LANTRONIX INC

Previous wording

We conduct our business globally and manage our sales teams by three geographic regions: the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific Japan (“APJ”).

Current wording

We conduct our business globally and manage our sales teams by three geographic regions: the Americas; EMEA; and APJ.

Previous wording

We organize our portfolio services and products into three product lines: Embedded IoT Solutions, IoT System Solutions, and Software & Services. Refer to “Products and Solutions” included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion.

Current wording

We organize our portfolio services and products into the following product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Engineering Services. Refer to “Products and Solutions” included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion.

Previous wording

The preparation of financial statements and related disclosures in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting period. We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns and allowances, inventory valuation, restructuring charges, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets, share-based compensation, litigation and other contingencies. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Current wording

The preparation of financial statements and related disclosures in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting period. We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns and allowances, inventory valuation, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Previous wording

We evaluate goodwill for impairment on an annual basis on the last day of our fourth fiscal 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.

Current wording

We evaluate goodwill for impairment on an annual basis on May 31, 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.

Previous wording

For fiscal 2024, our net revenue increased by $29,138,000, or 22.2%, compared to fiscal 2023. The increase in net revenue was driven by an 81.7% increase in net revenue in our IoT System Solutions product line partially offset by a decrease of 26.2% in net revenues in our Embedded IoT Solutions product line and a decrease of 11.3% in net revenues in our Software & Services product line. We had a net loss of $4,516,000 for fiscal 2024 compared to a net loss of $8,980,000 for fiscal 2023. The decrease in net loss was driven primarily by increased revenues, partially offset by an increase in operating expenses of 6.8% and a decrease in gross profit as a percentage of revenue from 42.9% in fiscal 2023 to 40.1% in fiscal 2024.

Current wording

For fiscal 2025, our net revenue decreased by $37,404,000, or 23.3%, compared to fiscal 2024. The decrease in net revenue was driven by a 34.2% decrease in net revenue in our IoT System Solutions product line, as well as decreases in net revenue in our Embedded IoT Solutions product line of 1.2% and our Software and Services product line of 12.5%. We had a net loss of $11,373,000 for fiscal 2025, compared to a net loss of $4,516,000 for fiscal 2024. The increase in net loss was primarily driven by the decrease in revenues partially offset by a reduction in operating expenses of $4,516,000 for fiscal 2025 compared to fiscal 2024.

Previous wording

Net revenue decreased primarily due to lower unit sales of our embedded compute product line in the Americas and APJ regions as a result of two large design wins that reached end-of-life at the end of fiscal 2023. To a lesser extent net revenue was impacted by lower unit sales of our network interface cards across all regions, and some of our legacy embedded ethernet connectivity products in the Americas and EMEA regions.

Current wording

Net revenue decreased primarily due to lower unit sales in some of our legacy embedded ethernet connectivity products across all regions and lower volume sales of our network interface cards in the Americas and APJ regions. These decreases were largely offset by higher unit sales of our embedded compute product line driven by a video conferencing customer in the APJ region.

Previous wording

Net revenue decreased primarily due to a year over year decline in our engineering services in the EMEA region as two of our large design services projects transitioned from the design phase to full production during fiscal 2024. This was partially offset by growth in our extended warranty services across all regions as a result of increased sales of our out-of-band products.

Current wording

Net revenue decreased primarily due to lower engineering services revenue in the EMEA region as two of our large design services projects transitioned in the prior year from the design phase to full production. We also saw a moderate decrease in our extended warranty services in the Americas region, primarily related to lower service volumes in our OOB products.

Previous wording

Gross profit represents net revenue less cost of revenue. Cost of revenue consists primarily of the cost of raw material components, subcontract labor assembly by contract manufacturers, freight costs, personnel-related expenses, manufacturing overhead, inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation.

Current wording

Gross profit represents net revenue less cost of revenue. Cost of revenue consists primarily of the cost of raw material components, subcontract labor assembly from contract manufacturers, direct and indirect personnel expenses related to professional services, manufacturing overhead, inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation.

Previous wording

Gross profit as a percent of revenue (referred to as “gross margin”) decreased primarily due to a change in product mix and increased logistics and overhead costs related to our smart grid customer that grew to 26% of our net revenue during fiscal 2024. We expect this customer to contribute less revenue during fiscal 2025 which should lead to an improvement in our product mix and lower logistics and overhead costs as a percentage of revenue for fiscal 2025.

Current wording

Gross profit as a percentage of revenue (referred to as “gross margin”) increased primarily as a result of lower overhead costs and our product sales mix.

Previous wording

Selling, general and administrative expenses consists of personnel-related expenses including salaries and commissions, share-based compensation, facility expenses, information technology, advertising and marketing expenses and professional legal and accounting fees.

Current wording

Selling, general and administrative expenses consist of personnel-related expenses including salaries and commissions, share-based compensation, facility expenses, information technology, advertising and marketing expenses and professional legal and accounting fees.

Previous wording

We may incur additional restructuring, severance and related charges in future periods as we continue to identify cost savings and synergies related to our acquisitions and general business operations.

Current wording

We may incur additional restructuring, severance and related charges in future periods as we continue to identify cost savings and efficiencies related to our business.

Previous wording

During fiscal 2023 we incurred approximately $315,000 of costs primarily in connection with the acquisition of Uplogix, Inc. (“Uplogix”). These costs were mainly comprised of banking, legal and other professional fees.

Current wording

During fiscal 2025 we incurred approximately $371,000 of costs primarily in connection with the acquisition of Netcomm. These costs were mainly comprised of banking, legal and other professional fees.

