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What changed in LANTRONIX INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of LANTRONIX INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+236 added−231 removedSource: 10-K (2024-09-09) vs 10-K (2023-09-12)

Top changes in LANTRONIX INC's 2024 10-K

236 paragraphs added · 231 removed · 159 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn addition, unless the context suggests otherwise, all reference in this Report to the “Company,” “we,” and “us,” refer to Lantronix, Inc. together with its subsidiaries. Our Strategy Today, more businesses are seeking to streamline their operations by connecting their Operational Technology (“OT”) Infrastructure equipment to the Internet, manage it remotely, and reduce costs.
Biggest changeReferences in this Report to “fiscal 2024” refer to the fiscal year ended June 30, 2024, and references to “fiscal 2023” refer to the fiscal year ended June 30, 2023. In addition, unless the context suggests otherwise, all references in this Report to the “Company,” “we,” “our” and “us,” refer to Lantronix, Inc. together with its subsidiaries.
We currently hold U.S. and international patents covering various aspects of our products, with additional patent applications pending. 4 U.S. and Foreign Government Regulation Many of our products are subject to certain mandatory regulatory approvals in the regions in which our products are deployed.
We currently hold U.S. and international patents covering various aspects of our products, with additional patent applications pending. U.S. and Foreign Government Regulation Many of our products are subject to certain mandatory regulatory approvals in the regions in which our products are deployed.
These power efficient products are designed to support communications across interfaces and industrial protocols for vehicle, fleet, and asset tracking and management. Many of the products are offered with software tools intended to further accelerate our customers’ time-to-market and increase their value add.
These power-efficient products are designed to support communications across interfaces and industrial protocols for vehicle, fleet and asset tracking and management. Many of the products are offered with software tools intended to further accelerate Lantronix customers’ time-to-market and increase their value add.
We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone, primarily located in China, Ruby Tech and Info-Tek in Taiwan, and Tailyn in China as our contract manufacturers for most of our products. In addition, we use Marvell Technology Inc., to manage the manufacture of our large-scale integration chips in Taiwan.
We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone, primarily located in China, and Tailyn and Info-Tek in Taiwan as our contract manufacturers for most of our products. In addition, we use Marvell Technology Inc., to manage the manufacture of our large-scale integration chips in Taiwan.
Our media converters and other customer premise equipment (“CPE”) assist customers in resolving challenges in the areas of bandwidth constraints, security risks, and distance limitations as networks extend from local area to wide area networks and adapt to ever increasing end-user demands.
Its media converters and other customer premise equipment (“CPE”) assist customers in resolving challenges in the areas of bandwidth constraints, security risks and distance limitations as networks extend from local area to wide area networks and adapt to ever-increasing end-user demands.
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and other reports and information that we file or furnish pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available free of charge on our website at www.lantronix.com as soon as reasonably practicable after filing or furnishing such reports with the SEC.
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and other reports and information that we file or furnish pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available free of charge on our website at www.lantronix.com as soon as reasonably practicable after filing or furnishing such reports with the Securities and Exchange Commission (the “SEC”).
OOB is a technique that uses a dedicated management network to access critical infrastructure components and ensure production independent connectivity. Remote Management allows organizations to effectively monitor and control their enterprise IT equipment and facilities (environments), either in or out of band, optimizing their IT support resources.
OOB uses a dedicated management network to access critical infrastructure components and ensure production-independent connectivity. Remote Management allows organizations to effectively monitor and control their enterprise IT equipment and facilities (environments), either in or out of band, optimizing their IT support resources.
The design cycles for these products typically range from three to 18 months and are often project-based. Sales Channels Distributors A majority of our sales are made through distributors. Distributors resell our products to a wide variety of resellers and end customers including OEMs, ODMs, value-added resellers (“VARs”), systems integrators, consumers, online retailers, IT resellers, corporate customers and government entities.
The design cycles for these products typically range from three to 18 months and are often project-based. Sales Channels Distributors A majority of our sales are made through distributors. Distributors resell our products to a wide variety of resellers and end customers including OEMs, ODMs, VARs, systems integrators, consumers, online retailers, IT resellers, corporate customers and government entities.
We implement marketing programs, tools and services, including displaying our products at industry-specific events, to generate sales leads and increase demand for our products. Manufacturing Our manufacturing operations are primarily conducted through five third-party contract manufacturers.
We implement marketing programs, tools and services, including displaying our products at industry-specific events, to generate sales leads and increase demand for our products. 4 Manufacturing Our manufacturing operations are currently conducted through five third-party contract manufacturers.
Resellers Our products are sold by industry-specific system integrators and VARs, who often obtain our products from our distributors. Additionally, our products are sold by direct market resellers such as CDW, ProVantage, and Amazon.com. 3 Direct Sales To a lesser extent, we sell products directly to larger OEMs and end users. We also maintain an ecommerce site for direct sales.
Resellers Our products are sold by industry-specific system integrators and VARs, who often obtain our products from our distributors. Additionally, our products are sold by direct market resellers such as CDW, ProVantage, and Amazon.com. Direct Sales We sell products directly to larger OEMs and end users. We also maintain an ecommerce site for direct sales.
Our smart tracking devices are designed to deliver robust data logging and positional tracking functionality and reliability for supply chain and logistics solutions. Our telematics devices are designed to be flexible in the field and offer a variety of connectivity options to suit the customers’ needs across 3G, 4G, and LTE cellular networks.
Our smart tracking devices are designed to deliver robust data logging and positional tracking functionality and reliability for supply chain and logistics solutions. Our telematics devices are designed to be flexible in the field while offering a variety of connectivity options to suit the customers’ needs across 4G, 5G and LTE cellular networks.
IoT System Solutions The IoT Systems Solutions portfolio consists of fully functional standalone systems that provide routing, switching or gateway functionalities as well as Telematics and media conversion.
IoT System Solutions Our IoT Systems Solutions portfolio a wide range of fully functional standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion.
A discussion of sales to our significant customers and related parties, sales within geographic regions as a percentage of net revenue and sales to significant countries as a percentage of net revenue is set forth in Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference.
A discussion of sales to our significant customers and sales within geographic regions is set forth in Notes 2 and 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference.
Whitaker held vice president and director level finance and accounting positions with two publicly-traded companies and worked in the assurance practice at Ernst & Young LLP for six years. 5 ERIC BASS has served as our Vice President of Engineering since January 2023. Prior to joining Lantronix, Mr.
Whitaker held vice president and director level finance and accounting positions with two publicly-traded companies and worked in the assurance practice at Ernst & Young LLP for six years. 6 MATHI GURUSAMY has served as our Chief Strategy Officer since May 2024. Prior to joining Lantronix, Mr.
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.
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 OEM customers’ regulatory certification costs and speeds up their time-to-market.
Our AOOB (“Advanced OOB”) product line includes console management, power management, and IP connected keyboard-video-mouse (commonly referred to as “IPKVM”) products that provide remote access to IT and networking infrastructure deployed in test labs, data centers, branch offices, remote sites, and server rooms.
Our Advanced OOB (“AOOB”) product line includes console management, power management and IP-connected keyboard-video-mouse (commonly referred to as “IPKVM”) products that provide remote access to IT and networking infrastructure deployed in test labs, data centers, branch offices, remote sites and server rooms. Software and Engineering Services Our SaaS platform offers comprehensive single-pane-of-glass management for OOB and IoT deployments.
In addition to our production-ready edge computing solutions, we offer experienced multidisciplinary engineering services across complete aspects of IoT product development, including hardware engineering, software engineering, mechanical engineering, rapid prototyping, and quality assurance. We also offer services for mechanical, hardware, and software engineering for camera, audio, and artificial intelligence / machine learning development.
In addition to our production-ready edge computing solutions, we offer experienced multidisciplinary engineering services across complete aspects of IoT product development, including hardware, software, mechanical engineering, rapid prototyping, and quality assurance. Our specialized services also extend to camera, audio, and AI/ML development, ensuring our customers can bring cutting-edge products to market faster and with greater reliability.
Customer and Geographic Concentrations 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”).
We have not experienced any labor problems resulting in a work stoppage and believe we have good relationships with our employees. 5 Customer and Geographic Concentrations 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”).
As Edge Computing deployment accelerates, OOB Management allows for full comprehension and control of a remote IT infrastructure, across a range of sensors (e.g., temperature, humidity, light, acceleration, open / close, etc.) providing status and alerting, enabling automation, and remote control of devices, servers, and end stations.
Our IoT Telematics products are pre-certified in a number of countries, significantly reducing its OEM customers’ regulatory certification costs and accelerating their time-to-market. 2 As Edge Computing deployment accelerates, Out-of-Band (OOB) Management allows for full comprehension and control of remote information technology (“IT”) infrastructure across a range of sensors (e.g., temperature, humidity, light, acceleration, open/close, etc.), providing status and alerting while enabling automation and remote control of devices, servers and end stations.
Information About Our Executive Officers Executive officers serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers. The following table presents the names, ages, and positions held by our executive officers as of the date of this Report: Name Age Position Jeremy R.
The following table presents the names, ages, and positions held by our executive officers as of the date of this Report: Name Age Position Saleel Awsare 59 President and Chief Executive Officer Jeremy R.
Employees As of August 18, 2023, we had 370 total employees including 357 full time employees, none of whom is represented by a labor union. We have not experienced any labor problems resulting in a work stoppage and believe we have good relationships with our employees.
Employees As of August 19, 2024, we had 373 total employees including 367 full time employees, none of whom is represented by a labor union.
Software and Engineering Services Our SaaS platform provides single pane of glass management for REM and IoT deployments. Our platform enables customers to easily deploy, monitor, manage, and automate across their global deployments, all from a single platform login, virtually connected as though directly on each device.
Our platform enables customers to easily deploy, monitor, manage and automate across their global deployments, all from a single platform login, virtually and seamlessly connected as if located directly on each device. Our platform eliminates the need to have 24/7 personnel on site and makes it easy to observe and address issues quickly, even in large-scale deployments.
Many of our products incorporate features to perform advanced levels of fault management and diagnostics to troubleshoot networks and proactively fix problems.
As the adoption of smart city technologies accelerates, our switches provide the critical connectivity, bandwidth, and power needed to support intelligent transportation systems and surveillance networks that safeguard citizens. Our products also incorporate features to perform advanced levels of fault management and diagnostics to troubleshoot networks and proactively fix problems.
Products and Solutions Embedded IoT Modules This portfolio of embedded products provides a variety of options including Compute System-on-Module (“SOM”) or System-in-Package (“SIP”) solutions supplemented with wired and wireless network Connectivity products.
Looking ahead, we plan to capitalize on market opportunities by further enhancing our product offerings, expanding geographically, and pursuing targeted acquisitions that align with our long-term growth objectives. 1 Products and Solutions Embedded IoT Solutions Our portfolio of embedded products provides a comprehensive range of options, including Compute System-on-Module (“SOM”) and System-in-Package (“SIP”) solutions, complemented by wired and wireless network connectivity products.
