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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2025

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

For the transition period from _________ to _________.

Commission file number: 1-16027

LANTRONIX, INC.

(Exact name of registrant as specified in its charter)

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

48 Discovery, Suite 250, 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☒
Emerging Growth Company ☐

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

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

As of January 30, 2026, there were 39,692,026 shares of the registrant’s common stock outstanding.

LANTRONIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

DECEMBER 31, 2025

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, 2025 and June 30, 2025	4

	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2025 and 2024	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2025 and 2024	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2025 and 2024	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

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	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended December 31, 2025 (the “Report”) contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report, or incorporated by reference into this Report, are forward-looking statements. Throughout this Report, we have attempted to identify forward-looking statements by using words such as “may,” “believe,” “will,” “could,” “project,” “anticipate,” “expect,” “estimate,” “should,” “continue,” “potential,” “plan,” “forecasts,” “goal,” “seek,” “intend,” other forms of these words or similar words or expressions or the negative thereof. Additionally, statements concerning future matters such as our expected earnings, revenues, expenses and financial condition, our expectations with respect to the development of new products, gross margin and other statements regarding matters that are not historical are forward-looking statements.

We have based our forward-looking statements on management’s current expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this Report. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to, those set forth under “Risk Factors” in Item 1A of Part II of this Report, as such factors may be updated, amended or superseded from time to time by subsequent public filings with the Securities and Exchange Commission. In addition, actual results may differ as a result of additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business.

You should read this Report in its entirety, together with the documents that we file as exhibits to this Report, with the understanding that our future results may be materially different from what we currently expect and should not place undue reliance on the forward-looking statements contained in this Report. The forward-looking statements we make speak only as of the date on which they are made. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations, except as required by applicable law or the rules of The Nasdaq Stock Market LLC. If we do update or correct any forward-looking statements, investors should not conclude that we will make additional updates or corrections.

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

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	December 31,			June 30,
	2025			2025
Assets
Current assets:
Cash and cash equivalents	$	22,964		$	20,098
Accounts receivable, net		23,261			25,092
Inventories, net		27,074			26,371
Contract manufacturers' receivable		1,114			3,071
Prepaid expenses and other current assets		3,488			2,761
Total current assets		77,901			77,393
Property and equipment, net		1,818			2,456
Goodwill		31,089			31,089
Intangible assets, net		2,543			3,738
Lease right-of-use assets		7,713			8,422
Other assets		667			624
Total assets	$	121,731		$	123,722

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	12,669		$	13,259
Accrued payroll and related expenses		4,163			3,471
Current portion of long-term debt, net		–			3,070
Other current liabilities		11,536			10,622
Total current liabilities		28,368			30,422
Long-term debt, net		9,677			8,684
Other non-current liabilities		9,265			10,238
Total liabilities		47,310			49,344

Commitments and contingencies (Note 8)		–			–

Stockholders' equity:
Common stock		4			4
Additional paid-in capital		311,171			308,397
Accumulated deficit		(237,125	)		(234,394	)
Accumulated other comprehensive income		371			371
Total stockholders' equity		74,421			74,378
Total liabilities and stockholders' equity	$	121,731		$	123,722

See accompanying notes to unaudited condensed consolidated financial statements.

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2025			2024			2025			2024
Net revenue	$	29,774		$	31,161		$	59,568		$	65,584
Cost of revenue		16,807			17,877			33,255			37,825
Gross profit		12,967			13,284			26,313			27,759
Operating expenses:
Selling, general and administrative		8,740			8,811			18,282			18,278
Research and development		4,620			4,984			9,218			9,940
Restructuring, severance and related charges		43			193			136			1,093
Acquisition-related costs		40			208			83			237
Amortization of intangible assets		598			1,248			1,195			2,499
Total operating expenses		14,041			15,444			28,914			32,047
Loss from operations		(1,074	)		(2,160	)		(2,601	)		(4,288	)
Interest expense, net		(9	)		(126	)		(24	)		(245	)
Other income (expense), net		(4	)		8			179			(29	)
Loss before income taxes		(1,087	)		(2,278	)		(2,446	)		(4,562	)
Provision for income taxes		243			94			285			312
Net loss	$	(1,330	)	$	(2,372	)	$	(2,731	)	$	(4,874	)

