10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o 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)

Delaware	33-0362767
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7535 Irvine Center Drive, Suite 100, Irvine, California

(Address of principal executive offices)

92618

(Zip Code)

(949) 453-3990

(Registrant’s telephone number, including area code)

                    Not Applicable                    

(Former name, former address and former fiscal year, if changed since last report)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

As of October 23, 2015, there were 15,104,710 shares of the Registrant’s common stock outstanding.

LANTRONIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

September 30, 2015

INDEX

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets at September 30, 2015 and June 30, 2015	4
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2015 and 2014	5
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2015 and 2014	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18
PART II.	OTHER INFORMATION	19
Item 1.	Legal Proceedings	19
Item 1A	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended September 30, 2015, or the 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. In particular, this Report contains forward-looking statements relating to, among other things:

· predictions of or assumptions about earnings, revenues, expenses or other financial matters;

· forecasts of our liquidity position or available cash resources;

· plans or expectations with respect to our product development activities or business strategy;

· demand for our products or for the products of our competitors;

· the impact of pending litigation; and

· assumptions underlying any of the foregoing.

We have based our forward-looking statements on our 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. Some of the risks and uncertainties that may cause actual results to differ from those expressed or implied in the forward-looking statements are described in “Risk Factors” in Item 1A of this Report, our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on August 21, 2015, or the Form 10-K, as well as in our other filings with the Securities and Exchange Commission, or the SEC. 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 Form 10-K, the documents that we file as exhibits to this Report and the documents that we incorporate by reference into 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 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.

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30,			June 30,
	2015			2015
Assets
Current assets:
Cash and cash equivalents	$	4,718		$	4,989
Accounts receivable, net		2,970			2,658
Inventories, net		8,988			9,503
Contract manufacturers' receivable		365			369
Prepaid expenses and other current assets		315			400
Total current assets		17,356			17,919
Property and equipment, net		1,476			1,471
Goodwill		9,488			9,488
Deferred tax assets		442			442
Other assets		60			93
Total assets	$	28,822		$	29,413
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,922		$	3,633
Line of credit		700			700
Accrued payroll and related expenses		1,800			1,685
Warranty reserve		127			163
Deferred tax liabilities		442			442
Other current liabilities		3,790			3,849
Total current liabilities		9,781			10,472
Long-term capital lease obligations		138			152
Other non-current liabilities		308			80
Total liabilities		10,227			10,704
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock		2			2
Additional paid-in capital		206,543			206,326
Accumulated deficit		(188,321	)		(187,990	)
Accumulated other comprehensive income		371			371
Total stockholders' equity		18,595			18,709
Total liabilities and stockholders' equity	$	28,822		$	29,413

See accompanying notes.

4

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended
	September 30,
	2015			2014
Net revenue (1)	$	10,573		$	11,536
Cost of revenue		5,506			5,937
Gross profit		5,067			5,599
Operating expenses:
Selling, general and administrative		3,725			4,075
Research and development		1,671			1,744
Total operating expenses		5,396			5,819
Loss from operations		(329	)		(220	)
Interest expense, net		(6	)		(5	)
Other income (expense), net		19			(21	)
Loss before income taxes		(316	)		(246	)
Provision for income taxes		15			16
Net loss and comprehensive loss	$	(331	)	$	(262	)
Net loss per share (basic and diluted)	$	(0.02	)	$	(0.02	)
Weighted-average common shares (basic and diluted)		15,103			14,787
Net revenue from related parties	$	68		$	79

(1)  Includes net revenue from related parties 

See accompanying notes.

5

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended
	September 30,
	2015			2014
Operating activities
Net loss	$	(331	)	$	(262	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation		233			255
Depreciation		218			229
Provision for excess and obsolete inventories		73			47
Changes in operating assets and liabilities:
Accounts receivable		(312	)		88
Contract manufacturers' receivable		4			(222	)
Inventories		442			(188	)
Prepaid expenses and other current assets		85			168
Other assets		26			17
Accounts payable		(722	)		390
Accrued payroll and related expenses		115			(40	)
Warranty reserve		(36	)		(30	)
Other liabilities		(67	)		(240	)
Cash received related to tenant lease incentives		53			–
Net cash provided by (used in) operating activities		(219	)		212
Investing activities
Purchases of property and equipment		(15	)		(181	)
Net cash used in investing activities		(15	)		(181	)
Financing activities
Minimum tax withholding paid on behalf of employees for restricted shares		(16	)		–
Proceeds from borrowing on line of credit		700			–
Payment of borrowings on line of credit		(700	)		–
Payment of capital lease obligations		(21	)		(12	)
Net cash used in financing activities		(37	)		(12	)
Increase (decrease) in cash and cash equivalents		(271	)		19
Cash and cash equivalents at beginning of period		4,989			6,264
Cash and cash equivalents at end of period	$	4,718		$	6,283

See accompanying notes. 

6

LANTRONIX, INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

1. Summary of Significant Accounting Policies

The Company

Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in our Annual Report on Form 10-K filed with the SEC on August 21, 2015. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at September 30, 2015 and the consolidated results of our operations and cash flows for the three months ended September 30, 2015. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Reclassifications

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

Recent Accounting Pronouncements 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. The standard permits the use of either a retrospective or cumulative effect transition method. In July 2015, the FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard for the fiscal year beginning July 1, 2017. We are currently evaluating this standard and have not yet selected a transition method or the effective date on which we plan to adopt the standard, nor have we determined the effect of the standard on our financial statements and related disclosures.

In August 2014, the FASB issued a new standard that will require management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2016. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures.

In July 2015, the FASB issued final guidance that simplifies the subsequent measurement of inventory for which cost is determined by methods other than last-in first-out (“LIFO”) and the retail inventory method. For inventory within the scope of the new guidance, entities will be required to compare the cost of inventory to only one measure, its net realizable value, and not the three measures required by the existing guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new guidance does not change how entities initially measure the cost of inventory. Lantronix adopted this guidance in the fiscal year beginning July 1, 2015. Such adoption did not have a material impact on our financial statements.

