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LTRX US Equity

Lantronix IncInformation Technology · Computer Communications Equipment · CIK 1114925 · FY ends Jun 30
$5.98
-0.09 (-1.48%)
USD · as of 2026-08-21 · marketstack

LTRX · 10-K · period ended 2023-06-30

← all LTRX documents
filed 2023-09-12 · EDGAR original ↗

Our rendering of the filing — original pagination and typography are not reproduced, and tables are reduced to their short label cells (the figures live on FA). Nothing is summarized: every line below is the filing's own text.

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2023

☐ TRANSITION

REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 1-16027

LANTRONIX, INC.

(Exact name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

(949)453-3990

(Registrant’s telephone number, including

area code)

Securities registered pursuant to Section 12(b)

of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, $0.0001 par value LTRX The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g)

of the Act: None.

Indicate by check mark if the registrant is a well-known

seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒

Indicate by check mark if the registrant is not required

to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒

Indicate by check mark whether the registrant: (1) has

filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or

for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for

the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted

electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large

accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions

of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging

growth company” in Rule 12b-2 of the Exchange Act.

Emerging growth company ☐

If an emerging growth company, indicate by check mark

if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards

provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed

a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting

under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its

audit report. ☒

If securities are registered pursuant to Section 12(b)

of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of

an error to previously issued financial statements. ☐ No

Indicate by check mark whether any of those error corrections

are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive

officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell

company (as defined in Rule 12b-2 of the Act). Yes ☐No☒

The aggregate market value of the registrant’s

common stock held by non-affiliates based upon the closing sales price of the common stock as reported by the Nasdaq Capital Market on

December 31, 2022, the last trading day of the registrant’s second fiscal quarter, was approximately $116,199,000. The determination

of affiliate status for this purpose shall not be a conclusive determination for any other purpose.

As of August 31, 2023, there were 36,911,911 shares

of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement

on Schedule 14A relating to the registrant's 2023 annual meeting of stockholders, which will be filed with the Securities and Exchange

Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference

into Part III of this Annual Report on Form 10-K.

LANTRONIX, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended June 30, 2023

TABLE OF CONTENTS

Page

Cautionary Note Regarding Forward-Looking Statements ii

PART I

Item 1. Business 1

Item 1A. Risk Factors 6

Item 1B. Unresolved Staff Comments 21

Item 2. Properties 22

Item 3. Legal Proceedings 22

Item 4. Mine Safety Disclosures 22

PART II

Item 6. Reserved 23

Item 7A. Quantitative and Qualitative Disclosures About Market Risk * 35

Item 8. Financial Statements and Supplementary Data 35

Item 9A. Controls and Procedures 36

Item 9B. Other Information 37

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 37

PART III

Item 10. Directors, Executive Officers and Corporate Governance 38

Item 11. Executive Compensation 38

Item 14. Principal Accountant Fees and Services 38

PART IV

Item 15. Exhibits and Financial Statement Schedules 39

* Not required for a “smaller reporting company.”

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for the fiscal year ended June 30, 2023,

or this Report, contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to

substantial risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established

by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report,

or incorporated by reference into this Report, are forward-looking statements. Throughout this Report, we have attempted to identify forward-looking

statements by using words such as “may,” “believe,” “will,” “could,” “project,”

“anticipate,” “expect,” “estimate,” “should,” “continue,” “potential,”

“plan,” “forecasts,” “goal,” “seek,” “intend,” other forms of these words

or similar words or expressions or the negative thereof. Additionally, statements concerning future matters such as our expected

earnings, revenues, expenses and financial condition, our expectations with respect to the development of new products, expectations regarding

the impact of the COVID-19 pandemic or similar outbreaks, and other statements regarding matters that are not historical are forward-looking

statements.

We have based our forward-looking statements on management’s current

expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking

statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are

subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance

to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this Report.

Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ

materially from our expectations include, but are not limited to, those set forth under “Risk Factors” in Item 1A of Part

I of this Report, as such factors may be updated, amended or superseded from time to time by subsequent quarterly reports on Form 10-Q

or current reports on Form 8-K. In addition, actual results may differ as a result of additional risks and uncertainties of which we are

currently unaware or which we do not currently view as material to our business.

