What changed in LANTRONIX INC's 2023 10-K compared to 2022?

Across the narrative sections we track, LANTRONIX INC (LTRX) added 201 paragraphs, removed 198, and edited 127 between the 2022 and 2023 10-K filings. The biggest movers are Item 7. Management's Discussion & Analysis (+80/−97), Item 1A. Risk Factors (+78/−49), Item 1. Business (+40/−49).

Did LANTRONIX INC add new Risk Factors in the 2023 10-K?

Yes — Item 1A Risk Factors shows 78 new/edited paragraphs and 49 removed paragraphs versus the 2022 10-K.

What changed in LANTRONIX INC's MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 80 new/edited paragraphs and 97 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Where does this LTRX 10-K diff come from?

The source filings are LANTRONIX INC's official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

What changed in LANTRONIX INC's 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of LANTRONIX INC's 2022 and 2023 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 2023 report.

+201 added−198 removedSource: 10-K (2023-09-12) vs 10-K (2022-08-29)

Top changes in LANTRONIX INC's 2023 10-K

201 paragraphs added · 198 removed · 127 edited across 5 sections

Item 7. Management's Discussion & Analysis+80 / −97 · 51 edited
Item 1A. Risk Factors+78 / −49 · 40 edited
Item 1. Business+40 / −49 · 33 edited
Item 5. Market for Registrant's Common Equity+2 / −2 · 2 edited
Item 2. Properties+1 / −1 · 1 edited

Item 1. Business

Business — how the company describes what it does

33 edited+7 added−16 removed27 unchanged

2022 filing

2023 filing

Biggest changeReferences in this Report to “fiscal 2022” refer to the fiscal year ended June 30, 2022 and references to “fiscal 2021” refer to the fiscal year ended June 30, 2021. In 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.

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.

A discussion of factors potentially affecting our net revenue and other operating results is set forth in “Risk Factors” included in Part I, Item 1A of this Report, which is incorporated herein by reference. 3 Sales Cycle Our embedded IoT solutions are typically designed into products by OEMs, original design manufacturers (“ODMs”) and contract manufacturers.

A discussion of factors potentially affecting our net revenue and other operating results is set forth in “Risk Factors” included in Part I, Item 1A of this Report, which is incorporated herein by reference. Sales Cycle Our embedded IoT solutions are typically designed into products by OEMs, original design manufacturers (“ODMs”) and 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. 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. 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.

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.

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.

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.

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 four third-party contract manufacturers.

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 product, enabling advanced application functionality at the edge. Our compute products are normally embedded into new designs.

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.

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 Power over Ethernet Switches. In addition, we offer non-PoE Network Switches and Media Converters.

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.

IoT System Solutions The IoT Systems Solutions portfolio consists of fully functional standalone systems that provider routing, switching or gateway functionalities as well as Telematics and media conversion.

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.

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 Paul H.

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. OEMs and SIs can leverage our platform multitenancy functionality for supporting a wide customer base while ensuring customer separation.

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.

Products and Solutions Embedded IoT Modules This portfolio of embedded products provides a variety of solutions including Compute System-on-Module (SOM) or System-in-Package (SIP) solutions supplemented with wired and wireless network Connectivity options.

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.

The following product families are included in our Software & Services product line: Engineering Services, ConsoleFlow™, Level Services and J-Integra. Net Revenue by Product Line We have one operating and reportable business segment.

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.

Our REM product line includes out-of-band management, 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 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.

Employees As of August 16, 2022, we had 348 total employees including 335 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 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.

We believe this strategy will allow us to address a larger portion of our customers’ operational needs and engage with customers as a strategic "total solution" partner. We believe this will strengthen our position in the market as our customers come to us for a wider variety of applications.

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.

We are executing a growth strategy that includes continuous innovation complemented by strategic acquisitions to expand our ability to offer complete IoT and REM solutions with the intent of increasing our scale and broadening our scope so that we can increase our value proposition to our customers.

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.

Product research and development is primarily performed in-house and supplemented with outsourced resources. Competition Our industry is highly competitive and characterized by rapid technological advances and evolving industry standards. The market can be affected significantly by new product introductions and marketing activities of industry participants.

Competition Our industry is highly competitive and characterized by rapid technological advances and evolving industry standards. The market can be affected significantly by new product introductions and marketing activities of industry participants.

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. Prior to his time at Microsemi, Mr.

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.

Most of our IoT embedded products are pre-certified in a number of countries thereby significantly reducing our OEM customers’ regulatory certification costs and accelerating their time to market The following product families are included in our Embedded IoT Solutions product line: XPort®, XPort® Pro, WiPort®, System on Module (“SoM”), Single Board Computer (“SBC”), Development Kits, MicroM110, xPico®, xPico® Wi-Fi, NICS, Optical SFPs, PremierWave® EN, and PremierWave® XC.

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.

The growth in the IoT and REM markets are being driven by the growing importance of data, being able to act on that data, and the rapidly falling cost of sensors, connectivity, compute, and storage. While the promise is great, designing and deploying these projects is complex, costly and time-consuming.

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.