Whitaker 53 Interim Chief Executive Officer and Chief Financial Officer Eric Bass 56 Vice President of Engineering Roger Holliday 64 Vice President of Worldwide Sales JEREMY R. WHITAKER has served as our interim Chief Executive Officer since June 2023 and our Chief Financial Officer since September 2011. Mr.
Whitaker 54 Chief Financial Officer Mathi Gurusamy 53 Chief Strategy Officer Kurt Hoff 67 Vice President of Worldwide Sales SALEEL AWSARE has served as our President and Chief Executive Officer, and as a member of our Board, since November 2023.
ITEM 1. BUSINESS Overview Lantronix, Inc. is a global Industrial and Enterprise internet of things (“IoT”) provider of solutions that target high growth applications in specific verticals such as Smart Grid, Intelligent Transportation, Smart Cities, and AI Data Centers.
ITEM 1. BUSINESS Overview Lantronix, Inc. 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.
Our engineering services flexible business model allows for choosing turnkey product development or team augmentation for accelerating complex areas of product development such as; camera development and tuning, voice control, machine learning, artificial intelligence, computer vision, augmented / virtual reality, mechanical and radio-frequency design, thermal and power optimization, or in any specific area a customer needs assistance.
We leverage our deep engineering expertise and product development best practices to deliver high-quality, innovative products cost-effectively and on schedule. Our engineering services model is flexible, offering either turnkey product development or team augmentation to accelerate complex product development challenges, such as camera tuning, voice control, machine learning, AI, computer vision, augmented/virtual reality, and more.
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Building on a long history of Networking and video processing competence, target applications include Intelligent Substations infrastructure, Infotainment systems, and Video Surveillance, supplemented with a comprehensive Out of Band Management (“OOB”) products offering for Cloud and Edge Computing. We organize our portfolio of services into the following product lines: Embedded IoT Modules, IoT Systems Solutions, and Software and Services.
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Our portfolio is organized into three primary product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Services. Each product line is designed to meet the demands of scalable, secure, and reliable IoT deployments.
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We were incorporated in California in 1989 and reincorporated in Delaware in 2000. References in this Report to “fiscal 2023” refer to the fiscal year ended June 30, 2023 and references to “fiscal 2022” refer to the fiscal year ended June 30, 2022.
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Our Strategy We focus on three high-potential vertical markets - smart cities, automotive and infotainment, and enterprise. We position ourselves in these markets to deliver complete solutions encompassing our hardware, software, device management, and design services to meet the evolving needs of our customers and address each layer of the IoT stack.
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The growth in the IoT and OOB markets is being driven by the growing importance of data analytics, and the rapidly falling cost of sensors, connectivity, compute, and storage. Designing and deploying these projects is complex, costly and time-consuming.
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Below are customer examples that highlight our impact: · Smart Cities: We are partnering with a Smart Grid customer that deploys their solutions to enhance grid resiliency and flexibility through intelligence at the edge. We supply this customer an entire solution than includes our edge compute and connectivity solutions as well as our design services.
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Our products are designed to help companies increase speed and reduce the complexity of their deployments by offering our customers customizable solutions, that address each layer of the IoT Stack, such as Collect, Connect, Compute, Control and Comprehend.
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This engagement underscores the ongoing value and scalability of our solutions within the growing smart city infrastructure market. · Automotive: Lantronix is driving innovation in the automotive sector with our edge computing solution, currently powering infotainment systems in volume production for a Turkish automotive manufacturer.
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We are executing on a growth strategy that includes continuous innovation supplemented by strategic acquisitions with the intent of increasing our scale and broadening our scope so that we can increase our value proposition to customers.
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Our relationship with this customer is expanding as we support the launch of a second vehicle, with plans for market entry into Germany and other European regions.
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We believe this strategy will allow us to address a larger portion of our customers’ operational needs and engage with them as a strategic partner. This strategy is starting to bear fruits as we continue to strengthen our position in the market and more customers come to us for a wider variety of applications.
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Additionally, we are focusing on opportunities with other Tier II & III original equipment manufacturers (“OEMs”) in the auto, truck, and motorcycle segments, further broadening our footprint in the mobility ecosystem. · Enterprise: In the financial sector, we provide solutions to a Tier 1 banking customer to enhance network resiliency using our Out-of-Band Management offerings.
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As the level of silicon integration continues to grow, the compute modules also provide the ability to Collect digital information (Video, Audio or Sensors) and analyze/comprehend the data streams based on specific AI/ML algorithms.
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Our hardware and software offerings provide secure alternative pathways for critical infrastructure, including servers, networks, and routers. These solutions not only bolster cybersecurity and tracking but also improve operational efficiency through enhanced automation, uptime, and resiliency. Our growth strategy centers on continuous innovation and strategic acquisitions designed to increase scale, broaden our scope, and enhance our value proposition.
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The new implementations of SIP devices can process multiple media streams with CV (Computer Vision) technology and the modules can be Controlled remotely via ConsoleFlow™, Lantronix’s Cloud SaaS platform. Our IoT compute products typically are embedded into a customer new product design, enabling advanced application functionality at the edge.
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This approach allows us to address a broader spectrum of our customers’ operational needs, positioning Lantronix as a strategic partner rather than just a vendor. Our acquisitions and innovations have expanded our capabilities in key areas such as intelligent infrastructure and connected automotive solutions, driving deeper customer engagement and market penetration.
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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. Many of the products are offered with software tools intended to further accelerate our customers’ time-to-market and increase their value add.
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By focusing on these strategic priorities, we continue to strengthen our competitive position and attract new customers across a wide variety of applications.
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Most of our IoT embedded products are pre-certified in a number of countries thereby significantly reducing our original equipment manufacturer (“OEM”) customers’ regulatory certification costs and accelerating their time-to-market. 1 The following product families are included in our Embedded IoT Solutions product line: Open-Q SOMs and SIPs, XPort®, XPort® Pro, WiPort®, Development Kits, xPico®, xPico® Wi-Fi, NICS, Optical SFPs, PremierWave® EN, and PremierWave® XC.
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As the level of silicon integration continues to advance, our compute modules offer the capability to collect, analyze, and interpret digital information (e.g., Video, Audio or Sensor data) using specialized artificial intelligence (“AI”)/machine learning algorithms. Our latest SIP devices are designed to process multiple media streams using Computer Vision (CV) technology, enabling sophisticated edge analytics.
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Most of our IoT System products are pre-certified in a number of countries thereby significantly reducing our original equipment manufacturer (“OEM”) customers’ regulatory certification costs and accelerating their time-to-market.
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These modules are remotely managed via Percepxion™, Lantronix’s Cloud IoT Edge Solution software, offering seamless control and monitoring. Typically embedded into customer product designs, Lantronix’s IoT compute products provide application processing that enables edge solutions for data transformation, computer vision, machine learning, augmented/virtual reality, and custom applications.
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As more cities move to implement smart city technology, a major component will be solutions designed to protect and provide services to citizens, such as intelligent transportation and surveillance networks. Our switches deliver the necessary connectivity, bandwidth and power to enable these solutions.
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Our products are designed with customer needs in mind, offering pre-certified solutions across multiple regions, significantly reducing regulatory certification costs and expediting time-to-market for OEM customers. Additionally, Lantronix provides software tools that further accelerate development, empowering customers to quickly bring their products to market while enhancing their overall value proposition.
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Most of our IoT Telematics products are pre-certified in a number of countries thereby significantly reducing our OEM customers’ regulatory certification costs and accelerating their time-to-market.
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Our embedded IoT modules serve a wide range of applications, from industrial automation and automotive systems to smart city infrastructure, positioning us as a leading provider of flexible and scalable solutions in the growing IoT market.
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The following product families are included in IoT System Solutions product line: EDS, EDS-MD, xPress™, xDirect®, E21x, E22x, G52x, X30x, Bolero4x, FOX3-4G, FOX4, SGX™, SLB ™ , SLC ™ 8000, Spider ™ , UDS, EMG ™ , S40 and PoE Switches. In addition, we offer non-PoE Network Switches and Media Converters.
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For OEMs and System Integrators (“SI”) our platform offers multitenancy functionality for supporting a broad customer base while ensuring customer separation and data security. Over the Air (“OTA”) updates, streamlines the process of security patches, firmware upgrades and configuration changes, keeping devices up to date and secure.
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Our platform eliminates the need to have 24/7 personnel on site and makes it easy to see and drill into an issue quickly, even in large scale deployments. 2 OEMs and System Integrators (“SI”) can leverage our platform multitenancy functionality for supporting a wide customer base while ensuring customer separation.
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Our engineering design services are a key component of our business model, enabling clients to accelerate product development and market readiness. The services focus on designing and developing high-quality, innovative IoT and embedded solutions.
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Over the Air (“OTA”) updates make it easy to ensure the latest security patches, firmware, and configurations are deployed and functional. We leverage our engineering expertise and product development best practices to deliver high quality, innovative products, cost-effectively and on time.
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We leverage extensive expertise in hardware and software engineering to provide custom designs for complex applications, helping customers reduce costs and time-to-market while improving performance and reliability. Our design services are especially valuable in the development of IoT systems, remote management solutions, and edge computing applications.
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The following product families are included in our Software & Services product line: Engineering Services, ConsoleFlow™, Control Center and Level Services. Net Revenue by Product Line We have one operating and reportable business segment.
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Our engineering teams have experience across a range of technologies, including embedded systems, wireless connectivity, and custom hardware. By integrating these design services, we offer end-to-end support, from concept through to manufacturing, allowing businesses to focus more on core operations while still achieving advanced technological outcomes.
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Bass held the position of Director of Strategic Programs at Intrinsix Corp., a provider of electronics and custom integrated circuit design engineering solutions and services, from January 2019 to January 2023. Previously, Mr.
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This strategy positions us as a go-to partner for companies needing specialized engineering capabilities for industrial, automotive, medical, and other high-tech applications. 3 Net Revenue by Product Line We have one operating and reportable business segment.
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Bass served in multiple roles at Microsemi Corporation, a provider of semiconductor solutions differentiated by power, security, reliability and performance, from November 2011 to August 2018, culminating with his role as Vice President of Research & Development Voice Circuit and Power-over-Ethernet Divisions from August 2017 to August 2018, and at Zarlink Semiconductor, a provider of mixed-signal chip technologies for a broad range of communications and medical applications, from January 2001 until Zarlink was acquired by Microsemi in November 2011.
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Information About Our Executive Officers Executive officers serve at the discretion of our board of directors (the “Board”). There are no family relationships between any of our directors or executive officers.
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ROGER HOLLIDAY joined Lantronix in January 2020 and serves as our Vice President of Worldwide Sales. Prior to joining Lantronix, Mr. Holliday served in various positions at Microsemi Corporation since 1999, serving most recently as Executive Vice President and General Manager from 2013 until Microsemi was acquired by Microchip Technology Inc. in May 2018.
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Awsare served as Senior Vice President and General Manager of the Enterprise and Mobile Division of Synaptics Incorporated, a developer of human interface hardware and software, from September to November 2023. Prior to that, Mr.