You should read this Report in its entirety, together with the documents

that we file as exhibits to this Report, with the understanding that our future results may be materially different from what we currently

expect. The forward-looking statements we make speak only as of the date on which they are made. We expressly disclaim any intent or obligation

to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions

or expectations, except as required by applicable law or the rules of The Nasdaq Capital Market. If we do update or correct any forward-looking

statements, investors should not conclude that we will make additional updates or corrections.

We qualify all of our forward-looking statements by these cautionary statements.

ii

PART I

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. 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.

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. 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.

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. 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. 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.

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. 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.

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. As the level of silicon integration continues to grow, the compute modules also provide the ability to Collect

digital information (Video, Audio or Sensors) and analyze/comprehend the data streams based on specific AI/ML algorithms. The new implementations

of SIP devices can process multiple media streams with CV (Computer Vision) technology and the modules can be Controlled remotely via

ConsoleFlowTM, 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. These products include application processing that delivers compute to

meet customer needs for data transformation, computer vision, machine learning, augmented / virtual reality, audio / video aggregation

and distribution, and custom applications at the edge. Many of the products are offered with software tools intended to further accelerate

our customers’ time-to-market and increase their value add. 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.

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.

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. 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. Most of our IoT System products are pre-certified

in a number of countries thereby significantly reducing our original equipment manufacturer (“OEM”) customers’ regulatory

certification costs and accelerating their time-to-market.

Our PoE products support remote devices such as cameras and wireless access

points by passing electrical power along with data on Ethernet cabling, eliminating the need for traditional AC/DC electrical power in

hard-to-reach locations. As more cities move to implement smart city technology, a major component will be solutions designed to protect

and provide services to citizens, such as intelligent transportation and surveillance networks. Our switches deliver the necessary connectivity,

bandwidth and power to enable these solutions. Many of our products incorporate features to perform advanced levels of fault management

and diagnostics to troubleshoot networks and proactively fix problems. Our media converters and other customer premise equipment (“CPE”)

assist customers in resolving challenges in the areas of bandwidth constraints, security risks, and distance limitations as networks extend

from local area to wide area networks and adapt to ever increasing end-user demands.

Our smart tracking devices are designed to deliver robust data logging

and positional tracking functionality and reliability for supply chain and logistics solutions. Our telematics devices are designed to

be flexible in the field and offer a variety of connectivity options to suit the customers’ needs across 3G, 4G, and LTE cellular

networks. These power efficient products are designed to support communications across interfaces and industrial protocols for vehicle,

fleet, and asset tracking and management. Many of the products are offered with software tools intended to further accelerate our customers’

time-to-market and increase their value add. 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.

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. 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.

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.

The following product families are included in IoT System Solutions product

line: EDS, EDS-MD, xPressTM, xDirect®, E21x, E22x, G52x, X30x, Bolero4x, FOX3-4G, FOX4, SGXTM, SLBTM, SLCTM8000,

SpiderTM, UDS, EMGTM, S40 and PoE Switches. In addition, we offer non-PoE Network Switches and Media Converters.

Software and Engineering Services

Our SaaS platform provides single pane of glass management for REM and

IoT deployments. Our platform enables customers to easily deploy, monitor, manage, and automate across their global deployments, all from

a single platform login, virtually connected as though directly on each device. Our platform 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 System Integrators (“SI”) can leverage our platform

multitenancy functionality for supporting a wide customer base while ensuring customer separation. Over the Air (“OTA”) updates

make it easy to ensure the latest security patches, firmware, and configurations are deployed and functional.

We leverage our engineering expertise and product development best practices

to deliver high quality, innovative products, cost-effectively and on time.

Our engineering services flexible business model allows for choosing turnkey

product development or team augmentation for accelerating complex areas of product development such as; camera development and tuning,

voice control, machine learning, artificial intelligence, computer vision, augmented / virtual reality, mechanical and radio-frequency

design, thermal and power optimization, or in any specific area a customer needs assistance.

In addition to our production-ready edge computing solutions, we offer

experienced multidisciplinary engineering services across complete aspects of IoT product development, including hardware engineering,

software engineering, mechanical engineering, rapid prototyping, and quality assurance. We also offer services for mechanical, hardware,

and software engineering for camera, audio, and artificial intelligence / machine learning development.

The following product families are included in our Software & Services

product line: Engineering Services, ConsoleFlowTM, Control Center and Level Services.

