LANTRONIX INC

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended March 31, 2025 (this “Report”). This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. See the section of this Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information. These statements involve numerous risks and uncertainties. Our actual results may differ from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in “Risk Factors” in Part II, Item 1A of this Report.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended September 30, 2025 (this “Report”). This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. See the section of this Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in “Risk Factors” in Part II, Item 1A of this Report.

Previous wording

We organize our portfolio services and products into the following product lines: Embedded IoT Modules, IoT Systems Solutions, and Software and Engineering Services.

Current wording

We organize our portfolio services and products into the following product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Services.

Previous wording

Our IoT Systems Solutions portfolio offers a wide range of fully functional standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion. These 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. By offering pre-certified products across multiple regions, Lantronix significantly reduces original equipment manufacturer customers’ regulatory certification costs and speeds up their time-to-market.

Current wording

Our IoT System Solutions portfolio includes a wide range of fully functional standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion. These 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. By offering pre-certified products across multiple regions, Lantronix significantly reduces Original Equipment Manufacturer (“OEM”) customers’ regulatory certification costs and speeds up their time-to-market.

Previous wording

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgment are those relating to revenue recognition, sales returns and allowances, inventory valuation, restructuring charges, valuation of deferred income taxes, business combinations, valuation of goodwill and long-lived and intangible assets, and stock-based compensation. These policies are described in further detail in our Annual Report on Form 10-K for the year ended June 30, 2024 and filed with the Securities and Exchange Commission (the “SEC”) on September 9, 2024 (the “Form 10-K”) and have not changed significantly during the nine months ended March 31, 2025 as compared to what was previously disclosed in the Form 10-K.

Current wording

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgments are those relating to revenue recognition, sales returns and allowances, inventory valuation, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets. These policies are described in further detail in our Annual Report on Form 10-K for the year ended June 30, 2025 and filed with the “SEC” on August 29, 2025 (the “Form 10-K”) and have not changed significantly during the three months ended September 30, 2025 as compared to what was previously disclosed in the Form 10-K.

Previous wording

In the three months ended March 31, 2025, our net revenue decreased by $12,683,000 or 30.8%, compared to the three months ended March 31, 2024. The decrease in net revenue was driven by a 45.0% 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 3.7% and our Software and Services product line of 8.3%. We had a net loss of $3,868,000 for the three months ended March 31, 2025 compared to a net loss of $423,000 for the three months ended March 31, 2024. The increase in net loss was primarily driven by the decrease in revenues partially offset by a reduction in operating expenses of $617,000 for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.*** ***

Current wording

In the three months ended September 30, 2025, our net revenue decreased by $4,629,000 or 13.4%, compared to the three months ended September 30, 2024. The decrease in net revenue was driven by a 12.3% 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 14.3% and our Software and Services product line of 18.0%. We had a net loss of $1,401,000 for the three months ended September 30, 2025 compared to a net loss of $2,502,000 for the three months ended September 30, 2024. The improvement in net loss was primarily driven by a decrease in operating expenses of $1,730,000 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

Previous wording

Net revenue increased slightly due to higher unit sales of our embedded compute product line driven by a video conferencing customer in the APJ region. This growth was partially offset by 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.

Current wording

Net revenue decreased primarily due to lower unit sales of our embedded compute products in the APJ region and lower volume sales of our network interface cards in the Americas and EMEA regions. These decreases were partially offset by higher unit sales of our embedded ethernet connectivity products in the Americas and EMEA regions.

Previous 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.

Current wording

Gross profit as a percentage of revenue (referred to as “gross margin”) increased primarily as a result of our product sales mix as well as reduced logistics and tariff-related costs.

Previous wording

Selling, general and administrative expenses consist of personnel-related expenses, including salaries and commissions, share-based compensation, facility expenses, information technology, trade show expenses, advertising, and 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

Research and development expenses consist of personnel-related expenses, including share-based compensation, as well as expenditures to third-party vendors for research and development activities and product certification costs. Our quarterly costs related to outside services and product certifications vary from period to period depending on our level of development activities.

Current wording

Research and development expenses consist of personnel-related expenses, share-based compensation, and expenditures to third-party vendors for research and development activities and product certification costs. Our quarterly costs related to outside services and product certifications vary from period to period depending on our level and timing of development activities.

Previous wording

Research and development expenses decreased primarily due to (i) lower personnel-related expenses in our engineering groups resulting from restructuring activities during the current fiscal year, (ii) reduced share-based compensation costs based on the value of new and outstanding awards, and (iii) lower product certification expenses based on the timing of various development projects. These decreases were partially offset by (i) higher facilities-related equipment and software costs, (ii) increased costs for third party contract labor, which are included in the “outside services” category in the table above, and (iii) increased spending on certain prototype and materials costs, which are included in the “other” category in the table above.

Current wording

Research and development expenses decreased due to (i) lower personnel-related expenses in our engineering groups driven by headcount reductions from restructuring activities during the previous fiscal year, (ii) lower facilities-related equipment and software costs, (iii) decreased costs for third party contract labor, which are included in the “outside services” category in the table above, and (iv) reduced share-based compensation costs based on the value of new and outstanding awards. These decreases were partially offset by increased spending on certain prototype and materials costs, which are included in the “other” category in the table above.

Previous wording

During the three and nine months ended March 31, 2025, we incurred charges of $1,581,000 and $2,674,000, respectively, mostly related to headcount reductions. During the three and nine months ended March 31, 2024, we incurred $350,000 and $900,000, respectively, of restructuring, severance and related charges.