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Prior to his time at Microsemi, Mr. Holliday served in various product marketing, applications and sales management roles at Linfinity Microelectronics, a manufacturer of standard linear and mixed signal integrated circuits, until Linfinity’s acquisition by Microsemi in 1999.
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Awsare served as Senior Vice President and General Manager of the PC and Peripherals Unit of Synaptics from August 2020 to September 2023; Senior Vice President and General Manager of Synaptics’s IoT Division from April 2019 to July 2020; and Senior Vice President of Corporate Marketing & Investor Relations at Synaptics from October 2018 until April 2019.
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Prior to joining Synaptics as Corporate Vice President and General Manager of Audio & Imaging Products in August 2017, Mr.
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Awsare was President of Conexant Systems, LLC, a software developer and fabless semiconductor company, from March 2016 until Conexant’s acquisition by Synaptics in August 2017, and Conexant’s Senior Vice President & General Manager of Audio & Imaging from April 2012 to March 2016. Prior to joining Conexant, Mr. Awsare served as President of U.S.
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Operations and General Manager of Audio & Voice Solutions of Nuvoton Technology Corporation, a Taiwan-based semiconductor company, from December 2008 to March 2012. JEREMY R. WHITAKER has served as our Chief Financial Officer since September 2011 and served as our interim Chief Executive Officer from June 2023 until Mr. Awsare’s appointment in November 2023. Mr.
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Gurusamy served as Chief Operating Officer at Ikotek USA, Inc., a global provider of original design manufacturing for IoT, from November 2023 to May 2024. Mr.
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Gurusamy served as President at Telit Cinterion, an end-to-end IoT solutions enabler, from October 2022 to October 2023, and previously served at Telit as Chief Operating Officer from January 2010 to March 2016 and as Global VP – Operations & Supply Chain from June 2008 to December 2009.
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He also served as President and Chief Operating Officer of Mobilogix, a startup company specializing in custom IoT solutions, from April 2016 to June 2018 and as Chief Executive Officer and President from June 2018 until Mobilogix’s acquisition by Telit in September 2022. KURT HOFF has served as our Vice President of Worldwide Sales since March 2024.
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Prior to his appointment at Lantronix, Mr. Hoff served as Vice President of Global Sales at MYTHIC AI, a venture-backed AI processor company, from May 2022 to December 2022. Previously, Mr.
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Hoff served as Senior Vice President of Worldwide Sales at Synaptics Inc., a developer of human interface hardware and software, from July 2017 to July 2020, and at Conexant Systems, Inc., a software developer and fabless semiconductor company, from November 2015 until Conexant’s acquisition by Synaptics in July 2017.
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He also served as Senior Vice President of Worldwide Sales at Silicon Laboratories Inc. from July 2007 until November 2015.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAt that time, we maintained deposits amounting to approximately 85% of our total cash at SVB. On March 12, 2023, federal regulators announced that the FDIC would complete its resolution of SVB in a manner that fully protects all depositors, and on March 26, 2023, the assets, deposits and loans of SVB were acquired by First Citizens Bank.
Biggest changeFor example, in March 2023, Silicon Valley Bank (“SVB”), Signature Bank Corp. and Silvergate Capital Corp. each failed and was taken into receivership by the FDIC. At that time, we maintained deposits amounting to approximately 85% of our total cash at SVB.
This sales structure also could subject us to lawsuits, potential liability and reputational harm if, for example, any of our distributors or resellers misrepresents the functionality of our products or services to customers, violates laws or our corporate policies.
This sales structure also could subject us to lawsuits, potential liability and reputational harm if, for example, any of our distributors or resellers misrepresents the functionality of our products or services to customers or violates laws or our corporate policies.
The market price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are out of our control, including: · adverse changes in domestic or global economic, market and other conditions; · new products or services offered by our competitors; · our completion of or failure to complete significant one-time sales of our products; · actual or anticipated variations in quarterly operating results; · changes in financial estimates by securities analysts; · announcements of technological innovations; · our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments; · conditions or trends in the industry; · additions or departures of key personnel; · increased competition from industry consolidation; · mergers and acquisitions; and · sales of common stock by our stockholders or us or repurchases of common stock by us.
The market price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are out of our control, including: · adverse changes in domestic or global economic, market and other conditions; · new products or services offered by our competitors; · our completion of or failure to complete significant one-time sales of our products; · actual or anticipated variations in quarterly operating results; · changes in financial estimates by securities analysts; · announcements of technological innovations; · our announcement of significant mergers, acquisitions, strategic partnerships, joint ventures or capital commitments; · conditions or trends in the industry; · additions or departures of key personnel; · increased competition from industry consolidation; and · sales of common stock by our stockholders or us or repurchases of common stock by us.
Looking ahead at long-term needs, we may need to raise additional funds for a number of purposes, including, but not limited to: · to fund working capital requirements; · to update, enhance or expand the range of products we offer; · to refinance existing indebtedness; · to increase our sales and marketing activities; · to respond to competitive pressures or perceived opportunities, such as investment, acquisition and international expansion activities; or · to acquire additional businesses 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.
Looking ahead at long-term needs, we may need to raise additional funds for a number of purposes, including, but not limited to: · to fund working capital requirements; · to update, enhance or expand the range of products we offer; · to refinance existing indebtedness; 17 · to increase our sales and marketing activities; · to respond to competitive pressures or perceived opportunities, such as investment, acquisition and international expansion activities; or · to acquire additional businesses 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.
Our reliance on third-party manufacturers, especially in countries outside of the U.S., exposes us to a number of significant risks, including: · reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; · lack of guaranteed production capacity or product supply; · effects of terrorist attacks or geopolitical conflicts abroad; · reliance on these manufacturers to maintain competitive manufacturing technologies; · unexpected changes in regulatory requirements, taxes, trade laws and tariffs; · reduced protection for intellectual property rights in some countries; · differing labor regulations; · disruptions to the business, financial stability or operations, including due to strikes, labor disputes or other disruptions to the workforce, of these manufacturers; · compliance with a wide variety of complex regulatory requirements; · fluctuations in currency exchange rates; · changes in a country’s or region’s political or economic conditions; · greater difficulty in staffing and managing foreign operations; and · increased financial accounting and reporting burdens and complexities. 7 Any problems that we may encounter with the delivery, quality or cost of our products from our contract manufacturers or suppliers could cause us to lose net revenue, damage our customer relationships and harm our reputation in the marketplace, each of which could materially and adversely affect our business, financial condition or results of operations.
Our reliance on third-party manufacturers, especially in countries outside of the U.S., exposes us to a number of significant risks, including: · reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; · lack of guaranteed production capacity or product supply; · effects of terrorist attacks or geopolitical conflicts abroad; · reliance on these manufacturers to maintain competitive manufacturing technologies; · unexpected changes in regulatory requirements, taxes, trade laws and tariffs; · reduced protection for intellectual property rights in some countries; · differing labor regulations; · disruptions to the business, financial stability or operations, including due to strikes, labor disputes or other disruptions to the workforce, of these manufacturers; · compliance with a wide variety of complex regulatory requirements; · fluctuations in currency exchange rates; · changes in a country’s or region’s political or economic conditions; · greater difficulty in staffing and managing foreign operations; and · increased financial accounting and reporting burdens and complexities. 8 Any problems that we may encounter with the delivery, quality or cost of our products from our contract manufacturers or suppliers could cause us to lose net revenue, damage our customer relationships and harm our reputation in the marketplace, each of which could materially and adversely affect our business, financial condition or results of operations.
Furthermore, imposition of tariffs may result in local sourcing initiatives, or other developments that make it more difficult to sell our products in foreign countries, which would negatively impact our business and operating results. We face risks associated with our international operations that could impair our ability to grow our revenues abroad as well as our overall financial condition.
Furthermore, imposition of tariffs may result in local sourcing initiatives, or other developments that make it more difficult to sell our products in foreign countries, which would negatively impact our business and operating results. 18 We face risks associated with our international operations that could impair our ability to grow our revenues abroad as well as our overall financial condition.
In addition, the impact of the COVID-19 pandemic or other possible pandemics subject us to various risks and uncertainties that could materially adversely affect our business, results of operations and financial condition, including the following: · significant volatility or decreases in the demand for our products or extended sales cycles; · changes in customer behavior and preferences, as customers may experience financial difficulties and/or may delay orders or reduce their spending; · adverse impacts on our ability to distribute or deliver our products or services, as well as temporary disruptions, restrictions or closures of the facilities of our suppliers or customers and their contract manufacturers; · further disruptions in our contract manufacturers’ ability to manufacture our products, as some contract manufacturers and suppliers of materials used in the production of our products are located in areas more severely impacted by COVID-19, which has limited and could further limit our ability to obtain sufficient materials to produce and manufacture our products; and · volatility in the availability of raw materials and components that our contract manufacturers purchase and volatility in raw material and other input costs.
In addition, the impact of the COVID-19 pandemic or other possible pandemics subject us to various risks and uncertainties that could materially adversely affect our business, results of operations and financial condition, including the following: · significant volatility or decreases in the demand for our products or extended sales cycles; · changes in customer behavior and preferences, as customers may experience financial difficulties and/or may delay orders or reduce their spending; · adverse impacts on our ability to distribute or deliver our products or services, as well as temporary disruptions, restrictions or closures of the facilities of our suppliers or customers and their contract manufacturers; · further disruptions in our contract manufacturers’ ability to manufacture our products, as some contract manufacturers and suppliers of materials used in the production of our products are, or may be, located in areas more severely impacted by COVID-19 or another possible pandemic, which has limited and could further limit, our ability to obtain sufficient materials to produce and manufacture our products; and · volatility in the availability of raw materials and components that our contract manufacturers purchase and volatility in raw material and other input costs.
Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which may harm our business, financial condition and results of operations. 14 The impact of natural disasters and other business interruptions could negatively impact our supply chain and customers resulting in an adverse impact to our revenues and profitability.
Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which may harm our business, financial condition and results of operations. The impact of natural disasters and other business interruptions could negatively impact our supply chain and customers resulting in an adverse impact to our revenues and profitability.
There is a possibility that these third-party logistics providers will not perform as expected and we could experience delays in our ability to ship, receive, and process the related data in a timely manner. This could adversely affect our financial position, results of operations, cash flows and the market price of our common stock.
There is a possibility that third-party logistics providers will not perform as expected and we could experience delays in our ability to ship, receive, and process the related data in a timely manner. This could adversely affect our financial position, results of operations, cash flows and the market price of our common stock.
In addition, if any of the parties with whom we conduct business are unable to access funds due to the status of their financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. 15 We have a history of losses.
In addition, if any of the parties with whom we conduct business are unable to access funds due to the status of their financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. We have a history of losses.
Specifically, we did not design and maintain user access controls to adequately restrict user access to the financial application and data to appropriate Company personnel. As a result, management concluded that our internal control over financial reporting was not effective as of June 30, 2023.