Prior to August 2005, 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. MOHAMMED F. HAKAM joined Lantronix in August of 2018 and serves as our Vice President of Engineering. 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. 5 ERIC BASS has served as our Vice President of Engineering since January 2023. Prior to joining Lantronix, Mr.

A discussion of factors potentially affecting our customer and geographic concentrations is set forth in “Risk Factors” included in Part I, Item 1A of this Report, which is incorporated herein by reference. 5 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 SEC.

We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone, primarily located in China, Ruby Tech in Taiwan, and Tailyn in China as our contract manufacturers for most of our products. In addition, we use Inphi Corporation to manage Taiwan Semiconductor Manufacturing Company, Ltd., a third-party foundry located in Taiwan, which manufactures our large-scale integration chips.

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.

Whitaker previously served as our Vice President of Finance and Accounting from September 2010 to January 2011, where he was responsible for managing all worldwide finance and accounting functions. Mr. Whitaker also served as our Senior Director of Finance and Accounting from February 2006 to September 2010 and our Director of Finance and Accounting from August 2005 to February 2006.

Whitaker also served as our Senior Director of Finance and Accounting from February 2006 to September 2010 and our Director of Finance and Accounting from August 2005 to February 2006. Prior to August 2005, Mr.

Holliday served in various product marketing, applications and sales management roles at Linfinity Microelectronics until its acquisition by Microsemi in 1999. 6

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.

REM allows organizations to effectively monitor, manage, and control their enterprise IT equipment and facilities (environments), either in or out of band, optimizing their IT support resources.

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.

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. 2 As Edge Computing deployment accelerates, REM allows for full comprehension and control of a remote IT infrastructure, across a range of sensors (temperature, humidity, light, acceleration, open / close, etc.) providing status and alerting, automation, and remote control of devices and end stations.

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.

ITEM 1. BUSINESS Overview Lantronix, Inc. is a global Industrial and Enterprise IoT provider of solutions that target diversified verticals ranging from Smart Cities, Utilities and Healthcare to Enterprise, Intelligent Transportation, and Industrial Automation.

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.

However, we have several single-sourced supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us. 4 Research and Development Our research and development efforts are focused on the development of hardware and software technology to differentiate our products and enhance our competitive position in the markets we serve.

Research and Development Our research and development efforts are focused on the development of hardware and software technology to differentiate our products and enhance our competitive position in the markets we serve. Product research and development is primarily performed in-house and supplemented with outsourced resources.

Pickle 52 President and Chief Executive Officer Jeremy R. Whitaker 52 Chief Financial Officer Mohammed F. Hakam 54 Vice President of Engineering Roger Holliday 63 Vice President of Worldwide Sales PAUL H. PICKLE has served as our President and Chief Executive Officer, and as a member of our Board, since April 2019. Before joining Lantronix, Mr.

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 has served as our Chief Financial Officer since September 2011. Mr. Whitaker returned to Lantronix after serving as Vice President, Corporate Controller at Mindspeed from January 2011 to September 2011. Mr.

Whitaker returned to Lantronix after serving as Vice President, Corporate Controller at Mindspeed, a supplier of semiconductor solutions for network infrastructure, from January 2011 to September 2011. Mr. Whitaker previously served as our Vice President of Finance and Accounting from September 2010 to January 2011, where he was responsible for managing all worldwide finance and accounting functions. Mr.

Building on a long history of connectivity and video processing competence, target applications include Video Surveillance, Traffic management, Infotainment systems, Robotics, Edge Computing and Remote Environment Management (“REM”). Our portfolio of services and products address each layer of the IoT Stack including Collect, Connect, Compute, Control and Comprehend, enabling our customers to deploy successful IoT and REM solutions.

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 services and products deliver a holistic approach, addressing our customers’ needs by integrating a SaaS management platform with custom application development layered on top of external and embedded hardware, enabling intelligent edge computing, secure communications (wired, Wi-Fi, and cellular), location and positional tracking, and environmental sensing and reporting.

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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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We organize our portfolio services and products into the following product lines: Embedded IoT Modules, IoT Systems Solutions, and Software and Engineering Services. We were incorporated in California in 1989 and reincorporated in Delaware in 2000.

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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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Our Strategy Today, more businesses are seeking to streamline their operations by connecting their machines and electronic devices to the Internet, manage them remotely, and reduce costs.

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Our offerings are designed to help companies increase speed and reduce friction for their deployments through reduced complexity, decreased development costs, and increased ease of management for web-scale applications and real-world solutions; thus, driving customer value and success.

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Many of these components are available from multiple vendors. However, we have several single-sourced supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us.

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We are addressing the market opportunity by offering our customers turnkey solutions, leveraging the layers of the IoT Stack, such as Collect, Connect, Compute, Control and Comprehend, through a combination of services, hardware and software enablement, accessible and manageable through our SaaS platform.

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Recent Acquisitions On January 16, 2020 we acquired Intrinsyc Technologies Corporation (“Intrinsyc”).

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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 acquisition provided additional and complementary edge computing with embedded product design and application development capabilities, crucial to the development of intelligent Compute functionality for advanced customer implementations. 1 On August 2, 2021 we acquired the Transition Networks and Net2 Edge businesses (the “TN Companies”) from Communication Systems, Inc.

