

The following table presents the remaining unrecognized share-based

compensation expense related to our outstanding share-based awards as of March 31, 2024:

The following table presents the remaining unrecognized share-based compensation

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

Schedule of unrecognized share-based compensation expense

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We utilize the liability method of accounting for income taxes.

following table presents our effective tax rates based upon our provision for income taxes for the periods shown:

The following

table presents our effective tax rates based upon our provision for income taxes for the periods shown:

Schedule of effective income tax rate reconciliation

Three Months Ended

Nine Months Ended

Three Months Ended September 30,

Effective tax rate

3 unchanged sentences

at rates differing from the federal statutory rate.

We have recorded a net deferred tax liability of $ 353,000 and $ 146,000

at March 31, 2024 and June 30, 2023, respectively.

This balance 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 unaudited condensed

consolidated balance sheets.

We have a net deferred tax liability of $ 248,000 and $ 179,000 at September

30, 2024 and June 30, 2024, respectively.

This balance 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 unaudited condensed consolidated

balance sheets.

The realization of deferred tax assets is dependent upon the generation

4 unchanged sentences

not realize the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income and have therefore

provided a full valuation allowance against our deferred tax assets as of March 31, 2024 and June 30, 2023.

provided a full valuation allowance against our deferred tax assets as of September 30, 2024 and June 30, 2024.

Commitments and Contingencies

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., asserts 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.

The court is in the process of appointing

a Lead Plaintiff and Lead Counsel.

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.

Because the outcomes of litigation and other legal matters are inherently

unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control, our evaluation of legal

matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates

and assumptions.

While the consequences of any unresolved matters and proceedings are not presently determinable, and an estimate of the

probable and reasonably possible loss or range of loss for such proceedings cannot be reasonably made, an adverse outcome from such proceedings

could have a material adverse effect on our business, financial condition, operating results, or cash flows.

In addition, regardless of

the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other

We maintain insurance policies for settlements and judgments, as well

as legal defense costs, for lawsuits such as those described above, although the amount of insurance coverage that we maintain may not

be adequate to cover all claims or liabilities.

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.

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.

Subsequent Events

On November 7, 2024, we signed a definitive agreement to acquire from

NetComm Wireless Pty Ltd (“NetComm”), a subsidiary of DZS, Inc., all of the assets of the enterprise IoT business for $6,500,000

in cash together with assumptions of certain liabilities.

The closing of the acquisition is subject to certain conditions.

The transaction

is expected to close during our second fiscal quarter ending December 31, 2024.

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-Q

Item 1. Financial Statements