7

2. Supplemental Financial Information

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and consist of the following:

	September 30,		June 30,
	2015		2015
	(In thousands)
Finished goods	$	5,640	$	6,044
Raw materials		2,182		2,122
Finished goods held by distributors		1,166		1,337
Inventories, net	$	8,988	$	9,503

Other Liabilities

The following table presents details of our other liabilities:

	September 30,		June 30,
	2015		2015
	(In thousands)
Current
Customer deposits and refunds	$	663	$	854
Accrued raw materials purchases		1,125		916
Deferred revenue		536		690
Capital lease obligations		55		62
Deferred rent		52		40
Taxes payable		248		247
Accrued operating expenses		1,111		1,040
Total other current liabilities	$	3,790	$	3,849
Non-current
Deferred revenue	$	80	$	80
Deferred rent		228		–
Total other non-current liabilities	$	308	$	80

Computation of Net Loss per Share

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

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

	Three Months Ended
	September 30,
	2015			2014
	(In thousands, except per share data)
Numerator:
Net loss	$	(331	)	$	(262	)
Denominator:
Weighted average common shares outstanding (basic and diluted)		15,103			14,787
Net loss per share (basic and diluted)	$	(0.02	)	$	(0.02	)

8

The following table presents the common stock equivalents excluded from the diluted net loss per share calculation, because they were anti-dilutive for the periods presented. These excluded common stock equivalents could be dilutive in the future.

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Common stock equivalents		3,550		1,664

Facility Lease

The lease for our new corporate headquarters in Irvine, California, commenced in July 2015. The lease agreement provided for a tenant improvement allowance from the landlord of up to $243,000 for tenant improvements and other qualified expenses. In connection with this allowance, the landlord paid for approximately $190,000 in tenant improvements, and, in September 2015, reimbursed Lantronix for the remaining $53,000.

Supplemental Cash Flow Information

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

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Accrued property and equipment paid for in the subsequent period	$	11	$	48
Non-cash tenant improvements paid by landlord	$	190	$	–

3. Warranty Reserve

The warranty periods for our products generally range from one to five years. We establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience, and additionally, for any known product warranty issues. Our warranty obligation is affected by product failure rates, use of materials or service delivery costs that differ from our estimates. As a result, increases or decreases to warranty reserves could be required, which could impact our gross margins.

The following table presents details of our warranty reserve:

	Three Months Ended			Year Ended
	September 30,			June 30,
	2015			2015
	(In thousands)
Beginning balance	$	163		$	150
Charged to cost of revenues		(14	)		112
Usage		(22	)		(99	)
Ending balance	$	127		$	163

4. Bank Line of Credit

On September 30, 2014, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for (i) a renewal of our $4.0 million revolving line of credit with an extended maturity date of September 30, 2016 and (ii) a modification of the revolving credit line borrowing base formula to include a portion of our foreign accounts receivable to the borrowing base and increase the borrowing limit related to domestic accounts receivable.

The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.0%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.0%. 

9

The Loan Agreement includes a covenant requiring us to maintain a certain Minimum Tangible Net Worth (“Minimum TNW”), which is currently required to be at least $6.0 million. This amount is subject to adjustment upward to the extent we raise additional equity or debt financing or achieve net income in future quarters. Our Actual Tangible Net Worth (“Actual TNW”) is calculated as total stockholders’ equity, less goodwill. If we continue to incur net losses, we may have difficulty satisfying the Minimum TNW financial covenant in the future, in which case we may be unable to borrow funds under the Loan Agreement and any amounts outstanding may need to be repaid immediately.

The following table sets forth the Minimum TNW compared to our Actual TNW:

	September 30,
	2015
	(In thousands)
Minimum TNW	$	6,000
Actual TNW	$	9,107

The following table presents certain information with respect to the Loan Agreement with SVB:

	September 30,		June 30,
	2015		2015
	(In thousands)
Outstanding borrowings on the line of credit	$	700	$	700
Available borrowing capacity	$	1,910	$	1,736
Outstanding letters of credit	$	51	$	110

Our outstanding letters of credit were used as security deposits.

5. Stockholders’ Equity

Share-Based Plans

Our share-based plans permit the granting of stock options (both incentive and nonqualified stock options), restricted stock units (“RSUs”), stock appreciation rights, non-vested stock, and performance shares to certain employees, directors and consultants. As of September 30, 2015, no stock appreciation rights, non-vested stock, or performance shares were outstanding.

Stock Option Awards

The following table presents a summary of stock option activity under all of our stock option plans:

				Weighted
				Average
	Number of			Exercise Price
	Shares			per Share
	(In thousands)
Balance of options outstanding at June 30, 2015		3,546		$	2.19
Granted		544			1.35
Forfeited		(49	)		1.79
Expired		(9	)		1.93
Exercised		–			–
Balance of options outstanding at September 30, 2015		4,032		$	2.08

Restricted Stock Units 

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

				Weighted
				Average
				Grant - Date
	Number of			Fair Value
	Shares			per Share
	(In thousands)
Balance of RSUs outstanding at June 30, 2015		28		$	1.98
Granted		50			1.35
Vested		(25	)		2.00
Balance of RSUs outstanding at September 30, 2015		53		$	1.38

10

In September 2015, our Chief Executive Officer was granted 50,000 performance-based RSUs. Vesting of these RSUs is subject to the achievement of certain financial performance targets for the fiscal year ending June 30, 2016 ("Fiscal 2016"). If we achieve the performance targets for Fiscal 2016: (a) 50% of the RSUs will vest on September 1, 2016, and (b) the remaining 50% of the RSUs will vest in four equal quarterly installments beginning on December 1, 2016. We have recorded share-based compensation expense for these RSUs based on management’s current estimates of the probability of achieving the performance targets.

Employee Stock Purchase Plan 

Our 2013 Employee Stock Purchase Plan (the “ESPP”) is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions. Each of our employees (including officers) is eligible to participate in the ESPP, subject to certain limitations as defined in the ESPP plan document.

The following table presents a summary of activity under our ESPP:

	Number of
	Shares
	(In thousands)
Shares available for issuance at June 30, 2015		906
Reserved for issuance		–
Issued		–
Shares available for issuance at September 30, 2015		906

Share-Based Compensation Expense

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

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Cost of revenues	$	18	$	20
Selling, general and administrative		171		174
Research and development		44		61
Total share-based compensation expense	$	233	$	255

The following table summarizes the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of September 30, 2015:

	Remaining		Remaining
	Unrecognized		Weighted
	Compensation		Average Years
	Cost		To Recognize
	(In thousands)
Stock options	$	1,048		2.9
Restricted stock units		65		1.8
Stock purchase rights under ESPP		41		0.7

11

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

6. Income Taxes

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

	Three Months Ended
	September 30,
	2015	2014
Effective tax rate	5%	7%

The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate.

We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. As a result of our cumulative losses and uncertainty of generating future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of September 30, 2015 and June 30, 2015.

7. Commitments and Contingencies

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that are expected to have, individually or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or cash flows.