Net Revenue by Product Line

We have one operating and reportable business segment. A summary of our

net revenue by product line is found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

included in Part II, Item 7 of this Report, which is incorporated herein by reference. 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. OEMs design and sell products under their own brand that

are either manufactured by the OEM in-house or by third-party contract manufacturers. ODMs design and manufacture products for third parties,

which then sell those products under the third parties’ brands. The design cycles using our embedded solutions typically range from

nine to 24 months and can generate revenue for the entire life cycle of an end user’s product.

Our IoT System Solutions are typically sold to end users through value

added resellers (“VARs”) systems integrators, distributors, online retailers and, to a lesser extent, OEMs. The design cycles

for these products typically range from three to 18 months and are often project-based.

Sales Channels

Distributors

A majority of our sales are made through distributors. Distributors resell

our products to a wide variety of resellers and end customers including OEMs, ODMs, value-added resellers (“VARs”), systems

integrators, consumers, online retailers, IT resellers, corporate customers and government entities.

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.

Sales and Marketing

We sell our products primarily through an internal sales force, which includes

regional sales managers, inside sales personnel and field applications engineers in major regions throughout the world. This team manages

our relationships with our partners and end users, identifies and develops new sales opportunities and increases penetration at existing

accounts. We implement marketing programs, tools and services, including displaying our products at industry-specific events, to generate

sales leads and increase demand for our products.

Manufacturing

Our manufacturing operations are primarily conducted through five third-party

contract manufacturers. We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone, primarily located

in China, Ruby Tech and Info-Tek in Taiwan, and Tailyn in China as our contract manufacturers for most of our products. In addition, we

use Marvell Technology Inc., to manage the manufacture of our large-scale integration chips in Taiwan. We manufacture certain products

with final assembly in the U.S. to meet trade compliance requirements.

Our contract manufacturers source raw materials, components and

integrated circuits, in accordance with our specifications and forecasts, and perform printed circuit board assembly, final assembly,

functional testing and quality control. Our products are manufactured and tested to our specifications with standard and custom components.

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.

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.

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. We believe that we compete for customers based on product features, software capabilities, company reputation,

brand recognition, technical support, relationships with partners, quality, reliability, product development capabilities, price and availability.

A discussion of factors potentially affecting our ability to compete in the markets in which we operate is set forth in “Risk Factors”

included in Part I, Item 1A of this Report, which is incorporated herein by reference.

Intellectual Property Rights

We believe that a considerable portion of our value resides in our intellectual

property. We have developed proprietary methodologies, tools, processes and software in connection with delivering our products and services.

We protect our intellectual property through a combination of patents, copyrights, trademarks, trade secrets, licenses, non-disclosure

agreements and contractual provisions. We enter into a non-disclosure and confidentiality agreement with each of our employees, consultants

and third parties that have access to our proprietary technology. Pursuant to assignment of inventions agreements, all of our employees

and consultants assign to us all intellectual property rights for the relevant inventions created in connection with their employment

or contract with us. 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. In particular, wireless products must be approved by the relevant government authority

prior to these products being offered for sale. In addition, certain jurisdictions have regulations requiring products to use environmentally

friendly components. Some of our products employ security technology, which is subject to various U.S. export restrictions.

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.

Customer and Geographic Concentrations

We conduct our business globally and manage our sales teams by three geographic

regions: the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific Japan (“APJ”). A discussion

of sales to our significant customers and related parties, sales within geographic regions as a percentage of net revenue and sales to

significant countries as a percentage of net revenue is set forth in Note 11 of Notes to Consolidated Financial Statements included in

Part II, Item 8 of this Report, which is incorporated herein by reference. A discussion of 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.

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. The SEC also maintains a website at www.sec.gov that

contains reports, proxy and information statements, and other information regarding issuers that file electronically. The contents of

our website are not incorporated by reference into this Report. References to our website address in this Report are inactive textual

references only.

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

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 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. 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. 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.

ERIC BASS has served as our Vice President

of Engineering since January 2023. Prior to joining Lantronix, Mr. 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. 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.

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. 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.

ITEM 1A. RISK FACTORS

We operate in a rapidly changing environment that involves numerous

risks and uncertainties. Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described

in this section, as well as other information contained in this Report and in our other filings with the SEC. This section should be read

in conjunction with the consolidated financial statements and accompanying notes thereto included in Item 8 of this Report, and “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Report. If any of these risks

or uncertainties actually occurs, our business, financial condition, results of operations or prospects could be materially harmed. In

that event, the market price for our common stock could decline and you could lose all or part of your investment. 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.