Specifically, we did not design and maintain user access controls to adequately restrict user access to the financial application and data to appropriate Company personnel. As a result, management concluded that our internal control over financial reporting was not effective as of June 30, 2023 and June 30, 2024.
In addition, we may incur substantial expenses and devote significant management effort and expense to develop potential relationships that do not result in agreements or revenues, which may prevent us from pursuing other opportunities.
In addition, we may incur substantial expenses and devote significant management effort to develop potential relationships that do not result in agreements or revenues, which may prevent us from pursuing other opportunities.
Our ability to sustain and grow our business depends on our ability to develop, market, and sell new products. Certain of our products are sold into mature markets that are characterized by a trend of declining demand.
Our ability to sustain and grow our business depends on our ability to develop, market, scale, and sell new products. Certain of our products are sold into mature markets that are characterized by a trend of declining demand.
Relying on third-party logistics providers could increase the risk of the following: failing to receive accurate and timely inventory data, theft or poor physical security of our inventory, inventory damage, ineffective internal controls over inventory processes or other similar business risks out of our immediate control. 12 Risks Related to Technology, Cybersecurity and Intellectual Property Cybersecurity breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.
Relying on third-party logistics providers could increase the risk of the following: failing to receive accurate and timely inventory data, theft or poor physical security of our inventory, inventory damage, ineffective internal controls over inventory processes or other similar business risks out of our immediate control. 13 Risks Related to Technology, Cybersecurity and Intellectual Property Cybersecurity breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.
Some of our software offerings may be subject to various cybersecurity risks, which are particularly acute in the cloud-based technologies operated by us and other third parties that form a part of our solutions. In connection with certain implementations of our management software platform, application, and SaaS offering, ConsoleFlow, we expect to store, convey and process data produced by devices.
Some of our software offerings may be subject to various cybersecurity risks, which are particularly acute in the cloud-based technologies operated by us and other third parties that form a part of our solutions. In connection with certain implementations of our management software platform, application, and SaaS offerings, we expect to store, convey and process data produced by devices.
This uncertainty includes the possibility of imposing tariffs or penalties on products manufactured outside the U.S., including the U.S. government’s institution of a 25% tariff on a range of products from China and subsequent tariffs imposed by the U.S. as well as tariffs imposed by trading partners on U.S. goods, the potential for increased trade barriers between the U.K. and the European Union, and export controls or other retaliatory actions against, or restrictions on doing business with Russia, as well as any resulting disruption, instability or volatility in the global markets and industries resulting from such conflict.
This uncertainty includes the possibility of imposing tariffs or penalties on products manufactured outside the U.S., including the U.S. government’s increased tariffs on a range of products from China and subsequent tariffs imposed by the U.S. as well as tariffs imposed by trading partners on U.S. goods, the potential for increased trade barriers between the U.K. and the European Union, and export controls or other retaliatory actions against, or restrictions on doing business with Russia, as well as any resulting disruption, instability or volatility in the global markets and industries resulting from such conflict.
Therefore, there can be no assurance that our introduction or announcement of new product offerings will achieve any significant or sustainable degree of market acceptance or result in increased revenue in the near term. 8 Our software offerings are subject to risks that differ from those facing our hardware products.
Therefore, there can be no assurance that our introduction or announcement of new product offerings will achieve any significant or sustainable degree of market acceptance or result in increased revenue in the near term. 9 Our software offerings are subject to risks that differ from those facing our hardware products.
If we are required to substantially discount our inventory or are unable to sell our inventory in a timely manner, we would be required to increase our inventory reserves or write off obsolete inventory and our operating results could be substantially harmed. 11 Our failure to compete successfully in our highly competitive market could result in reduced prices and loss of market share.
If we are required to substantially discount our inventory or are unable to sell our inventory in a timely manner, we would be required to increase our inventory reserves or write off obsolete inventory and our operating results could be substantially harmed. 12 Our failure to compete successfully in our highly competitive market could result in reduced prices and loss of market share.
In addition, if our operating results in future fiscal quarters were to fall below the expectations of equity analysts and investors, the market price of our common stock would likely fall. 20 The market price of our common stock may be volatile based on a number of factors, many of which are not under our control.
In addition, if our operating results in future fiscal quarters were to fall below the expectations of equity analysts and investors, the market price of our common stock would likely fall. 21 The market price of our common stock may be volatile based on a number of factors, many of which are not under our control.
For these and other reasons, we may not be able to compete successfully against our current or potential future competitors. In addition, the amount of competition we face in the marketplace may change and grow as the market for IoT and M2M networking solutions grows and new companies enter the marketplace.
For these and other reasons, we may not be able to compete successfully against our current or potential future competitors. In addition, the amount of competition we face in the marketplace may change and grow as the market for IoT and machine-to-machine networking solutions grows and new companies enter the marketplace.
If we are unable to attract, retain or motivate key senior management and technical personnel, it could seriously harm our business. Our financial performance depends substantially on the performance of our executive officers and of key engineers, marketing and sales employees. We are particularly dependent upon our technical personnel, due to the specialized technical nature of our business.
If we are unable to attract, retain or motivate key senior management and technical personnel, it could materially harm our business. Our financial performance depends substantially on the performance of our executive officers and of key engineers, marketing and sales employees. We are particularly dependent upon our technical personnel, due to the specialized technical nature of our business.
As disclosed in Part II, Item 9A, during the fourth quarter of fiscal 2023, management identified a material weakness related to the design and implementation of information technology general controls related to the Company’s information systems that are relevant to the preparation of consolidated financial statements.
As disclosed in Part II, Item 9A, during fiscal 2023, management identified a material weakness related to the design and implementation of information technology general controls related to the Company’s information systems that are relevant to the preparation of consolidated financial statements.
The secure processing, maintenance and transmission of the information that we collect and store on our systems is critical to our operations and implementing security measures designed to prevent, detect, mitigate or correct these or other IT security threats involves significant costs.
The secure processing, maintenance and transmission of the information that we collect and store on our systems is critical to our operations and implementing security measures designed to prevent, detect, mitigate or correct these or other cybersecurity threats involves significant costs.
Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced threats to our data and systems, including malware, phishing and computer virus attacks, and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.
Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced, and we expect to continue experiencing, threats to our data and systems, including malware, phishing and computer virus attacks, and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.
We could be subject to liability or our reputation could be harmed if technologies integrated into our products, or our products, fail to prevent cyberattacks, or if our partners or customers fail to safeguard the systems with security policies that conform to industry best practices.
In addition, we could be subject to liability or our reputation could be harmed if technologies integrated into our products, or our products, fail to prevent cyberattacks, or if our partners or customers fail to safeguard the systems with security policies that conform to industry best practices.
If a business interruption occurs, whether due to a natural disaster or otherwise, our business could be materially and adversely affected. Risk Related to Liquidity and Capital Resources We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
If a business interruption occurs, whether due to a natural disaster or otherwise, our business could be materially and adversely affected. 16 Risks Related to Liquidity and Capital Resources We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
If any of these occur, our business, financial condition or results of operations could be adversely affected. General Risk Factors Rising interest rates may negatively impact our results of operations and financing costs. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies.
If any of these occur, our business, financial condition or results of operations could be adversely affected. 20 General Risk Factors High interest rates may negatively impact our results of operations and financing costs. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies.
This section should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in Item 8 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Report.
This section should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in Part II, Item 8 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Report.
We continue to dedicate significant engineering resources to our management software platform, applications, and SaaS offerings, including ConsoleFlow™. These product and service offerings are subject to significant additional risks that are not necessarily related to our hardware products.
We continue to dedicate significant engineering resources to our management software platform, applications, and SaaS offerings. These product and service offerings are subject to significant additional risks that are not necessarily related to our hardware products.
We have and will encounter competition from other solutions providers, many of whom may have more significant resources than us with which to compete. There can be no assurance that we will recover our investments in this product line, that we will receive meaningful revenue from or realize a profit from this new product line.
We have and will encounter competition from other solutions providers, many of whom may have more significant resources than us with which to compete. There can be no assurance that we will recover our investments in this segment, or that we will receive meaningful revenue from or realize a profit from this new segment.
Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations. 9 The nature of our products, customer base and sales channels causes us to lack visibility into future demand for our products, which makes it difficult for us to forecast our manufacturing and inventory requirements.
Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations. 10 The nature of our products, customer base and sales channels results in lack of visibility into future demand for our products, which makes it difficult for us to forecast our manufacturing and inventory requirements.
The adverse impact of the COVID-19 pandemic or another pandemic or similar outbreak on our business, results of operations and financial condition have been and could continue to be material. Certain of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products.
The adverse impact of the COVID-19 pandemic or another pandemic or similar outbreak on our business, results of operations and financial condition have been, could continue to be, and may in the future be material. Certain of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products.
In addition, our sales may be subject to significant fluctuations based on the acceleration, delay or cancellation of customer projects, or our failure to complete one or a series of significant potential sales. Because a significant portion of our operating expenses are fixed, even a single order can have a disproportionate effect on our quarterly revenues and operating results.
In addition, our sales may be subject to significant fluctuations based on the acceleration, delay or cancellation of customer projects, or our failure to complete one or a series of significant potential sales. Because a significant portion of our operating expenses are fixed, even a single order can have a disproportionate effect on our operating results.
We have a lengthy sales cycle for many of our products that generally extends between six and 24 months and sometimes longer due to a lengthy customer evaluation and approval process.
We have a lengthy sales cycle for many of our products that generally extends between three and 24 months and sometimes longer due to a lengthy customer evaluation and approval process.
As the overall market for these products decreases due to the adoption of new technologies, we expect that our revenues from these products will continue to decline. As a result, our future prospects will depend on our ability to develop and successfully market new products that address new and growing markets.
As the overall market for these products decreases due to the adoption of new technologies, our revenues from these products have declined, and we expect they will continue to decline in the future. As a result, our future prospects will depend on our ability to develop and successfully market new products that address new and growing markets.
For instance, we acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses of CSI, and Uplogix in 2019, 2020, 2021 and 2022 respectively. Our previous acquisitions have required, and any future acquisition, partnership, joint venture or investment may also require, that we pay significant cash, issue equity and/or incur substantial debt.
For instance, we acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses of Communication Systems, Inc., and Uplogix, Inc. in calendar years 2019, 2020, 2021 and 2022, respectively. Our previous acquisitions have required, and any future acquisition, partnership, joint venture or investment may also require, that we pay significant cash, issue equity and/or incur substantial debt.
We depend on the resale of products through distributor accounts for a substantial majority of our worldwide net revenue. In addition, sales through our top five distributors accounted for approximately 35% of our net revenue in fiscal 2023.
We depend on the resale of products through distributor accounts for a substantial majority of our worldwide net revenue. In addition, sales through our top five distributors accounted for approximately 29% of our net revenue in fiscal 2024.
Our ability to succeed with these offerings will depend in large part on our ability to provide customers with software products and services that offer features and functionality that address the specific needs of businesses.