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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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The TN Companies provide us with complementary IoT connectivity products and capabilities, including switching, power over ethernet and media conversion and adapter products. These acquisitions allow us to offer more value to our customers and substantially increase the markets that we serve.

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REM designs may be part of an out of band (“OOB”) or in band network design. OOB is a technique that uses a dedicated management network to access critical infrastructure components to ensure production independent management connectivity.

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Many of these components are available from multiple vendors.

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Pickle served as President and Chief Operating Officer of Microsemi Corporation, a leading provider of semiconductor and system solutions, from November 2013 until Microsemi was acquired by Microchip Technology Inc. in May 2018.

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Prior to his position as President and Chief Operating Officer, he served Microsemi as Executive Vice President, leading business operations of the company’s Integrated Circuits group, where he played an integral role in the planning, developing, and execution of Microsemi’s leading edge IC solutions for communications, industrial, aerospace, and defense/security markets. JEREMY R.

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Hakam served as the interim Senior Vice President of International Operations at Viewstream, Inc., a provider of videos and marketing content to technology companies, from September 2016 to July 2018, where he was instrumental in planning and expanding the company’s global media strategy. Before joining Viewstream, Mr.

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Hakam was founder and Senior Vice President of Engineering and Product Management of SwitchRay Inc., a global provider of communication service platforms for global telecom carriers, from 2012 until its acquisition by 46 Labs in September 2016.

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He previously spent 20+ years at a number of large companies such as Motorola and Kyocera Wireless in various engineering leadership roles, and has also been the founder of two technology companies (including SwitchRay Inc.) in the networking and telecom segment. Mr.

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Hakam has been a professor at National University in San Diego, teaching undergraduate and graduate courses in program and project management, international management, six sigma and statistical process control. ROGER HOLLIDAY joined Lantronix in January 2020 and serves as our Vice President of Worldwide Sales. Prior to joining Lantronix, Mr.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

40 edited+38 added−9 removed131 unchanged

2022 filing

2023 filing

Biggest changeThe duration and extent of the COVID-19 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, including new information which may emerge concerning the long-term effects of COVID-19, actions taken to contain COVID-19, additional surges of COVID-19 infections due to the rate of public acceptance and efficacy of COVID-19 vaccines or due to new and more contagious and/or vaccine resistant variants, and how quickly and to what extent normal economic and operating conditions can resume.

Biggest changeThe 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.

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; · 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; · effects of terrorist attacks or geopolitical conflicts abroad; · 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.

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.

This uncertainty includes the possibility of imposing tariffs or penalties on products manufactured outside the U.S., including the US 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 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.

These supply interruptions have resulted in increased component delivery lead times and increased costs to obtain components with available semiconductor chips. To the extent this semiconductor chip shortage or other shortages continue, the production of our products may be impacted. Future operating results depend upon our ability to timely obtain components in sufficient quantities and on acceptable terms.

These supply interruptions have resulted in increased component delivery lead times and increased costs to obtain components with available semiconductor chips. To the extent this semiconductor chip shortage or other shortages continue, the production of our products may be impacted. 6 Future operating results depend upon our ability to timely obtain components in sufficient quantities and on acceptable terms.

There can be no assurance that one or more of these factors will not have a material adverse effect on our business strategy and financial condition. 16 Foreign currency exchange rates may adversely affect our results. We are exposed to market risk primarily related to foreign currencies and interest rates.

There can be no assurance that one or more of these factors will not have a material adverse effect on our business strategy and financial condition. Foreign currency exchange rates may adversely affect our results. We are exposed to market risk primarily related to foreign currencies and interest rates.

If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. 9 The lengthy sales cycle for our products and services, along with delays in customer completion of projects, make the timing of our revenues difficult to predict.

If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. The lengthy sales cycle for our products and services, along with delays in customer completion of projects, make the timing of our revenues difficult to predict.

For instance, we acquired Maestro, Intrinsyc and the Transition Networks and Net2Edge businesses of CSI in 2019, 2020 and 2021, 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 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.

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. 18 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. 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.

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 needs of particular businesses.

In addition, the ongoing impact of the COVID-19 pandemic and measures to prevent its spread 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 in light of COVID-19; · adverse impacts on our ability to distribute or deliver our products or services, including due to the negative impact of COVID-19 on air travel, 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 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.

Our software offerings are subject to risks that differ from those facing our hardware products. 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, including ConsoleFlow™. These product and service offerings are subject to significant additional risks that are not necessarily related to our hardware products.

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 44% of our net revenue in fiscal 2022.

In addition, our operations and those of our suppliers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, cybersecurity breaches, IT systems failure, terrorist attacks and other events beyond our control.

For instance, we have recently experienced increased 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.

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.

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 otherwise related to the pandemic, our sales may continue to be negatively impacted in the future.

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.

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 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.

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.

Further, there can be no assurance that we will be cash flow positive in future periods. In the event that we fail to achieve profitability in future periods, the value of our common stock may decline.

We have historically incurred net losses. There can be no assurance that we will generate net profits in future periods. Further, there can be no assurance that we will be cash flow positive in future periods. In the event that we fail to achieve profitability in future periods, the value of our common stock may decline.