Some of our integrated circuits are only available from a single source

and in some cases, are no longer being manufactured. From time to time, integrated circuits, and potentially other components used in

our products, will be phased out of production by the manufacturer. When this happens, we attempt to purchase sufficient inventory to

meet our needs until a substitute component can be incorporated into our products. Nonetheless, we may be unable to purchase sufficient

components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components. In addition,

our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations,

whether due to the COVID-19 pandemic, the war between Ukraine and Russia, recent tensions between China and Taiwan or otherwise. From

time to time, we have been unable to meet customer orders because we were unable to purchase necessary components for our products. We

do not have long-term supply arrangements with most of our vendors to obtain necessary components, including semiconductor chips, or technology

for our products and instead purchase components on a purchase order basis. If we are unable to purchase components from these suppliers,

our product shipments could be prevented or delayed, which could result in a loss of sales. If we are unable to meet existing orders or

to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to

our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations. 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. 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.

We and our contract manufacturers are responsible for procuring raw materials

for our products. Our products incorporate some components and technologies that are only available from single or limited sources of

supply. Depending on a limited number of suppliers exposes us to risks, including limited control over pricing, availability, quality

and delivery schedules. Moreover, due to our limited sales, we may not be able to convince suppliers to continue to make components available

to us unless there is demand for these components from their other customers. If any one or more of our suppliers cease to provide us

with sufficient quantities of components in a timely manner or on terms acceptable to us, we would have to seek alternative sources of

supply and we may have difficulty identifying additional or replacement suppliers for some of our components.

We outsource substantially all of our manufacturing to contract manufacturers

in Asia. If our contract manufacturers are unable or unwilling to manufacture our products at the quality and quantity we request, our

business could be harmed.

We use contract manufacturers based in Asia to manufacture substantially

all of our products. Generally, we do not have guaranteed supply agreements with our contract manufacturers or suppliers. If any of these

subcontractors or suppliers were to cease doing business with us, we might not be able to obtain alternative sources in a timely or cost-effective

manner. Our reliance on third-party manufacturers, especially in countries outside of the U.S., exposes us to a number of significant

risks, including:

· lack of guaranteed production capacity or product supply;

· effects of terrorist attacks or geopolitical conflicts abroad;

· unexpected changes in regulatory requirements, taxes, trade laws and tariffs;

· reduced protection for intellectual property rights in some countries;

· differing labor regulations;

· 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.

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.

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.

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 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. 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.

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:

The duration and extent of the COVID-19 pandemic or another pandemic’s

effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted

at this time. The 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. Our ability to sustain and grow our business depends on our ability

to develop, market, and sell new products.

Certain of our products are sold into mature markets that are characterized

by a trend of declining demand. As the overall market for these products decreases due to the adoption of new technologies, we expect

that our revenues from these products will continue to decline. As a result, our future prospects will depend on our ability to develop

and successfully market new products that address new and growing markets. Our failure to develop new products or failure to achieve widespread

customer acceptance of any new products could cause us to lose market share and cause our revenues to decline. There can be no assurance

that we will not experience difficulties that could delay or prevent the successful development, introduction, marketing and sale of new

products or product enhancements. Factors that could cause delays include regulatory and/or industry approvals, product design cycle and

failure to identify products or features that customers demand. In addition, the introduction and sale of new products often involves

a significant technical evaluation, and we often face delays because of our customers’ internal procedures for evaluating, approving

and deploying new technologies. 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.

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 ConsoleFlowTM. These product and service offerings are subject to

significant additional risks that are not necessarily related to our hardware products. Our ability to succeed with these offerings will

depend in large part on our ability to provide customers with software products and services that offer features and functionality that

address the specific needs of businesses. We may face challenges and delays in the development of this product line as the marketplace

for products and services evolves to meet the needs and desires of customers. We cannot provide assurances that we will be successful

in operating and growing this product line.

In light of these risks and uncertainties, we may not be able to establish

or maintain market share for our software and SaaS offerings. As we develop new product lines, we must adapt to market conditions that

are unfamiliar to us, such as competitors and distribution channels that are different from those we have known in the past. We have and

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

There can be no assurance that we will recover our investments in this product line, that we will receive meaningful revenue from or realize

a profit from this new product line.

We may experience significant fluctuation in our revenue because

the timing of large orders placed by some of our customers is often project-based.

Our operating results fluctuate because we often receive large orders from

customers that coincide with the timing of the customer’s project. Sales of our products and services may be delayed if customers

delay approval or commencement of projects due to budgetary constraints, internal acceptance review procedures, timing of budget cycles

or timing of competitive evaluation processes. In addition, sometimes our customers make significant one-time hardware purchases for projects

which are not repeated. We sell primarily on a purchase order basis rather than pursuant to long-term contracts, and we expect fluctuations

in our revenues as a result of one-time project-based purchases to continue in the future. In addition, our sales may be subject to significant

fluctuations based on the acceleration, delay or cancellation of customer projects, or our failure to complete one or a series of significant

potential sales. Because a significant portion of our operating expenses are fixed, even a single order can have a disproportionate effect

on our quarterly revenues and operating results. As a result of the factors discussed above, and due to the complexities of the industry

in which we operate, it is difficult for us to forecast demand for our current or future products with any degree of certainty, which

means it is difficult for us to forecast our sales. 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.

We have a lengthy sales cycle for many of our products that generally extends

between six and 24 months and sometimes longer due to a lengthy customer evaluation and approval process. The length of this process can

be affected by factors over which we have little or no control, including the customer’s budgetary constraints, timing of the customer’s

budget cycles, and concerns by the customer about the introduction of new products by us or by our competitors. As a result, sales cycles

for customer orders vary substantially among different customers. The lengthy sales cycle is one of the factors that has caused, and may

continue to cause, our revenues and operating results to vary significantly from quarter to quarter. 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.

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. However, several factors contribute to a lack of visibility with respect to future

orders, including:

· the project-driven nature of many of our customers’ requirements;

· we primarily sell our products indirectly through distributors;

· the lack of long-term contracts with our customers;

· we have some customers who make single, non-recurring purchases; and

· a large number of our customers typically purchase in small quantities.

This lack of visibility impacts our ability to forecast our inventory requirements.

If we overestimate our customers’ future requirements for products, we may have excess inventory, which would increase our costs

and potentially require us to write-off inventory that becomes obsolete. Additionally, if we underestimate our customers’ future

requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products to our customers, harm our reputation,

and cause our revenues to decline. If any of these events occur, they could prevent us from achieving or sustaining profitability and

the value of our common stock may decline.

Delays in qualifying revisions of existing products for certain of

our customers could result in the delay or loss of sales to those customers, which could negatively impact our business and financial

results.

Our industry is characterized by intense competition, rapidly evolving

technology and continually changing customer preferences and requirements. As a result, we frequently develop and introduce new versions

of our existing products, which we refer to as revisions.

Prior to purchasing our products, some of our customers require that products

undergo a qualification process, which may involve testing of the products in the customer’s system. 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.

After products are qualified, it can take additional time before the customer

commences volume production of components or devices that incorporate our products. If we are unsuccessful or delayed in qualifying any

new or revised products with a customer, that failure or delay would preclude or delay sales of these products to the customer, and could

negatively impact our financial results. 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.

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.

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. 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. 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.

We depend on the resale of products through distributor accounts for a

substantial majority of our worldwide net revenue. In addition, sales through our top five distributors accounted for approximately 35%

of our net revenue in fiscal 2023. A significant reduction of effort by one or more distributors to sell our products or a material change

in our relationship with one or more distributors may reduce our access to certain end customers and adversely affect our ability to sell

our products. Furthermore, if a key distributor materially defaults on a contract or otherwise fails to perform, our business and financial

results would suffer.

In addition, the financial health of our distributors and our continuing

relationships with them are important to our success. Our business could be harmed if the financial health of these distributors impairs

their performance and we are unable to secure alternate distributors.

Our ability to sustain and grow our business depends in part on the

success of our distributors and resellers.

A substantial part of our revenues is generated through sales by distributors

and resellers. To the extent they are unsuccessful in selling our products, or if we are unable to obtain and retain a sufficient number

of high-quality distributors and resellers, our operating results could be materially and adversely affected. In addition, our distributors

and resellers may devote more resources to marketing, selling and supporting products and services that are competitive with ours, than

to our products. They also may have incentives to promote our competitors' products over our products, particularly for our competitors

with larger volumes of orders, more diverse product offerings and a longer relationship with our distributors and resellers. In these

cases, one or more of our important distributors or resellers may stop selling our products completely or may significantly decrease the

volume of products they sell on our behalf. This sales structure also could subject us to lawsuits, potential liability and reputational

harm if, for example, any of our distributors or resellers misrepresents the functionality of our products or services to customers, violates

laws or our corporate policies. If we fail to effectively manage our existing or future distributors and resellers effectively, our business

and operating results could be materially and adversely affected.

