LANTRONIX INC

September 30, 2026

Company

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global leader in Edge AI and Industrial Internet of Things (“IoT”) solutions that power National Defense Authorization Act (“NDAA”)-compliant unmanned systems, critical infrastructure and resilient enterprise networks. We deliver intelligent computing, secure connectivity, and remote management for mission-critical applications, enabling customers to optimize operations, enhance security and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and services powers applications ranging from mission-critical autonomous platforms and edge analytics for critical infrastructure to intelligent surveillance and secure network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and a competitive edge in today’s AI-driven world.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (the “SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026, which was filed with the SEC on August 27, 2026. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at September 30, 2026, the consolidated results of our operations for the three months ended September 30, 2026 and our consolidated cash flows for the three months ended September 30, 2026. All intercompany accounts and transactions have been eliminated.

Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end.

The results of operations for the three months ended September 30, 2026 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who is our Chief Executive Officer, in deciding how to allocate resources and assess our financial and operational performance. Our CODM evaluates our financial information, such as revenue, gross profit and net income (loss), as well as resources and total consolidated assets and assesses the performance of these resources and assets on a consolidated and aggregated basis. As a result, we have determined that our business operates in asingle operating segment: the development, marketing, and sale of industrial and enterprise IoT products and services.

Marketable Securities

Marketable debt securities are classified as available-for-sale and are presented at fair value. Unrealized holding gains and losses, net of income taxes, on available-for-sale debt securities are reflected as a separate component of stockholders’ equity until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis. We classify all marketable securities within current assets on our accompanying unaudited condensed consolidated balance sheets.

Reclassifications

Certain reclassifications have been made to the prior fiscal year financial information to conform with the current fiscal year presentation.

Recent Accounting Pronouncements

Credit Losses

In July 2025, the Financial Accounting Standards Board (“FASB”) issued a final Accounting Standards Update (“ASU”) amending Accounting Standards Codification (“ASC”) 326,Financial Instruments – Credit Losses, to allow all entities to elect a practical expedient when determining the expected credit losses on trade accounts receivable. The practical expedient allows companies to assume that the current conditions as of the balance sheet date will remain unchanged through the remaining life of the asset. We adopted the standard on July 1, 2026. The adoption of this guidance did not have a material effect on our financial statement presentation and its related disclosures.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03,Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses, which will require disclosure, in the notes to financial statements, of specified information about certain costs and expenses, including disclosure of amounts for (i) purchases of inventory, (ii) employee compensation, (iii) depreciation and (iv) intangible asset amortization, included in each relevant expense caption. In January 2025, the FASB issued ASU 2025-01, which clarified the effective date of ASU 2024-03. The standard will be effective for our annual financial statements beginning with our fiscal year ending June 30, 2028. We are currently evaluating the impact of this accounting standard on our financial statement presentation and its related disclosures.

Revenue is recognized upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We apply the following five-step approach in determining the amount and timing of revenue to be recognized: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when the performance obligations are satisfied. On occasion we enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

Revenue is recognized exclusive of (i) any taxes collected from customers, which are subsequently remitted to governmental authorities and (ii) shipping and handling costs collected from customers.

Products

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 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.

Services

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 September 30, 2026, prepaid sales commissions included in prepaid expenses and other current assets totaled $122,000 and those included in other assets totaled $165,000.

Engineering Services

We derive a portion of our revenues from engineering and related consulting service contracts with customers. Revenues from professional engineering services are generally recognized as services are performed. These contracts generally include performance obligations in which control is transferred over time because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates or enhances an asset that the customer controls. These contracts typically provide services on the following basis:

Performance obligations for T&M contracts qualify for the “Right to Invoice” practical expedient within the revenue guidance. Under this practical expedient, we may recognize revenue, over time, in the amount to which we have a right to invoice. In addition, we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period. We 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 have determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs applied towards satisfying a fixed price contract performance obligation.

Multiple Performance Obligations

From time to time, we may enter into contracts with customers that include promises to transfer multiple deliverables that may include sales of products, professional engineering services and other product qualification or certification services. Determining whether the deliverables in such arrangements are considered distinct performance obligations that should be accounted for separately versus together often requires judgment. We consider performance obligations to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily available and when the promised good or service is separately identifiable from other promised goods or services in the contract. In such arrangements, we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation.