Our ability to succeed with these offerings will depend in large part on our ability to provide customers with software products and services that offer features and functionality that address their specific needs.
Increased global information technology (“IT”) security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
Increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
The COVID-19 pandemic or another pandemic or similar outbreak has had, and may continue to have, an adverse impact on the economy generally, our business and the businesses of our suppliers, and our results of operations and financial condition. In addition, the COVID-19 pandemic resulted in industry events, trade shows and business travel being suspended, cancelled and/or significantly curtailed.
The COVID-19 pandemic or another pandemic or similar outbreak has had, and may in the future have, an adverse impact on the economy, our business and the businesses of our suppliers, and our results of operations and financial condition. For example, the COVID-19 pandemic resulted in industry events, trade shows and business travel being suspended, cancelled and/or significantly curtailed.
In addition, our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations, whether due to the COVID-19 pandemic, the war between Ukraine and Russia, recent tensions between China and Taiwan or otherwise.
In addition, our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations, whether due to the COVID-19 pandemic or a future pandemic or epidemic, the war between Ukraine and Russia, conflict in the Middle East, hostilities in the Red Sea, recent tensions between China and Taiwan or otherwise.
In an effort to combat inflation, a number of central banks around the world, including the U.S., have raised interest rates and are expected to keep increasing interest rates. Increased interest rates may hinder the economic growth in markets where we do business, and has and may continue to have negative impacts on the global economy.
In an effort to combat inflation, a number of central banks around the world, including the U.S., raised interest rates and may continue to raise them in the future. Higher interest rates may hinder the economic growth in markets where we do business, and has and may continue to have negative impacts on the global economy.
In addition, the Nasdaq Capital Market often experiences price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of companies listed on the Nasdaq Capital Market.
In addition, the Nasdaq Capital Market often experiences price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of companies listed on the Nasdaq Capital Market. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
In addition, the Loan Agreement with SVB currently requires us to hold 50% of our company-wide cash balances at SVB, which may limit our ability to manage our cash holdings effectively and could put a substantial portion of those holdings at risk in the event of a bank failure. 16 Risks Related to International Operations Rising concern regarding international tariffs could materially and adversely affect our business and results of operations.
In addition, our loan agreement with SVB currently requires us to hold 50% of our company-wide cash balances at SVB, which may limit our ability to manage our cash holdings effectively. Risks Related to International Operations Rising concern regarding international tariffs could materially and adversely affect our business and results of operations.
The loss of one or more significant customers or a decline in sales to our significant customers could result in a material loss of sales and possible increase in excess inventories which would adversely affect our business, financial condition, and results of operations. We depend on distributors for a majority of our sales and to complete order fulfillment.
The loss of one or more significant customers or a decline in sales to our significant customers could result in a material loss of sales and possible increase in excess inventories which would adversely affect our business, financial condition, and results of operations.
The duration and extent of the COVID-19 pandemic or another pandemic’s effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted at this time.
The duration and extent of a future pandemic’s or other similar outbreak’s effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted at this time.
In either case, we would be required to either redesign our products to function with alternate third-party software or open source software, or develop these components ourselves, which would result in increased costs and could result in delays in our product shipments. Furthermore, we might be forced to limit the features available in our current or future product offerings.
In either case, we would be required to either redesign our products to function with alternate third-party software or open source software, or develop these components ourselves, which would result in increased costs and could result in delays in our product shipments.
A failure to timely access our cash on deposit with SVB or other banks could require the scaling back of our operations and production, negatively affect our credit, and prevent us from fulfilling contractual obligations.
In addition, current macroeconomic conditions caused turmoil in the banking sector since the failure of SVB. A failure to timely access our cash on deposit with SVB or other banks could require the scaling back of our operations and production, negatively affect our credit, and prevent us from fulfilling contractual obligations.
If we are unable to meet existing orders or to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations.
If we are unable to meet existing orders or to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations. 7 Future operating results depend upon our ability to timely obtain components in sufficient quantities and on acceptable terms.
A majority of our physical inventory management process, as well as the shipping and receiving of our inventory, is performed by third-party logistics providers in Los Angeles, California and Hong Kong.
A portion of our physical inventory management process, as well as the shipping and receiving of our inventory, is performed by a third-party logistics provider in Hong Kong.
In addition, due to the fast pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsolete quickly and, in some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
In addition, due to the fast pace and unpredictability of cybersecurity threats, including from emerging technologies, such as advanced forms of machine learning, AI and quantum computing, long-term implementation plans designed to address cybersecurity risks become obsolete quickly and, in some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
While most industry events, trade shows and business travel have resumed, if these activities are suspended, cancelled and/or significantly curtailed in the future, whether due to surges of COVID-19 or other possible pandemics and similar outbreaks, our sales may continue to be negatively impacted in the future.
If these activities are suspended, cancelled and/or significantly curtailed in the future, whether due to surges of COVID-19 or other possible pandemics and similar outbreaks, our sales may be negatively impacted in the future.
In particular, we are exposed to changes in the value of the U.S. dollar versus the local currency in which our products are sold and our services are purchased, including devaluation and revaluation of local currencies.
In particular, we are exposed to changes in the value of the U.S. dollar versus the local currency in which our products are sold and our services are purchased, including devaluation and revaluation of local currencies. Accordingly, fluctuations in foreign currency rates could adversely affect our revenues and operating results.
Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to widespread demands for customer withdrawals and liquidity constraints that may result in market-wide liquidity problems. For example, on March 10, 2023, SVB failed and was taken into receivership by the FDIC.
Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to widespread demands for customer withdrawals and liquidity constraints that may result in market-wide liquidity problems.
If our products become subject to cybersecurity breaches, or if public perception is that they are vulnerable to cyberattacks, our reputation and business could suffer.
If unauthorized access is obtained to the personal and/or proprietary data we collect and store, our products become subject to cybersecurity breaches, or if public perception is that they are vulnerable to cyberattacks, our reputation and business could suffer.
The terms of our Senior Credit Facilities may restrict our financial and operational flexibility and, in certain cases, our ability to operate. The terms of our Senior Credit Facilities restrict, among other things, our 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.
The terms of our existing term loan and revolving credit facility restrict, among other things, our 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.
Failure to obtain these certifications or approvals, or delays in receiving any needed certifications or approvals, could impact our ability to compete effectively or at all in these markets and could have an adverse impact on our revenues.
In addition, many of our products are certified as meeting various industry quality and/or compatibility standards. Failure to obtain these certifications or approvals, or delays in receiving any needed certifications or approvals, could impact our ability to compete effectively or at all in these markets and could have an adverse impact on our revenues.
In order to comply with these regulations, we may need to redesign our products to use different components, which may be more expensive, if they are available at all.
In the future, China and other countries including the U.S. are expected to adopt further environmental compliance programs. In order to comply with these regulations, we may need to redesign our products to use different components, which may be more expensive, if they are available at all.
The effect of COVID-19 and other possible pandemics and similar outbreaks could result in material adverse effects on our business, financial position, results of operations and cash flows.
The effect of a pandemic or major public health concern such as the COVID-19 pandemic could result in material adverse effects on our business, financial position, results of operations and cash flows.
Any lawsuit may involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources. The results of litigation are inherently uncertain, and adverse outcomes are possible. In particular, litigation regarding intellectual property rights occurs frequently in our industry. The results of litigation are inherently uncertain, and adverse outcomes are possible.
Any lawsuit may involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources. The results of litigation are inherently uncertain, and adverse outcomes are possible. Adverse outcomes may have a material adverse effect on our business, financial condition or results of operations.
We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position or require us to incur significant expenses to enforce our rights.
Significant product warranty claims against us could harm our business, reputation and financial results and cause the market price of our common stock to decline. We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position or require us to incur significant expenses to enforce our rights.
When this happens, we attempt to purchase sufficient inventory to meet our needs until a substitute component can be incorporated into our products. Nonetheless, we may be unable to purchase sufficient components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components.
Nonetheless, we may be unable to purchase sufficient components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components.
While we were able to regain full access to our deposits with SVB and have taken steps to diversify our banking relationships since then, our Loan Agreement with SVB currently requires us to hold 50% of our company-wide cash balances at SVB, and consequently any future failure of that bank could simultaneously prevent access to both a substantial portion of our cash holdings and to our credit line for funds needed to meet our working capital requirements and other financial commitments.
While we were able to regain full access to our deposits with SVB and have taken steps to diversify our banking relationships since then, our loan agreement with SVB currently requires us to hold 50% of our company-wide cash balances at SVB.
In addition, risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business. Risks Related to Our Operations and Industry We have experienced and may in the future experience constraints in the supply of certain materials and components that could affect our operating results.
In addition, risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business.
Adverse outcomes may have a material adverse effect on our business, financial condition or results of operations. There is a risk that other third parties could claim that our products, or our customers’ products, infringe on their intellectual property rights or that we have misappropriated their intellectual property.
In particular, litigation regarding intellectual property rights occurs frequently in our industry. There is a risk that other third parties could claim that our products, or our customers’ products, infringe on their intellectual property rights or that we have misappropriated their intellectual property.
In addition, new revisions to our products could cause our customers to alter the timing of their purchases, by either accelerating or delaying purchases, which could result in fluctuations of our net revenue from quarter to quarter. 10 We depend upon a relatively small number of distributor and end-user customers for a large portion of our revenue, and a decline in sales to these major customers would materially adversely affect our business, financial condition, and results of operations.
Risks Related to Our Operations and Industry We depend upon a relatively small number of distributor and end-user customers for a large portion of our revenue, and a decline in sales to these major customers would materially adversely affect our business, financial condition, and results of operations.
Further, as regulatory focus on privacy and data security issues continues to increase and worldwide laws and regulations concerning the protection of information become more complex, the potential risks and costs of compliance to our business will intensify. 13 If software that we incorporate into our products were to become unavailable or no longer available on commercially reasonable terms, it could adversely affect sales of our products, which could disrupt our business and harm our financial results.
If software that we incorporate into our products were to become unavailable or no longer available on commercially reasonable terms, it could adversely affect sales of our products, which could disrupt our business and harm our financial results.
Our failure to comply effectively with the requirements of applicable environmental legislation and regulation could have a material adverse effect on our revenues and profitability. Certain states and countries have passed regulations relating to chemical substances in electronic products and requiring electronic products to use environmentally friendly components.
Failure to comply with the aforementioned regulations could also affect our decision to sell our products in international jurisdictions, which could have a material adverse effect on our revenues and profitability. 19 Our failure to comply effectively with the requirements of applicable environmental legislation and regulation could have a material adverse effect on our revenues and profitability.
Accordingly, fluctuations in foreign currency rates could adversely affect our revenues and operating results. 17 Risks Related to Regulatory Compliance and Legal Matters Our inability to obtain appropriate industry certifications or approvals from governmental regulatory bodies could impede our ability to grow revenues in our wireless products.