Net loss per share - basic and diluted	$	(0.03	)	$	(0.06	)	$	(0.07	)	$	(0.13	)

Weighted-average common shares - basic and diluted		39,496			38,631			39,343			38,330

See accompanying notes to unaudited condensed consolidated financial statements.

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)


	Three Months Ended December 31, 2025
											Accumulated
					Additional						Other		Total
	Common Stock				Paid-In			Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital			Deficit			Income		Equity
Balance at September 30, 2025		39,268	$	4	$	309,870		$	(235,795	)	$	371	$	74,450
Shares issued pursuant to stock awards, net		414		–		425			–			–		425
Tax withholding paid on behalf of employees for restricted shares		–		–		(704	)		–			–		(704	)
Share-based compensation		–		–		1,580			–			–		1,580
Net loss		–		–		–			(1,330	)		–		(1,330	)
Balance at December 31, 2025		39,682	$	4	$	311,171		$	(237,125	)	$	371	$	74,421

	Three Months Ended December 31, 2024
											Accumulated
					Additional						Other		Total
	Common Stock				Paid-In			Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital			Deficit			Income		Equity
Balance at September 30, 2024		38,474	$	4	$	304,078		$	(225,523	)	$	371	$	78,930
Shares issued pursuant to stock awards, net		314		–		201			–			–		201
Tax withholding paid on behalf of employees for restricted shares		–		–		(359	)		–			–		(359	)
Share-based compensation		–		–		1,513			–			–		1,513
Net loss		–		–		–			(2,372	)		–		(2,372	)
Balance at December 31, 2024		38,788	$	4	$	305,433		$	(227,895	)	$	371	$	77,913

	Six Months Ended December 31, 2025
											Accumulated
					Additional						Other		Total
	Common Stock				Paid-In			Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital			Deficit			Income		Equity
Balance at June 30, 2025		39,102	$	4	$	308,397		$	(234,394	)	$	371	$	74,378
Shares issued pursuant to stock awards, net		580		–		425			–			–		425
Tax withholding paid on behalf of employees for restricted shares		–		–		(1,004	)		–			–		(1,004	)
Share-based compensation		–		–		3,353			–			–		3,353
Net loss		–		–		–			(2,731	)		–		(2,731	)
Balance at December 31, 2025		39,682	$	4	$	311,171		$	(237,125	)	$	371	$	74,421

	Six Months Ended December 31, 2024
											Accumulated
					Additional						Other		Total
	Common Stock				Paid-In			Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital			Deficit			Income		Equity
Balance at June 30, 2024		37,872	$	4	$	304,001		$	(223,021	)	$	371	$	81,355
Shares issued pursuant to stock awards, net		916		–		220			–			–		220
Tax withholding paid on behalf of employees for restricted shares		–		–		(1,901	)		–			–		(1,901	)
Share-based compensation		–		–		3,113			–			–		3,113
Net loss		–		–		–			(4,874	)		–		(4,874	)
Balance at December 31, 2024		38,788	$	4	$	305,433		$	(227,895	)	$	371	$	77,913

See accompanying notes to unaudited condensed consolidated financial statements.