Net Revenue by Product Line and Geographic Region

We organize our products and solutions into three product lines: Embedded IoT Solutions, IoT System Solutions, and Software and Services. Our Embedded IoT products are normally embedded into new designs. These products include application processing that delivers compute to meet customer needs for data transformation, computer vision, machine learning, augmented / virtual reality, audio / video aggregation and distribution, and custom applications at the edge. Our IoT System 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 and Services products include (i) our SaaS platforms, which enable customers to easily deploy, monitor, manage, and automate across their global deployments, along with GPS-based vehicle and asset tracking capabilities for fleet, municipal, and industrial asset tracking customers, (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; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific Japan (“APJ”).

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

The following table presents product revenues and service revenues as a percentage of our total net revenue:

Service revenues are comprised primarily of SaaS solutions, professional services, 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.

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.

The following table presents the changes in our deferred revenue balance for the three months ended September 30, 2026 (in thousands):

During the three months ended September 30, 2026, approximately $296,000 of the revenue recognized as a result of satisfying performance obligations was included in the contract liability balance at the beginning of the period.

We currently expect to recognize substantially all of the non-current portion of deferred revenue over the next 2 to 5 years.

On July 7, 2026, we entered into an asset purchase agreement to acquire the industrial IoT business of Vecima Networks Inc. (“Vecima”), including its Nero Global Tracking software-as-a-service platform (“Nero”). The acquired business provides GPS-based fleet and asset tracking solutions and serves customers across the fleet, municipal, restoration and industrial asset-tracking markets in North America. We closed the acquisition on August 1, 2026.

The aggregate consideration payable by Lantronix under the asset purchase agreement is estimated to be $11,634,000, consisting of $10,343,000 paid at the closing date and $1,291,000 in estimated holdback consideration, including estimated working capital adjustments, payable within six months following the closing date.

A summary of the purchase consideration for the acquisition is as follows (in thousands):

We recorded the tangible and intangible assets and liabilities acquired 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 assets. Updates 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. We expect to complete the purchase price allocation within 12 months of the closing date.

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

The factors that contributed to a purchase price resulting in the recognition of goodwill include our beliefs that this acquisition (i) will create a more diverse company with respect to our software product offerings and (ii) should result in a realization of cost savings and an improvement of overall efficiencies consistent with our commitment to improving cost structures in accordance with our operational plans.

Depending on the structure of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes. We have preliminarily determined that goodwill and identifiable intangible assets 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:

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 Distributor Method, a form of the income approach. Under this methodology, the fair value of the customer relationships was estimated based on the present value of the after-tax cash flows attributable to the distribution and customer-facing functions associated with the existing customer base. The useful lives of customer relationships are estimated based primarily upon customer turnover data.

The developed technology was valued using the multi-period excess earnings method (“MPEEM”), a form of the income approach. The MPEEM estimates revenues and cash flows attributable to the developed technology and deducts portions of the cash flows that can be attributed to the use of supporting assets.

Trade names were valued using the relief-from-royalty method. This method is an income approach that estimates the portion of a company’s earnings attributable to an asset based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value.

The non-compete agreement represents the economic benefit associated with restricting Vecima from competing with the acquired business following the acquisition. The non-compete agreement was valued using the With-and-Without Method, which measures the difference in expected cash flows with and without the protection provided by the agreement.

Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:

Supplemental Pro Forma Information

The following supplemental pro forma data summarizes our results of operations for the periods presented, as if we had completed the acquisition as of the first day of our fiscal year ended June 30, 2026. 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, depreciation expense for acquired property and equipment, the purchase accounting effect on inventories acquired, and transaction costs. In accordance with the pro forma acquisition date, we recorded in the three months ended September 30, 2025 supplemental pro forma data, acquisition-related costs of $245,000, with a corresponding reduction in the three months ended September 30, 2026 supplemental pro forma data. We recorded (i) additional amortization expense of $370,000, (ii) cost of goods sold from manufacturing profit in acquired inventory of $12,000, with a corresponding reduction in the three months ended September 30, 2026 supplemental pro forma data, (iii) depreciation expense of $44,000, and (iv) amortization expense pertaining to the lease right-of-use asset of $12,000 in the three months ended September 30, 2025 supplemental pro forma data. Additionally, we recorded (i) additional amortization expense of $127,000, (ii) depreciation expense of $15,000, and (iii) amortization expense pertaining to lease right-of-use asset of $4,000 in the three months ended September 30, 2026 supplemental pro forma data.

The acquisition contributed between 2% and 3% of our total net revenue for the three months ended September 30, 2026.

Supplemental pro forma data is as follows:

Inventories

Marketable Securities

Marketable securities consist of U.S. Treasury securities, classified as available-for-sale. Our investments in treasury securities are recorded at fair value. All of our marketable securities are less than one year from maturity.