If we fail to comply with these regulations, we may not be able to sell our products in jurisdictions where these regulations apply, which could have a material adverse effect on our revenues and profitability. 17 Current or future litigation could adversely affect 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; or · to respond to competitive pressures or perceived opportunities, such as investment, acquisition and international expansion activities.

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.

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.

If we are unable to secure additional financing in sufficient amounts or on favorable terms, we may not be able to develop or enhance our products, take advantage of future opportunities, respond to competition or continue to operate our business. 15 The terms of our Senior Credit Facilities may restrict our financial and operational flexibility and, in certain cases, our ability to operate.

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 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.

It is important for us to maintain solutions and related infrastructure that are perceived by our customers and other parties with whom we do business to provide a reasonable level of reliability and security.

This data may include confidential or proprietary information, intellectual property or personally identifiable information of our customers or other third parties with whom they do business. It is important for us to maintain solutions and related infrastructure that are perceived by our customers and other parties with whom we do business to provide a reasonable level of reliability and security.

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.

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.

From time to time, we may transition the manufacturing of certain products from one contract manufacturer to another. When we do this, we may incur substantial expenses, risk material delays or encounter other unexpected issues. Certain of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products.

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. Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations.

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.

A subsequent revision to a product’s hardware or firmware, changes in the manufacturing process or our selection of a new supplier may require a new qualification process, which may result in delays in sales to customers, loss of sales, or us holding excess or obsolete inventory. 10 After products are qualified, it can take additional time before the customer commences volume production of components or devices that incorporate our products.

We are subject to a wide range of claims and lawsuits in the course of our business. 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.

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.

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 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 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.

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.

For these and other reasons, the sales cycle associated with new products is typically lengthy, often lasting six to 24 months and sometimes longer. 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.

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.

We have and will encounter competition from other solutions providers, many of whom may have more significant resources than us with which to compete.

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.

If the value of European currencies, including the Euro, deteriorates, thus reducing the purchasing power of European customers, our sales could be adversely affected. 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.

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.

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. We use forecasts based on anticipated product orders to manage our manufacturing and inventory levels and other aspects of our business.

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.

The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material. 7 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. 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, the COVID-19 pandemic resulted in industry events, trade shows and business travel being suspended, cancelled and/or significantly curtailed. The cessation of trade shows and business travel resulted in our lead pipeline being negatively impacted, which has negatively affected our sales since the beginning of the outbreak.

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.

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 have a history of losses. We have historically incurred net losses. There can be no assurance that we will generate net profits in future periods.

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 any of these occur, our business, financial condition or results of operations could be adversely affected General Risk Factors If we are unable to attract, retain or motivate key senior management and technical personnel, it could seriously harm our business.

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.

Removed

The ongoing COVID-19 pandemic, and the periodic measures intended to reduce its spread imposed by governments and other authorities around the world, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures, quarantines and shelter-in-place orders, have 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.

Added

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.

Removed

Most of our employees transitioned to remote working arrangements commencing in March 2020, and many continue to primarily work remotely as of the date hereof, which may ultimately result in lower work efficiency and productivity, and in turn adversely affect our business.

Added

For these and other reasons, the sales cycle associated with new products is typically lengthy, often lasting six to 24 months and sometimes longer.

Removed

Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business, financial condition, results of operations, and prospects as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

Added

We use forecasts based on anticipated product orders to manage our manufacturing and inventory levels and other aspects of our business.

Removed

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 or that diverting our management’s attention to this product line will not have a material adverse effect on our existing business, and in turn on our results of operations, financial condition and prospects.

Added

After products are qualified, it can take additional time before the customer commences volume production of components or devices that incorporate our products.

Removed

In connection with certain implementations of our management software platform, application, and SaaS offering, ConsoleFlow, we expect to store, convey and potentially process data produced by devices. This data may include confidential or proprietary information, intellectual property or personally identifiable information of our customers or other third parties with whom they do business.

Added

Historically, we have relied upon a small number of distributors and end-user customers for a significant portion of our net revenue. Additionally, we expect an increased customer concentration from end-users in the near future based on existing customer supply agreements and order backlog.

Removed

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.

Added

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.

Removed

Risks Related to International Operations Rising concern regarding international tariffs could materially and adversely affect our business and results of operations.

Added

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.

Removed

In particular, the uncertainty with respect to the ability of certain European countries to continue to service their sovereign debt obligations and the related European financial restructuring efforts may cause the value of the Euro and other European currencies to fluctuate.

Added

We regularly maintain domestic cash deposits in the Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits.

Removed

In particular, litigation regarding intellectual property rights occurs frequently in our industry. 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.

Added

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.

Added

At 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.

Added

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.

Added

Our cash balances are concentrated at a small number of financial institutions. In addition, current macroeconomic conditions have continued to cause turmoil in the banking sector since the failure of SVB.

Added

For example, on March 12, 2023, Signature Bank Corp. and Silvergate Capital Corp. were each swept into receivership, and on May 1, 2023, the FDIC took control of First Republic Bank and brokered its sale to JPMorgan Chase.

Added

Further bank failures, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, including disruptions that may cause delays in our ability to transfer funds, make payments, or withdraw funds whether held with SVB or other banks, could adversely impact our liquidity and financial performance.

Added

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.