LANTRONIX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended
	December 31,
	2025			2024
Operating activities
Net loss	$	(2,731	)	$	(4,874	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation		3,353			3,113
Depreciation and amortization		853			1,116
Amortization of intangible assets		1,195			2,499
Amortization of manufacturing profit in acquired inventory associated with acquisitions		18			–
Amortization of deferred debt issuance costs		29			21
Changes in operating assets and liabilities, net of assets and liabilities acquired:
Accounts receivable		1,831			1,711
Inventories		(721	)		(400	)
Contract manufacturers' receivable		1,957			(2,072	)
Prepaid expenses and other current assets		(727	)		(994	)
Lease right-of-use assets		800			933
Other assets		(43	)		(83	)
Accounts payable		(639	)		5,413
Accrued payroll and related expenses		692			(2,910	)
Other liabilities		(84	)		(470	)
Net cash provided by operating activities		5,783			3,003
Investing activities
Purchases of property and equipment		(166	)		(241	)
Cash payment for acquisition		–			(6,458	)
Net cash used in investing activities		(166	)		(6,699	)
Financing activities
Net proceeds from issuances of common stock		425			220
Tax withholding paid on behalf of employees for restricted shares		(1,004	)		(1,901	)
Borrowings on debt		4,800			–
Payments on debt		(6,906	)		(1,556	)
Payment of lease liabilities		(66	)		(94	)
Net cash used in financing activities		(2,751	)		(3,331	)
Increase (decrease) in cash and cash equivalents		2,866			(7,027	)
Cash and cash equivalents at beginning of period		20,098			26,237
Cash and cash equivalents at end of period	$	22,964		$	19,210

See accompanying notes to unaudited condensed consolidated financial statements.

LANTRONIX, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

1.	Company and Significant Accounting Policies

Company

Lantronix, Inc., which we refer to herein as the Company, Lantronix, we, our, or us, is a global leader in Edge AI and Industrial Internet of Things (“IoT”) solutions, delivering intelligent computing, secure connectivity, and remote management for mission-critical applications. Serving high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems (including drones), we enable customers to optimize operations and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and services powers applications from secure video surveillance and intelligent utility infrastructure to resilient out-of-band network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and a competitive edge in today’s AI-driven world.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (the “SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which was filed with the SEC on August 29, 2025. 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, 2025, the consolidated results of our operations for the three and six months ended December 31, 2025 and our consolidated cash flows for the six months ended December 31, 2025. All intercompany accounts and transactions have been eliminated.

Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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, 2025 are not necessarily indicative of the results to be expected for the full fiscal year or any future interim periods.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who is our Chief Executive Officer, in deciding how to allocate resources and assess our financial and operational performance. Our CODM evaluates our financial information, such as revenue, gross profit and net income (loss), and resources, and assesses the performance of these resources on a consolidated and aggregated basis. As a result, we have determined that our business operates in a single operating segment: the development, marketing, and sale of industrial and enterprise IoT products and services.

Recent Accounting Pronouncements

Credit Losses

In July 2025, the Financial Accounting Standards Board (“FASB”) issued a final Accounting Standards Update (“ASU”) amending Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses, to allow all entities to elect a practical expedient when determining the expected credit losses on trade accounts receivable. The practical expedient allows companies to assume that the current conditions as of the balance sheet date will remain unchanged through the remaining life of the asset. The standard will be effective for Lantronix beginning with our interim financial statements for the fiscal year ending June 30, 2027. The impact of adopting this guidance is not expected to have a material effect on our consolidated financial statements.

Income Tax Disclosures

In December 2023, the FASB issued a final standard on improvements to income tax disclosures. The new standard requires disaggregated information about a company’s effective tax rate reconciliation and information on income taxes paid. The standard will be effective for Lantronix beginning with our annual financial statements for the fiscal year ending June 30, 2026. The impact of adopting this guidance is not expected to have a material effect on our consolidated financial statements, since it requires only enhancements to existing income tax disclosures in the footnotes to our consolidated financial statements.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, which will require disclosure, in the notes to financial statements, of specified information about certain costs and expenses, including disclosure of amounts for (i) purchases of inventory, (ii) employee compensation, (iii) depreciation and (iv) intangible asset amortization, included in each relevant expense caption. In January 2025, the FASB issued ASU 2025-01, which clarified the effective date of ASU 2024-03. The standard will be effective for our annual financial statements beginning with our fiscal year ending June 30, 2028. We are currently evaluating the impact of this accounting standard on our financial statement presentation and its related disclosures.