Previous wording

We acquired certain intangible assets through our recent acquisitions, which we recorded at fair-value as of the acquisition dates. These assets are generally amortized on a straight-line basis over their estimated useful lives and resulted in charges of $5,314,000 and $5,804,000 during fiscal 2024 and 2023, respectively.

Current wording

We acquired certain intangible assets through our recent acquisitions, which we recorded at fair-value as of the acquisition dates. These assets are generally amortized on a straight-line basis over their estimated useful lives and resulted in charges of $3,951,000 and $5,314,000 during fiscal 2025 and 2024, respectively.

Previous wording

We utilize the liability method of accounting for income taxes. The differences between our effective tax rate and the federal statutory rate in fiscal 2024 and fiscal 2023 were also impacted by the effect of our domestic losses recorded without a tax benefit, as well as the effect of certain state and foreign earnings taxed at rates differing from the federal statutory rate.

Current wording

We utilize the liability method of accounting for income taxes. The differences between our effective tax rate and the federal statutory rate in fiscal 2025 and 2024 were also impacted by the effect of our domestic losses recorded without a tax benefit, as well as the effect of certain state and foreign earnings taxed at rates differing from the federal statutory rate. Additionally, in fiscal 2025, we reversed a portion of our liability for uncertain tax positions as a result of the dissolution of one of our foreign subsidiaries.

Previous wording

We record net deferred tax assets to the extent we believe these assets are more likely than not to be realized. Aside from a net deferred tax liability of $179,000 and $146,000 that we recorded as of June 30, 2024 and 2023, respectively, based on our cumulative losses and uncertainty of generating future taxable income, we provided a full valuation allowance against our net deferred tax assets at June 30, 2024 and 2023. Refer toNote 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, for additional information.

Current wording

We record net deferred tax assets to the extent we believe these assets are more likely than not to be realized. Aside from a net deferred tax liability of $172,000 and $179,000 that we recorded as of June 30, 2025 and 2024, respectively, based on our cumulative losses and uncertainty of generating future taxable income, we provided a full valuation allowance against our net deferred tax assets at June 30, 2025 and 2024. Refer toNote 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, for additional information.

Previous wording

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our existing term loan and revolving credit facility (together, the “Senior Credit Facilities”), and cash generated from operations. We are subject to a variable amount of interest on the principal balance of our Senior Credit Facilities and could be adversely impacted by rising interest rates in the future. We believe that our current cash holdings and net cash flows from operations are sufficient to satisfy our current obligations for the foreseeable future, and, assuming continued access to the undrawn amounts available under our Senior Credit Facilities, these combined sources will be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond. We continue to monitor our existing banking relationships and the availability of potential alternate sources of credit based on market conditions and our ongoing capital requirements. There can be no guarantee that we would be able to obtain any needed alternate financing on acceptable terms, or at all, or that such a financing would not result in a default under the Loan Agreement (as defined inNote 5 of Notes to Consolidated Financial Statements, including in Part II, Item 8 of this Report). We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

Current wording

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our existing bank borrowing agreement, and cash generated from operations. We are subject to a variable amount of interest on the principal balance of our borrowings and could be adversely impacted by rising interest rates in the future. We believe that our current cash holdings, net cash provided by operating activities, and expected availability under our bank borrowing agreement will be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond.

Previous wording

Cash provided by operating activities during fiscal 2024 increased compared to fiscal 2023. In fiscal 2023, we used a significant amount of cash in the build-up of our inventories and decreases in our accounts payable and accrued liabilities. For fiscal 2024, our net loss included $16,740,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $6,399,000.

Current wording

Cash provided by operating activities during fiscal 2025 decreased compared to fiscal 2024. Cash from operations increased in the prior fiscal year due to (i) reduction of our inventories and higher net revenues and (ii) the receipt of customer deposits. In the current fiscal year, we made payments against previously accrued variable compensation balances, as discussed further below. For fiscal 2025, our net loss included $12,306,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $6,352,000.

Previous wording

Accrued payroll and related expenses increased by $3,405,000 or 140.1% from June 30, 2023 to June 30, 2024. The increase is primarily due to variable compensation costs incurred during the current year.

Current wording

Accrued payroll and related expenses decreased by $2,365,000 or 40.5% from June 30, 2024 to June 30, 2025. The decrease was primarily due to accrued variable compensation paid out during the current fiscal year.

Previous wording

Net cash used in investing activities for fiscal 2024 consisted of purchases of equipment amounting to $1,479,000, primarily for research and development and certain business analysis tools. Cash used in investing activities during fiscal 2023 included the acquisition of Uplogix, which used net cash of $4,650,000, as well as purchases of plant and equipment of $2,673,000 primarily related to building out and furnishing our new lease facilities in California and Minnesota.

Current wording

Net cash used in investing activities for fiscal 2024 consisted of purchases of equipment amounting to $1,479,000, primarily for research and development and certain business analysis tools.

Previous wording

Net cash used in financing activities during fiscal 2024 resulted primarily from $2,853,000 of principal payments on the Senior Credit Facilities as well as $1,027,000 tax withholdings paid on behalf of employees for restricted shares. Additionally, we used cash of $1,262,000 to pay the contingent consideration earned related to the Uplogix acquisition. Net cash provided by financing activities during fiscal 2023 resulted primarily from $7,000,000 in gross proceeds received from our Senior Credit Facilities with SVB partially offset by payments of $3,994,000 on the term loan as well as tax withholdings paid of $821,000 on behalf of employees for restricted shares.

Current wording

Net cash used in financing activities during fiscal 2024 resulted primarily from $2,853,000 of principal payments on our term debt as well as $1,027,000 tax withholdings paid on behalf of employees for restricted shares. Additionally, we used cash of $1,262,000 to pay the contingent consideration earned related to the Uplogix acquisition.