Risks Related to Regulatory Compliance and Legal Matters Our inability to obtain appropriate industry certifications or approvals from governmental regulatory bodies could impede our ability to grow revenues in our wireless products. The sale of our wireless products in some geographical markets is sometimes dependent on the ability to gain certifications and/or approvals by relevant governmental bodies.
Our customer concentration could fluctuate, depending on future customer requirements, which will depend on market conditions in the industry segments in which our customers participate.
Historically, we have relied upon a small number of distributors and end-user customers for a significant portion of our net revenue. Our customer concentration could fluctuate, depending on future customer requirements, which will depend on market conditions in the industry segments in which our customers participate.
Our products may contain undetected software or hardware errors or defects that could lead to an increase in our costs, reduce our net revenue or damage our reputation. We currently offer warranties ranging from one to five years on each of our products. Our products could contain undetected software or hardware errors or defects.
Furthermore, we might be forced to limit the features available in our current or future product offerings. 15 Our products may contain undetected software or hardware errors or defects that could lead to an increase in our costs, reduce our net revenue or damage our reputation.
Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S. government insurance and financing, as well as large fines. Failure to comply with the aforementioned regulations could also affect our decision to sell our products in international jurisdictions, which could have a material adverse effect on our revenues and profitability.
Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S. government insurance and financing, as well as large fines.
For example, the European Union has the Waste Electrical and Electronic Equipment Directive, the Restrictions of Hazardous Substances Directive, and the Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals. In the future, China and other countries including the U.S. are expected to adopt further environmental compliance programs.
Certain states and countries have passed regulations relating to chemical substances in electronic products and requiring electronic products to use environmentally friendly components. For example, the European Union has the Waste Electrical and Electronic Equipment Directive, the Restrictions of Hazardous Substances Directive, and the Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals.
In addition, higher interest rates impact the amount of interest we pay for our debt obligations and leases and continue and sustained increases in interest rates could negatively impact our financing costs or cash flow. 19 Risks generally associated with a company-wide implementation of an enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.
In addition, higher interest rates impact the amount of interest we pay for our debt obligations and leases and continue and sustained increases in interest rates could negatively impact our financing costs or cash flow.
The costs we would incur to address and fix these incidents could significantly increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.
These types of security incidents could also lead to lawsuits, regulatory investigations and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring. 14 Failure to comply with data privacy laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.
Inadequate processes to collect and review this information prior to disclosure could subject us to potential liability related to such information. 18 Current or future litigation could adversely affect us. We are subject to a wide range of claims and lawsuits in the course of our business.
As a smaller company, we may not have resources to meet the evolving ESG-related expectations of an investment community. Current or future litigation, including related to intellectual property, could adversely affect us. We are subject to a wide range of claims and lawsuits in the course of our business.
Some of our integrated circuits are only available from a single source and in some cases, are no longer being manufactured. From time to time, integrated circuits, and potentially other components used in our products, will be phased out of production by the manufacturer.
From time to time, integrated circuits, and potentially other components used in our products, will be phased out of production by the manufacturer. When this happens, we attempt to purchase sufficient inventory to meet our needs until a substitute component can be incorporated into our products.
If there is a product failure, we might have to replace all affected products, or we might have to refund the purchase price for the units. Regardless of the amount of testing we undertake, some errors might be discovered only after a product has been installed and used by customers.
Regardless of the amount of testing we undertake, some errors might be discovered only after a product has been installed and used by customers. Any errors discovered after commercial release could result in financial losses and claims against us.
Removed
For instance, we continue to experience long lead times and delays in shipments of semiconductor chips. As a result, we have sought alternate sources of certain components, which have been at a higher cost. Because semiconductor chips continue to be subject to an ongoing significant shortage, our ability to source components that use semiconductor chips has been adversely affected.
Added
We have experienced and may in the future experience constraints in the supply of certain materials and components that could affect our operating results. Some of our integrated circuits are only available from a single source and in some cases, are no longer being manufactured.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOperations and warehousing, engineering, sales and marketing 66,000 Vancouver, British Columbia, Canada Engineering 8,500 Hyderabad, India Engineering 18,000 Illmenau, Germany Engineering, sales and marketing 7,500 Taiwan Engineering, sales and marketing 5,500 We believe our existing facilities are adequate to meet our needs.
Biggest changeEngineering, sales, and marketing 7,500 Hyderabad, India Engineering and design 18,000 Illmenau, Germany Engineering, operations, sales, and marketing 7,500 Taipei City, Taiwan Engineering, sales, and marketing 5,500 We believe our existing facilities are adequate to meet our needs. If additional space is needed in the future, we believe that suitable space will be available on commercially reasonable terms.
ITEM 2. PROPERTIES The following table presents details regarding our leased facilities: Locations Primary Use Approximate Square Footage Irvine, California, U.S.A. Corporate headquarters; sales and marketing, research and development, operations and administration 14,000 Plymouth, Minnesota, U.S.A.
ITEM 2. PROPERTIES The following table presents details regarding our leased facilities: Locations Primary Use Approximate Square Footage Irvine, California, U.S.A. Corporate headquarters; sales and marketing, research and development, operations, and administration 14,000 Plymouth, Minnesota, U.S.A. Operations, warehousing, and administration 66,000 Vancouver, British Columbia, Canada Engineering, operations, and marketing 8,500 Austin, Texas, U.S.A.
Removed
If additional space is needed in the future, we believe that suitable space will be available on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS None.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future decision to declare or pay dividends will be made by our board of directors in its sole discretion and will depend upon our financial condition, operating results, capital requirements and other factors that our board of directors deems appropriate at the time of its decision.
Biggest changeAny future decision to declare or pay dividends will be made by the Board in its sole discretion and will depend upon our financial condition, operating results, capital requirements and other factors that the Board deems appropriate at the time of its decision.
Issuer Repurchases We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2023. ITEM 6. RESERVED
Issuer Repurchases We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2024. ITEM 6. RESERVED
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “LTRX.” The number of holders of record of our common stock as of August 31, 2023 was approximately 28.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “LTRX.” The number of holders of record of our common stock as of August 30, 2024 was approximately 27.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeForm 10-K Summary 42 * Not required for a “smaller reporting company.” i CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended June 30, 2023, or this Report, contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties.
Biggest changeForm 10-K Summary 42 i CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended June 30, 2024, or this Report, contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties.
Item 6. Reserved 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk * 35 Item 8. Financial Statements and Supplementary Data 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35 Item 9A. Controls and Procedures 36 Item 9B.
Item 6. Reserved 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8. Financial Statements and Supplementary Data 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35 Item 9A. Controls and Procedures 36 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents our selling, general and administrative expenses: Years Ended June 30, % of Net % of Net Change 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 19,453 $ 19,368 $ 85 0.4% Professional fees and outside services 6,064 5,833 231 4.0% Advertising and marketing 2,136 1,893 243 12.8% Facilities and insurance 2,538 1,476 1,062 72.0% Share-based compensation 4,546 4,862 (316 ) (6.5% ) Depreciation 1,022 288 734 254.9% Other 1,189 809 380 47.0% Selling, general and administrative $ 36,948 28.2% $ 34,529 26.6% $ 2,419 7.0% Selling, general and administrative expenses increased in fiscal 2023 when compared to fiscal 2022 primarily due to (i) increased personnel-related expenses in headcount added from the Uplogix acquisition, (ii) higher accounting, audit and legal fees primarily related to compliance with Section 404(b) of the Sarbanes-Oxley Act, (iii) higher facilities and insurance expenses related to our new Minnesota warehouse location, (iv) higher advertising and marketing costs related to increased trade show activity, (v) higher depreciation related to property and equipment for our new facilities in California and Minnesota and (vi) higher bad debt expenses included in the “Other” category above.
Biggest changeSelling, General and Administrative 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. 31 The following table presents our selling, general and administrative expenses: Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 21,316 $ 19,453 $ 1,863 9.6% Professional fees and outside services 5,037 6,064 (1,027 ) (16.9% ) Advertising and marketing 2,346 2,136 210 9.8% Facilities and insurance 2,754 2,538 216 8.5% Share-based compensation 6,248 4,546 1,702 37.4% Depreciation 1,393 1,022 371 36.3% Other 1,112 1,189 (77 ) (6.5% ) Selling, general and administrative $ 40,206 25.1% $ 36,948 28.2% $ 3,258 8.8% Selling, general and administrative expenses increased primarily due to higher personnel-related expenses arising from merit increases and variable and share-based compensation related to the Company’s improved financial performance in fiscal 2024.
We determine excess and obsolete inventories based on an estimate of the future sales demand for our products within a specified time horizon, which is generally 12 months. In addition, specific reserve estimates are recorded to cover risks for end-of-life products, inventory located at our contract manufacturers and warranty replacement stock.
We determine excess and obsolete inventories based on an estimate of the future sales demand for our products within a specified time horizon, which is generally 12 to 24 months. In addition, specific reserve estimates are recorded to cover risks for end-of-life products, inventory located at our contract manufacturers and warranty replacement stock.
Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our results of operations. Restructuring Charges We recognize costs and related liabilities for restructuring activities when they are incurred.
Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our results of operations. 27 Restructuring Charges We recognize costs and related liabilities for restructuring activities when they are incurred.
Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in accordance with U.S. generally accepted accounting principles 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.
Critical Accounting Policies and Estimates 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.
Additionally, our estimates of future product demand and judgement to determine excess inventory may prove to be inaccurate, in which case we may have understated or overstated the reduction to the total carrying value of our inventory for excess and obsolete inventory.
Our estimates of future product demand and judgement to determine excess inventory may prove to be inaccurate, in which case we may have understated or overstated the reduction to the total carrying value of our inventory for excess and obsolete inventory.
Other Expense, Net Other expense, net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the U.S. dollar.
Other Income (Expense), Net Other income (expense), net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the U.S. dollar.
If our actual financial results are not consistent with our assumptions and judgments used in estimating the fair value of our reporting unit, we may be exposed to goodwill impairment losses. During the fourth quarter of fiscal 2023, we made a qualitative assessment of whether goodwill impairment existed.
If our actual financial results are not consistent with our assumptions and judgments used in estimating the fair value of our reporting unit, we may be exposed to goodwill impairment losses. During the fourth quarter of fiscal 2024, we made a qualitative assessment of whether goodwill impairment existed.
The differences between our effective tax rate and the federal statutory rate in fiscal 2023 and fiscal 2022 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.
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.
The fair value of our performance stock units is estimated as of the grant date based upon the expected achievement of the performance metrics specified in the grant and the closing market price of our common stock on the date of grant.
The fair value of our restricted stock units is based on the closing market price of our common stock on the date of grant. 29 The fair value of our performance stock units is estimated as of the grant date based upon the expected achievement of the performance metrics specified in the grant and the closing market price of our common stock on the date of grant.
If these events were to occur, it could increase or decrease our share-based compensation expense, which would impact our operating expenses and gross margins. Results of Operations - Fiscal Years Ended June 30, 2023 and 2022 Summary For fiscal 2023, our net revenue increased by $1,534,000, or 1.2%, compared to fiscal 2022.