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in Item 1 of this Report, the “Risk Factors” included in Item 1A of this Report and in our Annual Report on Form 10-K for the year ended June 30, 2015, or the Form 10-K, as well as the Cautionary Note Regarding Forward Looking Statements described elsewhere in this Report, before deciding to purchase, hold or sell our common stock. 

Overview

Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT.

We provide a broad portfolio of products intended to enhance the value of electronic devices and machines. Our products are typically used by enterprise and commercial businesses, government institutions, telecommunication and utility companies, financial institutions, healthcare providers and individual consumers.

We organize our solutions into two product lines based on how they are marketed, sold and deployed: IoT Modules and Enterprise Solutions. We conduct our business globally and manage our sales teams by geography, according to four regions: the Americas; Europe, Middle East, and Africa (“EMEA”); Asia Pacific; and Japan.

Products and Solutions Overview

“New Products” are defined as products that have been released since the second quarter of the fiscal year ended June 30, 2012. All other products are referred to as “Legacy Products.”

IoT Modules

IoT Modules are electronic products that serve as building blocks embedded within modern electronic systems and equipment. Each module consists of one or more silicon integrated circuits combined with specialized firmware to provide a self-contained function. Many modules are pre-certified in a number of countries thereby significantly reducing the customer’s regulatory certification costs and accelerating time to market. Our IoT Modules product line includes wired and wireless products that are designed to enhance the value and utility of modern electronic systems and equipment by providing secure network connectivity, application hosting, protocol conversion and other functions. The products are offered with a software suite intended to further decrease our customer’s time-to-market and increase their value add. Among others, the following product families are included in our IoT Modules product line: MatchPort^®, PremiereWave^® EN, WiPort^®, xPico^®, xPico^® Wi-Fi, and xPort^®.

Our IoT Modules are typically sold to original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”), contract manufacturers and distributors. 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 their own brand. The design cycles using our IoT Modules typically range from 12 to 24 months and can generate revenue for the entire life-cycle of an end-user’s product.

Enterprise Solutions

Our Enterprise Solutions consist of electronic products that typically connect to one or more existing machines and devices and provide network connectivity or additional functionality. Our Enterprise Solutions are designed to enhance the value and utility of machines and devices by making the data from them available to users, systems and processes or by controlling their properties and features over the network. Our Enterprise Solutions primarily serve three markets: IoT Gateways, IT Infrastructure Management and Mobile Printing, based on the target application while relying on a common set of core technologies such as network connectivity, routing, switching and remote management. IoT Gateways encompass our line of wired and wireless device servers and terminal servers that add network connectivity to legacy or existing machines and intelligent gateways that add application hosting, protocol conversion and secure access for distributed Enterprise IoT deployments. IT Infrastructure Management includes console management, power management, keyboard video mouse (KVM) products that provide out-of-band management access to IT and networking infrastructure deployed in data centers and server rooms. Mobile Printing covers the lineup of print servers that enhances the installed base of printers to work with Google Cloud Print and Apple Airprint. The following product families are included in our Enterprise Solutions product line: EDS, PremierWave^® XC, PremierWave^® XN, SLB^™, SLC^™, SLP^™, Spider^™, UDS, xDirect^®, xPress^™, xPrintServer^®, and xSenso^®.

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Enterprise Solutions are typically sold through value added resellers (“VARs”), systems integrators, distributors, e-tailers and to a lesser extent to OEMs. Sales are often project-based and may result in significant quarterly fluctuations.

Recent Accounting Pronouncements

Please refer to Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1 of this Report for a discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgment are those relating to revenue recognition, warranty reserves, allowance for doubtful accounts, inventory valuation, valuation of deferred income taxes, and goodwill. These policies are described in further detail in the Form 10-K. There have been no significant changes in our critical accounting policies and estimates during the three months ended September 30, 2015 as compared to what was previously disclosed in the Form 10-K.

Results of Operations - Summary

In the three months ended September 30, 2015 our net revenue decreased by $963,000, or 8.3%, compared to the three months ended September 30, 2014. Primarily as a result of cost cutting efforts and lower variable compensation expenses, our operating expenses were reduced by approximately 7.3% during the three months ended September 30, 2015 as compared to three months ended September 30, 2014. Our net loss was $331,000 for the three months ended September 30, 2015 compared to a net loss of $262,000 in the three months ended September 30, 2014.

Results of Operations – Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

Net Revenue

The following tables present our fiscal quarter net revenue by product line and geographic region:

	Three Months Ended September 30,
	2015						2014						Total Change
	IoT Modules		Enterprise Solutions		Total		IoT Modules		Enterprise Solutions		Total		$			%
	(In thousands, except percentages)
New Products	$	480	$	1,273	$	1,753	$	184	$	1,536	$	1,720	$	33			1.9%
Legacy Products		4,752		4,068		8,820		5,444		4,372		9,816		(996	)		(10.1%	)
	$	5,232	$	5,341	$	10,573	$	5,628	$	5,908	$	11,536	$	(963	)		(8.3%	)

	Three Months Ended September 30,
	2015						2014						Total Change
	IoT Modules		Enterprise Solutions		Total		IoT Modules		Enterprise Solutions		Total		$			%
	(In thousands, except percentages)
Americas	$	1,664	$	3,445	$	5,109	$	2,409	$	4,150	$	6,559	$	(1,450	)		(22.1%	)
EMEA		2,572		1,249		3,821		2,169		1,125		3,294		527			16.0%
Asia Pacific		517		384		901		617		312		929		(28	)		(3.0%	)
Japan		479		263		742		433		321		754		(12	)		(1.6%	)
	$	5,232	$	5,341	$	10,573	$	5,628	$	5,908	$	11,536	$	(963	)		(8.3%	)

IoT Modules

Net revenue from our IoT Modules product line declined primarily as a result of a decline in sales from Legacy Products, particularly our WiPort and Micro product families in the Americas region. The overall decline in revenues in this product line was partially offset by growth from one of our New Products, the xPico WiFi, which benefited from a design win in the EMEA region moving into production during the current quarter.

14

Enterprise Solutions

Net revenue from our Enterprise Solutions product line decreased primarily as a result of (i) decreased unit sales of our Legacy Products, in particular the SLC product family in the Americas region and (ii) decreased unit sales of certain other New Product families. One of the primary reasons for the decline in New Products in the Enterprise Solutions category is that in the quarter ended September 30, 2014, two customers began a regional roll out of our SLB2 product family resulting in increased unit sales of the product. In the current fiscal quarter, we saw a much lower rate of purchases of this product family by these customers. The overall decline in Enterprise Solutions was partially offset by an increase in unit sales of the SLC8000, one of our New Products.