Added

Moreover, there can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or any applicable foreign government in the future or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a future failure or liquidity crisis, and such uninsured deposits may ultimately be lost.

Added

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.

Added

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.

Added

Increasing attention on environmental, social and governance matters may have a negative impact on our business, impose additional costs on us, and expose us to additional risks. Increasingly regulators (including the SEC), customers, investors, employees and other stakeholders are focusing on environmental, social and governance (“ESG”) matters.

Added

While we have, or are developing, certain ESG initiatives, there can be no assurance that regulators, customers, investors, and employees will determine that these programs are sufficiently robust.

Added

Actual or perceived shortcomings with respect to our ESG initiatives and reporting can impact our ability to hire and retain employees, increase our customer base, or attract and retain certain types of investors. In addition, these parties are increasingly focused on specific disclosures and frameworks related to ESG matters.

Added

Collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks, any of which could have a material impact on us, including on our reputation and stock price.

Added

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.

Added

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.

Added

Rising interest rates may lead customers to decrease or delay spending on products and projects, including on products that we sell, which may have a material adverse effect on our business, financial condition and results of operations.

Added

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.

Added

In October 2022 we implemented a company-wide ERP system to upgrade certain existing business, operational, and financial processes, and continue to refine the system on an ongoing basis. Our ERP implementation is a complex and time-consuming project.

Added

This project has required and may continue to require investment of capital and human resources, the re-engineering of processes of our business, and the attention of many employees who would otherwise be focused on other aspects of our business.

Added

Any deficiencies in the design and implementation of the new ERP system could result in higher costs than we had anticipated and could adversely affect our ability to develop and launch solutions, provide services, fulfill contractual obligations, file reports with the SEC in a timely manner, operate our business or otherwise affect our controls environment.

Added

Any of these consequences could have an adverse effect on our results of operations and financial condition. In addition, because the ERP is a new system that we have limited prior experience with, there is an increased risk that one or more of our financial controls may fail.

Added

Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows.

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Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged

2022 filing

2023 filing

Biggest changeOperations and warehousing, engineering, sales and marketing 66,000 Vancouver, British Columbia, Canada Engineering 12,000 Hyderabad, India Engineering 18,000 Illmenau, Germany Engineering, sales and marketing 7,500 Taiwan Engineering, sales and marketing 5,500 Shanghai, China Sales and marketing 1,000 We believe our existing facilities are adequate to meet our needs.

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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed2 unchanged

2022 filing

2023 filing

Biggest changeITEM 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 25, 2022 was approximately 29.

Issuer Repurchases We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2022. ITEM 6. RESERVED

Issuer Repurchases We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2023. ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

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

51 edited+29 added−46 removed51 unchanged

2022 filing

2023 filing

Biggest changeThe following table presents our selling, general and administrative expenses: Years Ended June 30, % of Net % of Net Change 2022 Revenue 2021 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 19,368 $ 12,927 $ 6,441 49.8% Professional fees and outside services 5,833 2,464 3,369 136.7% Advertising and marketing 1,893 712 1,181 165.9% Facilities and insurance 1,476 1,415 61 4.3% Share-based compensation 4,862 2,719 2,143 78.8% Other 1,097 571 526 92.1% Selling, general and administrative $ 34,529 26.6% $ 20,808 29.1% $ 13,721 65.9% 28 Selling, general and administrative expenses increased in fiscal 2022 when compared to fiscal 2021 primarily (i) higher personnel-related expenses as we added headcount from the acquisition of the TN Companies and also recorded higher variable compensation expenses, (ii) increased professional fees and outside services costs for legal and other services, as well as transition services fees paid to the seller for the acquisition of the TN Companies, (iii) increased share-based compensation expense due to additional grants of performance stock units and other stock awards with higher fair values compared to the prior year and (iv) higher marketing spending, including on various events and trade shows that were largely halted in the prior year due to the COVID-19 pandemic.

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.

If actuals results differ, or if management determines revised estimates are necessary, we may record additional liabilities or reverse a portion or existing liabilities. Valuation of Deferred Income Taxes We have recorded a valuation allowance to reduce our net deferred tax assets to zero, primarily due to historical net operating losses (“NOLs”) and uncertainty of generating future taxable income.

If actual results differ, or if management determines revised estimates are necessary, we may record additional liabilities or reverse a portion or existing liabilities. Valuation of Deferred Income Taxes We have recorded a valuation allowance to reduce our net deferred tax assets to zero, primarily due to historical net operating losses (“NOLs”) and uncertainty of generating future taxable income.

(“CSI”) for an aggregate purchase price of approximately $30,651,000, which includes 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.

(“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.

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 2022, 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 2023, we made a qualitative assessment of whether goodwill impairment existed.

Refer to “Products and Solutions” included in Part I, Item 1 of this Report, which is incorporated herein by reference, for further discussion. 20 Recent Developments 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. Recent Developments TN Companies Acquisition On August 2, 2021 we acquired the Transition Networks and Net2Edge businesses (the “TN Companies”) from Communication Systems, Inc.

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, REM and Other. Going forward, we do not plan to disclose our net revenue by the old categorizations.

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.

