0001683168-20-000468.txt : 20200213 0001683168-20-000468.hdr.sgml : 20200213 20200213161608 ACCESSION NUMBER: 0001683168-20-000468 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20191231 FILED AS OF DATE: 20200213 DATE AS OF CHANGE: 20200213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANTRONIX INC CENTRAL INDEX KEY: 0001114925 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 330362767 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16027 FILM NUMBER: 20610743 BUSINESS ADDRESS: STREET 1: 7535 IRVINE CENTER DR., SUITE 100 CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9494533990 MAIL ADDRESS: STREET 1: 7535 IRVINE CENTER DR., SUITE 100 CITY: IRVINE STATE: CA ZIP: 92618 10-Q 1 lantronix_10q-123119.htm QUARTERLY REPORT

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended December 31, 2019

 

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)

 

Securities registered pursuant to Section 12(b) of the Act:

  

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value LTRX The Nasdaq Stock Market LLC

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

 

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

 

Large accelerated filer o   Accelerated filer o
Non-accelerated filer x   Smaller reporting company x
Emerging Growth Company o    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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 February 7, 2020, there were 27,737,332 shares of the registrant’s common stock outstanding.

 

 

 

   
 

 

LANTRONIX, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

DECEMBER 31, 2019

 

INDEX

 

    Page
     
  CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 3
     
PART I. FINANCIAL INFORMATION 4
     
Item 1. Financial Statements 4
     
  Unaudited Condensed Consolidated Balance Sheets at December 31, 2019 and June 30, 2019 4
     
  Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2019 and 2018 5
     
  Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2019 and 2018 6
     
  Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2019 and 2018 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
     
Item 4. Controls and Procedures 30
     
PART II. OTHER INFORMATION 31
     
Item 1. Legal Proceedings 31
     
Item 1A Risk Factors 31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 3. Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     
Item 6. Exhibits 32

 

 

 

 2 
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q for the three months ended December 31, 2019, or this Report, contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report, or incorporated by reference into this Report, are forward-looking statements. Throughout this Report, we have attempted to identify forward-looking statements by using words such as “may,” “believe,” “will,” “could,” “project,” “anticipate,” “expect,” “estimate,” “should,” “continue,” “potential,” “plan,” “forecasts,” “goal,” “seek,” “intend,” other forms of these words or similar words or expressions or the negative thereof. 

 

We have based our forward-looking statements on management’s current expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this Report. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to: our ability to continue to generate revenue from products sold into mature markets; our ability to develop, market, and sell new products; our ability to succeed with our new software offerings; fluctuations in our revenue due to the project-based timing of orders from certain customers; unpredictable timing of our revenues due to the lengthy sales cycle for our products and services and potential delays in customer completion of projects; our ability to accurately forecast future demand for our products; delays in qualifying revisions of existing products; constraints or delays in the supply of, or quality control issues with, certain materials or components; difficulties associated with the delivery, quality or cost of our products from our contract manufacturers or suppliers; risks related to the outsourcing of manufacturing and international operations; the impact of any public health epidemics (including the coronavirus outbreak) on our employees, supply and distributions chains, and the global economy; difficulties associated with our distributors or resellers; intense competition in our industry and resultant downward price pressure; rises in inventory levels and inventory obsolescence; undetected software or hardware errors or defects in our products; cybersecurity risks; our ability to obtain appropriate industry certifications or approvals from governmental regulatory bodies; changes in applicable U.S. and foreign government laws, regulations, and tariffs; environmental or other regulatory claims or litigation; our ability to successfully implement our acquisitions strategy or integrate acquired companies; uncertainty as to the future profitability of acquired businesses, and delays in the realization of, or the failure to realize, any accretion from acquisition transactions; acquiring, managing and integrating new operations, businesses or assets, and the associated diversion of management attention or other related costs or difficulties; our ability to protect patents and other proprietary rights and avoid infringement of others’ proprietary technology rights; the level of our indebtedness, our ability to service our indebtedness and the restrictions in our debt agreements; our ability to attract and retain qualified management; and any additional factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the Securities and Exchange Commission (the “SEC”) on September 11, 2019, including in the section entitled “Risk Factors” in Item 1A of Part I of such report, as well as in our other public filings with 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 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 Capital Market. If we do update or correct any forward-looking statements, investors should not conclude that we will make additional updates or corrections.

 

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

 

 

 3 
 


PART I. FINANCIAL INFORMATION

  

Item 1.   Financial Statements

 

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

   December 31,   June 30, 
   2019   2019 
Assets          
Current assets:          
Cash and cash equivalents  $9,347   $18,282 
Restricted cash   6,000     
Accounts receivable, net   9,379    7,388 
Inventories, net   11,024    10,509 
Contract manufacturers' receivable   373    1,324 
Prepaid expenses and other current assets   1,307    687 
Total current assets   37,430    38,190 
Property and equipment, net   1,412    1,199 
Goodwill   12,458    9,488 
Purchased intangible assets, net   1,615     
Other assets   2,040    67 
Total assets  $54,955   $48,944 
           
Liabilities and stockholders' equity          
Current liabilities:          
Accounts payable  $5,065   $4,716 
Accrued payroll and related expenses   2,248    2,060 
Warranty reserve   89    116 
Short-term debt, net   1,472     
Other current liabilities   5,248    4,580 
Total current liabilities   14,122    11,472 
Long-term debt, net   4,418     
Other non-current liabilities   1,137    206 
Total liabilities   19,677    11,678 
           
Commitments and contingencies (Note 10)          
           
Stockholders' equity:          
Common stock   2    2 
Additional paid-in capital   228,107    226,274 
Accumulated deficit   (193,202)   (189,381)
Accumulated other comprehensive income   371    371 
Total stockholders' equity   35,278    37,266 
Total liabilities and stockholders' equity  $54,955   $48,944 

 

See accompanying notes.

 

 

 

 

 4 
 

 

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Net revenue  $13,228   $12,114   $25,969   $24,393 
Cost of revenue   6,451    5,453    12,997    10,952 
Gross profit   6,777    6,661    12,972    13,441 
Operating expenses:                    
Selling, general and administrative   4,871    4,159    9,344    8,430 
Research and development   2,336    2,279    4,957    4,494 
Restructuring, severance and related charges   354        1,103    323 
Acquisition-related costs   353        996     
Amortization of purchased intangible assets   151        295     
Total operating expenses   8,065    6,438    16,695   13,247 
Income (loss) from operations   (1,288)   223    (3,723)   194 
Interest income (expense), net   (16)   60    40    56 
Other income (expense), net   (10)   8    (53)   (2)
Income (loss) before income taxes   (1,314)   291    (3,736)   248 
Provision for income taxes   37    14    85    54 
Net income (loss)  $(1,351)  $277   $(3,821)  $194 
                     
Net income (loss) per share - basic  $(0.06)  $0.01   $(0.17)  $0.01 
Net income (loss) per share - diluted  $(0.06)  $0.01   $(0.17)  $0.01 
                     
Weighted-average common shares - basic   23,145    22,091    23,029    20,721 
Weighted-average common shares - diluted   23,145    23,442    23,029    22,263 

 

See accompanying notes.

 

 

 

 

 5 
 

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

   Three Months Ended December 31, 2019 
                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-In   Accumulated   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Deficit   Income   Equity 
Balance at September 30, 2019   23,038   $2   $226,870   $(191,851)  $371   $35,392 
Shares issued pursuant to stock awards, net   279        336            336 
Tax withholding paid on behalf of employees for restricted shares           (37)           (37)
Share-based compensation           938            938 
Net loss               (1,351)       (1,351)
Balance at December 31, 2019   23,317   $2   $228,107   $(193,202)  $371   $35,278 

 

   Three Months Ended December 31, 2018 
                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-In   Accumulated   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Deficit   Income   Equity 
Balance at September 30, 2018   21,893   $2   $223,383   $(189,056)  $371   $34,700 
Shares issued pursuant to equity offering, net   100         336              336 
Shares issued pursuant to stock awards, net   220        308            308 
Tax withholding paid on behalf of employees for restricted shares           (56)           (56)
Share-based compensation           451            451 
Net income               277        277 
Balance at December 31, 2018   22,213   $2   $224,422   $(188,779)  $371   $36,016 

 

   Six Months Ended December 31, 2019 
                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-In   Accumulated   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Deficit   Income   Equity 
Balance at June 30, 2019   22,812   $2   $226,274   $(189,381)  $371   $37,266 
Shares issued pursuant to stock awards, net   505        480            480 
Tax withholding paid on behalf of employees for restricted shares           (163)           (163)
Share-based compensation           1,516            1,516 
Net loss               (3,821)       (3,821)
Balance at December 31, 2019   23,317   $2   $228,107   $(193,202)  $371   $35,278 

 

   Six Months Ended December 31, 2018 
                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-In   Accumulated   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Deficit   Income   Equity 
Balance at June 30, 2018   18,908   $2   $212,995   $(189,555)  $371   $23,813 
Cumulative effect of accounting change               582        582 
Shares issued pursuant to equity offering, net   2,700        9,774            9,774 
Shares issued pursuant to stock awards, net   605        893            893 
Tax withholding paid on behalf of employees for restricted shares           (169)           (169)
Share-based compensation           929            929 
Net income               194        194 
Balance at December 31, 2018   22,213   $2   $224,422   $(188,779)  $371   $36,016 

 

See accompanying notes.

 

 6 
 

 

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   Six Months Ended 
   December 31, 
   2019   2018 
Operating activities          
Net income (loss)  $(3,821)  $194 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Share-based compensation   1,516    929 
Depreciation and amortization   303    219 
Amortization of purchased intangible assets   295     
Amortization of manufacturing profit in acquired inventory associated with acquisition   171     
Amortization of deferred debt issuance costs   4     
Changes in operating assets and liabilities:          
Accounts receivable   (671)   (713)
Inventories   925    (1,375)
Contract manufacturers' receivable   951    230 
Prepaid expenses and other current assets   (337)   (289)
Other assets   338     
Accounts payable   (1,352)   369 
Accrued payroll and related expenses   (61)   (77)
Warranty reserve   (27)   7 
Other liabilities   (2,013)   193 
Net cash used in operating activities   (3,779)   (313)
Investing activities          
Purchases of property and equipment   (280)   (355)
Cash payment for acquisition of Maestro, net of cash and cash equivalents acquired   (5,073)    
Net cash used in investing activities   (5,353)   (355)
Financing activities          
Net proceeds from issuances of common stock   480    10,667 
Tax withholding paid on behalf of employees for restricted shares   (163)   (169)
Net proceeds from issuance of debt   5,886     
Payment of lease liabilities   (6)   (31)
Net cash provided by financing activities   6,197    10,467 
Increase (decrease) in cash, cash equivalents, and restricted cash   (2,935)   9,799 
Cash, cash equivalents, and restricted cash at beginning of period   18,282    9,568 
Cash, cash equivalents, and restricted cash at end of period  $15,347   $19,367 

 

See accompanying notes.

 

 

 

 

 7 
 

 

LANTRONIX, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

 

 

1. Summary of Significant Accounting Policies

 

The Company

 

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global provider of secure data access and management solutions for Internet of Things (“IoT”) assets. Our mission is to be the leading supplier of IoT and related Information Technology (“IT”) management solutions that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles 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, 2019, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which was filed with the SEC on September 11, 2019. 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 December 31, 2019, the consolidated results of our operations for the three and six months ended December 31, 2019 and our consolidated cash flows for the six months ended December 31, 2019. All intercompany accounts and transactions have been eliminated. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended December 31, 2019 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 fiscal year financial information to conform with the current fiscal year presentation.

 

Recent Accounting Pronouncements

   

Shared-Based Compensation

 

On July 1, 2019, Lantronix adopted Accounting Standard Update No. 2018-07 that expands the scope of existing share-based compensation guidance for employees. The standard includes share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The adoption of the standard did not have a material impact on our financial statements.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (“ASU 2016-02” or “Topic 842”) that revises lease accounting guidance. Most prominent among the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities based on the present value of lease payments over the lease term by lessees for those leases classified as operating leases under the existing guidance.

 

 

 

 8 
 

 

We adopted Topic 842 on July 1, 2019 using the modified retrospective approach by applying the new standard to leases existing at the date of adoption and not restating comparative prior periods. The adoption did not have a material impact on our results of operations or cash flows. Refer to Note 4 below for additional information.

 

2. Business Combinations

 

Acquisition of Maestro

 

On July 5, 2019 (the "Acquisition Date"), Lantronix acquired all outstanding shares of Maestro Wireless Solutions Limited, a Hong Kong private company limited by shares (“MWS”), Fargo Telecom Asia Limited, a Hong Kong private company limited by shares (“FTA” and together with MWS and their respective subsidiaries, the “Acquired Companies” or “Maestro”) for $5,355,000 in cash. The acquisition provides complementary cellular connectivity technologies to our portfolio of IoT solutions.


We recorded Maestro’s tangible and intangible assets and liabilities based on their estimated fair values as of the Acquisition Date and allocated the remaining purchase consideration to goodwill. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. The consideration allocation set forth herein is preliminary and may be revised as additional information becomes available during the measurement period which could be up to 12 months from the Acquisition Date. Any such revisions or changes may be material. The preliminary purchase price allocation is as follows (in thousands):

 

   July 5, 2019 (provisional) 
Cash and cash equivalents   282 
Accounts receivable   1,320 
Inventories   1,611 
Prepaid expense and other current assets   283 
Property and equipment   108 
Amortizable intangible assets   1,910 
Other non-current assets   213 
Goodwill   2,970 
Accounts payable   (1,568)
Accrued payroll and related expenses   (249)
Other current liabilities   (1,361)
Other non-current liabilities   (164)
Total consideration  $5,355 

 

The factors that contributed to a purchase price resulting in the recognition of goodwill include our belief that the acquisition will create a more diverse IoT company with respect to product offerings and our belief that we are committed to improving cost structures in accordance with our operational and restructuring plans which should result in a realization of cost savings and an improvement of overall efficiencies.

 

Acquisition-related costs were expensed in the periods in which the costs were incurred.

 

 

 

 9 
 

 

The valuation of identifiable intangible assets and their estimated useful lives are as follows:

 

   Asset Fair Value   Weighted-Average Useful Life (years) 
   (In thousands, except for useful life) 
Developed technology  $1,530    5.0 
Customer relationship   100    2.0 
Order backlog   110    1.0 
Non-compete agreements   30    2.0 
Trade name   140    1.0 

 

The intangible assets are amortized on a straight-line basis over the estimated weighted-average useful lives.

 

Supplemental Pro Forma Information

 

The following supplemental pro forma data summarizes the Company’s results of operations for the periods presented, as if we completed the acquisition of Maestro as of the first day of fiscal 2019. The supplemental pro forma data reports actual operating results adjusted to include the pro forma effect and timing of the impact in amortization expense of identified intangible assets, restructuring costs, the purchase accounting effect on inventories acquired, and transaction costs. In accordance with the pro forma acquisition date, we recorded in the fiscal 2019 supplemental pro forma data (i) cost of goods sold from manufacturing profit in acquired inventory of $171,000, (ii) Maestro related restructuring costs of $651,000 and (iii) acquisition-related costs of $724,000, with a corresponding reduction in the fiscal 2020 supplemental proforma data. Additionally, we recorded $295,000 of amortization expense in the fiscal 2019 supplemental pro-forma data, and reversed amortization expense of $110,000 in the fiscal 2020 supplemental pro forma data to represent the amount related to assets that would have been fully amortized.

 

Net sales related to products from the acquisition of Maestro contributed approximately 24% to 28% of net sales for the six months ended December 31, 2019. Post-acquisition net sales and earnings on a standalone basis are generally impracticable to determine, as on the Acquisition Date, we implemented a plan developed prior to the completion of the acquisition and began to immediately integrate the acquisition into existing operations, engineering groups, sales distribution networks and management structure. 

 

Supplemental pro forma data is as follows:

 

   Six Months Ended December 31, 
   2019   2018 
   (In thousands, except per share amounts) 
Pro forma net revenue  $25,969   $29,702 
Pro forma net loss  $(2,165)  $(2,221)
           
Pro forma net loss per share          
Basic  $(0.09)  $(0.11)
Diluted  $(0.09)  $(0.10)

 

Acquisition of Intrinsyc

 

On January 16, 2020 (the “Closing Date”), we completed the previously announced acquisition of Intrinsyc Technologies Corporation (“Intrinsyc”), a company existing under the laws of British Columbia, Canada. Pursuant to the terms of the agreement, dated October 30, 2019 (the “Agreement”), by and between Lantronix and Intrinsyc, all of the outstanding common shares of Intrinsyc were acquired by Lantronix. Under the Agreement, we paid $0.50 and 0.2275 of a share of our common stock for each issued and outstanding common share of Intrinsyc. Pursuant to the Agreement, we paid, in the aggregate, approximately $11,000,000 in cash and issued approximately 4,300,000 shares of Lantronix common stock to Intrinsyc shareholders. Following the acquisition, Intrinsyc shareholders owned just under 16% of the outstanding shares of Lantronix common stock. Additionally, pursuant to the Agreement, Lantronix agreed to exchange certain options to purchase Intrinsyc shares and restricted stock units (“RSUs”) for cash payments, Lantronix common stock options or RSUs or a combination thereof, as further outlined in the Agreement.

 

 

 

 10 
 

 

The acquisition provides us with complementary IoT computing and embedded product development capabilities and expands our IoT market opportunity.

 

We are currently evaluating the fair value of acquired assets and liabilities, including any identifiable intangible assets. We have not yet completed the initial accounting related to this acquisition as we are compiling and evaluating all the necessary information. We expect to present a preliminary allocation of the fair value of the acquired assets and liabilities and pro forma disclosure in our Form 10-Q filing for the quarter ending March 31, 2020.

 

3. Revenue

 

The following tables present our net revenue by product line and by geographic region. Net revenues by geographic region are based on the “bill-to” location of our customers:

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
IoT  $11,180   $9,070   $21,401   $18,037 
IT Management   1,832    2,888    4,133    5,989 
Other   216    156    435    367 
   $13,228   $12,114   $25,969   $24,393 

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
Americas  $5,840   $6,182   $11,604   $13,096 
EMEA   4,362    4,080    8,883    7,600 
Asia Pacific Japan   3,026    1,852    5,482    3,697 
   $13,228   $12,114   $25,969   $24,393 

 

Contract Balances

 

In certain instances, the timing of revenue recognition may differ from the timing of invoicing to our customers. We record a contract asset receivable when revenue is recognized prior to invoicing, and a contract or deferred revenue liability when revenue is recognized subsequent to invoicing. With respect to product shipments, we expect to fulfill contract obligations within one year and so we have elected not to separately disclose the amount nor the timing of recognition of these remaining performance obligations. For contract balances related to contracts that include services and multiple performance obligations, refer to the deferred revenue discussion below.

 

Deferred Revenue

 

Deferred revenue is currently comprised primarily of unearned revenue related to our extended warranty services. These services are generally invoiced at the beginning of the contract period and revenue is recognized ratably over the service period. Current and non-current deferred revenue balances represent revenue allocated to the remaining unsatisfied performance obligations at the end of a reporting period and are respectively included in other current liabilities and other non-current liabilities in the accompanying condensed consolidated balance sheets.

 

 

 

 11 
 

 

The following table presents the changes in our deferred revenue balance for the six months ended December 31, 2019 (in thousands):

 

Balance, July 1, 2019  $486 
New performance obligations   110 
Performance obligations assumed from acquisition of Maestro   178 
Recognition of revenue as a result of satisfying performance obligations   (202)
Balance, December 31, 2019  $572 
Less: non-current portion of deferred revenue   (171)
Current portion, December 31, 2019  $401 

 

We expect to recognize substantially all of the non-current portion of deferred revenue over the next two to four years.

 

4. Leases

 

On July 1, 2019, we adopted Topic 842 and elected the available practical expedient to recognize the cumulative effect of initially adopting the standard as an adjustment to the opening balance sheet of the period of adoption (i.e., July 1, 2019). We also elected other available practical expedients and will not separate lease components from non-lease components for office leases, or reassess historical lease classification, whether existing or expired contracts are or contain leases, or the initial direct costs for existing leases as of July 1, 2019. The condensed consolidated balance sheets and results from operations for reporting periods beginning after July 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 840.

 

Adoption of the standard resulted in the recording of net operating and financing lease ROU assets and corresponding operating and financing lease liabilities of $984,000 and $1,114,000, respectively, on July 1, 2019. The adoption of the standard did not materially affect the condensed consolidated statements of operations and had no impact on cash flows.

 

Our leases include office buildings for facilities worldwide and car leases in Germany, which are all classified as operating leases. We also have financing leases related to office equipment and R&D equipment in the United States. On October 1, 2019 we entered into a lease agreement for an office in Hyderabad, India, which replaces and expands our existing office space there.

 

We determine if an arrangement is a lease at inception. Certain leases include renewal options that are under the Company's sole discretion. The renewal options were included in the ROU asset and lease liability calculation if it is reasonably assured that we will exercise the option. As our leases generally do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of lease payments. Lease expense for these leases is recognized on a straight-line basis over the lease term.

 

Components of lease expense and supplemental cash flow information:

 

   Six months ended 
   December 31, 2019 
   (In thousands) 
Components of lease expense     
Operating lease cost  $677 
Financing lease cost  $3 
      
Supplemental cash flow information     
Cash paid for amounts included in the measurement of operating lease liabilities  $497 
Cash paid for amounts included in the measurement of financing lease liabilities  $3 
      
Right-of-use assets obtained in exchange for lease obligation  $1,119 

 

The weighted-average remaining lease term is 1.6 years. The weighted-average discount rate is 6.16 percent.

 

 

 

 

 12 
 

 

Maturities of lease liabilities as of December 31, 2019 were as follows:

 

Years ending June 30,                        Operating   Financing 
   (In thousands) 
2020  $535   $5 
2021   667    9 
2022   272    9 
2023   265    9 
2024   274    3 
Thereafter   70     
Total remaining lease payments   2,083    35 
less: imputed interest   (197)    
Lease liability  $1,886   $35 
Reported as:          
Current liabilities  $(946)  $(9)
Non-current liabilities  $(940)  $(26)

 

The lease liabilities and ROU assets as of December 31, 2019 include leases assumed in the acquisition of Maestro if the remaining lease term at the acquisition date was determined to exceed one year. Refer to Note 2 above for further information on the acquisition of Maestro. As of December 31, 2019, the ROU assets totaled $1,832,000 and were recorded in other assets in the unaudited condensed consolidated balance sheet.

 

5. 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:

 

   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Finished goods  $6,661   $6,084 
Raw materials   4,363    4,425 
Inventories, net  $11,024   $10,509 

 

 

 

 

 

 

 13 
 

 

Other Liabilities

 

The following table presents details of our other liabilities:

 

   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Current        
Accrued variable consideration  $1,381   $1,313 
Customer deposits and refunds   516    168 
Accrued raw materials purchases   374    1,155 
Deferred revenue   401    328 
Lease liability   955    4 
Taxes payable   360    322 
Accrued operating expenses   1,261    1,290 
Total other current liabilities  $5,248   $4,580 
           
Non-current          
Lease liability  $966   $48 
Deferred revenue   171    158 
Total other non-current liabilities  $1,137   $206 

 

Computation of Net Income (Loss) per Share

 

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

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands, except per share data) 
Numerator:                    
Net income (loss)  $(1,351)  $277   $(3,821)  $194 
Denominator:                    
Weighted-average common shares outstanding - basic   23,145    22,091    23,029    20,721 
Effect of dilutive securities:       1,351        1,542 
Denominator for net income (loss) per share - diluted   23,145    23,442    23,029    22,263 
                     
Net income (loss) per share - basic  $(0.06)  $0.01   $(0.17)  $0.01 
Net income (loss) per share - diluted  $(0.06)  $0.01   $(0.17)  $0.01 

 

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   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands) 
Common stock equivalents   1,659    70    1,726    4 

 

 

 

 

 14 
 

 

Severance and Related Charges

 

Current Fiscal Year

 

During the six months ended December 31, 2019, we continued a plan to realign certain personnel resources to better fit our current business needs, particularly as it relates to identifying cost savings and synergies to be gained from the acquisition of Maestro. These activities resulted in a total charge of approximately $1,103,000.

 

The following table presents details of the liability we recorded related to these activities:

 

   Six Months Ended 
   December 31, 
   2019 
   (In thousands) 
Beginning balance  $651 
Charges   1,103 
Payments   (1,267)
Ending balance  $487 

 

The ending balance is recorded in accrued payroll and related expenses on the accompanying unaudited condensed consolidated balance sheet at December 31, 2019.

 

Prior Fiscal Year

 

During the six months ended December 31, 2018, we executed a plan to realign certain personnel resources to better fit our current business needs. These activities resulted in a total charge of approximately $323,000 of severance costs during the six months ended December 31, 2018.

 

Supplemental Cash Flow Information

 

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

 

   Six Months Ended 
   December 31, 
   2019   2018 
   (In thousands) 
Accrued property and equipment paid for in the subsequent period  $133   $6 

 

6. Warranty Reserve

 

The standard warranty periods we provide for our products typically 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 for any known or anticipated product warranty issues.

 

 

 

 

 

 15 
 

 

The following table presents details of our warranty reserve:

 

   Six Months Ended   Year Ended 
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Beginning balance  $116   $99 
Charged to cost of revenue   (25)   96 
Usage   (2)   (79)
Ending balance  $89   $116 

 

7. Bank Loan Agreement

 

On November 12, 2019, we entered into a Second Amended and Restated Loan and Security Agreement (“Amended Agreement”) with Silicon Valley Bank (“SVB”), which amended, restated and superseded our previous agreement with SVB in its entirety.

 

Pursuant to the Amended Agreement, SVB made available to us a senior secured revolving line of credit of up to $6,000,000 (“Revolving Facility”) and a senior secured term loan of $6,000,000 (“Term Loan Facility”). Advances under the Revolving Facility may be borrowed from time to time prior to November 12, 2021, subject to the satisfaction of certain conditions, and may be used to fund our working capital and general business requirements. The $6,000,000 proceeds of the Term Loan Facility were drawn in full in November 2019 to be used solely to fund our acquisition of Intrinsyc, which occurred in January 2020 (refer to Note 2 above). These proceeds are recorded as restricted cash in the accompanying condensed consolidated balance sheet at December 31, 2019. The Revolving Facility matures on November 12, 2021. There were no borrowings on the Revolving Facility at December 31, 2019. The Term Loan Facility is repayable over a 48 month period commencing January 1, 2020 after an initial interest-only period until the close of the acquisition of Intrinsyc.

 

The interest rate on the Revolving Facility floats at a rate per annum equal to the greater of the prime rate and 5.00 percent. The interest rate on the Term Loan Facility floats at a rate per annum equal to the greater of 1.00 percent above the prime rate and 6.00 percent. We may elect to repay and reborrow the amounts outstanding under the Revolving Facility at any time prior to the maturity date of the Revolving Facility without premium or penalty. We may elect to repay the Term Loan Facility at any time without premium or penalty in minimum amounts equal to at least $1,000,000. A commitment fee in the amount of $60,000 was paid to SVB on the closing date and a $10,000 anniversary fee is payable to SVB on the earliest to occur of the one year anniversary of the effective date, the termination of the Amended Agreement or the Revolving Facility, or the occurrence of an event of default.

 

The Amended Agreement includes a financial covenant that requires that we maintain a minimum cash balance of $3,000,000 at SVB, as measured at the end of each month. The Amended agreement also requires that we do not exceed a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions of (i) 3.0 to 1.0 for each calendar quarter ending December 31, 2019 through and including December 31, 2020, (ii) 2.5 to 1.0 for each calendar quarter ending March 31, 2021 through and including December 31, 2021, and (iii) 2.0 to 1.0 for each calendar quarter ending after January 1, 2022. We are currently in compliance with all covenants.

 

8. Stockholders’ Equity

 

 Stock Incentive Plans

 

Our stock incentive 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 December 31, 2019, no stock appreciation rights or non-vested stock was outstanding.

 

 

 

 

 16 
 

 

Stock Options

 

The following table presents a summary of activity during the six months ended December 31, 2019 with respect to our stock options:

 

       Weighted- 
       Average 
   Number of   Exercise Price 
   Shares   per Share 
   (In thousands)     
Balance of options outstanding at June 30, 2019   3,147   $2.29 
Granted   79    3.06 
Forfeited   (146)   2.40 
Expired   (67)   2.21 
Exercised   (425)   1.66 
Balance of options outstanding at December 31, 2019   2,588   $2.41 

 

Restricted Stock Units

 

The following table presents a summary of activity during the six months ended December 31, 2019 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, 2019   866   $4.24 
Granted   276    3.28 
Vested   (168)   4.80 
Forfeited   (34)   4.35 
Balance of RSUs outstanding at December 31, 2019   940   $3.85 

 

Performance Stock Units

 

In October 2019, we granted 975,000 RSUs with performance-based vesting requirements (“performance stock units” or “PSUs”) to certain executive employees. One third of the PSUs will be eligible to vest in each of the three years beginning in fiscal 2020 if certain earnings per share, revenue targets and market conditions are met. The estimate of the grant date fair value and related share-based compensation expense included the use of a Monte Carlo simulation which incorporates estimates of the potential outcomes of the market condition of these awards.

 

Employee Stock Purchase Plan

 

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

 

 

 

 

 17 
 

  

The following table presents a summary of activity under our ESPP during the six months ended December 31, 2019:

 

   Number of 
   Shares 
   (In thousands) 
Shares available for issuance at June 30, 2019   517 
Shares issued   (64)
Shares available for issuance at December 31, 2019   453 

 

Share-Based Compensation Expense

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands) 
Cost of revenue  $48   $23   $72   $40 
Selling, general and administrative   777    337    1,236    737 
Research and development   113    91    208    152 
Total share-based compensation expense  $938   $451   $1,516   $929 

 

The following table presents the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of December 31, 2019:

 

   Remaining   Remaining 
   Unrecognized   Weighted- 
   Compensation   Average Years 
   Expense   To Recognize 
   (In thousands)     
Stock options  $1,488    2.6 
RSUs   3,269    3.2 
PSUs   1,469    2.4 
Stock purchase rights under ESPP   44    0.4 
   $6,270      

 

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.

 

 

 

 

 18 
 

 

9. Income Taxes

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Effective tax rate   3%    5%    2%    22% 

 

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 we believe it is more likely than not that these assets will be realized. Due to 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 December 31, 2019 and June 30, 2019.

 

10. Commitments and Contingencies

 

From time to time, we are involved in various legal proceedings and claims arising in the ordinary course of our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors.

 

 

 

 

 

 

 

 

 

 19 
 

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended December 31, 2019, or this Report. This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. See the section of this Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in “Risk Factors” in Part II, Item 1A of this Report.

 

Overview

 

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global provider of secure data access and management solutions for Internet of Things, or IoT, assets. Our mission is to be the leading supplier of IoT and related Information Technology (“IT”) management solutions that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.

 

We conduct our business globally and manage our sales teams by three geographic regions: the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific Japan (“APJ”).

 

Products and Solutions Overview

 

We organize our products and solutions into three product lines: IoT, IT Management and Other.

 

IoT

 

Our IoT products typically connect to one or more existing machines or are built into new industrial devices to provide network connectivity. Our products are designed to enhance the value and utility of machines by making the data from the machines available to users, systems and processes or by controlling their properties and features over the network.

 

Our IoT products currently consist of IoT Gateways and IoT Building Blocks. IoT Gateways are designed to provide secure connectivity and the ability to add integrated device management and advanced data access features. IoT Building Blocks provide basic secure machine connectivity and unmanaged data access.

 

Our IoT products may be embedded into new designs or attached to existing machines. Our IoT products include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure network connectivity, application hosting, protocol conversion, secure access for distributed IoT deployments and many other functions. Many of the products are offered with software tools intended to further accelerate our customer’s time-to-market and increase their value add.

 

Most of our IoT products are pre-certified in a number of countries thereby significantly reducing our original equipment manufacturer customers’ regulatory certification costs and accelerating their time to market.

 

The following product families are included in our IoT product line: EDS, EDS-MD, PremierWave® EN, PremierWave® XC, SGX, UDS, WiPort®, xDirect®, xPico®, xPico® Wi-Fi, xPico® 200, xPress, XPort®, XPort® Pro, XPort® Edge, Micro, and MACH10® Global Device Manager.

 

 

 

 

 20 
 

 

On July 5, 2019 we acquired Maestro Wireless Solutions Limited and its subsidiaries. The acquisition provides additional and complementary cellular connectivity, LPWAN, and telematic technologies and devices to our portfolio of IoT solutions. The following product families are now included in our IoT product line as a result of the acquisition: M110, E210, E220, Bolero45, FOX3-2G, FOX3-3G, FOX3-4G, S40, and D2Sphere.

 

IT Management

 

Today, organizations are managing an ever-increasing number of devices and data on enterprise networks where 24/7 reliability is mission critical. Out-of-band management is a technique that uses a dedicated management network to access critical network devices to ensure management connectivity (including the ability to determine the status of any network component) independent of the status of other in-band network components. Remote out-of-band access allows organizations to effectively manage their enterprise IT resources and at the same time, optimize their IT support resources. Our vSLM™, a virtualized central management software solution, simplifies secure administration of our IT Management products and the equipment attached to them through a standard web browser.

 

Our IT Management product line includes out-of-band management, console management, power management, and keyboard-video-mouse (commonly referred to as KVM) products that provide remote access to IT and networking infrastructure deployed in test labs, data centers, branch offices and server rooms.

 

The following product families are included in our IT Management product line: SLB, SLC8000, Spider, ConsoleFlow and vSLM™.

 

Other

 

We categorize products that are non-focus or end-of-life as Other. Our Other product line includes non-focus products such as the xPrintServer®. In addition, this product line includes end-of-life versions of our MatchPort®, SLC, SLP, xPress Pro, xSenso®, PremierWave® XN, and WiBox product families.

 

Recent Developments

 

Refer to Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our acquisitions of Maestro Wireless Solutions and Intrinsyc Technologies Corporation.

 

We expect that the acquisitions of Maestro and Intrinsyc will contribute significant revenue to the Company. We also expect to see a corresponding increase in operational expenses until we realize expected cost synergies.  Furthermore, we expect that the combined entity will have better economies of scale driven by our plan to reduce redundant costs which we believe will result in improved operational effectiveness and greater earnings potential.

 

Recent Accounting Pronouncements

 

Refer to Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, 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, allowance for doubtful accounts, inventory valuation, warranty reserves, valuation of deferred income taxes, goodwill and business combinations. Other than the policy regarding business combinations, which we have added below, these policies are described in further detail in the Form 10-K and have not changed significantly during the six months ended December 31, 2019 as compared to what was previously disclosed in the Form 10-K.

 

 

 

 

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Business Combinations

 

We allocate the fair value of the purchase consideration of a business acquisition to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development (“IPR&D”), if applicable, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The valuation of acquired assets and assumed liabilities requires significant judgment and estimates, especially with respect to intangible assets. The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach. The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates. We estimate the fair value based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Acquisition-related expenses and any related restructuring costs are recognized separately from the business combination and are expensed as incurred.

 

Results of Operations – Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018

 

Summary

 

In the three months ended December 31, 2019, our net revenue increased by $1,114,000, or 9.2%, compared to the three months ended December 31, 2018. The increase in net revenue was driven by a 23.3% increase in net revenue in our IoT product line partially offset by a decline in revenue of 36.6% in our IT Management product line. We had a net loss of $1,351,000 for the three months ended December 31, 2019 compared to net income of $277,000 for the three months ended December 31, 2018. The decrease in net income was driven by an 3.8% decrease in gross margin percentage and a 25.3% increase in operating expenses.

 

Net Revenue

 

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

 

   Three Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
IoT  $11,180    84.5%   $9,070    74.9%   $2,110    23.3% 
IT Management   1,832    13.8%    2,888    23.8%    (1,056)   (36.6%)
Other   216    1.7%    156    1.3%    60    38.5% 
   $13,228    100.0%   $12,114    100.0%   $1,114    9.2% 

 

   Three Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Americas  $5,840    44.1%   $6,182    51.0%   $(342)   (5.5%)
EMEA   4,362    33.0%    4,080    33.7%    282    6.9% 
Asia Pacific Japan   3,026    22.9%    1,852    15.3%    1,174    63.4% 
   $13,228    100.0%   $12,114    100.0%   $1,114    9.2% 

 

Revenue outside of the Americas increased as a percent of total revenue as a result of our recent acquisition of Maestro.  We expect revenue in the Americas region to increase as a result of our acquisition of Intrinsyc.

 

 

 

 

 22 
 

 

IoT

 

Net revenue from our IoT product line for the three months ended December 31, 2019 increased in EMEA and APJ when compared to the three months ended December 31, 2018 due to the addition of sales of products obtained through the acquisition of Maestro. The overall increase was partially offset primarily by decreases in unit sales of (i) our XPort product family in the Americas and APJ regions, (ii) our XPort Pro product family in the Americas and EMEA regions and (iii) our large-scale integration chips in the Americas and EMEA regions.

 

IT Management

 

Net revenue from our IT Management product line for the three months ended December 31, 2019 decreased compared to the three months ended December 31, 2018 due to decreased unit sales of (i) our SLC8000 and SLS product families in the EMEA region and (ii) our SLB product family in the Americas region. These decreases were partially offset by an increase in SLC8000 product sales in the Americas region.

 

Other

 

Net revenue from our Other products, which are comprised of non-focus and end-of-life product families, increased slightly across all regions.

 

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, inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation.

  

The following table presents our gross profit:

 

   Three Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Gross profit  $6,777    51.2%   $6,661    55.0%   $116    1.7% 

 

Gross profit as a percent of revenue (referred to as “gross margin”) for the three months ended December 31, 2019 decreased compared to the three months ended December 31, 2018 due primarily to sales of products obtained through the acquisition of Maestro, which typically have lower margins than Lantronix products existing prior to the acquisition. With the recent acquisition of Intrinsyc, we expect a change in product mix as Intrinsyc products have a lower margin than our products.

 

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.

 

 

 

 

 23 
 

 

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

 

   Three Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Personnel-related expenses  $2,707        $2,972        $(265)   (8.9%)
Professional fees and outside services   523         311         212    68.2% 
Advertising and marketing   256         173         83    48.0% 
Facilities and insurance   315         205         110    53.7% 
Share-based compensation   777         337         440    130.6% 
Depreciation   53         48         5    10.4% 
Other   240         113         127    112.4% 
Selling, general and administrative  $4,871    36.8%   $4,159    34.3%   $712    17.1% 

 

Selling, general and administrative expenses increased primarily due to (i) higher professional fees and outside services resulting from increased legal costs, (ii) increased share-based compensation primarily due to the issuance of performance stock units (“PSUs”) to certain executive employees, (iii) higher facilities and insurance costs resulting from additional facility space gained through the acquisition of Maestro and (iv) increased bad debt expense classified in the “other” category above. These increases were partially offset by a decrease in personnel-related expenses due to reduced variable compensation expense during the three months ended December 31, 2019, slightly offset by an increase in salary and wages resulting from an increase in workforce from the acquisition of Maestro.

 

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 vary from period to period depending on our level of development activities.

  

The following table presents our research and development expenses:

 

   Three Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Personnel-related expenses  $1,555        $1,667        $(112)   (6.7%)
Facilities   340         246         94    38.2% 
Outside services   108         130         (22)   (16.9%)
Product certifications   99         38         61    160.5% 
Share-based compensation   113         91         22    24.2% 
Other   121         107         14    13.1% 
Research and development  $2,336    17.7%   $2,279    18.8%   $57    2.5% 

 

Research and development expenses in total for the three months ended December 31, 2019 remained relatively consistent with the prior year period. In the three months ended December 31, 2019 we experienced (i) higher facilities costs, resulting from our new facility lease in India as well as additional facility space gained through the acquisition of Maestro and (ii) higher product certification costs related to new product development projects. These increases were largely offset by a decrease to personnel-related expenses due to lower variable compensation expenses.

 

Results of Operations – Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Summary

 

In the six months ended December 31, 2019 our net revenue increased by $1,576,000, or 6.5%, compared to the six months ended December 31, 2018. The increase in net revenue was driven by a 18.7% increase in net revenue in our IoT product line partially offset by a decline in revenue of 31.0% in our IT Management product line. We had a net loss of $3,821,000 for the six months ended December 31, 2019 compared to net income of $194,000 for the six months ended December 31, 2018. The decrease in net income was driven by a 5.1% decrease in gross margin percentage and a 26.0% increase in operating expenses.

 

 

 

 

 24 
 

 

Net Revenue

 

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

 

   Six Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
IoT  $21,401    82.4%   $18,037    73.9%   $3,364    18.7% 
IT Management   4,133    15.9%    5,989    24.6%    (1,856)   (31.0%)
Other   435    1.7%    367    1.5%    68    18.5% 
   $25,969    100.0%   $24,393    100.0%   $1,576    6.5% 

 

   Six Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Americas  $11,604    44.7%   $13,096    53.7%   $(1,492)   (11.4%)
EMEA   8,883    34.2%   $7,600    31.2%    1,283    16.9% 
Asia Pacific Japan   5,482    21.1%   $3,697    15.1%    1,785    48.3% 
   $25,969    100.0%   $24,393    100.0%   $1,576    6.5% 

 

Revenue outside of the Americas increased as a percent of total revenue as a result of our recent acquisition of Maestro.  We expect revenue in the Americas region to increase as a result of our acquisition of Intrinsyc.

 

IoT

 

Net revenue from our IoT product line for the six months ended December 31, 2019 increased in the EMEA and APJ regions when compared to the six months ended December 31, 2018 due to the addition of sales of products obtained through the acquisition of Maestro. The overall increase was partially offset by a decreases in unit sales of (i) our XPort product family across all regions and (ii) our XPort Pro and large-scale integration chip product families in the Americas and EMEA regions.

 

IT Management

 

Net revenue from our IT Management product line for the six months ended December 31, 2019 decreased compared to the six months ended December 31, 2018 due to decreased unit sales of (i) our SLC8000 product family in the EMEA region and (ii) our SLB product family in the Americas region. In the prior year, we saw stronger demand for both product families partially driven by the timing of sales to certain large customers.

 

Other

 

Net revenue from our Other products, which are comprised of non-focus and end-of-life product families, increased slightly in the Americas and EMEA regions.

 

 

 

 

 

 25 
 

 

Gross Profit

 

The following table presents our gross profit:

 

   Six Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Gross profit  $12,972    50.0%   $13,441    55.1%   $(469)   (3.5%)

 

Gross profit as a percent of revenue (referred to as “gross margin”) for the six months ended December 31, 2019 decreased compared to the six months ended December 31, 2018 due primarily to sales of products obtained through the acquisition of Maestro, which typically have lower margins than legacy Lantronix products. With the recent acquisition of Intrinsyc, we expect a change in product mix as Intrinsyc products have a lower margin than our products. Gross margin in the current year period was also negatively impacted by the amortization of unrealized profit in acquired inventory in the amount of $171,000, all of which was recognized during the six months ended December 31, 2019.

 

Selling, General and Administrative

 

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

 

   Six Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
 (In thousands, except percentages) 
Personnel-related expenses  $5,536        $5,906        $(370)   (6.3%)
Professional fees and outside services   1,030         682         348    51.0% 
Advertising and marketing   425         318         107    33.6% 
Facilities and insurance   625         461         164    35.6% 
Share-based compensation   1,236         737         499    67.7% 
Depreciation   107         94         13    13.8% 
Other   385         232         153    65.9% 
Selling, general and administrative  $9,344    36.0%   $8,430    34.6%   $914    10.8% 

 

Selling, general and administrative expenses increased primarily due to (i) higher professional fees and outside services resulting from increased legal fees and (ii) higher share-based compensation primarily due to the issuance of PSUs. These increases were partially offset by a decrease in personnel-related expenses due to reduced variable compensation expense in the six months ended December 31, 2019, slightly offset by an increase in salary and wages resulting from an increase in workforce from the acquisition of Maestro.

 

  

 

 

 

 26 
 

 

Research and Development

 

The following table presents our research and development expenses:

 

   Six Months Ended December 31,         
       % of Net       % of Net   Change 
   2019   Revenue   2018   Revenue   $   % 
   (In thousands, except percentages) 
Personnel-related expenses  $3,317        $3,333        $(16)   (0.5%)
Facilities   605         465         140    30.1% 
Outside services   351         272         79    29.0% 
Product certifications   269         92         177    192.4% 
Share-based compensation   208         152         56    36.8% 
Other   207         180         27    15.0% 
Research and development  $4,957    19.1%   $4,494    18.4%   $463    10.3% 

 

Research and development expenses increased primarily due to higher (i) product certification costs related to new product development projects and (ii) higher facilities costs, resulting from our new facility lease in India as well as additional facility space gained through the acquisition of Maestro.

 

Restructuring, Severance and Related Charges  

 

Current Fiscal Year

 

During the current year, we continued a plan to realign certain personnel resources to better fit our current business needs, particularly as it relates to identifying cost savings and synergies to be gained from the acquisition of Maestro. These activities resulted in total charges of approximately $354,000 and $1,103,000 for the three and six months ended December 31, 2019, respectively.  We expect to incur additional restructuring, severance and related charges as a result of the acquisition of Intrinsyc.

 

Prior Fiscal Year

 

During the six months ended December 31, 2018, we executed a plan to realign certain personnel resources to better fit our business needs. These activities resulted in a total charge of approximately $323,000.

 

Acquisition-Related Costs  

 

During the three and six months ended December 31, 2019, we incurred approximately $353,000 and $996,000 of acquisition-related costs, respectively, in connection with the acquisitions of Maestro and Intrinsyc. These costs are mainly comprised of legal and other professional fees. We expect to incur additional acquisition-related charges as a result of the acquisition of Intrinsyc.

 

Amortization of Purchased Intangible Assets

 

As a result of the acquisition of Maestro, we acquired certain intangible assets which we recorded at fair-value as of the acquisition date. These assets are amortized on a straight-line basis over their estimated useful lives, which resulted charges of $151,000 and $295,000 for the three and six months ended December 31, 2019, respectively. We expect to incur additional amortization of purchased intangibles as a result of the acquisition of Intrinsyc.

 

Interest Income (Expense), Net

  

We earn interest on our domestic cash balance. For the six months ended December 31, 2019 we incurred net interest expense as a result of interest incurred on borrowings on our term loan.

 

 

 

 

 27 
 

 

Other Expense, Net

  

Other expense, net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the U.S. dollar.

 

Provision for Income Taxes

 

Refer to Note 9 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding our provision for income taxes.

 

Liquidity and Capital Resources

 

Liquidity

 

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

 

   December 31,   June 30,     
   2019   2019   Change 
   (In thousands) 
Working capital  $23,308   $26,718   $(3,410)
Cash, cash equivalents, and restricted cash  $15,347   $18,282   $(2,935)

 

In July 2019, we acquired Maestro which reduced our net cash balance by $5,073,000. In January 2020, our acquisition of Intrinsyc used approximately $11,000,000 of our total cash, cash equivalents, and restricted cash on hand at December 31, 2019 of $15,347,000. Additionally, the net loss incurred during the six months ended December 31, 2019 resulted in our using cash in operating activities of $3,779,000.

  

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our loan agreement with our bank, and cash generated from operations. 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 following: timing and amount of our net revenue; our product mix and the resulting gross margins; research and development expenses; selling, general and administrative expenses; and expenses associated with any strategic partnerships, acquisitions or infrastructure investments.

   

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 strategic 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 securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funds, we may incur debt service obligations, become subject to additional restrictions that limit or restrict our ability to operate our business, or be required to further encumber our assets. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all.

 

 

 

 

 28 
 

 

Bank Loan Agreement

 

Refer to Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our loan agreement.

 

Cash Flows

 

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

 

   Six Months Ended     
   December 31,     
   2019   2018   Change 
   (In thousands) 
Net cash used in operating activities  $(3,779)  $(313)  $(3,466)
Net cash used in investing activities   (5,353)   (355)   (4,998)
Net cash provided by financing activities   6,197    10,467    (4,270)

 

Operating Activities

 

Cash used from operating activities during the six months ended December 31, 2019 increased compared to the prior year period largely due to an increase in our net loss, which was impacted during the six months ended December 31, 2019 by an increase in operating expenses and acquisition-related costs for the acquisitions of Maestro and Intrinsyc. Our net loss included $2,289,000 of non-cash charges, which was substantially offset by cash used from changes in operating assets and liabilities totaling $2,247,000.

 

Investing Activities

 

Net cash used in investing activities during the six months ended December 31, 2019 was related to the acquisition of Maestro for net cash of $5,073,000 as well as capital expenditures for the purchase of property and equipment, primarily related to tooling and test equipment.

 

Financing Activities

 

Net cash provided by financing activities during the six months ended December 31, 2018 resulted primarily from the public offering of common stock described above. For the period ended December 31, 2019 financing activities provided cash from the issuance of a term loan for $6,000,000 with Silicon Valley Bank as well as stock option exercises by employees. This was partially offset by payments for (i) withholding taxes related to the vesting of restricted stock units and (ii) capital leases.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, including structured finance or special purpose entities, that have been established to facilitate off-balance sheet arrangements or for other purposes.

 

 

 

 

 

 

 

 29 
 

 

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 principal executive officer and principal 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 principal executive officer and principal 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 principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 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 December 31, 2019, 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.

  

 

 

 

 

 

 30 
 

 

PART II. OTHER INFORMATION

 

Item 1.   Legal Proceedings

 

From time to time, we are involved in various legal proceedings and claims arising in the ordinary course of our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors.  

 

Item 1A.   Risk Factors

 

An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all of the information in this Report, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Report, and the unaudited condensed consolidated financial statements and related notes thereto in Part I, Item 1 of this Report. In addition, you should carefully consider the risks and uncertainties described in the section entitled “Risk Factors” in the Form 10-K, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, financial condition, operating results and prospects.

 

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

 

None.

 

Item 3.   Defaults Upon Senior Securities

 

None.

 

Item 4.   Mine Safety Disclosures

 

Not applicable.

 

Item 5.   Other Information

 

None.

 

 

 

 

 

 

 31 
 

 

 

Item 6.   Exhibits

 

      Incorporated by Reference

Exhibit

Number

Description

Provided

Herewith

Form Exhibit

Filing

Date

           
2.1* Share Purchase Agreement, dated July 5, 2019, by and among Lantronix Holding Company, Maestro Wireless Solutions Limited, Fargo Telecom Asia Limited and Maestro & FALCOM Holdings Limited   8-K 2.1 7/10/2019
           
2.2* Arrangement Agreement, dated October 30, 2019, by and between Lantronix and Intrinsyc   8-K 2.1 11/1/2019
           
10.1 Form of Voting Agreement   8-K 10.1 11/1/2019
           
10.2 Second Amended and Restated Loan and Security Agreement dated as of November 12, 2019, by and among Lantronix, Inc., Lantronix Holding Company and Silicon Valley Bank   8-K 10.1 11/14/2019
           
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.INS XBRL Instance Document X      
101.SCH XBRL Taxonomy Extension Schema Document X      
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X      
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X      
101.LAB XBRL Taxonomy Extension Label Linkbase Document X      
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X      

_________________

* Portions of this Exhibit, including certain schedules and exhibits to this Exhibit, have been omitted in accordance with Item 601(b) of Regulation S-K. A copy of any omitted information, schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
** Furnished, not filed.

 

 

 

 

 

 32 
 

 

SIGNATURES

 

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

 

  LANTRONIX, INC.
   
     
Date: February 13, 2020 By: /s/ PAUL PICKLE
    Paul Pickle
    President and Chief Executive Officer
    (Principal Executive Officer)
     
     
Date: February 13, 2020 By: /s/ JEREMY WHITAKER
    Jeremy Whitaker
Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 33 

 

EX-31.1 2 lantronix_ex3101.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Paul Pickle, 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 the Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Securities Exchange Act of 1934, as amended, 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 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 functions):

 

  (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: February 13, 2020 /s/ Paul Pickle                               
 

Paul Pickle

President and Chief Executive Officer (Principal Executive Officer)

 

 

 

 

EX-31.2 3 lantronix_ex3102.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

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 the Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Securities Exchange Act of 1934, as amended, 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 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 functions):

 

  (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: February 13, 2020 /s/ Jeremy Whitaker                                         
 

Jeremy Whitaker

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

EX-32.1 4 lantronix_ex3201.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

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 December 31, 2019 (the “Report”) pursuant to U.S.C. Section 1350, and pursuant to SEC Release No. 33-8238 are being “furnished” to the Securities and Exchange Commission 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 adopted pursuant to 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: February 13, 2020 /s/ Paul Pickle                                           
 

Paul Pickle

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

Certification of the 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 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: February 13, 2020 /s/ Jeremy Whitaker                                     
 

Jeremy Whitaker

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

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3. Revenue (Details - Revenues by product line) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Revenues $ 13,228 $ 12,114 $ 25,969 $ 24,393
IoT [Member]        
Revenues 11,180 9,070 21,401 18,037
IT Management [Member]        
Revenues 1,832 2,888 4,133 5,989
Other [Member]        
Revenues $ 216 $ 156 $ 435 $ 367
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5. Supplemental Financial Information (Tables)
6 Months Ended
Dec. 31, 2019
Supplemental Financial Information  
Schedule of Inventory
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Finished goods  $6,661   $6,084 
Raw materials   4,363    4,425 
Inventories, net  $11,024   $10,509 
Schedule of Other Liabilities
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Current        
Accrued variable consideration  $1,381   $1,313 
Customer deposits and refunds   516    168 
Accrued raw materials purchases   374    1,155 
Deferred revenue   401    328 
Lease liability   955    4 
Taxes payable   360    322 
Accrued operating expenses   1,261    1,290 
Total other current liabilities  $5,248   $4,580 
           
Non-current          
Lease liability  $966   $48 
Deferred revenue   171    158 
Total other non-current liabilities  $1,137   $206 
Schedule of Computation of Net Income (Loss) per Share
   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands, except per share data) 
Numerator:                    
Net income (loss)  $(1,351)  $277   $(3,821)  $194 
Denominator:                    
Weighted-average common shares outstanding - basic   23,145    22,091    23,029    20,721 
Effect of dilutive securities:       1,351        1,542 
Denominator for net income (loss) per share - diluted   23,145    23,442    23,029    22,263 
                     
Net income (loss) per share - basic  $(0.06)  $0.01   $(0.17)  $0.01 
Net income (loss) per share - diluted  $(0.06)  $0.01   $(0.17)  $0.01 
Schedule of Common Stock Equivalents
   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands) 
Common stock equivalents   1,659    70    1,726    4 
Schedule of severance and related charges
   Six Months Ended 
   December 31, 
   2019 
   (In thousands) 
Beginning balance  $651 
Charges   1,103 
Payments   (1,267)
Ending balance  $487 
Schedule of Supplemental Cash Flow Information
   Six Months Ended 
   December 31, 
   2019   2018 
   (In thousands) 
Accrued property and equipment paid for in the subsequent period  $133   $6 
Schedule of Warranty Reserve
   Six Months Ended   Year Ended 
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Beginning balance  $116   $99 
Charged to cost of revenue   (25)   96 
Usage   (2)   (79)
Ending balance  $89   $116 
XML 15 R24.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
2. Business Combinations (Details - Purchase price allocation) - USD ($)
$ in Thousands
Dec. 31, 2019
Jul. 05, 2019
Jun. 30, 2019
Goodwill $ 12,458   $ 9,488
Maestro Wireless Solutions [Member]      
Cash and cash equivalents   $ 282  
Accounts receivable   1,320  
Inventories   1,611  
Prepaid expense and other current assets   283  
Property and equipment   108  
Amortizable intangible assets   1,910  
Other non-current assets   213  
Goodwill   2,970  
Accounts payable   (1,568)  
Accrued payroll and related expenses   (249)  
Other current liabilities   (1,361)  
Other non-current liabilities   (164)  
Total consideration   $ 5,355  
XML 16 R45.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
8. Stockholders Equity (Details - ESPP activity) - ESPP [Member]
shares in Thousands
6 Months Ended
Dec. 31, 2019
shares
Shares available for issuance, beginning balance 517
Shares issued (64)
Shares available for future issuance, ending balance 453
XML 17 R2.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Condensed Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
Dec. 31, 2019
Jun. 30, 2019
Current assets:    
Cash and cash equivalents $ 9,347 $ 18,282
Restricted cash 6,000 0
Accounts receivable, net 9,379 7,388
Inventories, net 11,024 10,509
Contract manufacturers' receivable 373 1,324
Prepaid expenses and other current assets 1,307 687
Total current assets 37,430 38,190
Property and equipment, net 1,412 1,199
Goodwill 12,458 9,488
Purchased intangible assets, net 1,615 0
Other assets 2,040 67
Total assets 54,955 48,944
Current liabilities:    
Accounts payable 5,065 4,716
Accrued payroll and related expenses 2,248 2,060
Warranty reserve 89 116
Short-term debt, net 1,472 0
Other current liabilities 5,248 4,580
Total current liabilities 14,122 11,472
Long-term debt, net 4,418 0
Other non-current liabilities 1,137 206
Total liabilities 19,677 11,678
Stockholders' equity:    
Common stock 2 2
Additional paid-in capital 228,107 226,274
Accumulated deficit (193,202) (189,381)
Accumulated other comprehensive income 371 371
Total stockholders' equity 35,278 37,266
Total liabilities and stockholders' equity $ 54,955 $ 48,944
XML 18 R6.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
1. Summary of Significant Accounting Policies
6 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

 

1. Summary of Significant Accounting Policies

 

The Company

 

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global provider of secure data access and management solutions for Internet of Things (“IoT”) assets. Our mission is to be the leading supplier of IoT and related Information Technology (“IT”) management solutions that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles 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, 2019, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which was filed with the SEC on September 11, 2019. 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 December 31, 2019, the consolidated results of our operations for the three and six months ended December 31, 2019 and our consolidated cash flows for the six months ended December 31, 2019. All intercompany accounts and transactions have been eliminated. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended December 31, 2019 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 fiscal year financial information to conform with the current fiscal year presentation.

 

Recent Accounting Pronouncements

   

Shared-Based Compensation

 

On July 1, 2019, Lantronix adopted Accounting Standard Update No. 2018-07 that expands the scope of existing share-based compensation guidance for employees. The standard includes share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The adoption of the standard did not have a material impact on our financial statements.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (“ASU 2016-02” or “Topic 842”) that revises lease accounting guidance. Most prominent among the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities based on the present value of lease payments over the lease term by lessees for those leases classified as operating leases under the existing guidance.

 

We adopted Topic 842 on July 1, 2019 using the modified retrospective approach by applying the new standard to leases existing at the date of adoption and not restating comparative prior periods. The adoption did not have a material impact on our results of operations or cash flows. Refer to Note 4 below for additional information.

XML 19 R41.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
6. Warranty Reserve (Details - Warranty reserve) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Dec. 31, 2019
Jun. 30, 2019
Product Warranties Disclosures [Abstract]    
Beginning balance $ 116 $ 99
Charged to cost of revenue (25) 96
Usage (2) (79)
Ending balance $ 89 $ 116
XML 20 R49.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
9. Income Taxes (Details)
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Income Tax Disclosure [Abstract]        
Effective tax rate 3.00% 5.00% 2.00% 22.00%
XML 21 R35.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
5. Supplemental Financial Information (Details - Other liabilities) - USD ($)
$ in Thousands
Dec. 31, 2019
Jun. 30, 2019
Current    
Accrued variable consideration $ 1,381 $ 1,313
Customer deposits and refunds 516 168
Accrued raw materials purchases 374 1,155
Deferred revenue 401 328
Lease liability   4
Lease liability 955  
Taxes payable 360 322
Accrued operating expenses 1,261 1,290
Total other current liabilities 5,248 4,580
Non-current    
Lease liability 966 48
Deferred revenue 171 158
Total other non-current liabilities $ 1,137 $ 206
XML 22 R31.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
4. Leases (Details - Components of lease expense)
$ in Thousands
6 Months Ended
Dec. 31, 2019
USD ($)
Components of lease expense  
Operating lease cost $ 677
Financing lease cost 3
Supplemental cash flow information  
Cash paid for amounts included in the measurement of operating lease liabilities 497
Cash paid for amounts included in the measurement of financing lease liabilities 3
Right-of-use assets obtained in exchange for lease obligation $ 1,119
XML 23 R39.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
5. Supplemental Financial Information (Details - Non-cash acquisition) - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Supplemental Cash Flow Information    
Accrued property and equipment paid for in the subsequent period $ 133 $ 6
XML 24 R12.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
7. Bank Loan Agreement
6 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Bank Loan Agreement

7. Bank Loan Agreement

 

On November 12, 2019, we entered into a Second Amended and Restated Loan and Security Agreement (“Amended Agreement”) with Silicon Valley Bank (“SVB”), which amended, restated and superseded our previous agreement with SVB in its entirety.

 

Pursuant to the Amended Agreement, SVB made available to us a senior secured revolving line of credit of up to $6,000,000 (“Revolving Facility”) and a senior secured term loan of $6,000,000 (“Term Loan Facility”). Advances under the Revolving Facility may be borrowed from time to time prior to November 12, 2021, subject to the satisfaction of certain conditions, and may be used to fund our working capital and general business requirements. The $6,000,000 proceeds of the Term Loan Facility were drawn in full in November 2019 to be used solely to fund our acquisition of Intrinsyc, which occurred in January 2020 (refer to Note 2 above). These proceeds are recorded as restricted cash in the accompanying condensed consolidated balance sheet at December 31, 2019. The Revolving Facility matures on November 12, 2021. There were no borrowings on the Revolving Facility at December 31, 2019. The Term Loan Facility is repayable over a 48 month period commencing January 1, 2020 after an initial interest-only period until the close of the acquisition of Intrinsyc.

 

The interest rate on the Revolving Facility floats at a rate per annum equal to the greater of the prime rate and 5.00 percent. The interest rate on the Term Loan Facility floats at a rate per annum equal to the greater of 1.00 percent above the prime rate and 6.00 percent. We may elect to repay and reborrow the amounts outstanding under the Revolving Facility at any time prior to the maturity date of the Revolving Facility without premium or penalty. We may elect to repay the Term Loan Facility at any time without premium or penalty in minimum amounts equal to at least $1,000,000. A commitment fee in the amount of $60,000 was paid to SVB on the closing date and a $10,000 anniversary fee is payable to SVB on the earliest to occur of the one year anniversary of the effective date, the termination of the Amended Agreement or the Revolving Facility, or the occurrence of an event of default.

 

The Amended Agreement includes a financial covenant that requires that we maintain a minimum cash balance of $3,000,000 at SVB, as measured at the end of each month. The Amended agreement also requires that we do not exceed a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions of (i) 3.0 to 1.0 for each calendar quarter ending December 31, 2019 through and including December 31, 2020, (ii) 2.5 to 1.0 for each calendar quarter ending March 31, 2021 through and including December 31, 2021, and (iii) 2.0 to 1.0 for each calendar quarter ending after January 1, 2022. We are currently in compliance with all covenants.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
1. Summary of Significant Accounting Policies (Policies)
6 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
The Company

The Company

 

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global provider of secure data access and management solutions for Internet of Things (“IoT”) assets. Our mission is to be the leading supplier of IoT and related Information Technology (“IT”) management solutions that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.

Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles 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, 2019, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which was filed with the SEC on September 11, 2019. 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 December 31, 2019, the consolidated results of our operations for the three and six months ended December 31, 2019 and our consolidated cash flows for the six months ended December 31, 2019. All intercompany accounts and transactions have been eliminated. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended December 31, 2019 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 fiscal year financial information to conform with the current fiscal year presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

   

Shared-Based Compensation

 

On July 1, 2019, Lantronix adopted Accounting Standard Update No. 2018-07 that expands the scope of existing share-based compensation guidance for employees. The standard includes share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The adoption of the standard did not have a material impact on our financial statements.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (“ASU 2016-02” or “Topic 842”) that revises lease accounting guidance. Most prominent among the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities based on the present value of lease payments over the lease term by lessees for those leases classified as operating leases under the existing guidance.

 

We adopted Topic 842 on July 1, 2019 using the modified retrospective approach by applying the new standard to leases existing at the date of adoption and not restating comparative prior periods. The adoption did not have a material impact on our results of operations or cash flows. Refer to Note 4 below for additional information.

XML 26 R38.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
5. Supplemental Financial Information (Details - Severance of Related Charges) - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Supplemental Financial Information    
Severance payable, beginning balance $ 651  
Charges 1,103 $ 323
Payments (1,267)  
Severance payable, ending balance $ 487  
XML 27 R34.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
5. Supplemental Financial Information (Details - Inventories) - USD ($)
$ in Thousands
Dec. 31, 2019
Jun. 30, 2019
Supplemental Financial Information    
Finished goods $ 6,661 $ 6,084
Raw materials 4,363 4,425
Inventories, net $ 11,024 $ 10,509
XML 28 R30.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
3. Revenue (Details - Changes in Deferred Revenue) - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2019
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]    
Deferred revenue, beginning balance $ 486  
New performance obligations 110  
Performance obligations assumed from acquisition of Maestro 178  
Recognition of revenue as a result of satisying performance obligations (202)  
Deferred revenue, ending balance 572  
Less: non-current portion of deferred revenue (171) $ (158)
Current portion ending balance $ 401 $ 328
XML 29 R13.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
8. Stockholders' Equity
6 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders' Equity

8. Stockholders’ Equity

 

 Stock Incentive Plans

 

Our stock incentive 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 December 31, 2019, no stock appreciation rights or non-vested stock was outstanding.

 

Stock Options

 

The following table presents a summary of activity during the six months ended December 31, 2019 with respect to our stock options:

 

       Weighted- 
       Average 
   Number of   Exercise Price 
   Shares   per Share 
   (In thousands)     
Balance of options outstanding at June 30, 2019   3,147   $2.29 
Granted   79    3.06 
Forfeited   (146)   2.40 
Expired   (67)   2.21 
Exercised   (425)   1.66 
Balance of options outstanding at December 31, 2019   2,588   $2.41 

 

Restricted Stock Units

 

The following table presents a summary of activity during the six months ended December 31, 2019 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, 2019   866   $4.24 
Granted   276    3.28 
Vested   (168)   4.80 
Forfeited   (34)   4.35 
Balance of RSUs outstanding at December 31, 2019   940   $3.85 

 

Performance Stock Units

 

In October 2019, we granted 975,000 RSUs with performance-based vesting requirements (“performance stock units” or “PSUs”) to certain executive employees. One third of the PSUs will be eligible to vest in each of the three years beginning in fiscal 2020 if certain earnings per share, revenue targets and market conditions are met. The estimate of the grant date fair value and related share-based compensation expense included the use of a Monte Carlo simulation which incorporates estimates of the potential outcomes of the market condition of these awards.

 

Employee Stock Purchase Plan

 

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

 

The following table presents a summary of activity under our ESPP during the six months ended December 31, 2019:

 

   Number of 
   Shares 
   (In thousands) 
Shares available for issuance at June 30, 2019   517 
Shares issued   (64)
Shares available for issuance at December 31, 2019   453 

 

Share-Based Compensation Expense

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands)         
Cost of revenue  $48   $23   $72   $40 
Selling, general and administrative   777    337    1,236    737 
Research and development   113    91    208    152 
Total share-based compensation expense  $938   $451   $1,516   $929 

 

The following table presents the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of December 31, 2019:

 

   Remaining   Remaining 
   Unrecognized   Weighted- 
   Compensation   Average Years 
   Expense   To Recognize 
   (In thousands)     
Stock options  $1,488    2.6 
RSUs   3,269    3.2 
PSUs   1,469    2.4 
Stock purchase rights under ESPP   44    0.4 
   $6,270      

 

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.

XML 30 R17.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
2. Business Combinations (Tables)
6 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Purchase price allocation
   July 5, 2019 (provisional) 
Cash and cash equivalents   282 
Accounts receivable   1,320 
Inventories   1,611 
Prepaid expense and other current assets   283 
Property and equipment   108 
Amortizable intangible assets   1,910 
Other non-current assets   213 
Goodwill   2,970 
Accounts payable   (1,568)
Accrued payroll and related expenses   (249)
Other current liabilities   (1,361)
Other non-current liabilities   (164)
Total consideration  $5,355 
Valuation of identifiable intangible assets
   Asset Fair Value   Weighted Average Useful Life (years) 
   (In thousands, except for useful life) 
Developed technology  $1,530    5.0 
Customer relationship   100    2.0 
Order backlog   110    1.0 
Non-compete agreements   30    2.0 
Trade name   140    1.0 
Supplemental Pro Forma Information
   Six Months Ended December 31, 
   2019   2018 
   (In thousands, except per share amounts) 
Pro forma net revenue  $25,969   $29,702 
Pro forma net loss  $(2,165)  $(2,221)
           
Pro forma net loss per share          
Basic  $(0.09)  $(0.11)
Diluted  $(0.09)  $(0.10)
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
6. Warranty Reserve (Tables)
6 Months Ended
Dec. 31, 2019
Product Warranties Disclosures [Abstract]  
Schedule of warranty reserve
   Six Months Ended   Year Ended 
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Beginning balance  $116   $99 
Charged to cost of revenue   (25)   96 
Usage   (2)   (79)
Ending balance  $89   $116 
XML 32 R25.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
2. Business Combinations (Details - Intangible asset valuation) - Maestro Wireless Solutions [Member]
$ in Thousands
Jul. 05, 2019
USD ($)
Asset Fair Value $ 1,910
Developed Technology [Member]  
Asset Fair Value $ 1,530
Weighted Average Useful Life (years) 5 years
Customer Relationships [Member]  
Asset Fair Value $ 100
Weighted Average Useful Life (years) 2 years
Order Backlog [Member]  
Asset Fair Value $ 110
Weighted Average Useful Life (years) 1 year
Noncompete Agreements [Member]  
Asset Fair Value $ 30
Weighted Average Useful Life (years) 2 years
Trade Names [Member]  
Asset Fair Value $ 140
Weighted Average Useful Life (years) 1 year
XML 33 R29.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
3. Revenue (Details - Revenue by Geography) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Revenues $ 13,228 $ 12,114 $ 25,969 $ 24,393
Americas [Member]        
Revenues 5,840 6,182 11,604 13,096
Europe, Middle East, Africa [Member]        
Revenues 4,362 4,080 8,883 7,600
Asia Pacific [Member]        
Revenues $ 3,026 $ 1,852 $ 5,482 $ 3,697
XML 34 R48.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
8. Stockholders' Equity (Details Narrative)
shares in Thousands
3 Months Ended
Dec. 31, 2019
shares
Restricted Stock Units (RSUs) [Member]  
Stock options granted 975
XML 35 R44.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
8. Stockholders Equity (Details - RSU activity) - Restricted Stock Units (RSUs) [Member]
shares in Thousands
6 Months Ended
Dec. 31, 2019
$ / shares
shares
Number of RSU's Shares  
Balance of RSU's, beginning | shares 866
Granted | shares 276
Vested | shares (168)
Forfeited | shares (34)
Balance of RSU's, ending | shares 940
Weighted Average Grant Date Fair Value per share  
RSU Shares Weighted-Average Grant-Date Fair Value per Share, beginning | $ / shares $ 4.24
RSU Shares Granted, Weighted-Average Grant-Date Fair Value per Share | $ / shares 3.28
RSU Shares Vested, Weighted-Average Grant-Date Fair Value per Share | $ / shares 4.80
RSU Shares Forfeited, Weighed-Average Grant Date Fair Value per Share | $ / shares 4.35
RSU Shares Weighted-Average Grant-Date Fair Value per Share, ending | $ / shares $ 3.85
XML 36 R3.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Condensed Consolidated Statements of Operations (unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]        
Net revenue $ 13,228 $ 12,114 $ 25,969 $ 24,393
Cost of revenue 6,451 5,453 12,997 10,952
Gross profit 6,777 6,661 12,972 13,441
Operating expenses:        
Selling, general and administrative 4,871 4,159 9,344 8,430
Research and development 2,336 2,279 4,957 4,494
Restructuring, severance and related charges 354 0 1,103 323
Acquisition-related costs 353 0 996 0
Amortization of purchased intangible assets 151 0 295 0
Total operating expenses 8,065 6,438 16,695 13,247
Income (loss) from operations (1,288) 223 (3,723) 194
Interest income (expense), net (16) 60 40 56
Other income (expense), net (10) 8 (53) (2)
Income (loss) before income taxes (1,314) 291 (3,736) 248
Provision for income taxes 37 14 85 54
Net income (loss) $ (1,351) $ 277 $ (3,821) $ 194
Net income (loss) per share - basic $ (0.06) $ 0.01 $ (0.17) $ 0.01
Net income (loss) per share - diluted $ (0.06) $ 0.01 $ (0.17) $ 0.01
Weighted-average common shares - basic 23,145 22,091 23,029 20,721
Weighted-average common shares - diluted 23,145 23,442 23,029 22,263
XML 37 R7.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
2. Business Combinations
6 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combinations

2. Business Combinations

 

Acquisition of Maestro

 

On July 5, 2019 (the "Acquisition Date"), Lantronix acquired all outstanding shares of Maestro Wireless Solutions Limited, a Hong Kong private company limited by shares (“MWS”), Fargo Telecom Asia Limited, a Hong Kong private company limited by shares (“FTA” and together with MWS and their respective subsidiaries, the “Acquired Companies” or “Maestro”) for $5,355,000 in cash. The acquisition provides complementary cellular connectivity technologies to our portfolio of IoT solutions.


We recorded Maestro’s tangible and intangible assets and liabilities based on their estimated fair values as of the Acquisition Date and allocated the remaining purchase consideration to goodwill. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. The consideration allocation set forth herein is preliminary and may be revised as additional information becomes available during the measurement period which could be up to 12 months from the Acquisition Date. Any such revisions or changes may be material. The preliminary purchase price allocation is as follows (in thousands):

 

   July 5, 2019 (provisional) 
Cash and cash equivalents   282 
Accounts receivable   1,320 
Inventories   1,611 
Prepaid expense and other current assets   283 
Property and equipment   108 
Amortizable intangible assets   1,910 
Other non-current assets   213 
Goodwill   2,970 
Accounts payable   (1,568)
Accrued payroll and related expenses   (249)
Other current liabilities   (1,361)
Other non-current liabilities   (164)
Total consideration  $5,355 

 

The factors that contributed to a purchase price resulting in the recognition of goodwill include our belief that the acquisition will create a more diverse IoT company with respect to product offerings and our belief that we are committed to improving cost structures in accordance with our operational and restructuring plans which should result in a realization of cost savings and an improvement of overall efficiencies.

 

Acquisition-related costs were expensed in the periods in which the costs were incurred.

 

The valuation of identifiable intangible assets and their estimated useful lives are as follows:

 

   Asset Fair Value   Weighted-Average Useful Life (years) 
   (In thousands, except for useful life) 
Developed technology  $1,530    5.0 
Customer relationship   100    2.0 
Order backlog   110    1.0 
Non-compete agreements   30    2.0 
Trade name   140    1.0 

 

The intangible assets are amortized on a straight-line basis over the estimated weighted-average useful lives.

 

Supplemental Pro Forma Information

 

The following supplemental pro forma data summarizes the Company’s results of operations for the periods presented, as if we completed the acquisition of Maestro as of the first day of fiscal 2019. The supplemental pro forma data reports actual operating results adjusted to include the pro forma effect and timing of the impact in amortization expense of identified intangible assets, restructuring costs, the purchase accounting effect on inventories acquired, and transaction costs. In accordance with the pro forma acquisition date, we recorded in the fiscal 2019 supplemental pro forma data (i) cost of goods sold from manufacturing profit in acquired inventory of $171,000, (ii) Maestro related restructuring costs of $651,000 and (iii) acquisition-related costs of $724,000, with a corresponding reduction in the fiscal 2020 supplemental proforma data. Additionally, we recorded $295,000 of amortization expense in the fiscal 2019 supplemental pro-forma data, and reversed amortization expense of $110,000 in the fiscal 2020 supplemental pro forma data to represent the amount related to assets that would have been fully amortized.

 

Net sales related to products from the acquisition of Maestro contributed approximately 24% to 28% of net sales for the six months ended December 31, 2019. Post-acquisition net sales and earnings on a standalone basis are generally impracticable to determine, as on the Acquisition Date, we implemented a plan developed prior to the completion of the acquisition and began to immediately integrate the acquisition into existing operations, engineering groups, sales distribution networks and management structure. 

 

Supplemental pro forma data is as follows:

 

   Six Months Ended December 31, 
   2019   2018 
   (In thousands, except per share amounts) 
Pro forma net revenue  $25,969   $29,702 
Pro forma net loss  $(2,165)  $(2,221)
           
Pro forma net loss per share          
Basic  $(0.09)  $(0.11)
Diluted  $(0.09)  $(0.10)

 

Acquisition of Intrinsyc

 

On January 16, 2020 (the “Closing Date”), we completed the previously announced acquisition of Intrinsyc Technologies Corporation (“Intrinsyc”), a company existing under the laws of British Columbia, Canada. Pursuant to the terms of the agreement, dated October 30, 2019 (the “Agreement”), by and between Lantronix and Intrinsyc, all of the outstanding common shares of Intrinsyc were acquired by Lantronix. Under the Agreement, we paid $0.50 and 0.2275 of a share of our common stock for each issued and outstanding common share of Intrinsyc. Pursuant to the Agreement, we paid, in the aggregate, approximately $11,000,000 in cash and issued approximately 4,300,000 shares of Lantronix common stock to Intrinsyc shareholders. Following the acquisition, Intrinsyc shareholders owned just under 16% of the outstanding shares of Lantronix common stock. Additionally, pursuant to the Agreement, Lantronix agreed to exchange certain options to purchase Intrinsyc shares and restricted stock units (“RSUs”) for cash payments, Lantronix common stock options or RSUs or a combination thereof, as further outlined in the Agreement.

 

The acquisition provides us with complementary IoT computing and embedded product development capabilities and expands our IoT market opportunity.

 

We are currently evaluating the fair value of acquired assets and liabilities, including any identifiable intangible assets. We have not yet completed the initial accounting related to this acquisition as we are compiling and evaluating all the necessary information. We expect to present a preliminary allocation of the fair value of the acquired assets and liabilities and pro forma disclosure in our Form 10-Q filing for the quarter ending March 31, 2020.

XML 38 R40.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
5. Supplemental Financial Information (Details Narrative) - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Severance costs $ 1,103 $ 323
Maestro Wireless Solutions [Member]    
Severance costs $ 1,103  
XML 39 R19.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
4. Leases (Tables)
6 Months Ended
Dec. 31, 2019
Lessee Disclosure [Abstract]  
Components of lease expense
   Six months ended 
   December 31, 2019 
   (In thousands) 
Components of lease expense     
Operating lease cost  $677 
Financing lease cost  $3 
      
Supplemental cash flow information     
Cash paid for amounts included in the measurement of operating lease liabilities  $497 
Cash paid for amounts included in the measurement of financing lease liabilities  $3 
      
Right-of-use assets obtained in exchange for lease obligation  $1,119 
Maturities of lease liabilities
Years ending June 30,                                Operating   Financing 
   (In thousands) 
2020   $535   $5 
2021   667    9 
2022   272    9 
2023   265    9 
2024   274    3 
Thereafter   70      
Total remaining lease payments   2,083    35 
less: imputed interest   (197)    
Lease liability  $1,886   $35 
Reported as:          
Current liabilities  $(946)  $(9)
Non-current liabilities  $(940)  $(26)
XML 40 R11.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
6. Warranty Reserve
6 Months Ended
Dec. 31, 2019
Product Warranties Disclosures [Abstract]  
Warranty Reserve

6. Warranty Reserve

 

The standard warranty periods we provide for our products typically 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 for any known or anticipated product warranty issues.

 

The following table presents details of our warranty reserve:

 

   Six Months Ended   Year Ended 
   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Beginning balance  $116   $99 
Charged to cost of revenue   (25)   96 
Usage   (2)   (79)
Ending balance  $89   $116 

XML 41 R15.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
10. Commitments and Contingencies
6 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10. Commitments and Contingencies

 

From time to time, we are involved in various legal proceedings and claims arising in the ordinary course of our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors.

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5. Supplemental Financial Information (Details - Net Loss per Share) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Numerator:        
Net loss $ (1,351) $ 277 $ (3,821) $ 194
Denominator:        
Weighted-average common shares outstanding - basic 23,145 22,091 23,029 20,721
Effect of dilutive securities 0 1,351 0 1,542
Demonimator for net income (loss) per share- diluted 23,145 23,442 23,029 22,263
Net income (loss) per share - basic $ (0.06) $ 0.01 $ (0.17) $ 0.01
Net income (loss) per share - diluted $ (0.06) $ 0.01 $ (0.17) $ 0.01

XML 44 R32.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
4. Leases (Details - Maturities of lease liabilities)
$ in Thousands
Dec. 31, 2019
USD ($)
Operating lease maturities  
2020 (remainder of the year) $ 535
2021 667
2022 272
2023 265
2024 274
Thereafter 70
Total remaining lease payments 2,083
less: imputed interest (197)
Lease liability 1,886
Current liabilities (946)
Long-term liabilities (940)
Financing lease maturities  
2020 (remainder of the year) 5
2021 9
2022 9
2023 9
2024 3
Thereafter 0
Total remaining lease payments 35
less: imputed interest 0
Lease liability 35
Current liabilities (9)
Long-term liabilities $ (26)
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9. Income Taxes (Tables)
6 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of Effective Income Tax Reconciliation
   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Effective tax rate   3%    5%    2%    22% 
XML 47 R27.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
2. Business Combinations (Details Narrative) - USD ($)
shares in Thousands, $ in Thousands
6 Months Ended 7 Months Ended
Jul. 05, 2019
Dec. 31, 2019
Jan. 16, 2020
Maestro Wireless Solutions [Member]      
Business combination amount transferred $ 5,355    
Amortization expense   $ 295  
Reversed amortization expense   $ 110  
Maestro Wireless Solutions [Member] | Manufacturing profit [Member]      
Other proforma expenses 171    
Maestro Wireless Solutions [Member] | Restructuring Costs [Member]      
Other proforma expenses 651    
Maestro Wireless Solutions [Member] | Acquisition Related Costs [Member]      
Other proforma expenses $ 724    
Intrinsyc [Member] | Subsequent Event [Member]      
Cash paid for acquisition     $ 11,000
Stock issued for acquisition     4,300
XML 48 R9.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
4. Leases
6 Months Ended
Dec. 31, 2019
Lessee Disclosure [Abstract]  
Leases

4. Leases

 

On July 1, 2019, we adopted Topic 842 and elected the available practical expedient to recognize the cumulative effect of initially adopting the standard as an adjustment to the opening balance sheet of the period of adoption (i.e., July 1, 2019). We also elected other available practical expedients and will not separate lease components from non-lease components for office leases, or reassess historical lease classification, whether existing or expired contracts are or contain leases, or the initial direct costs for existing leases as of July 1, 2019. The condensed consolidated balance sheets and results from operations for reporting periods beginning after July 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 840.

 

Adoption of the standard resulted in the recording of net operating and financing lease ROU assets and corresponding operating and financing lease liabilities of $984,000 and $1,114,000, respectively, on July 1, 2019. The adoption of the standard did not materially affect the condensed consolidated statements of operations and had no impact on cash flows.

 

Our leases include office buildings for facilities worldwide and car leases in Germany, which are all classified as operating leases. We also have financing leases related to office equipment and R&D equipment in the United States. On October 1, 2019 we entered into a lease agreement for an office in Hyderabad, India, which replaces and expands our existing office space there.

 

We determine if an arrangement is a lease at inception. Certain leases include renewal options that are under the Company's sole discretion. The renewal options were included in the ROU asset and lease liability calculation if it is reasonably assured that we will exercise the option. As our leases generally do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of lease payments. Lease expense for these leases is recognized on a straight-line basis over the lease term.

 

Components of lease expense and supplemental cash flow information:

 

   Six months ended 
   December 31, 2019 
   (In thousands) 
Components of lease expense     
Operating lease cost  $677 
Financing lease cost  $3 
      
Supplemental cash flow information     
Cash paid for amounts included in the measurement of operating lease liabilities  $497 
Cash paid for amounts included in the measurement of financing lease liabilities  $3 
      
Right-of-use assets obtained in exchange for lease obligation  $1,119 

 

The weighted-average remaining lease term is 1.6 years. The weighted-average discount rate is 6.16 percent.

 

Maturities of lease liabilities as of December 31, 2019 were as follows:

 

Years ending June 30,                       Operating   Financing 
   (In thousands) 
2020  $535   $5 
2021   667    9 
2022   272    9 
2023   265    9 
2024   274    3 
Thereafter   70      
Total remaining lease payments   2,083    35 
less: imputed interest   (197)    
Lease liability  $1,886   $35 
Reported as:          
Current liabilities  $(946)  $(9)
Non-current liabilities  $(940)  $(26)

 

The lease liabilities and ROU assets as of December 31, 2019 include leases assumed in the acquisition of Maestro if the remaining lease term at the acquisition date was determined to exceed one year. Refer to Note 2 above for further information on the acquisition of Maestro. As of December 31, 2019, the ROU assets totaled $1,832,000 and were recorded in other assets in the unaudited condensed consolidated balance sheet.

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8. Stockholders Equity (Details - Share based compensation) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Total share-based compensation $ 938 $ 451 $ 1,516 $ 929
Cost of revenues [Member]        
Total share-based compensation 48 23 72 40
Selling, general and administrative [Member]        
Total share-based compensation 777 337 1,236 737
Research and development [Member]        
Total share-based compensation $ 113 $ 91 $ 208 $ 152
XML 50 R1.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Document and Entity Information - shares
6 Months Ended
Dec. 31, 2019
Feb. 07, 2020
Cover [Abstract]    
Entity Registrant Name LANTRONIX INC  
Entity Central Index Key 0001114925  
Document Type 10-Q  
Document Period End Date Dec. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   27,737,332
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2020  
Entity Shell Company false  
Entity Small Business true  
Entity Emerging Growth false  
Entity Interactive Data Current Yes  
Entity File Number 001-16027  
Entity Incorporation State Code DE  
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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Operating activities    
Net income (loss) $ (3,821) $ 194
Adjustments to reconcile net income (loss) to net cash used in operating activities:    
Share-based compensation 1,516 929
Depreciation and amortization 303 219
Amortization of purchased intangible assets 295 0
Amortization of manufacturing profit in acquired inventory associated with acquisition 171 0
Amortization of deferred debt issuance costs 4 0
Changes in operating assets and liabilities:    
Accounts receivable (671) (713)
Inventories 925 (1,375)
Contract manufacturers' receivable 951 230
Prepaid expenses and other current assets (337) (289)
Other assets 338 0
Accounts payable (1,352) 369
Accrued payroll and related expenses (61) (77)
Warranty reserve (27) 7
Other liabilities (2,013) 193
Net cash used in operating activities (3,779) (313)
Investing activities    
Purchases of property and equipment (280) (355)
Cash payment for acquisition of Maestro, net of cash and cash equivalents acquired (5,073) 0
Net cash used in investing activities (5,353) (355)
Financing activities    
Net proceeds from issuances of common stock 480 10,667
Tax withholding paid on behalf of employees for restricted shares (163) (169)
Net proceeds from issuance of debt 5,886 0
Payment of lease liabilities (6) (31)
Net cash provided by financing activities 6,197 10,467
Increase (decrease) in cash, cash equivalents, and restricted cash (2,935) 9,799
Cash, cash equivalents, and restricted cash at beginning of period 18,282 9,568
Cash, cash equivalents, and restricted cash at end of period $ 15,347 $ 19,367
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7. Bank Line of Credit and Debt (Details Narrative)
$ in Thousands
6 Months Ended
Dec. 31, 2019
USD ($)
Credit line maximum borrowing amount $ 6,000
Amended Agreement SVB [Member] | Revolving Facility [Member]  
Revolving Line $6.0 million revolving line
Credit line maximum borrowing amount $ 6,000
Maturity date Nov. 12, 2021
Interest rate description The interest rate on the Revolving Facility floats at a rate per annum equal to the greater of the prime rate and 5.00 percent.
Amended Agreement SVB [Member] | Term Loan Facility [Member]  
Maturity date Jan. 01, 2024
Interest rate description The interest rate on the Term Loan Facility floats at a rate per annum equal to the greater of 1.00 percent above the prime rate and 6.00 percent.
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8. Stockholders' Equity (Tables)
6 Months Ended
Dec. 31, 2019
Schedule of share-based compensation expense by functional line item
   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands)         
Cost of revenue  $48   $23   $72   $40 
Selling, general and administrative   777    337    1,236    737 
Research and development   113    91    208    152 
Total share-based compensation expense  $938   $451   $1,516   $929 
Schedule of unrecognized share-based compensation expense
   Remaining   Remaining 
   Unrecognized   Weighted- 
   Compensation   Average Years 
   Expense   To Recognize 
   (In thousands)     
Stock options  $1,488    2.6 
RSUs   3,269    3.2 
PSUs   1,469    2.4 
Stock purchase rights under ESPP   44    0.4 
   $6,270      
Stock Options [Member]  
Summary of stock option activity
       Weighted- 
       Average 
   Number of   Exercise Price 
   Shares   per Share 
   (In thousands)     
Balance of options outstanding at June 30, 2019   3,147   $2.29 
Granted   79    3.06 
Forfeited   (146)   2.40 
Expired   (67)   2.21 
Exercised   (425)   1.66 
Balance of options outstanding at December 31, 2019   2,588   $2.41 
Restricted Stock Units (RSUs) [Member]  
Summary of stock option activity
       Weighted- 
       Average 
       Grant Date 
   Number of   Fair Value 
   Shares   per Share 
    (In thousands)      
Balance of RSUs outstanding at June 30, 2019   866   $4.24 
Granted   276    3.28 
Vested   (168)   4.80 
Forfeited   (34)   4.35 
Balance of RSUs outstanding at December 31, 2019   940   $3.85 
ESPP [Member]  
Summary of stock option activity
   Number of 
   Shares 
   (In thousands) 
Shares available for issuance at June 30, 2019   517 
Shares issued   (64)
Shares available for issuance at December 31, 2019   453 
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2. Business Combinations (Details - Pro forma data) - Maestro Wireless Solutions [Member] - USD ($)
$ / shares in Units, $ in Thousands
6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Pro forma net revenue $ 25,969 $ 29,702
Pro forma net loss $ (2,165) $ (2,221)
Pro forma net loss per share - basic $ (0.09) $ (0.11)
Pro forma net loss per share - diluted $ (0.09) $ (0.10)
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8. Stockholders Equity (Details - Unrecognized expense)
$ in Thousands
6 Months Ended
Dec. 31, 2019
USD ($)
Unrecognized share-based compensation expense $ 6,270
Stock Options [Member]  
Unrecognized share-based compensation expense $ 1,488
Weighted average years to recognize 2 years 7 months 6 days
Restricted Stock Units (RSUs) [Member]  
Unrecognized share-based compensation expense $ 3,269
Weighted average years to recognize 3 years 2 months 12 days
Performance Stock Units (PSUs) [Member]  
Unrecognized share-based compensation expense $ 1,469
Weighted average years to recognize 2 years 4 months 24 days
ESPP [Member]  
Unrecognized share-based compensation expense $ 44
Weighted average years to recognize 4 months 24 days
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Condensed Consolidated Statements of Stockholders Equity (unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Other Comprehensive Income / Loss
Total
Beginning balance, shares at Jun. 30, 2018 18,908        
Beginning balance, value at Jun. 30, 2018 $ 2 $ 212,995 $ (189,555) $ 371 $ 23,813
Cumulative effect of accounting change     582   582
Shares issued pursuant to equity offering, net, shares 2,700        
Shares issued pursuant to equity offering, net, value   9,774     9,774
Shares issued pursuant to stock awards, net shares 605        
Shares issued pursuant to stock awards, net value   893     893
Tax withholding paid on behalf of employees for restricted shares   (169)     (169)
Share-based compensation   929     929
Net income (loss)     194   194
Ending balance, shares at Dec. 31, 2018 22,213        
Ending balance, value at Dec. 31, 2018 $ 2 224,422 (188,779) 371 36,016
Beginning balance, shares at Sep. 30, 2018 21,893        
Beginning balance, value at Sep. 30, 2018 $ 2 223,383 (189,056) 371 34,700
Shares issued pursuant to equity offering, net, shares 100        
Shares issued pursuant to equity offering, net, value   336     336
Shares issued pursuant to stock awards, net shares 220        
Shares issued pursuant to stock awards, net value   308     308
Tax withholding paid on behalf of employees for restricted shares   (56)     (56)
Share-based compensation   451     451
Net income (loss)     277   277
Ending balance, shares at Dec. 31, 2018 22,213        
Ending balance, value at Dec. 31, 2018 $ 2 224,422 (188,779) 371 36,016
Beginning balance, shares at Jun. 30, 2019 22,812        
Beginning balance, value at Jun. 30, 2019 $ 2 226,274 (189,381) 371 37,266
Shares issued pursuant to stock awards, net shares 505        
Shares issued pursuant to stock awards, net value   480     480
Tax withholding paid on behalf of employees for restricted shares   (163)     (163)
Share-based compensation   1,516     1,516
Net income (loss)     (3,821)   (3,821)
Ending balance, shares at Dec. 31, 2019 23,317        
Ending balance, value at Dec. 31, 2019 $ 2 228,107 (193,202) 371 35,278
Beginning balance, shares at Sep. 30, 2019 23,038        
Beginning balance, value at Sep. 30, 2019 $ 2 226,870 (191,851) 371 35,392
Shares issued pursuant to stock awards, net shares 279        
Shares issued pursuant to stock awards, net value   336     336
Tax withholding paid on behalf of employees for restricted shares   (37)     (37)
Share-based compensation   938     938
Net income (loss)     (1,351)   (1,351)
Ending balance, shares at Dec. 31, 2019 23,317        
Ending balance, value at Dec. 31, 2019 $ 2 $ 228,107 $ (193,202) $ 371 $ 35,278
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8. Stockholders Equity (Details - Option activity) - Stock Options [Member]
shares in Thousands
6 Months Ended
Dec. 31, 2019
$ / shares
shares
Number of shares  
Number of Shares Options Outstanding, Beginning | shares 3,147
Number of Shares Options Granted | shares 79
Number of Shares Options Forfeited | shares (146)
Number of Shares Options Expired | shares (67)
Number of Shares Options Exercised | shares (425)
Number of Shares Options Outstanding, Ending | shares 2,588
Weighted Average Exercise Price per share  
Exercise Price Outstanding, Beginning | $ / shares $ 2.29
Exercise Price Granted | $ / shares 3.06
Exercise Price Forfeited | $ / shares 2.40
Exercise Price Expired | $ / shares 2.21
Exercise Price Exercised | $ / shares 1.66
Exercise Price Outstanding, Ending | $ / shares $ 2.41
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3. Revenue
6 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue

3. Revenue

 

The following tables present our net revenue by product line and by geographic region. Net revenues by geographic region are based on the “bill-to” location of our customers:

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
IoT  $11,180   $9,070   $21,401   $18,037 
IT Management   1,832    2,888    4,133    5,989 
Other   216    156    435    367 
   $13,228   $12,114   $25,969   $24,393 

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
Americas  $5,840   $6,182   $11,604   $13,096 
EMEA   4,362    4,080    8,883    7,600 
Asia Pacific Japan   3,026    1,852    5,482    3,697 
   $13,228   $12,114   $25,969   $24,393 

 

Contract Balances

 

In certain instances, the timing of revenue recognition may differ from the timing of invoicing to our customers. We record a contract asset receivable when revenue is recognized prior to invoicing, and a contract or deferred revenue liability when revenue is recognized subsequent to invoicing. With respect to product shipments, we expect to fulfill contract obligations within one year and so we have elected not to separately disclose the amount nor the timing of recognition of these remaining performance obligations. For contract balances related to contracts that include services and multiple performance obligations, refer to the deferred revenue discussion below.

 

Deferred Revenue

 

Deferred revenue is currently comprised primarily of unearned revenue related to our extended warranty services. These services are generally invoiced at the beginning of the contract period and revenue is recognized ratably over the service period. Current and non-current deferred revenue balances represent revenue allocated to the remaining unsatisfied performance obligations at the end of a reporting period and are respectively included in other current liabilities and other non-current liabilities in the accompanying condensed consolidated balance sheets.

 

The following table presents the changes in our deferred revenue balance for the six months ended December 31, 2019 (in thousands):

 

Balance, July 1, 2019  $486 
New performance obligations   110 
Performance obligations assumed from acquisition of Maestro   178 
Recognition of revenue as a result of satisfying performance obligations   (202)
Balance, December 31, 2019  $572 
Less: non-current portion of deferred revenue   (171)
Current portion, December 31, 2019  $401 

 

We expect to recognize substantially all of the non-current portion of deferred revenue over the next two to four years.

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5. Supplemental Financial Information
6 Months Ended
Dec. 31, 2019
Supplemental Financial Information  
Supplemental Financial Information

5. 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:

 

   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Finished goods  $6,661   $6,084 
Raw materials   4,363    4,425 
Inventories, net  $11,024   $10,509 

 

Other Liabilities

 

The following table presents details of our other liabilities:

 

   December 31,   June 30, 
   2019   2019 
   (In thousands) 
Current        
Accrued variable consideration  $1,381   $1,313 
Customer deposits and refunds   516    168 
Accrued raw materials purchases   374    1,155 
Deferred revenue   401    328 
Lease liability   955    4 
Taxes payable   360    322 
Accrued operating expenses   1,261    1,290 
Total other current liabilities  $5,248   $4,580 
           
Non-current          
Lease liability  $966   $48 
Deferred revenue   171    158 
Total other non-current liabilities  $1,137   $206 

 

Computation of Net Income (Loss) per Share

 

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

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands, except per share data) 
Numerator:                    
Net income (loss)  $(1,351)  $277   $(3,821)  $194 
Denominator:                    
Weighted-average common shares outstanding - basic   23,145    22,091    23,029    20,721 
Effect of dilutive securities:       1,351        1,542 
Denominator for net income (loss) per share - diluted   23,145    23,442    23,029    22,263 
                     
Net income (loss) per share - basic  $(0.06)  $0.01   $(0.17)  $0.01 
Net income (loss) per share - diluted  $(0.06)  $0.01   $(0.17)  $0.01 

 

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   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (In thousands) 
Common stock equivalents   1,659    70    1,726    4 

 

Severance and Related Charges

 

Current Fiscal Year

 

During the six months ended December 31, 2019, we continued a plan to realign certain personnel resources to better fit our current business needs, particularly as it relates to identifying cost savings and synergies to be gained from the acquisition of Maestro. These activities resulted in a total charge of approximately $1,103,000.

 

The following table presents details of the liability we recorded related to these activities:

 

   Six Months Ended 
   December 31, 
   2019 
   (In thousands) 
Beginning balance  $651 
Charges   1,103 
Payments   (1,267)
Ending balance  $487 

 

The ending balance is recorded in accrued payroll and related expenses on the accompanying unaudited condensed consolidated balance sheet at December 31, 2019.

 

Prior Fiscal Year

 

During the six months ended December 31, 2018, we executed a plan to realign certain personnel resources to better fit our current business needs. These activities resulted in a total charge of approximately $323,000 of severance costs during the six months ended December 31, 2018.

 

Supplemental Cash Flow Information

 

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

 

   Six Months Ended 
   December 31, 
   2019   2018 
   (In thousands) 
Accrued property and equipment paid for in the subsequent period  $133   $6 

XML 63 R14.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
9. Income Taxes
6 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

 

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

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Effective tax rate   3%    5%    2%    22% 

 

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 we believe it is more likely than not that these assets will be realized. Due to 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 December 31, 2019 and June 30, 2019.

XML 64 R18.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
3. Revenue (Tables)
6 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Net revenue by product lines
   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
IoT  $11,180   $9,070   $21,401   $18,037 
IT Management   1,832    2,888    4,133    5,989 
Other   216    156    435    367 
   $13,228   $12,114   $25,969   $24,393 
Net revenue by geographic region
   Three Months Ended December 31,   Six Months Ended December 31, 
   2019   2018   2019   2018 
   (In thousands)   (In thousands) 
Americas  $5,840   $6,182   $11,604   $13,096 
EMEA   4,362    4,080    8,883    7,600 
Asia Pacific Japan   3,026    1,852    5,482    3,697 
   $13,228   $12,114   $25,969   $24,393 
Changes in deferred revenue
Balance, July 1, 2019  $486 
New performance obligations   110 
Performance obligations assumed from acquisition of Maestro   178 
Recognition of revenue as a result of satisfying performance obligations   (202)
Balance, December 31, 2019  $572 
Less: non-current portion of deferred revenue   (171)
Current portion, December 31, 2019  $401 
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5. Supplemental Financial Information (Details - Equivalents) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2018
Supplemental Financial Information        
Common stock equivalents 1,659 70 1,726 4
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4. Leases (Details Narrative) - USD ($)
$ in Thousands
Dec. 31, 2019
Jul. 02, 2019
Weighted average remaining lease term 1 year 7 months 6 days  
Weighted average discount rate 6.16%  
Operating lease liability $ 1,886  
Operating and finance lease asset   $ 984
Finance lease liablity 35  
Operating and finance lease liability   $ 1,114
Maestro Wireless Solutions [Member]    
Right of use asset and liability $ 1,832