Gross Profit

Gross profit represents net revenue less cost of revenue. Cost of revenue consists primarily of the cost of raw material components, subcontract labor assembly from contract manufacturers, manufacturing overhead, establishing or relieving inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation.

The following table presents our fiscal quarter gross profit:

	Three Months Ended September 30,
			% of Net				% of Net		Change
	2015		Revenue		2014		Revenue		$			%
	(In thousands, except percentages)
Gross profit	$	5,067		47.9%	$	5,599		48.5%	$	(532	)		(9.5%	)

Gross profit as a percent of revenue (referred to as “gross margin”) for the three months ended September 30, 2015 was lower than the prior year period primarily due to higher overhead costs and, to a lesser extent, charges for excess inventories.

Selling, General and Administrative

Selling, general and administrative expenses consist of personnel-related expenses, including salaries and commissions, share-based compensation, facility expenses, information technology, trade show expenses, advertising, and legal and accounting fees. 

The following table presents our fiscal quarter selling, general and administrative expenses:

	Three Months Ended September 30,
			% of Net				% of Net		Change
	2015		Revenue		2014		Revenue		$			%
	(In thousands, except percentages)
Personnel-related expenses	$	2,323			$	2,671			$	(348	)		(13.0%	)
Professional fees and outside services		386				364				22			6.0%
Advertising and marketing		450				419				31			7.4%
Facilities		277				300				(23	)		(7.7%	)
Share-based compensation		171				174				(3	)		(1.7%	)
Depreciation		51				65				(14	)		(21.5%	)
Other		67				82				(15	)		(18.3%	)
Selling, general and administrative	$	3,725		35.2%	$	4,075		35.3%	$	(350	)		(8.6%	)

The decrease in selling, general and administrative expenses was primarily due to (i) lower headcount-related expenses, as we reduced headcount at the end of the prior fiscal year in order to reduce our ongoing operating expenses and (ii) lower variable compensation expenses.

Research and Development

Research and development expenses consist of personnel-related expenses, including share-based compensation, as well as expenditures to third-party vendors for research and development activities and product certification costs. Our quarterly costs related to outside services and product certifications can vary from period to period depending on our level of development activities.

15

The following table presents our fiscal quarter research and development expenses:

	Three Months Ended September 30,
			% of Net				% of Net		Change
	2015		Revenue		2014		Revenue		$			%
	(In thousands, except percentages)
Personnel-related expenses	$	1,160			$	1,154			$	6			0.5%
Facilities		185				189				(4	)		(2.1%	)
Outside services		152				184				(32	)		(17.4%	)
Product certifications		76				81				(5	)		(6.2%	)
Share-based compensation		44				64				(20	)		(31.3%	)
Other		54				72				(18	)		(25.0%	)
Research and development	$	1,671		15.8%	$	1,744		15.1%	$	(73	)		(4.2%	)

Research and development expenses decreased primarily due to lower outside services and other related costs, which were impacted by the timing of development projects.

Provision for Income Taxes

The following table presents our effective tax rate based upon our income tax provision:

	Three Months Ended
	September 30,
	2015	2014
Effective tax rate	5%	7%

We utilize the liability method of accounting for income taxes. The difference between our effective tax rates and the federal statutory rate resulted primarily from a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate.

We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. As a result of our cumulative losses and uncertainty of generating future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of September 30, 2015 and June 30, 2015.

Liquidity and Capital Resources

The following table presents details of our working capital and cash and cash equivalents:

	September 30,		June 30,
	2015		2015		Change
	(In thousands)
Working capital	$	7,575	$	7,447	$	128
Cash and cash equivalents	$	4,718	$	4,989	$	(271	)

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our credit facilities, and cash generated from operations. We believe that these sources will be sufficient to fund our current requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies. Management does not believe this concentration subjects us to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We frequently monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds.

Our future working capital requirements will depend on many factors, including the timing and amount of our net revenue, any future cost-cutting measures that we may implement from time to time, research and development expenses, expenses associated with any strategic partnerships or acquisitions, infrastructure investments and future fundraising activities.

16

We expect our existing cash and cash equivalents, amounts available under our credit facilities and cash generated from operations will be sufficient to fund our capital expenditures, working capital and other cash requirements. From time to time, we may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources in order to (i) develop or enhance our products, (ii) take advantage of future opportunities, (iii) respond to competition or (iv) continue to operate our business. We currently have a Form S-3 shelf registration statement on file with the SEC. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all.

Loan Agreement

Refer to Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1 of this Report.

Cash Flows

The following table presents the major components of the unaudited condensed consolidated statements of cash flows:

	Three Months Ended
	September 30,
	2015			2014			Change
	(In thousands)
Net cash provided by (used in) operating activities	$	(219	)	$	212		$	(431	)
Net cash used in investing activities		(15	)		(181	)		166
Net cash used in financing activities		(37	)		(12	)		(25	)

17

Operating Activities

Net cash used by operating activities during the three months ended September 30, 2015 increased as compared to the prior year period due primarily to a decrease in accounts payable of approximately 20% compared to June 30, 2015 as we paid for inventories accumulated during the prior quarter. Additionally, we saw an increase in accounts receivable of approximately 12% as compared to June 30, 2015 due to the timing of shipments and higher net revenue in the quarter ended September 30, 2015 as compared to the quarter ended June 30, 2015. The use of cash during the current quarter was partially offset by an approximate 5% decrease in inventories during the quarter as we began to sell inventories that were built in the prior fiscal year.

Investing Activities

Cash used in investing activities was related to capital expenditures for the purchase of property and equipment, primarily related to tooling and test equipment for new product deployment.

Financing Activities

Cash used in financing activities was primarily due to payments for capital leases and withholding taxes paid on behalf of employees for restricted shares that vested during the current quarter.

Off-Balance Sheet Arrangements

As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2015, we were not involved in any material unconsolidated SPEs. 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item 3.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2015 at the reasonable assurance level.

(b) Changes in internal controls over financial reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(f) and 15d-15(f) of the Exchange Act that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Inherent Limitation on Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

18

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to the Form 10-K for a description of our legal proceedings. There have been no material changes to the Company’s legal proceedings as disclosed in the Form 10-K. 

Item 1A. Risk Factors

For a discussion of the substantial risks and uncertainties that could impact our business, financial condition, results of operations or performance, please see the information listed in the item captioned “Risk Factors” in the Form 10-K. There have been no material changes to the risk factors as disclosed in the Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed on the accompanying Exhibit Index are filed as part of, or hereby incorporated by reference into, this Report.

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LANTRONIX, INC. (Registrant)
Date: October 30, 2015	By:	/s/ KURT BUSCH
		Kurt Busch
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: October 30, 2015	By:	/s/ JEREMY WHITAKER
		Jeremy Whitaker Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

20

Exhibit Index

The exhibits listed below are hereby filed with the SEC as part of this Report.

		Incorporated by Reference
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date
10.1	Summary of Lantronix, Inc. Annual Bonus Program		8-K	99.1	09/08/2015
10.2	Lantronix, Inc. Stock Ownership Guidelines for Non-Employee Directors, as revised		8-K	99.2	09/08/2015
10.3	Lantronix, Inc. Non-Employee Director Compensation Policy, as revised		8-K	99.3	09/08/2015
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101	The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) 101.INS BURL Instance Document; (ii) 101.SCH XBRL Taxonomy Extension Schema Document; (iii) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document; (iv) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document; (v) 101.LAB XBRL Taxonomy Extension Label Linkbase Document; (vi) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.	X

_______________

* Furnished, not filed.

21

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kurt Busch, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lantronix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 30, 2015	/s/ KURT BUSCH
		Kurt Busch President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeremy Whitaker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lantronix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 30, 2015	/s/ JEREMY WHITAKER
		Jeremy Whitaker Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certifications are being furnished solely to accompany the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (the “Report”) pursuant to U.S.C. Section 1350, and pursuant to SEC Release No. 33-8238 are being “furnished” to the SEC rather than “filed” either as part of the Report or as a separate disclosure statement, and are not to be incorporated by reference into the Report or any other filing of Lantronix, Inc. (the “Company”), whether made before or after the date hereof, regardless of any general incorporation language in such filing. The following certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section.

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company hereby certifies, to such officer’s knowledge, that:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results operations of the Company as of, and for, the periods presented in such Report.

Date:	October 30, 2015	By:	/s/ KURT BUSCH
			Name: Kurt Busch Title: President and Chief Executive Officer (Principal Executive Officer)

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company hereby certifies, to such officer’s knowledge, that:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results operations of the Company as of, and for, the periods presented in such Report.

Date:	October 30, 2015	By:	/s/ JEREMY WHITAKER
			Name: Jeremy Whitaker Title: Chief Financial Officer (Principal Financial and Accounting Officer)

XML

4. Bank Line of Credit and Debt (Details - TNW) $ in Thousands	Sep. 30, 2015 USD ($)
Line of Credit Facility [Abstract]
Minimum TNW	$ 6,000
Actual TNW	$ 9,107

XML

5. Stockholders' Equity

3 Months Ended

Sep. 30, 2015

Equity [Abstract]

5. Stockholders' Equity

5. Stockholders’ Equity

Share-Based Plans

Our share-based plans permit the granting of stock options (both incentive and nonqualified stock options), restricted stock units (“RSUs”), stock appreciation rights, non-vested stock, and performance shares to certain employees, directors and consultants. As of September 30, 2015, no stock appreciation rights, non-vested stock, or performance shares were outstanding.

Stock Option Awards

The following table presents a summary of stock option activity under all of our stock option plans:

				Weighted
				Average
	Number of			Exercise Price
	Shares			per Share
	(In thousands)
Balance of options outstanding at June 30, 2015		3,546		$	2.19
Granted		544			1.35
Forfeited		(49	)		1.79
Expired		(9	)		1.93
Exercised		–			–
Balance of options outstanding at September 30, 2015		4,032		$	2.08

Restricted Stock Units 

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

				Weighted
				Average
				Grant - Date
	Number of			Fair Value
	Shares			per Share
	(In thousands)
Balance of RSUs outstanding at June 30, 2015		28		$	1.98
Granted		50			1.35
Vested		(25	)		2.00
Balance of RSUs outstanding at September 30, 2015		53		$	1.38

In September 2015, our Chief Executive Officer was granted 50,000 performance-based RSUs. Vesting of these RSUs is subject to the achievement of certain financial performance targets for the fiscal year ending June 30, 2016 ("Fiscal 2016"). If we achieve the performance targets for Fiscal 2016: (a) 50% of the RSUs will vest on September 1, 2016, and (b) the remaining 50% of the RSUs will vest in four equal quarterly installments beginning on December 1, 2016. We have recorded share-based compensation expense for these RSUs based on management’s current estimates of the probability of achieving the performance targets.

Employee Stock Purchase Plan 

Our 2013 Employee Stock Purchase Plan (the “ESPP”) is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions. Each of our employees (including officers) is eligible to participate in the ESPP, subject to certain limitations as defined in the ESPP plan document.

The following table presents a summary of activity under our ESPP:

	Number of
	Shares
	(In thousands)
Shares available for issuance at June 30, 2015		906
Reserved for issuance		–
Issued		–
Shares available for issuance at September 30, 2015		906

Share-Based Compensation Expense

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

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Cost of revenues	$	18	$	20
Selling, general and administrative		171		174
Research and development		44		61
Total share-based compensation expense	$	233	$	255

The following table summarizes the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of September 30, 2015:

	Remaining		Remaining
	Unrecognized		Weighted
	Compensation		Average Years
	Cost		To Recognize
	(In thousands)
Stock options	$	1,048		2.9
Restricted stock units		65		1.8
Stock purchase rights under ESPP		41		0.7

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

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5. Stockholders' Equity (Details - RSUs) - Restricted Stock Units (RSUs) [Member] shares in Thousands	3 Months Ended
	Sep. 30, 2015 $ / shares shares
Number of shares (in thousands)
Beginning balance RSU's | shares	28
Granted | shares	50
Vested | shares	(25)
Ending balance RSU's | shares	53
Weighted Average Grant Date Fair Value Per Share Abstract
RSU Shares Weighted-Average Grant-Date Fair Value per Share, beginning	$ 1.98
RSU Shares Granted, Weighted-Average Grant-Date Fair Value per Share	1.35
RSU Shares Vested, Weighted-Average Grant-Date Fair Value per Share	2.00
RSU Shares Weighted-Average Grant-Date Fair Value per Share, ending	$ 1.38

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5. Stockholders' Equity (Details - Stock Option Awards) - Options shares in Thousands	3 Months Ended
	Sep. 30, 2015 $ / shares shares
Number of shares (in thousands)
Number of Shares Options Outstanding, Beginning | shares	3,546
Number of Shares Options Granted | shares	544
Number of Shares Options Forfeited | shares	(49)
Number of Shares Options Expired | shares	(9)
Number of Shares Options Exercised | shares	0
Number of Shares Options Outstanding, Ending | shares	4,032
Weighted Average Exercise Price per share
Exercise Price Outstanding, Beginning	$ 2.19
Exercise Price Granted	1.35
Exercise Price Forfeited	1.79
Exercise Price Expired	1.93
Exercise Price Exercised	0
Exercise Price Outstanding, Ending	$ 2.08

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5. Stockholders' Equity (Details - Employee Stock Purchase Plan) - ESPP [Member] shares in Thousands	3 Months Ended
	Sep. 30, 2015 shares
Shares available for issuance at beginning of period	906
Shares reserved for issuance	0
Shares issued	0
Shares available for issuance at end of period	906

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5. Stockholders' Equity (Details - Share-Based Compensation Expense) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Total share-based compensation	$ 233	$ 255
Cost of revenues
Total share-based compensation	18	20
Selling, general and administrative
Total share-based compensation	171	174
Research and development
Total share-based compensation	$ 44	$ 61

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4. Bank Line of Credit

3 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

4. Bank Line of Credit

4. Bank Line of Credit

On September 30, 2014, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for (i) a renewal of our $4.0 million revolving line of credit with an extended maturity date of September 30, 2016 and (ii) a modification of the revolving credit line borrowing base formula to include a portion of our foreign accounts receivable to the borrowing base and increase the borrowing limit related to domestic accounts receivable.

The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.0%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.0%. 

The Loan Agreement includes a covenant requiring us to maintain a certain Minimum Tangible Net Worth (“Minimum TNW”), which is currently required to be at least $6.0 million. This amount is subject to adjustment upward to the extent we raise additional equity or debt financing or achieve net income in future quarters. Our Actual Tangible Net Worth (“Actual TNW”) is calculated as total stockholders’ equity, less goodwill. If we continue to incur net losses, we may have difficulty satisfying the Minimum TNW financial covenant in the future, in which case we may be unable to borrow funds under the Loan Agreement and any amounts outstanding may need to be repaid immediately.

The following table sets forth the Minimum TNW compared to our Actual TNW:

	September 30,
	2015
	(In thousands)
Minimum TNW	$	6,000
Actual TNW	$	9,107

The following table presents certain information with respect to the Loan Agreement with SVB:

	September 30,		June 30,
	2015		2015
	(In thousands)
Outstanding borrowings on the line of credit	$	700	$	700
Available borrowing capacity	$	1,910	$	1,736
Outstanding letters of credit	$	51	$	110

Our outstanding letters of credit were used as security deposits.

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5. Stockholders' Equity (Details - Unrecognized compensation expense) $ in Thousands	3 Months Ended
	Sep. 30, 2015 USD ($)
Options
Unrecognized compensation cost	$ 1,048
Remaining weighted average years to recognize	2 years 10 months 24 days
Restricted Stock Units (RSUs) [Member]
Unrecognized compensation cost	$ 65
Remaining weighted average years to recognize	1 year 9 months 18 days
ESPP [Member]
Unrecognized compensation cost	$ 41
Remaining weighted average years to recognize	8 months 12 days

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Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2015	Jun. 30, 2015
Current assets:
Cash and cash equivalents	$ 4,718	$ 4,989
Accounts receivable, net	2,970	2,658
Inventories, net	8,988	9,503
Contract manufacturers' receivable	365	369
Prepaid expenses and other current assets	315	400
Total current assets	17,356	17,919
Property and equipment, net	1,476	1,471
Goodwill	9,488	9,488
Deferred tax assets	442	442
Other assets	60	93
Total assets	28,822	29,413
Current liabilities:
Accounts payable	2,922	3,633
Line of Credit	700	700
Accrued payroll and related expenses	1,800	1,685
Warranty reserve	127	163
Deferred tax liabilities	442	442
Other current liabilities	3,790	3,849
Total current liabilities	9,781	10,472
Non-current liabilities:
Long-term capital lease obligations	138	152
Other non-current liabilities	308	80
Total liabilities	10,227	10,704
Stockholders' equity:
Common stock	2	2
Additional paid-in capital	206,543	206,326
Accumulated deficit	(188,321)	(187,990)
Accumulated other comprehensive income	371	371
Total stockholders' equity	18,595	18,709
Total liabilities and stockholders' equity	$ 28,822	$ 29,413

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2. Supplemental Financial Information

3 Months Ended

Sep. 30, 2015

Supplemental Financial Information Details - Computation Of Net Loss Per Share

2. Supplemental Financial Information

2. Supplemental Financial Information

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and consist of the following:

	September 30,		June 30,
	2015		2015
	(In thousands)
Finished goods	$	5,640	$	6,044
Raw materials		2,182		2,122
Finished goods held by distributors		1,166		1,337
Inventories, net	$	8,988	$	9,503

Other Liabilities

The following table presents details of our other liabilities:

	September 30,		June 30,
	2015		2015
	(In thousands)
Current
Customer deposits and refunds	$	663	$	854
Accrued raw materials purchases		1,125		916
Deferred revenue		536		690
Capital lease obligations		55		62
Deferred rent		52		40
Taxes payable		248		247
Accrued operating expenses		1,111		1,040
Total other current liabilities	$	3,790	$	3,849
Non-current
Deferred revenue	$	80	$	80
Deferred rent		228		–
Total other non-current liabilities	$	308	$	80

Computation of Net Loss per Share

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

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

	Three Months Ended
	September 30,
	2015			2014
	(In thousands, except per share data)
Numerator:
Net loss	$	(331	)	$	(262	)
Denominator:
Weighted average common shares outstanding (basic and diluted)		15,103			14,787
Net loss per share (basic and diluted)	$	(0.02	)	$	(0.02	)

The following table presents the common stock equivalents excluded from the diluted net loss per share calculation, because they were anti-dilutive for the periods presented. These excluded common stock equivalents could be dilutive in the future.

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Common stock equivalents		3,550		1,664

Facility Lease

The lease for our new corporate headquarters in Irvine, California, commenced in July 2015. The lease agreement provided for a tenant improvement allowance from the landlord of up to $243,000 for tenant improvements and other qualified expenses. In connection with this allowance, the landlord paid for approximately $190,000 in tenant improvements, and, in September 2015, reimbursed Lantronix for the remaining $53,000.

Supplemental Cash Flow Information

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

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Accrued property and equipment paid for in the subsequent period	$	11	$	48
Non-cash tenant improvements paid by landlord	$	190	$	–

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2. Supplemental Financial Information (Details - Supplemental Cash Flow Information) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Supplemental Cash Flow Information [Abstract]
Accrued property and equipment paid for in the subsequent period	$ 11	$ 48
Non-cash tenant improvements paid by landlord	$ 190	$ 0

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3. Warranty Reserve (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Sep. 30, 2015	Jun. 30, 2015
Standard Product Warranty Disclosure [Abstract]
Beginning balance	$ 163	$ 150
Charged to cost of revenues	(14)	112
Usage	(22)	(99)
Ending balance	$ 127	$ 163

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3. Warranty Reserve

3 Months Ended

Sep. 30, 2015

Standard Product Warranty Disclosure [Abstract]

3. Warranty Reserve

3. Warranty Reserve

The warranty periods for our products generally range from one to five years. We establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience, and additionally, for any known product warranty issues. Our warranty obligation is affected by product failure rates, use of materials or service delivery costs that differ from our estimates. As a result, increases or decreases to warranty reserves could be required, which could impact our gross margins.

The following table presents details of our warranty reserve:

	Three Months Ended			Year Ended
	September 30,			June 30,
	2015			2015
	(In thousands)
Beginning balance	$	163		$	150
Charged to cost of revenues		(14	)		112
Usage		(22	)		(99	)
Ending balance	$	127		$	163

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Unaudited Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Sep. 30, 2015	Sep. 30, 2014
Income Statement [Abstract]
Net revenue (1)	[1]	$ 10,573	$ 11,536
Cost of revenue		5,506	5,937
Gross profit		5,067	5,599
Operating expenses:
Selling, general and administrative		3,725	4,075
Research and development		1,671	1,744
Total operating expenses		5,396	5,819
Loss from operations		(329)	(220)
Interest expense, net		(6)	(5)
Other income (expense), net		19	(21)
Loss before income taxes		(316)	(246)
Provision for income taxes		15	16
Net loss and comprehensive loss		$ (331)	$ (262)
Net loss per share (basic and diluted)		$ (.02)	$ (.02)
Weighted-average common shares (basic and diluted)		15,103	14,787
Net revenue from related parties		$ 68	$ 79

[1] Includes net revenue from related parties.

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6. Income Taxes (Tables)

3 Months Ended

Sep. 30, 2015

Income Taxes Tables

Effective tax rate

	Three Months Ended
	September 30,
	2015	2014
Effective tax rate	5%	7%

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Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2015	Oct. 24, 2015
Document And Entity Information
Entity Registrant Name	LANTRONIX INC
Entity Central Index Key	0001114925
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		15,104,710
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2016

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2. Supplemental Financial Information (Details - Inventories) - USD ($) $ in Thousands	Sep. 30, 2015	Jun. 30, 2015
Supplemental Financial Information Details - Computation Of Net Loss Per Share
Finished goods	$ 5,640	$ 6,044
Raw materials	2,182	2,122
Finished goods held by distributors	1,166	1,337
Inventories, net	$ 8,988	$ 9,503

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Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Operating activities
Net loss	$ (331)	$ (262)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation	233	255
Depreciation	218	229
Provision for excess and obsolete inventories	73	47
Changes in operating assets and liabilities:
Accounts receivable	(312)	88
Contract manufacturers' receivable	4	(222)
Inventories	442	(188)
Prepaid expenses and other current assets	85	168
Other assets	26	17
Accounts payable	(722)	390
Accrued payroll and related expenses	115	(40)
Warranty reserve	(36)	(30)
Other liabilities	(67)	(240)
Cash received related to tenant lease incentives	53	0
Net cash provided by operating activities	(219)	212
Investing activities
Purchases of property and equipment	(15)	(181)
Net cash used in investing activities	(15)	(181)
Financing activities
Minimum tax withholding paid on behalf of employees for restricted shares	(16)	0
Proceeds from borrowing on line of credit	700	0
Payment on borrowings on line of credit	(700)	0
Payment of capital lease obligations	(21)	(12)
Net cash used in financing activities	(37)	(12)
Increase in cash and cash equivalents	(271)	19
Cash and cash equivalents at beginning of period	4,989	6,264
Cash and cash equivalents at end of period	$ 4,718	$ 6,283

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1. Basis of Presentation (Policies)

3 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company

The Company

Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in our Annual Report on Form 10-K filed with the SEC on August 21, 2015. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at September 30, 2015 and the consolidated results of our operations and cash flows for the three months ended September 30, 2015. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Reclassifications

Reclassifications

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. The standard permits the use of either a retrospective or cumulative effect transition method. In July 2015, the FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard for the fiscal year beginning July 1, 2017. We are currently evaluating this standard and have not yet selected a transition method or the effective date on which we plan to adopt the standard, nor have we determined the effect of the standard on our financial statements and related disclosures.

In August 2014, the FASB issued a new standard that will require management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2016. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures.

In July 2015, the FASB issued final guidance that simplifies the subsequent measurement of inventory for which cost is determined by methods other than last-in first-out (“LIFO”) and the retail inventory method. For inventory within the scope of the new guidance, entities will be required to compare the cost of inventory to only one measure, its net realizable value, and not the three measures required by the existing guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new guidance does not change how entities initially measure the cost of inventory. Lantronix adopted this guidance in the fiscal year beginning July 1, 2015. Such adoption did not have a material impact on our financial statements.

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7. Commitments and Contingencies

3 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

7. Commitments and Contingencies

7. Commitments and Contingencies

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that are expected to have, individually or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or cash flows.

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2. Supplemental Cash Flow Information (Details Narrative) $ in Thousands	Sep. 30, 2015 USD ($)
Supplemental Cash Flow Information Details Narrative
Tenant Improvement Allowance	$ 243

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2. Supplemental Financial Information (Details - Other liabilities) - USD ($) $ in Thousands	Sep. 30, 2015	Jun. 30, 2015
Current
Customer deposits and refunds	$ 663	$ 854
Accrued raw materials purchases	1,125	916
Deferred revenue	536	690
Capital lease obligations	55	62
Deferred rent	52	40
Taxes payable	248	247
Accrued operating expenses	1,111	1,040
Total other current liabilities	3,790	3,849
Non-current
Deferred revenue	80	80
Deferred rent	228	0
Total other non-current liabilities	$ 308	$ 80

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4. Bank Line of Credit and Debt (Tables)

3 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

Schedule of Minimum Tangible Net Worth

	September 30,
	2015
	(In thousands)
Minimum TNW	$	6,000
Actual TNW	$	9,107

Outstanding balances of loans

	September 30,		June 30,
	2015		2015
	(In thousands)
Outstanding borrowings on the line of credit	$	700	$	700
Available borrowing capacity	$	1,910	$	1,736
Outstanding letters of credit	$	51	$	110

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2. Supplemental Financial Information (Tables)

3 Months Ended

Sep. 30, 2015

Supplemental Financial Information Details - Computation Of Net Loss Per Share

Schedule of Inventory

	September 30,		June 30,
	2015		2015
	(In thousands)
Finished goods	$	5,640	$	6,044
Raw materials		2,182		2,122
Finished goods held by distributors		1,166		1,337
Inventories, net	$	8,988	$	9,503