If these events were to occur, it could increase or decrease our share-based compensation expense, which would impact our operating expenses and gross margins. Results of Operations - Fiscal Years Ended June 30, 2024 and 2023 Summary For fiscal 2024, our net revenue increased by $29,138,000, or 22.2%, compared to fiscal 2023.
Aside from a net deferred tax liability of $146,000 that we recorded as of June 30, 2023, as a result of 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, 2023 and 2022.
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.
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. Acquisition-Related Costs During fiscal 2023 we incurred approximately $315,000 of costs primarily in connection with the acquisition of Uplogix. These costs were mainly comprised of legal and other professional fees.
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. Acquisition-Related Costs During fiscal 2023 we incurred approximately $315,000 of costs primarily in connection with the acquisition of Uplogix, Inc. (“Uplogix”).
These assets are generally amortized on a straight-line basis over their estimated useful lives and resulted in charges of $5,804,000 and $5,590,000 during fiscal 2023 and 2022, respectively. Interest Income (Expense), Net For fiscal 2023 and 2022, we incurred net interest expense from interest incurred on borrowings on our Credit Facilities.
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. Interest Expense, Net For fiscal 2024 and 2023, we incurred net interest expense from interest incurred on borrowings on our credit facilities. We also earn interest on our domestic cash balances.
To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. 24 We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements: Revenue Recognition 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 believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements: Revenue Recognition 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.
Provision for Income Taxes The following table presents our provision for income taxes: Years Ended June 30, % of Net % of Net 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Provision (benefit) for income taxes $ 748 0.6% $ (1,832 ) (1.4% ) $ 2,580 (140.8% ) The following table presents our effective tax rate based upon our provision for income taxes: Years Ended June 30, 2023 2022 Effective tax rate (9.1% ) 25.5% We utilize the liability method of accounting for income taxes.
Provision for Income Taxes The following table presents our provision for income taxes: Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Provision for income taxes $ 745 0.5% $ 748 0.6% $ (3 ) (0.4% ) The following table presents our effective tax rate based upon our provision for income taxes: Years Ended June 30, 2024 2023 Effective tax rate 19.8% 9.1% 33 We utilize the liability method of accounting for income taxes.
Circumstances which could trigger a review include, but are not limited to the following: · significant decreases in the market price of the asset; · significant adverse changes in the business climate or legal factors; · accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; · current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or · current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. 27 Whenever events or changes in circumstances suggest that the carrying amount of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows expected to be generated by the asset from its use or eventual disposition.
Circumstances that could trigger a review include, but are not limited to the following: · significant decreases in the market price of the asset; · significant adverse changes in the business climate or legal factors; · accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; · current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or · current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by the FDIC.
We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”).
A portion of our revenues are derived from engineering and related consulting service contracts with customers. 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 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.
Investing Activities Net cash used in investing activities during fiscal 2023 was driven by the acquisition of Uplogix, which used net cash of $4,650,000. We also used $2,673,000 for the purchase of property and equipment, primarily related to building out and furnishing our new lease facilities in California and Minnesota.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (this “Report”).
The increase in net revenue was driven by a 3.0% increase in net revenue in our Embedded IoT Solutions product line, as well as an increase of 13.5% in net revenues in our Software & Services product line partially offset by a decrease of 2.6% in net revenues in our IoT System Solutions product line.
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 $8,980,000 for fiscal 2023 compared to a net loss of $5,362,000 for fiscal 2022.
We had a net loss of $4,516,000 for fiscal 2024 compared to a net loss of $8,980,000 for fiscal 2023.
We also record reductions of revenue for pricing adjustments, such as competitive pricing programs and rebates, in the same period that the related revenue is recognized, based primarily on approved pricing adjustments and our historical experience. Actual product returns or pricing adjustments that differ from our estimates could result in increases or decreases to our net revenue.
We also record reductions of revenue for pricing adjustments, such as competitive pricing programs and rebates, in the same period that the related revenue is recognized, based primarily on approved pricing adjustments and our historical experience.
Our share-based awards are currently comprised of restricted stock units, performance stock units, common stock options, and common stock purchase rights granted under our 2013 Employee Stock Purchase Plan (“ESPP”). The fair value of our restricted stock units is based on the closing market price of our common stock on the date of grant.
Our share-based awards are currently comprised of restricted stock units, performance stock units, common stock options, and common stock purchase rights granted under our 2013 Employee Stock Purchase Plan (“ESPP”).
Recent Accounting Pronouncements Refer to Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of recent accounting pronouncements.
Our Software and Services product lines include: Engineering Services, Percepxion™, ConsoleFlow™, Control Center and Level Services. Recent Accounting Pronouncements Refer to Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference, for a discussion of recent accounting pronouncements.
Some factors that we consider important in the qualitative assessment which could trigger a goodwill impairment review include: · significant underperformance relative to historical or projected future operating results; · significant changes in the manner of our use of the acquired assets or the strategy for our overall business; · significant negative industry or economic trends; · a significant decline in our stock price for a sustained period; and · a significant change in our market capitalization relative to our book value.
Some factors that we consider important in the qualitative assessment which could trigger a goodwill impairment review include: · significant underperformance relative to historical or projected future operating results; · significant changes in the manner of our use of the acquired assets or the strategy for our overall business; · significant negative industry or economic trends; · a significant decline in our stock price for a sustained period; and · a significant change in our market capitalization relative to our book value. 28 Based on our qualitative assessment, if we conclude that it is more likely than not that the fair value of our single reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment test, which involves comparing the estimated fair value of our single reporting unit with its carrying value, including goodwill.
Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred. 26 Goodwill Impairment Testing We evaluate goodwill for impairment on an annual basis in 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.
Goodwill Impairment Testing 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.
Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (“Report”).
Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item 1A of this Report. Please also see “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Report.
Changes to performance obligations that we identify, or the estimated selling prices pertaining to a contract, could materially impact the amounts of earned and unearned revenue that we record. 25 Inventory Valuation We value inventories at the lower of cost (on a first-in, first-out basis) or net realizable value, whereby we make estimates regarding the market value of our inventories, including an assessment of excess and obsolete inventories.
Inventory Valuation We value inventories at the lower of cost (on a first-in, first-out basis) or net realizable value, whereby we make estimates regarding the market value of our inventories, including an assessment of excess and obsolete inventories.
Research and Development Research and development expenses consisted of personnel-related expenses, share-based compensation, and expenditures to third-party vendors for research and development activities and product certification costs.
Research and Development Research and development expenses consists of personnel-related expenses, share-based compensation, and expenditures to third-party vendors for research and development activities and product certification costs. Our costs from period-to-period related to outside services and product certifications vary depending on our level and timing of development activities.
Cash Flows The following table presents the major components of the consolidated statements of cash flows: Years Ended June 30, (Decrease) 2023 2022 Increase (In thousands) Net cash provided by (used in) operating activities $ 237 $ (9,416 ) $ 9,653 Net cash used in investing activities (7,323 ) (25,747 ) (18,424 ) Net cash provided by financing activities 3,317 42,645 (39,328 ) 34 Operating Activities Our operations provided cash during fiscal 2023 compared to using cash in fiscal 2022.
Cash Flows The following table presents the major components of the consolidated statements of cash flows: Years Ended June 30, Increase 2024 2023 (Decrease) (In thousands) Net cash provided by operating activities $ 18,623 $ 237 $ 18,386 Net cash used in investing activities (1,479 ) (7,323 ) (5,844 ) Net cash (used in) provided by financing activities (4,359 ) 3,317 (7,676 ) Operating Activities Cash provided by operating activities during fiscal 2024 increased compared to fiscal 2023.
In fiscal 2022 we incurred approximately $889,000 of acquisition-related costs, mostly comprised of banking and legal fees related to the acquisition of the TN Companies and our exploration of other acquisition targets. Amortization of Purchased Intangible Assets We acquired certain intangible assets through our recent acquisitions, which we recorded at fair-value as of the acquisition dates.
These costs were mainly comprised of banking, legal and other professional fees. Amortization of Intangible Assets We acquired certain intangible assets through our recent acquisitions, which we recorded at fair-value as of the acquisition dates.
We continue to monitor 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.
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 in Note 5 of Notes to Consolidated Financial Statements, including in Part II, Item 8 of this Report).
Financing Activities Net cash provided by financing activities during fiscal 2023 resulted primarily from $7,000,000 in gross proceeds received from our credit facilities with SVB.
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.
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. 29 The following table presents our gross profit: Years Ended June 30, % of Net % of Net 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Gross profit $ 56,264 42.9% $ 55,586 42.9% $ 678 1.2% Gross profit as a percentage of revenue (“gross margin") in fiscal 2023 remained consistent with fiscal 2022.
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.
Our costs from period-to-period related to outside services and product certifications vary depending on our level and timing of development activities. 30 The following table presents our research and development expenses: Years Ended June 30, % of Net % of Net 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 12,535 $ 11,408 $ 1,127 9.9% Facilities 2,664 2,351 313 13.3% Outside services 773 1,158 (385 ) (33.2% ) Product certifications 1,067 817 250 30.6% Share-based compensation 1,504 1,015 489 48.2% Other 1,082 938 144 15.4% Research and development $ 19,625 15.0% $ 17,687 13.6% $ 1,938 11.0% Research and development expenses increased in fiscal 2023 when compared to fiscal 2022 primarily due to an increase in personnel-related costs driven by the acquisition of Uplogix and internal growth of our engineering teams worldwide.
The following table presents our research and development expenses: Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 14,022 $ 12,535 $ 1,487 11.9% Facilities 2,523 2,664 (141 ) (5.3% ) Outside services 505 773 (268 ) (34.7% ) Product certifications 462 1,067 (605 ) (56.7% ) Share-based compensation 1,852 1,504 348 23.1% Other 918 1,082 (164 ) (15.2% ) Research and development $ 20,282 12.7% $ 19,625 15.0% $ 657 3.3% Research and development expenses increased primarily due to higher personnel-related costs resulting from merit increases and variable and share-based compensation costs related to our improved financial performance in fiscal 2024.
Additionally, in fiscal 2022 we recorded a tax benefit resulting from a U.S. deferred tax liability in the TN Companies acquisition purchase accounting related to non-tax-deductible intangible assets. 28 Net Revenue The following tables present our net revenue by product lines and by geographic region: Years Ended June 30, % of Net % of Net Change 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Embedded IoT Solutions $ 63,636 48.5% $ 61,773 47.6% $ 1,863 3.0% IoT System Solutions 57,496 43.8% 59,019 45.5% (1,523 ) (2.6% ) Software & Services 10,057 7.7% 8,863 6.9% 1,194 13.5% $ 131,189 100.0% $ 129,655 100.0% $ 1,534 1.2% Years Ended June 30, % of Net % of Net Change 2023 Revenue 2022 Revenue $ % (In thousands, except percentages) Americas $ 78,557 59.9% $ 77,799 60.0% $ 758 1.0% EMEA 23,286 17.7% 22,542 17.4% 744 3.3% APJ 29,346 22.4% 29,314 22.6% 32 0.1% $ 131,189 100.0% $ 129,655 100.0% $ 1,534 1.2% Embedded IoT Solutions Net revenue increased in fiscal 2023 compared to fiscal 2022 primarily due to organic growth in our compute modules in the APJ and EMEA regions as well as increased sales of our network interface cards, primarily in the Americas region.