References to “fiscal 2022” refer to the fiscal year ended June 30, 2022 and references to “fiscal 2021” refer to the fiscal year ended June 30, 2021. 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 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.

We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns and allowances, allowance for doubtful accounts, inventory valuation, warranty reserves, restructuring charges, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets, share-based compensation, litigation and other contingencies.

We regularly evaluate our estimates and assumptions related to revenue recognition, sales returns and allowances, inventory valuation, restructuring charges, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets, share-based compensation, litigation and other contingencies.

In fiscal 2022 the tax benefit was the result of us recording 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.

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.

The determination of the fair value of share-based awards utilizing the BSM model is affected by our stock price and various assumptions, including the expected term, expected volatility, risk-free interest rate and expected dividend yields.

Under this practical expedient, we may recognize revenue, over time, in the amount to which we have a right to invoice. In addition, we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period.

Performance obligations for T&M contracts qualify for the "Right to Invoice" practical expedient within the revenue guidance. Under this practical expedient, we may recognize revenue, over time, in the amount to which we have a right to invoice. In addition, we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period.

Employee separation costs include one-time termination benefits that are recognized as a liability at estimated fair value, at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period.

Our restructuring charges are primarily comprised of employee separation costs, asset impairments and contract exit costs. Employee separation costs include one-time termination benefits that are recognized as a liability at estimated fair value, at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period.

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.

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.

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.

Provision for Income Taxes The following table presents our provision for income taxes: Years Ended June 30, % of Net % of Net Change 2022 Revenue 2021 Revenue $ % (In thousands, except percentages) Provision (benefit) for income taxes $ (1,832 ) (1.4% ) $ 195 0.3% $ (2,027 ) (1039.5% ) The following table presents our effective tax rate based upon our provision for income taxes: Years Ended June 30, 2022 2021 Effective tax rate 25.5% (5.1% ) 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 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.

These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary depending on the actual time and materials incurred based on the customer’s needs. · Fixed Price – arrangements to render specific consulting and software modification services which tend to be more complex. 22 Performance obligations for T&M contracts qualify for the "Right to Invoice" practical expedient within the revenue guidance.

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. Our costs from period-to-period related to outside services and product certifications vary depending on our level and timing of development activities.

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 for fiscal 2022 and fiscal 2021.

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.

The differences between our effective tax rate and the federal statutory rate in fiscal 2022 and fiscal 2021 were also impacted by the effect of our domestic losses recorded without a tax benefit, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate. 30 We record net deferred tax assets to the extent we believe these assets are more likely than not to be realized.

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.

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.

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”).

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.

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.

The following table presents our NOLs: June 30, 2022 (In thousands) Federal $ 70,456 State $ 14,861 For federal income tax purposes, our NOL carryovers generated for tax years beginning before July 1, 2018 began to expire in fiscal 2021.

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.

The full effects of the pandemic on our business are unlikely to be fully realized, or reflected in our financial results, until future periods. 21 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.

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.

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. 24 We begin our evaluation of goodwill for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value.

We begin our evaluation of goodwill for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value.

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. 23 Warranty Reserve The standard warranty periods we provide for our products typically range from one to five years.

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.

We believe that these sources will be sufficient to fund our current requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

We believe that our current cash holdings and net cash flows from operations are sufficient to satisfy our current obligations for the foreseeable future, and, assuming continued access to the undrawn amounts available under our Senior Credit Facilities, these combined sources will be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond.

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. Due to the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities.

Due to the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities.

Cash Flows The following table presents the major components of the consolidated statements of cash flows: Years Ended June 30, (Decrease) 2022 2021 Increase (In thousands) Net cash (used in) provided by operating activities $ (9,416 ) $ 4,304 $ (13,720 ) Net cash used in investing activities (25,747 ) (783 ) 24,964 Net cash provided by (used in) financing activities 42,645 (1,473 ) 44,118 Operating Activities We used cash in operating activities during fiscal 2022 compared to operations providing cash in fiscal 2021 mainly due to the increase in our net loss, which was driven by an increase in operating expenses.

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.

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. 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.

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.

For fiscal 2022, our net loss included $15,380,000 of non-cash charges, and the changes in operating assets and liabilities used cash of $19,434,000. Our net inventories increased by $22,620,000, or 150.2%, from June 30, 2021 to June 30, 2022. Of this increase, $7,734,000 of net inventories were acquired in the TN Companies acquisition.

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.

These significant judgments may include future expected revenue, expenses, capital expenditures and other costs, discount rates and whether or not alternative uses are available for impacted long-lived assets. 25 Share-Based Compensation We record share-based compensation in our consolidated statements of operations as an expense, based on the estimated grant date fair value of our share-based awards, with the fair values amortized to expense over the requisite service period.

Share-Based Compensation We record share-based compensation in our consolidated statements of operations as an expense, based on the estimated grant date fair value of our share-based awards, with the fair values amortized to expense over the requisite service period.

Building on a long history of connectivity and video processing competence, target applications include Video Surveillance, Traffic management, Infotainment systems, Robotics, Edge Computing and Remote Environment Management (“REM”). 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 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”).

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.

If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. 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.

If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.