2.	Revenue

Revenue is recognized upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We apply the following five-step approach in determining the amount and timing of revenue to be recognized: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when the performance obligations are satisfied. On occasion we enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

Revenue is recognized exclusive of (i) any taxes collected from customers, which are subsequently remitted to governmental authorities and (ii) shipping and handling costs collected from customers.

Products

Most of our product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that our customer obtains control of the promised products. A smaller portion of our product revenue is recognized when our customer receives delivery of the promised products.

A significant portion of our products are sold to distributors under agreements which contain (i) limited rights to return unsold products and (ii) price adjustment provisions, both of which are accounted for as variable consideration when estimating the amount of revenue to recognize. We base our estimates for returns and price adjustments primarily on historical experience; however, we also consider contractual allowances, approved pricing adjustments and other known or anticipated returns and price adjustments in a given period. Such estimates are generally made at the time of shipment to the customer and updated at the end of each reporting period as additional information becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Our estimates of accrued variable consideration are included in other current liabilities in the accompanying unaudited condensed consolidated balance sheets.

Services

Revenues from our extended warranty, technical support and maintenance services are generally recognized ratably over the applicable service period. Revenues from sales of our software-as-a-service (“SaaS”) solutions are recognized ratably over the applicable service period as well.

We prepay sales commissions related to certain of these contracts, which are incremental costs of obtaining the contract. We capitalize these costs and expense them ratably on a straight-line basis over the life of the contract. At December 31, 2025, prepaid sales commissions included in prepaid expenses and other current assets totaled $175,000 and those included in other assets totaled $171,000.

Engineering Services

We derive a portion of our revenues from engineering and related consulting service contracts with customers. Revenues from professional engineering services are generally recognized as services are performed. These contracts generally include performance obligations in which control is transferred over time because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates or enhances an asset that the customer controls. These contracts typically provide services on the following basis:

	·	Time & Materials (“T&M”) – services consist of revenues from software modification, consulting implementation, training and integration services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary depending on the actual time and materials incurred based on the customer’s needs.

	·	Fixed Price – arrangements to render specific consulting and software modification services which tend to be more complex.

Performance obligations for T&M contracts qualify for the “Right to Invoice” practical expedient within the revenue guidance. Under this practical expedient, we may recognize revenue, over time, in the amount to which we have a right to invoice. In addition, we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period. We have determined that this method best represents the transfer of services as, upon billing, we have a right to consideration from a customer in an amount that directly corresponds with the value to the customer of our performance completed to date.

We recognize revenue on fixed price contracts, over time, using an input method based on the proportion of our actual costs incurred (generally labor hours expended) to the total costs expected to complete the contract performance obligation. We have determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation.

Multiple Performance Obligations

From time to time, we may enter into contracts with customers that include promises to transfer multiple deliverables that may include sales of products, professional engineering services and other product qualification or certification services. Determining whether the deliverables in such arrangements are considered distinct performance obligations that should be accounted for separately versus together often requires judgment. We consider performance obligations to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily available and when the promised good or service is separately identifiable from other promised goods or services in the contract. In such arrangements, we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation.

Net Revenue by Product Line and Geographic Region

We organize our products and solutions into three product lines: Embedded IoT Solutions, IoT System Solutions, and Software & Services. Our Embedded IoT products are normally embedded into new designs. These products include application processing that delivers compute to meet customer needs for data transformation, computer vision, machine learning, augmented / virtual reality, audio / video aggregation and distribution, and custom applications at the edge. Our IoT System products include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure network connectivity, power for IoT end devices through Power over Ethernet (“PoE”), application hosting, protocol conversion, media conversion, secure access for distributed IoT deployments and many other functions. Our Software & Services products can be classified as either (i) our SaaS platform, which enables customers to easily deploy, monitor, manage, and automate across their global deployments, all from a single platform login, virtually connected as though directly on each device, (ii) engineering services, which is a flexible business model that allows customers to select from turnkey product development or team augmentation for accelerating complex areas of product development or (iii) extended warranty, support and maintenance.