Net Revenue The following tables present our net revenue by product lines and by geographic region: Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Embedded IoT Solutions $ 46,953 29.3% $ 63,636 48.6% $ (16,683 ) (26.2% ) IoT System Solutions 104,450 65.1% 57,496 43.8% 46,954 81.7% Software & Services 8,924 5.6% 10,057 7.7% (1,133 ) (11.3% ) $ 160,327 100.0% $ 131,189 100.1% $ 29,138 22.2% Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Americas $ 78,203 48.8% $ 78,557 59.9% $ (354 ) (0.5% ) EMEA 64,025 39.9% 23,286 17.7% 40,739 175.0% APJ 18,099 11.3% 29,346 22.4% (11,247 ) (38.3% ) $ 160,327 100.0% $ 131,189 100.0% $ 29,138 22.2% 30 Embedded IoT Solutions 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.
Refer to Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, for additional information. 32 Due to the “change of ownership” provision of the Tax Reform Act of 1986, utilization of our NOL carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods.
Refer to Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, for additional information.
Software & Services Net revenue increased primarily due to an increase in our extended warranty services in the Americas region, mostly as a result of the Uplogix acquisition. Gross Profit Gross profit represents net revenue less cost of revenue.
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. Gross Profit Gross profit represents net revenue less cost of revenue.
Accounts payable decreased by $8,243,000, or 39.9%, from June 30, 2022 to June 30, 2023, which was slightly offset by the acquisition of $278,000 of accounts payable from the Uplogix acquisition. The reduction is primarily due to the timing of our inventory purchases and related payments to our vendors during the current fiscal year.
The reduction is primarily due to the decrease in our inventories and the timing of payments to our vendors. Accounts receivable increased by $3,597,000, or 13.0%, from June 30, 2023 to June 30, 2024. The increase is primarily due to the increased sales during the current year coupled with timing of payments received from our customers.
References to “fiscal 2023” refer to the fiscal year ended June 30, 2023 and references to “fiscal 2022” refer to the fiscal year ended June 30, 2022. 23 Products and Solutions To more closely align the categorization of our product lines with how we position them in the marketplace, we have re-organized our products and solutions.
References to “fiscal 2024” refer to the fiscal year ended June 30, 2024 and references to “fiscal 2023” refer to the fiscal year ended June 30, 2023. 25 Products and Solutions We organize our portfolio services and products into three product lines: Embedded IoT Solutions, IoT System Solutions, and Software & Services.
For fiscal 2023, our net loss included $13,644,000 of non-cash charges, and the changes in operating assets and liabilities used cash of $4,427,000. Our net inventories increased by $12,057,000, or 32.0%, from June 30, 2022 to June 30, 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.
The increase in cash was partially offset by principal payments on the senior credit facility and repayment of the $2,000,000 balance on the revolving credit facility, as well as tax withholdings paid on behalf of employees for restricted shares.
Financing Activities 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.
The increase in net loss was driven primarily by increased headcount costs related to the Uplogix acquisition as both selling, general and administrative and research and development expenses as a percent of net revenue were higher in fiscal 2023 than fiscal 2022.
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.
Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under the Senior Credit Facilities, and cash generated from operations.
Liquidity and Capital Resources Liquidity The following table presents our working capital and cash and cash equivalents: June 30, 2024 2023 Change (In thousands) Working capital $ 58,794 $ 50,163 $ 8,631 Cash and cash equivalents $ 26,237 $ 13,452 $ 12,785 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.
Refer to “Products and Solutions” included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion. Recent Developments TN Companies Acquisition On August 2, 2021 we acquired the Transition Networks and Net2Edge businesses (the “TN Companies”) from Communication Systems, Inc.
Refer to “Products and Solutions” included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion. Our Embedded IoT Solutions product lines include Open-Q System on Modules and System in Packages, XPort®, XPort® Pro, Development Kits, xPico®, xPico® Wi-Fi, NICS and Optical SFPs.
We expect this requirement will increase our taxable income in certain state jurisdictions for which our ability to utilize NOL carryforwards to offset income taxes will be limited. We define cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased.
We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures. 34 We define cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased.
Removed
Please also see “Cautionary Note Regarding Forward Looking Statements” at the beginning of this Report. Overview Lantronix, Inc. is a global Industrial and Enterprise internet of things (“IoT”) provider of solutions that target high growth applications in specific verticals such as Smart Grid, Intelligent Transportation, Smart Cities, and AI Data Centers.
Added
Overview Lantronix, Inc. 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.
Removed
Building on a long history of Networking and video processing competence, target applications include Intelligent Substations infrastructure, Infotainment systems, and Video Surveillance, supplemented with a comprehensive Out of Band Management (“OOB”) products offering for Cloud and Edge Computing.
Added
Our IoT System Solutions product lines include LM83X, LM80, SLC ™ 8000, Spider ™ , EMG ™ , UDS, EDS, EDS-MD, xPress™, xDirect®, E21x, E22x, G52x, X30x, Bolero4x, FOX3-4G, FOX4, SGX™ and Power over Ethernet (“PoE”) Switches. In addition, Lantronix offers non-PoE Network Switches and Media Converters.
Removed
We now organize our products and solutions into three product lines: Embedded IoT Solutions, IoT System Solutions, and Software & Services. Until this recent change, we had organized our products and solutions into three different product lines: IoT, remote environment management (“REM”) and Other. Going forward, we do not plan to disclose our net revenue by the old categorizations.
Added
To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.
Removed
(“CSI”) for an aggregate purchase price of approximately $30,651,000, which included earnout payments of up to $7,000,000 depending on the achievement of certain revenue targets for the TN Companies. The TN Companies provide us with complementary IoT connectivity products and capabilities, including switching, Power over Ethernet (“PoE”) and media conversion and adapter products.
Added
Actual product returns or pricing adjustments that differ from our estimates could result in increases or decreases to our net revenue. 26 A portion of our revenues are derived from engineering and related consulting service contracts with customers.
Removed
In connection with the closing of the acquisition, we entered into new loan agreements with Silicon Valley Bank (“SVB”) which included (i) a new term loan of $17,500,000 with an available revolving credit facility of up to $2,500,000 and (ii) a second term loan of $12,000,000. In January 2022, we repaid the $12,000,000 second term loan.
Added
Changes to performance obligations that we identify, or the estimated selling prices pertaining to a contract, could materially impact the amounts of earned and unearned revenue that we record.
Removed
Uplogix Acquisition On September 12, 2022 we acquired Uplogix, Inc. (“Uplogix”) for an aggregate purchase price of $8,000,000, subject to certain adjustments, plus an earnout up to an additional $4,000,000 depending on the achievement of certain revenue targets of the business of Uplogix through September 30, 2023.
Added
Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred.
Removed
Uplogix brings immediate scale to our out-of-band remote management solutions, adding a complementary high-end product offering that includes high-margin maintenance and licensing revenues. Refer to Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference, for additional discussions regarding these acquisitions.
Added
Whenever events or changes in circumstances suggest that the carrying amount of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows expected to be generated by the asset from its use or eventual disposition.
Removed
Based on our qualitative assessment, if we conclude that it is more likely than not that the fair value of our single reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment test, which involves comparing the estimated fair value of our single reporting unit with its carrying value, including goodwill.
Added
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.
Removed
This increase was partially offset by a decrease in revenues from our wireless communications products and embedded ethernet connectivity products across all regions. IoT System Solutions Net revenue decreased primarily due a decrease in our out of band (“OOB”) and converter and radio products, partially offset by increases in our gateway and network switch products, all mostly within the Americas.
Added
IoT System Solutions Net revenue increased primarily due to increases in units sales of (i) our custom solutions, as we ramped to volume production for a European smart energy grid provider in the current period, (ii) our out-of-band products across all regions, and (iii) our converters and radio nodes products in the Americas region.
Removed
As compared to the prior year period, in the current period we experienced increased revenue from our high-margin extended warranty services, mostly from the Uplogix acquisition, as well as increased unit sales of some of our NICs and optics products, which typically carry a higher margin than our other embedded solutions.
Added
These increases were partially offset by decreases in sales of our network switches in the Americas region. Software & Services 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.
Removed
This was offset by decreased unit sales in our OOB products, which also typically carry a high margin, as well as lower margins on our engineering services revenue during fiscal 2023.
Added
The following table presents our gross profit: Years Ended June 30, % of Net % of Net Change 2024 Revenue 2023 Revenue $ % (In thousands, except percentages) Gross profit $ 64,354 40.1% $ 56,264 42.9% $ 8,090 14.4% 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.
Removed
Selling, General and Administrative Selling, general and administrative expenses consisted 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.
Added
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.
Removed
We also experienced increased share-based compensation expenses from certain grants of performance stock units. Restructuring, Severance and Related Charges During fiscal 2023 and 2022, we incurred charges of approximately $693,000 and $795,000, respectively, primarily related to headcount reductions in connection with synergy capture and the elimination of redundant roles from the acquisitions of Uplogix and the TN Companies.
Added
Merit increases and variable and share-based compensation were significantly lower and in many cases not earned during fiscal 2023.
Removed
We also earn interest on our domestic cash balances. 31 Loss on Extinguishment of Debt For fiscal 2022, we recognized a non-cash loss on the extinguishment of our mezzanine term loan facility of $764,000, representing the write-off of unamortized deferred financing costs.
Added
To a lesser extent, the increase in selling, general and administrative expenses were impacted by (i) an increase in depreciation expense related to new equipment and certain business analysis tools that we added in the current year, and (ii) increases in insurance premiums and various facility-related costs.
Removed
In fiscal 2022 we recorded a tax benefit resulting from a U.S. deferred tax liability in the TN Companies acquisition purchase accounting related to non-tax-deductible intangible assets recognized in our consolidated financial statements. The acquired deferred tax liabilities are a source of income to support recognition of our existing deferred tax assets.
Added
These increases were partially offset by (i) reductions in headcount and (ii) lower professional fees and outside services related to audit and accounting compliance costs that were higher in the prior year as we implemented Section 404(b) of the Sarbanes-Oxley Act.
Removed
Due to the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities.
Added
These increases were partially offset by (i) a reduction in headcount and (ii) a decrease in product certification expenses and outsourced development resources. 32 Restructuring, Severance and Related Charges During fiscal 2024 and 2023, we incurred charges of approximately $1,423,000 and $693,000, respectively, related to headcount reductions and restructuring of certain non-essential operations.
Removed
The following table presents our NOL carryforwards: June 30, 2023 (In thousands) Federal $ 43,320 State $ 22,589 Our federal NOL carryforwards generated for tax years beginning before July 1, 2018 began to expire in the fiscal year ended June 30, 2021.

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