Current wording

During the three months ended September 30, 2025, we incurred charges of $93,000 related to headcount reductions. During the three months ended September 30, 2024, we incurred $900,000 of restructuring, severance and related charges.

Previous wording

For the three and nine months ended March 31, 2025 and March 31, 2024, we incurred net interest expense related to borrowings on our credit facilities. We also earn interest income on our domestic cash balance.

Current wording

For the three months ended September 30, 2025 and September 30, 2024, we incurred net interest expense due to borrowings on our credit facilities. We also earn interest income on our domestic cash balance.

Previous wording

Refer toNote 8of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding our provision for income taxes.

Current wording

Refer toNote 7of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding our provision for income taxes.

Previous wording

The following table presents details of our working capital and cash and cash equivalents:

Current wording

The following table presents our working capital and cash and cash equivalents balances:

Previous wording

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 6 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 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. 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 Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report). We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

Previous wording

As of the date of this Report, we have full access to and control of our cash and cash equivalents balance at Silicon Valley Bank and our other banking institutions. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds. As of the date of this Report, we are in compliance with all covenants of the Loan Agreement.

Current wording

As of the date of this report, we have full access to and control of our cash and cash equivalents balance at Silicon Valley Bank and our other banking institutions. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds. As of September 30, 2025, we are in compliance with all covenants of the Loan Agreement.

Previous wording

From time to time, we may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources in order to (i) develop or enhance our products, (ii) take advantage of strategic opportunities, (iii) respond to competition or (iv) continue to operate our business. We currently have a Form S-3 shelf registration statement on file with the SEC. If we issue equity securities to raise additional funds, our existing stockholders will experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funds, we may incur debt service obligations, become subject to additional restrictions that limit or restrict our ability to operate our business, or be required to further encumber our assets. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all.

Current wording

From time to time, we may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources in order to (i) develop or enhance our products, (ii) take advantage of strategic opportunities, (iii) respond to competition or (iv) continue to operate our business. We currently have a Form S-3 shelf registration statement on file with the SEC. If we issue equity securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funds, we may incur debt service obligations, become subject to additional restrictions that limit or restrict our ability to operate our business, or be required to further encumber our assets. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all.

Previous wording

Refer toNote 6of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our Loan Agreement.

Current wording

Refer toNote 5of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our Loan Agreement.

Previous wording

Cash provided by operating activities during the nine months ended March 31, 2025 decreased compared to the prior year period. Cash from operations was positively impacted in the prior year period due to (i) reduction of our inventories and higher net revenues and (ii) the receipt of deposits relating to deliveries to our European smart grid provider customer. In the current year period, inventories increased slightly, and we also made payments against previously accrued variable compensation balances, as discussed further below. For the nine months ended March 31, 2025, our net loss included $9,705,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $5,270,000.

Current wording

Cash provided by operating activities during the three months ended September 30, 2025 increased compared to the prior year period as a result of strong collections on accounts receivable and a reduction in net loss in the current period. For the three months ended September 30, 2025, inventories increased slightly, and we also made payments against previously accrued variable compensation balances, as discussed further below. For the three months ended September 30, 2025, our net loss included $2,848,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $2,158,000.

Previous wording

Accounts receivable decreased by $7,631,000, or 24.4% from June 30, 2024 to March 31, 2025. The decrease was primarily due to lower net revenue levels in the current fiscal year, as well as the timing of payments from certain customers.

Current wording

Accounts receivable decreased by $3,167,000, or 12.6%, from June 30, 2025 to September 30, 2025. The decrease was primarily due to the timing of payments from certain customers.

Previous wording

Accounts payable increased by $658,000, or 6.4%, from June 30, 2024 to March 31, 2025 primarily due to the timing of inventory receipts and payments made to our vendors.

Current wording

Accounts payable decreased by $3,625,000, or 27.3%, from June 30, 2025 to September 30, 2025. The decrease is primarily due to the timing of inventory receipts near the end of the current quarter, as well as payments made to our vendors.

Previous wording

Net cash used in investing activities for the nine months ended March 31, 2025 includes the acquisition of Netcomm, which used cash of $6,458,000. We also paid for property and equipment totaling $362,000, primarily for tooling at our contract manufacturers as well as certain research and development projects. Cash used during the nine months ended March 31, 2024 consisted of purchases of property and equipment of $1,325,000 primarily for research and development and certain business analysis tools.

Current wording

Net cash used in investing activities for the three months ended September 30, 2025 and 2024 consisted of purchases of equipment totaling $74,000 and $157,000, respectively, primarily for computer hardware and tooling at our contract manufacturers and certain research and development projects.

Previous wording

Net cash used in financing activities during the nine months ended March 31, 2025 and the nine months ended March 31, 2024 resulted primarily from principal payments on the Senior Credit Facilities, as well as tax withholdings paid on behalf of employees for restricted shares. During the nine months ended March 31, 2024 we also used cash to pay the contingent consideration related to the acquisition of Uplogix, Inc.

Current wording

Net cash used in financing activities during the three months ended September 30, 2025 resulted primarily from principal payments on our outstanding debt. Net cash used in financing activities during the three months ended September 30, 2024 resulted primarily from tax withholdings paid on behalf of employees for restricted shares as well as principal payments on the borrowings outstanding under the Loan Agreement.