The following table summarizes our investments in marketable securities at September 30, 2026. We did not have any marketable securities as of June 30, 2026:

We hadno realized gains or losses from the sale of investments in treasury securities for the three months ended September 30, 2026 and 2025.

Other Liabilities

The following table presents details of our other liabilities:

Computation of Net Loss per Share

Basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the applicable period.

The following table presents the computation of net loss per share:

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.

Intangible Assets

The following table presents details of intangible assets:

We do not currently have any intangible assets with indefinite useful lives.

As of September 30, 2026, future estimated amortization expense is as follows:

Supplemental Cash Flow Information

The following table presents non-cash investing transactions excluded from the accompanying unaudited condensed consolidated statements of cash flows:

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 or offer a refund of a portion of the purchase price based on a depreciated value at our option. 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.

The following table presents details of our warranty reserve, which is included in other current liabilities in the unaudited condensed consolidated balance sheets:

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts receivable, contract manufacturers’ receivable, accounts payable, and accrued liabilities. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree to which the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Inputs are based on quoted market prices for identical assets and liabilities in active markets at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

We measure certain financial assets at fair value on a recurring basis, including our marketable securities which are classified as available-for-sale securities, and certain cash equivalents, specifically money market securities. Our money market accounts and available-for-sale marketable securities are valued based on quoted market prices in active markets based on information provided by independent third-party entities.

Financial Assets

We categorized our financial assets based on the priority of the inputs to the valuation technique for the instruments as follows:

Bank Line of Credit

On July 31, 2026, we entered into a Fifth Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with First Citizens Innovation Banking (previously Silicon Valley Bank, “FCB”), pertaining to our existing revolving credit facility and term loan (together, the “Senior Credit Facilities”). The Loan Agreement amends and restates in its entirety our prior loan and security agreement with FCB (the “Prior Loan Agreement”).

The Loan Agreement provides for a $15,000,000 revolving credit facility and a $5,000,000 term loan. The revolving credit facility and term loan each mature on August 1, 2028. The term loan requires quarterly principal payments of $62,500 commencing after funding, which occurred in August 2026, with the remaining outstanding principal due at maturity.

Borrowings under the Senior Credit Facilities bear interest at a floating rate equal to the greater of (i) 5.0% or (ii) the Prime Rate plus an applicable margin.

The following table summarizes our outstanding debt:

During the three months ended September 30, 2026, we recognized $81,000 of interest expense in the accompanying unaudited condensed consolidated statements of operations related to interest and amortization of issuance costs associated with debt. As of September 30, 2026, the available borrowing capacity on the line of credit was $14,949,000.

Financial Covenants

The Loan Agreement requires Lantronix to comply with a minimum liquidity test, a minimum interest coverage ratio, and a minimum liquidity coverage ratio.

Liquidity

The Loan Agreement requires that we maintain a minimum liquidity of $5,000,000 at FCB, as measured at the end of each month.

Interest coverage ratio

The Loan Agreement requires that we maintain a minimum interest coverage ratio, calculated as the ratio of consolidated trailing 12-month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions, to interest expense for the trailing 12-month period of 1.50 to 1.00 for each calendar quarter.

Liquidity coverage ratio

The Loan Agreement requires that we maintain a minimum liquidity coverage ratio of 2.0 to 1.0, as measured at the end of each month.

As of September 30, 2026, we were in compliance with all financial covenants under the Loan Agreement.

Restricted Stock Units (“RSUs”)

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

Performance Stock Units (“PSUs”)

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

Stock Options

No stock option activity occurred during the three months ended September 30, 2026, and the number of options outstanding and their weighted-average exercise price remained unchanged from June 30, 2026.

Share-Based Compensation Expense

The following table presents a summary of share-based compensation expenses included in each applicable functional line item on our accompanying unaudited condensed consolidated statements of operations:

The following table presents the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of September 30, 2026:

We utilize the liability method of accounting for income taxes. The following table presents our effective tax rates based upon our provision for income taxes for the periods shown:

The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to (i) a tax benefit from our domestic losses being recorded with a full valuation allowance, (ii) our current estimates of pre-tax profitability for the full fiscal year and (iii) the effect of foreign earnings taxed at rates differing from the federal statutory rate.

We have a net deferred tax liability of $232,000 and $219,000 at September 30, 2026 and June 30, 2026, 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 of future taxable income. As required by ASC Topic 740, we have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets. 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 and have therefore provided a full valuation allowance against our deferred tax assets as of September 30, 2026 and June 30, 2026.

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. We maintain 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.

The following table presents segment revenue, gross profit, and net loss for the periods presented: