LANTRONIX, INC. 10-K
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, 2025
☐ 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. ☐
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, 2024, the last trading day of the registrant’s second fiscal quarter, was approximately $134,820,000. The determination
of affiliate status for this purpose shall not be a conclusive determination for any other purpose.
As of August 22, 2025, there were 39,151,106 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 2025 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, 2025
TABLE OF CONTENTS
Page
Cautionary Note Regarding Forward-Looking Statements ii
PART I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 23
Item 1C. Cybersecurity 23
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Mine Safety Disclosures 24
PART II
Item 6. Reserved 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36
Item 8. Financial Statements and Supplementary Data 36
Item 9A. Controls and Procedures 37
Item 9B. Other Information 38
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 38
PART III
Item 10. Directors, Executive Officers and Corporate Governance 39
Item 11. Executive Compensation 39
Item 14. Principal Accountant Fees and Services 39
PART IV
Item 15. Exhibits and Financial Statement Schedules 40
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended June 30, 2025,
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, 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 and should not place undue reliance on the forward-looking statements contained in this Report. 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 Stock Market LLC. 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. (Nasdaq: LTRX) is a global leader in Edge AI and Industrial
Internet of Things (“IoT”) solutions, delivering intelligent computing, secure connectivity, and remote management for mission-critical
applications. Serving high-growth markets, including smart cities, enterprise information technology (“IT”), and commercial
and defense unmanned systems, we enable customers to optimize operations and accelerate digital transformation. Our comprehensive portfolio
of hardware, software, and services powers applications from secure video surveillance and intelligent utility infrastructure to resilient
out-of-band network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and
a competitive edge in today’s artificial intelligence (“AI”)-driven world.
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 organize our portfolio services and products into the following
product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Engineering Services.
References in this Report to “fiscal 2025” refer to the fiscal
year ended June 30, 2025, and references to “fiscal 2024” refer to the fiscal year ended June 30, 2024. In addition, unless
the context suggests otherwise, all references in this Report to the “Company,” “we,” “our” and “us,”
refer to Lantronix, Inc. together with its subsidiaries.
Our Strategy
We focus on three high-potential vertical markets - smart cities, enterprise
and unmanned aerial systems (“UAS”) (drones). We position ourselves in these markets to deliver complete solutions encompassing
our hardware, software, device management, and design services to meet the evolving needs of our customers and address each layer of the
IoT stack. Below are customer examples that highlight our impact:
Our growth strategy centers on continuous innovation and strategic acquisitions
designed to increase scale, broaden our scope, and enhance our value proposition. This approach allows us to address a broader spectrum
of our customers’ operational needs, positioning Lantronix as a strategic partner rather than just a vendor. Our acquisitions and
innovations have expanded our capabilities in key areas such as critical infrastructure and connected transportation solutions, driving
deeper customer engagement and market penetration.
By focusing on these strategic priorities, we continue to strengthen our
competitive position and attract new customers across a wide variety of applications. Looking ahead, we plan to capitalize on market opportunities
by further enhancing our product offerings, expanding geographically, and pursuing targeted acquisitions that align with our long-term
growth objectives.
Products and Solutions
Embedded IoT Solutions
Our embedded product portfolio includes a broad range of Compute SoM and
System-in-Package (“SiP”) solutions, together with wired and wireless connectivity products. As semiconductor technology continues
to evolve and integrate more functionality, our compute modules now provide not only processing power but also the ability to run advanced
AI and machine learning applications. This enables our customers to process and analyze digital inputs such as video, audio, and sensor
data, directly at the device level, reducing latency, enhancing security, and enabling real-time decision making.
Our latest SIP devices are designed to process multiple media streams using
Computer Vision (CV) technology, enabling sophisticated edge analytics. These modules are remotely managed via PercepxionTM, Lantronix’s
Cloud IoT Edge Solution software, offering seamless control and monitoring. Typically embedded into customer product designs, Lantronix’s
IoT compute products provide application processing that enables edge solutions for data transformation, computer vision, machine learning,
augmented/virtual reality, and custom applications.
Our products are designed with customer needs in mind, offering pre-certified
solutions across multiple regions, significantly reducing regulatory certification costs and expediting time-to-market for OEM customers.
Additionally, we provide software tools that further accelerate development, empowering customers to quickly bring their products to market
while enhancing their overall value proposition.
Our embedded IoT solutions serve a wide range of applications, from
industrial automation and transportation systems to smart city infrastructure, positioning us as a leading provider of flexible and scalable
solutions in the growing IoT market.
IoT System Solutions
Our IoT System Solutions portfolio includes a wide range of fully functional
standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion. These products
include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure
network connectivity, power for IoT end devices through Power over Ethernet (“PoE”), application hosting, protocol conversion,
media conversion, secure access for distributed IoT deployments and many other functions By offering pre-certified products across multiple
regions, Lantronix significantly reduces OEM customers’ regulatory certification costs and speeds up 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 the adoption of smart city technologies accelerates, our switches provide the critical connectivity, bandwidth,
and power needed to support intelligent transportation systems and surveillance networks that safeguard citizens.
Our products also incorporate features to perform advanced levels of
fault management and diagnostics to troubleshoot networks and proactively fix problems. Our media converters and other customer premise
equipment 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 Industrial IoT devices are designed
to be flexible in the field while offering a variety of connectivity options to suit customers’ needs across 4G, 5G 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 equipment management. Many of the products are offered with software tools intended to further accelerate
our customers’ time-to-market and increase their value add. Our Industrial IoT products are pre-certified in a number of countries,
significantly reducing our OEM customers’ regulatory certification costs and accelerating their time-to-market.
As Edge Computing deployment accelerates, Out-of-Band (OOB) Management
allows for full comprehension and control of remote information technology (“IT”) infrastructure across a range of sensors
(e.g., temperature, humidity, light, acceleration, open/close, etc.), providing status and alerting while enabling automation and remote
control of devices, servers and end stations. OOB uses a dedicated management network to access critical infrastructure components and
ensure production-independent connectivity. Remote Management allows organizations to effectively monitor and control their enterprise
IT equipment and facilities (environments), either in or out of band, optimizing their IT support resources.
Our 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.
Software and Engineering Services
Our Software as a Service (“SaaS”) platform offers comprehensive
single-pane-of-glass management for OOB 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 and seamlessly connected as if located directly on each device.
Our platform eliminates the need to have 24/7 personnel on site and makes it easy to observe and address issues quickly, even in large-scale
deployments.
For OEMs and System Integrators (“SI”) our platform offers
multitenancy functionality for supporting a broad customer base while ensuring customer separation and data security. Over the Air (“OTA”)
updates streamline the process of security patches, firmware upgrades and configuration changes, keeping devices up to date and secure.
We leverage our deep engineering expertise and product development best
practices to deliver high-quality, innovative products cost-effectively and on schedule. Our engineering services model is flexible, offering
either turnkey product development or team augmentation to accelerate complex product development challenges, such as camera tuning, voice
control, machine learning, AI, computer vision, augmented/virtual reality, and more.
In addition to our production-ready edge computing solutions, we offer
experienced multidisciplinary engineering services across complete aspects of IoT product development, including hardware, software, mechanical
engineering, rapid prototyping, and quality assurance. Our specialized services also extend to camera, audio, and AI/machine learning
development, ensuring our customers can bring cutting-edge products to market faster and with greater reliability.
Our engineering design services are a key component of our business model,
enabling clients to accelerate product development and market readiness. The services focus on designing and developing high-quality,
innovative IoT and embedded solutions. We leverage extensive expertise in hardware and software engineering to provide custom designs
for complex applications, helping customers reduce costs and time-to-market while improving performance and reliability.
Our design services are especially valuable in the development
of IoT systems, remote management solutions, and edge computing applications. Our engineering teams have experience across a range of
technologies, including embedded systems, wireless connectivity, and custom hardware. By integrating these design services, we offer end-to-end
support, from concept through to manufacturing, allowing businesses to focus more on core operations while still achieving advanced technological
outcomes.
This strategy positions us as a go-to partner for companies needing specialized
engineering capabilities for industrial, automotive, medical, and other high-tech applications.
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, 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
We sell products directly to larger OEMs and end users. We also maintain
an e-commerce 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 currently conducted through third-party
contract manufacturers. We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone and In-Tech primarily
located in China, and Tailyn, Info-Tek and Rubytech in Taiwan as our contract manufacturers for most of our products. In addition, we
use Marvell Technology Inc., to manage the manufacture of our large-scale integration chips in Taiwan. 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 19, 2025, we had 352 total employees including 351 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; EMEA; and APJ. A discussion of sales to our significant customers and sales within geographic regions
is set forth in Notes 2 and 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report, which is incorporated
herein by reference. 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 Securities and Exchange Commission (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 (the
“Board”). 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
Saleel Awsare 60 President and Chief Executive Officer
Brent Stringham 47 Chief Financial Officer
Mathi Gurusamy 54 Chief Product and Strategy Officer
Kurt Hoff 68 Chief Revenue Officer
SALEEL AWSARE has served as our President and Chief Executive Officer,
and as a member of our Board, since November 2023. Mr. Awsare served as Senior Vice President and General Manager of the Enterprise and
Mobile Division of Synaptics Incorporated, a developer of human interface hardware and software, from September to November 2023. Prior
to that, Mr. Awsare served as Senior Vice President and General Manager of the PC and Peripherals Unit of Synaptics from August 2020 to
September 2023; Senior Vice President and General Manager of Synaptics’s IoT Division from April 2019 to July 2020; and Senior Vice
President of Corporate Marketing & Investor Relations at Synaptics from October 2018 until April 2019. Prior to joining Synaptics
as Corporate Vice President and General Manager of Audio & Imaging Products in August 2017, Mr. Awsare was President of Conexant Systems,
LLC, a software developer and fabless semiconductor company, from March 2016 until Conexant’s acquisition by Synaptics in August
2017, and Conexant’s Senior Vice President & General Manager of Audio & Imaging from April 2012 to March 2016. Prior to
joining Conexant, Mr. Awsare served as President of U.S. Operations and General Manager of Audio & Voice Solutions of Nuvoton Technology
Corporation, a Taiwan-based semiconductor company, from December 2008 to March 2012.
BRENT STRINGHAM has served as our Chief Financial Officer since January
2025. Mr. Stringham joined Lantronix in 2012 and previously served as the Company’s interim Chief Financial Officer and Chief Accounting
Officer since September 2024. Prior to that, he served as our Senior Director of Finance and Corporate Controller beginning in February
2012. Previously, Mr. Stringham served as Controller at Iteris, Inc., a provider of software, hardware and services for smart mobility
infrastructure management, from January 2009 to February 2012, and Netlist, Inc., a developer and manufacturer of computer memory subsystems,
from March 2007 to January 2009. Mr. Stringham was an Audit Manager at Ernst & Young LLP from 2000 to 2007.
MATHI GURUSAMY has served as our Chief Product and Strategy Officer since
April 2025. Previously Mr. Gurusamy served as our Chief Strategy Officer since May 2024. Prior to joining Lantronix, Mr. Gurusamy served
as Chief Operating Officer at Ikotek USA, Inc., a global provider of original design manufacturing for IoT, from November 2023 to May
2024. Mr. Gurusamy served as President at Telit Cinterion, an end-to-end IoT solutions enabler, from October 2022 to October 2023, and
previously served at Telit as Chief Operating Officer from January 2010 to March 2016 and as Global VP – Operations & Supply
Chain from June 2008 to December 2009. He also served as President and Chief Operating Officer of Mobilogix, a startup company specializing
in custom IoT solutions, from April 2016 to June 2018 and as Chief Executive Officer and President from June 2018 until Mobilogix’s
acquisition by Telit in September 2022.
KURT HOFF has served as our Chief Revenue Officer since April 2025. Previously
Mr. Hoff served as our Vice President of Worldwide Sales since March 2024. Prior to joining Lantronix, Mr. Hoff served as Vice President
of Global Sales at MYTHIC AI, a venture-backed AI processor company, from May 2022 to December 2022. Previously, Mr. Hoff served as Senior
Vice President of Worldwide Sales at Synaptics Inc., a developer of human interface hardware and software, from July 2017 to July 2020,
and at Conexant Systems, Inc., a software developer and fabless semiconductor company, from November 2015 until Conexant’s acquisition
by Synaptics in July 2017. He served as Senior Vice President of Worldwide Sales at Silicon Laboratories Inc. from July 2007 until November
2015.
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 Part II, Item 8 of this Report, and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7
of this Report. 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 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. 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 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 a pandemic or epidemic, the war between Ukraine and Russia, conflict in the Middle East, hostilities in the Red Sea, tensions
between China and Taiwan, increased tariffs and changes in U.S. trade policies 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.
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. For example, in connection to the recently increased tariffs proposed to be imposed by the
U.S. against China, we continue to transition our remaining manufacturing out of China. We have and may in the future incur substantial
expenses, risk material delays or encounter other unexpected issues in connection with this transition or future transitions.
The effect of a pandemic or major public health concern, such as
the COVID-19 pandemic, could result in material adverse effects on our business, financial position, results of operations and cash flows.
Pandemics or similar outbreaks have had, and may in the future have, an
adverse impact on the economy, our business and the businesses of our suppliers, and our results of operations and financial condition.
For example, the COVID-19 pandemic resulted in industry events, trade shows and business travel being suspended, cancelled and/or significantly
curtailed. If these activities are suspended, cancelled and/or significantly curtailed in the future, whether due to a possible pandemic
and similar outbreak, our sales may be negatively impacted in the future.
In addition, the impact of possible pandemics subjects 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 a future pandemics or other similar outbreak’s
effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted
at this time. The adverse impact of a possible future pandemic or similar outbreak on our business, results of operations and financial
condition may 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, scale, 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, our revenues
from these products have declined, and we expect they will continue to decline in the future. As a result, our future prospects will depend
on our ability to develop and successfully market new products that address new and growing markets. 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 engineering resources to our management software
platform, applications, and SaaS offerings. These product and service offerings are subject to significant additional risks that are not
necessarily related to our hardware products. Our ability to succeed with these offerings will depend in large part on our ability to
provide customers with software products and services that offer features and functionality that address their specific needs. 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 segment, or that we will receive meaningful revenue from or realize
a profit from this new segment.
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 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 three 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 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 results
in lack of 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 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 37%
of our net revenue in fiscal 2025. 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 or
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 machine-to-machine 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 have in the past and may in the future 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 original design manufacturers. For instance, we acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses
of Communication Systems, Inc., Uplogix, Inc. (“Uplogix”), and Netcomm Wireless Pty Ltd (“Netcomm”) in calendar
years 2019, 2020, 2021, 2022 and 2024, 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,