The increase in net revenue was driven by a 144.0% increase in net revenue in our IoT System Solutions product line, as well as an increase of 60.0% in net revenues in our Embedded IoT Solutions product line. We had a net loss of $5,362,000 for fiscal 2022 compared to a net loss of $4,044,000 for fiscal 2021.

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.

For new stock options granted beginning in the fiscal year ended June 30, 2022, we estimated the expected term based on our recent historical exercise data. The expected volatility is based on the historical volatility of our stock price. The risk-free interest rate assumption is based on the U.S.

The expected volatility is based on the historical volatility of our stock price. The risk-free interest rate assumption is based on the U.S. Treasury interest rates appropriate for the expected term of our stock options and common stock purchase rights.

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 assets are generally amortized on a straight-line basis over their estimated useful lives and resulted in charges of $5,590,000 and $3,094,000 during fiscal 2022 and 2021, respectively.

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.

Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies.

We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by the FDIC.

Financing Activities Net cash provided by financing activities during fiscal 2022 resulted primarily from (i) net proceeds from our public offering of $32,600,000 and (ii) $29,500,000 in gross proceeds received from our credit facilities with SVB, partially offset by the repayment of our previous term loan in the amount of $3,750,000 and the mezzanine credit facility in the amount of $12,000,000.

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.

Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation.

Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation. These significant judgments may include future expected revenue, expenses, capital expenditures and other costs, discount rates and whether or not alternative uses are available for impacted long-lived assets.

The following table presents our research and development expenses: Years Ended June 30, % of Net % of Net Change 2022 Revenue 2021 Revenue $ % (In thousands, except percentages) Personnel-related expenses $ 11,408 $ 7,954 $ 3,454 43.4% Facilities 2,351 1,335 1,016 76.1% Outside services 1,158 209 949 454.1% Product certifications 817 531 286 53.9% Share-based compensation 1,015 584 431 73.8% Other 938 500 438 87.6% Research and development $ 17,687 13.6% $ 11,113 15.5% $ 6,574 59.2% Research and development expenses increased in fiscal 2022 when compared to fiscal 2021 primarily due to (i) an increase in personnel-related costs driven by additions to headcount from both the TN Companies acquisition and internal growth, (ii) higher facility-related costs as we opened our new facility in Germany and expanded our engineering teams, (iii) increased outside services costs primarily related to the timing of product development projects requiring outsourced engineering resources, and (iv) increased share-based compensation expense due to additional grants of performance stock units and other stock awards with higher fair values compared to the prior year.

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 increase in net loss was driven primarily by costs related to the TN acquisition as both SG&A and R&D expenses as a percent of net revenue were lower in fiscal 2022 than fiscal 2021, largely because of our business integration efforts and capture of significant cost synergies during fiscal 2022. 26 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 2022 Revenue 2021 Revenue $ % (In thousands, except percentages) Embedded IoT Solutions $ 61,773 47.6% $ 38,611 54.0% $ 23,162 60.0% IoT System Solutions 59,019 45.5% 24,189 33.8% 34,830 144.0% Software & Services 8,863 6.9% 8,677 12.2% 186 2.1% $ 129,655 100.0% $ 71,477 100.0% $ 58,178 81.4% Years Ended June 30, % of Net % of Net Change 2022 Revenue 2021 Revenue $ % (In thousands, except percentages) Americas $ 77,799 60.0% $ 38,638 54.1% $ 39,161 101.4% EMEA 22,542 17.4% 17,186 24.0% 5,356 31.2% APJ 29,314 22.6% 15,653 21.9% 13,661 87.3% $ 129,655 100.0% $ 71,477 100.0% $ 58,178 81.4% Embedded IoT Solutions Net revenue from our Embedded IoT Solutions product line increased in fiscal 2022 compared to fiscal 2021 primarily due to organic growth in our compute modules and embedded ethernet connectivity products.

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.

Fiscal 2021 During fiscal 2021, we incurred charges of approximately $506,000 related to headcount reductions and restructuring of non-essential operations, including certain acquisition-related functions we determined were redundant. 29 Acquisition-Related Costs During fiscal 2022 and fiscal 2021, we incurred approximately $889,000 and $841,000 of acquisition-related costs, respectively, mostly comprised of banking and legal fees related to the acquisition of the TN Companies and our exploration of other acquisition targets.

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.

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

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.

As of June 30, 2022, we had $16,188,000 million in borrowings outstanding under our term loan facility. 31 Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our loan agreement with our bank, and cash generated from operations.

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.

Results of Operations - Fiscal Years Ended June 30, 2022 and 2021 Summary For fiscal 2022, our net revenue increased by $58,178,000, or 81.4%, compared to fiscal 2021.

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.

Overview Lantronix, Inc. is a global Industrial and Enterprise internet of things (“IoT”) provider of solutions that target diversified verticals ranging from Smart Cities, Utilities and Healthcare to Enterprise, Intelligent Transportation, and Industrial Automation.

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.

Restructuring, Severance and Related Charges Fiscal 2022 During fiscal 2022, we incurred charges of approximately $795,000 related to headcount reductions and restructuring of non-essential operations, including certain functions determined redundant related to the acquisition of the TN Companies.

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.