Schedule of Other Liabilities

	September 30,			June 30,
		2015			2015
		(In thousands)
Current
Customer deposits and refunds		$	663		$	854
Accrued raw materials purchases			1,125			916
Deferred revenue			536			690
Capital lease obligations			55			62
Deferred rent			52			40
Taxes payable			248			247
Accrued operating expenses			1,111			1,040
Total other current liabilities		$	3,790		$	3,849
Non-current
Deferred revenue		$	80		$	80
Deferred rent			228			–
Total other non-current liabilities		$	308		$	80

Schedule of Computation of Net Loss per Share

	Three Months Ended
	September 30,
	2015			2014
	(In thousands, except per share data)
Numerator:
Net loss	$	(331	)	$	(262	)
Denominator:
Weighted average common shares outstanding (basic and diluted)		15,103			14,787
Net loss per share (basic and diluted)	$	(0.02	)	$	(0.02	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Common stock equivalents		3,550		1,664

Schedule of non-cash investing and financing transactions

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Accrued property and equipment paid for in the subsequent period	$	11	$	48
Non-cash tenant improvements paid by landlord	$	190	$	–

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3. Warranty Reserve (Tables)

3 Months Ended

Sep. 30, 2015

Standard Product Warranty Disclosure [Abstract]

Warranty reserve

	Three Months Ended			Year Ended
	September 30,			June 30,
	2015			2015
	(In thousands)
Beginning balance	$	163		$	150
Charged to cost of revenues		(14	)		112
Usage		(22	)		(99	)
Ending balance	$	127		$	163

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5. Stockholders Equity (Tables)

3 Months Ended

Sep. 30, 2015

Summary of stock option activity

				Weighted
				Average
	Number of			Exercise Price
	Shares			per Share
	(In thousands)
Balance of options outstanding at June 30, 2015		3,546		$	2.19
Granted		544			1.35
Forfeited		(49	)		1.79
Expired		(9	)		1.93
Exercised		–			–
Balance of options outstanding at September 30, 2015		4,032		$	2.08

Schedule of share-based compensation expense

	Three Months Ended
	September 30,
	2015		2014
	(In thousands)
Cost of revenues	$	18	$	20
Selling, general and administrative		171		174
Research and development		44		61
Total share-based compensation expense	$	233	$	255

Schedule of unrecognized compensation costs

	Remaining		Remaining
	Unrecognized		Weighted
	Compensation		Average Years
	Cost		To Recognize
	(In thousands)
Stock options	$	1,048		2.9
Restricted stock units		65		1.8
Stock purchase rights under ESPP		41		0.7

Restricted Stock Units (RSUs) [Member]

Summary of other than options activity

				Weighted
				Average
				Grant - Date
	Number of			Fair Value
	Shares			per Share
	(In thousands)
Balance of RSUs outstanding at June 30, 2015		28		$	1.98
Granted		50			1.35
Vested		(25	)		2.00
Balance of RSUs outstanding at September 30, 2015		53		$	1.38

ESPP [Member]

Summary of other than options activity

	Number of
	Shares
	(In thousands)
Shares available for issuance at June 30, 2015		906
Reserved for issuance		–
Issued		–
Shares available for issuance at September 30, 2015		906

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6. Income Taxes (Details)	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Income Taxes Details
Effective tax rate	5.00%	7.00%

XML

2. Supplemental Financial Information (Details - Common Stock Equivalents) - shares shares in Thousands	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Supplemental Financial Information Details - Computation Of Net Loss Per Share
Common stock equivalents	3,550	1,664

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4. Bank Line of Credit (Details - Available Borrowing Capacity) - USD ($) $ in Thousands	Sep. 30, 2015	Jun. 30, 2015
Line of Credit Facility [Abstract]
Outstanding borrowings on the line of credit	$ (700)	$ (700)
Available borrowing capacity under the revolving line	1,910	1,736
Outstanding letters of credit	$ 51	$ 110

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1. Basis of Presentation

3 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1. Basis of Presentation

1. Summary of Significant Accounting Policies

The Company

Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in our Annual Report on Form 10-K filed with the SEC on August 21, 2015. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at September 30, 2015 and the consolidated results of our operations and cash flows for the three months ended September 30, 2015. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Reclassifications

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

Recent Accounting Pronouncements 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. The standard permits the use of either a retrospective or cumulative effect transition method. In July 2015, the FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard for the fiscal year beginning July 1, 2017. We are currently evaluating this standard and have not yet selected a transition method or the effective date on which we plan to adopt the standard, nor have we determined the effect of the standard on our financial statements and related disclosures.

In August 2014, the FASB issued a new standard that will require management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2016. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures.

In July 2015, the FASB issued final guidance that simplifies the subsequent measurement of inventory for which cost is determined by methods other than last-in first-out (“LIFO”) and the retail inventory method. For inventory within the scope of the new guidance, entities will be required to compare the cost of inventory to only one measure, its net realizable value, and not the three measures required by the existing guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new guidance does not change how entities initially measure the cost of inventory. Lantronix adopted this guidance in the fiscal year beginning July 1, 2015. Such adoption did not have a material impact on our financial statements.

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6. Income Taxes

3 Months Ended

Sep. 30, 2015

Income Tax Disclosure [Abstract]

6. Income Taxes

6. Income Taxes

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

	Three Months Ended
	September 30,
	2015	2014
Effective tax rate	5%	7%

The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate.

We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. As a result of our cumulative losses and uncertainty of generating future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of September 30, 2015 and June 30, 2015.

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4. Bank Line of Credit and Debt (Details Narrative) $ in Thousands	3 Months Ended
	Sep. 30, 2015 USD ($)
Line of Credit Facility [Abstract]
Revolving Line description	On September 30, 2014, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for (i) a renewal of our $4.0 million revolving line of credit with an extended maturity date of September 30, 2016 and (ii) a modification of the revolving credit line borrowing base formula to include a portion of our foreign accounts receivable to the borrowing base and increase the borrowing limit related to domestic accounts receivable.
Maximum borrowing amount	$ 4,000
Maturity date	Sep. 30, 2016
Interest rate description	The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.0%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.0%.

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2. Supplemental Financial Information (Details - Computation of Net Loss per Share) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Numerator:
Net loss	$ (331)	$ (262)
Denominator:
Weighted-average shares outstanding (basic and diluted)	15,103	14,787
Net loss per share (basic and diluted)	$ (.02)	$ (.02)