Changes to the average selling prices of our products could affect

our net revenue and gross margins and adversely affect results of operations.

In the past, we have experienced reductions in the average selling prices

and gross margins of our products. We expect competition to continue to increase, and we anticipate this could result in additional downward

pressure on our pricing. Our average selling prices for our products might also decline as a result of other reasons, including promotional

programs introduced by us or our competitors and customers who negotiate price concessions. To the extent we are able to increase prices,

we may experience a decline in sales volumes if customers decide to purchase competitive products. If any of these were to occur, our

gross margins could decline and we might not be able to reduce the cost to manufacture our products enough or at all to keep up with the

decline in prices.

If we are unable to sell our inventory in a timely manner, it could

become obsolete, which could require us to write-down or write off obsolete inventory, which could harm our operating results.

At any time, competitive products may be introduced with more attractive

features or at lower prices than ours. If this occurs, and for other reasons, we may not be able to accurately forecast demand for our

products and our inventory levels may increase. There is a risk that we may be unable to sell our inventory in a timely manner to avoid

it becoming obsolete. If we are required to substantially discount our inventory or are unable to sell our inventory in a timely manner,

we would be required to increase our inventory reserves or write off obsolete inventory and our operating results could be substantially

harmed.

Our failure to compete successfully in our highly competitive market

could result in reduced prices and loss of market share.

The market in which we operate is intensely competitive, subject to rapid

technological advances and highly sensitive to evolving industry standards. The market can also be affected significantly by new product

and technology introductions and marketing and pricing activities of industry participants. Our products compete directly with products

produced by a number of our competitors. Many of our competitors and potential competitors have greater financial and human resources

for marketing and product development, more experience conducting research and development activities, greater experience obtaining regulatory

approval for new products, larger distribution and customer networks, more established relationships with contract manufacturers and suppliers,

and more established reputations and name recognition. For these and other reasons, we may not be able to compete successfully against

our current or potential future competitors. In addition, the amount of competition we face in the marketplace may change and grow as

the market for IoT and M2M networking solutions grows and new companies enter the marketplace. Present and future competitors may be able

to identify new markets, adapt new technologies, develop and commercialize products more quickly and gain market acceptance of products

with greater success. As a result of these competitive factors, we may fail to meet our business objectives and our business, financial

condition and operating results could be materially and adversely affected.

Acquisitions, strategic partnerships, joint ventures or investments

may impair our capital and equity resources, divert our management’s attention or otherwise negatively impact our operating results.

We may pursue acquisitions, strategic partnerships and joint ventures that

we believe would allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets,

broaden our technology and intellectual property and strengthen our relationships with distributors, OEMs and ODMs. 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. Acquisitions, partnerships or joint ventures may also result in the loss

of key personnel and the dilution of existing stockholders to the extent we are required to issue equity securities. In addition, acquisitions,

partnerships or joint ventures require significant managerial attention, which may be diverted from our other operations. These capital,

equity and managerial commitments may impair the operation of our business. Furthermore, acquired businesses may not be effectively integrated,

may be unable to maintain key pre-acquisition business relationships, may not result in expected synergies, an increase in revenues or

earnings or the delivery of new products, may contribute to increased fixed costs, and may expose us to unanticipated liabilities. If

any of these occur, we may fail to meet our business objectives and our business, financial condition and operating results could be materially

and adversely affected.

We may experience difficulties associated with utilizing third-party

logistics providers.

A majority of our physical inventory management process, as well as the

shipping and receiving of our inventory, is performed by third-party logistics providers in Los Angeles, California and Hong Kong. There

is a possibility that these third-party logistics providers will not perform as expected and we could experience delays in our ability

to ship, receive, and process the related data in a timely manner. This could adversely affect our financial position, results of operations,

cash flows and the market price of our common stock.

Relying on third-party logistics providers could increase the risk of the

following: failing to receive accurate and timely inventory data, theft or poor physical security of our inventory, inventory damage,

ineffective internal controls over inventory processes or other similar business risks out of our immediate control.

Risks Related to Technology, Cybersecurity and Intellectual Property

Source: SEC EDGAR (public domain) · 10-K for the period ended 2023-06-30, filed 2023-09-12 · accession 0001683168-23-006386

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