The remainder of the increase is primarily due to the increase and timing of our inventory purchases and related payments to our vendors. Investing Activities Net cash used in investing activities during fiscal 2022 was driven by the acquisition of the TN Companies, which used net cash of $23,629,000.

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.

Refer to Notes 3 and 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which are incorporated herein by reference, for additional discussions regarding the August 2021 acquisition of the TN Companies and related financing arrangements, respectively.

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.

Of our federal NOLs as of June 30, 2022 in the table above, approximately $26,500,000 will expire by June 30, 2023. For state income tax purposes, our NOLs began to expire in the fiscal year ended June 30, 2013.

Pursuant to the 2017 Tax Cuts and Jobs Act (the “2017 Act”), we also have federal NOL carryforwards of $6,788,000 that will not expire but can only be used to offset 80% of future taxable income. For state income tax purposes, our NOL carryforwards began to expire in the fiscal year ended June 30, 2013.

Removed

Underwritten Offering On November 18, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with TL Investment GmbH (“TL Investment”) and Canaccord Genuity LLC, as representative of the several underwriters named therein (together, the “Underwriters”), relating to the Company’s offer and sale of 4,700,000 shares (the “Firm Shares”) of our common stock at an initial price to the public of $7.50 per share.

Added

Removed

In addition, TL Investment granted the Underwriters a 30-day option to purchase up to an additional 705,000 shares (the “Option Shares”) of our common stock held by TL Investment at the public offering price, less the underwriting discounts. On November 18, 2021, the Underwriters exercised their option to purchase the Option Shares from TL Investment in full.

Added

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.

Removed

On November 22, 2021, we issued and delivered the Firm Shares and TL Investment delivered the Option Shares. Net proceeds to Lantronix from the offering of the Firm Shares, after deducting the underwriting discount and offering expenses, were approximately $32,600,000.

Added

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.

Removed

COVID-19 Update Since the outbreak of the COVID-19 pandemic, we have taken measures to protect the health and safety of our employees and comply with applicable local directives. Most of our employees transitioned to remote working arrangements commencing in March 2020, and many continue to primarily work remotely as of the date hereof.

Added

We had a net loss of $8,980,000 for fiscal 2023 compared to a net loss of $5,362,000 for fiscal 2022.

Removed

We continue to monitor the implications of the COVID-19 pandemic on our business, as well as our customers’ and suppliers’ businesses, including the emergence of new strains of the virus, current or future government-imposed shutdowns, and the impact of ongoing vaccination efforts.

Added

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.

Removed

Our efforts to support customer engagement through industry events, trade shows and business travel also continue to be adversely affected. Prolonged shutdowns, or additional future shutdowns and other restrictions instituted by federal, state and local governments, may lead to a reduction in revenue during the coming quarters.

Added

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.

Removed

To mitigate potential revenue declines, we continue to adjust our go-to-market approach by adding more distributors and value-added resellers, who are closer to the customers and end-customers. Our supply chain still faces challenges, as most of our manufacturing is performed in Thailand, Taiwan and China.

Added

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.

Removed

We have experienced an increase in costs of components for certain products as well as increased freight and logistics costs and we expect these cost increases to continue. These and other factors have contributed to recent delays in shipments to some customers.

Added

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.

Removed

Overall, in light of the changing nature and continuing uncertainty around the COVID-19 pandemic, including the emergence of new, highly-contagious variants, our ability to predict the impact of the COVID-19 pandemic on our business in future periods remains limited.

Added

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.

Removed

To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Added

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.

Removed

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. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

Added

We record net deferred tax assets to the extent we believe these assets are more likely than not to be realized.

Removed

Our evaluation of the collectability of customer accounts receivable is based on various factors. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, we record an allowance against amounts due based on those particular circumstances.

Added

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.

Removed

For all other customers, we estimate an allowance for doubtful accounts based on (i) the length of time the receivables are past due, (ii) our bad debt collection experience, and (iii) our understanding of general industry conditions. If a major customer’s credit-worthiness deteriorates, or our customers’ actual defaults exceed our estimates, our financial results could be impacted.

Added

Liquidity and Capital Resources Liquidity The following table presents our working capital and cash and cash equivalents: June 30, 2023 2022 Change (In thousands) Working capital $ 50,163 $ 54,512 $ (4,349 ) Cash and cash equivalents $ 13,452 $ 17,221 $ (3,769 ) In September 2022 we entered into an amendment to our Senior Credit Facilities (as defined in Note 5 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report) which provide for an additional term loan in the original principal amount of $5,000,000 that matures on August 2, 2025.

Removed

We establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience, and for any known or anticipated product warranty issues. Our warranty obligations are impacted by a number of factors, including historical warranty costs, actual product failure rates, service delivery costs, and the use of materials.

Added

We also borrowed $2,000,000 on our revolving credit facility, which we repaid in February of 2023. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

Removed

If our actual results are different from our assumptions, increases or decreases to warranty reserves could be required, which could impact our cost of revenue and gross margins. Restructuring Charges We recognize costs and related liabilities for restructuring activities when they are incurred. Our restructuring charges are primarily comprised of employee separation costs, asset impairments and contract exit costs.

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Top changes in LANTRONIX INC's 2023 10-K

Item 1. Business

Item 1A. Risk Factors

Item 2. Properties

Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

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