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”).

The following tables present our net revenue by product line and by geographic region. We present net revenues by geographic region generally based on the “ship-to” location of our customers for product sales and the “bill-to” location for services.


	Three Months Ended December 31,				Six Months Ended December 31,
	2025		2024		2025		2024
	(In thousands)
Embedded IoT Solutions	$	13,865	$	10,784	$	25,332	$	24,171
IoT System Solutions		13,281		18,592		29,740		37,351
Software & Services		2,628		1,785		4,496		4,062
	$	29,774	$	31,161	$	59,568	$	65,584


	Three Months Ended December 31,				Six Months Ended December 31,
	2025		2024		2025		2024
	(In thousands)
Americas	$	20,481	$	16,386	$	41,132	$	33,806
EMEA		5,138		9,036		10,225		19,520
Asia Pacific Japan		4,155		5,739		8,211		12,258
	$	29,774	$	31,161	$	59,568	$	65,584

The following table presents product revenues and service revenues as a percentage of our total net revenue:


	Three Months Ended December 31,				Six Months Ended December 31,
	2025		2024		2025		2024
Product revenues		91%		94%		92%		94%
Service revenues		9%		6%		8%		6%

Service revenues are comprised primarily of SAAS solutions, professional services, and extended warranties.

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 primarily comprised of unearned revenue related to our extended warranty, support and maintenance services and certain software 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 unaudited condensed consolidated balance sheets.

The following table presents the changes in our deferred revenue balance for the six months ended December 31, 2025 (in thousands):


Balance, June 30, 2025	$	5,556
New performance obligations		2,719
Recognition of revenue from satisfying performance obligations		(2,474	)
Balance, December 31, 2025		5,801
Less: non-current portion of deferred revenue		(2,033	)
Current portion, December 31, 2025	$	3,768

During the six months ended December 31, 2025, approximately $1,975,000 of the revenue recognized as a result of satisfying performance obligations was included in the contract liability balance at the beginning of the period.

We currently expect to recognize substantially all of the non-current portion of deferred revenue over the next 2 to 5 years.

3.	Supplemental Financial Information

Inventories

Schedule of inventories
	December 31,		June 30,
	2025		2025
	(In thousands)
Finished goods	$	16,157	$	15,603
Raw materials		10,917		10,768
Inventories	$	27,074	$	26,371

Other Liabilities

The following table presents details of our other liabilities:

Schedule of other liabilities
	December 31,		June 30,
	2025		2025
	(In thousands)
Current
Accrued variable consideration	$	1,915	$	2,557
Customer deposits and refunds		417		321
Accrued raw materials purchases		486		204
Deferred revenue		3,768		3,301
Lease liability		1,594		1,594
Taxes payable		134		103
Warranty reserve		642		663
Other accrued operating expenses		2,580		1,879
Total other current liabilities	$	11,536	$	10,622

Non-current
Lease liability	$	7,039	$	7,811
Deferred tax liability		193		172
Deferred revenue		2,033		2,255
Total other non-current liabilities	$	9,265	$	10,238

Computation of Net Loss per Share

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

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


	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2025			2024			2025			2024
	(In thousands, except per share data)
Numerator:
Net loss	$	(1,330	)	$	(2,372	)	$	(2,731	)	$	(4,874	)
Denominator:
Weighted-average common shares outstanding - basic and diluted		39,496			38,631			39,343			38,330

Net loss per share - basic and diluted	$	(0.03	)	$	(0.06	)	$	(0.07	)	$	(0.13	)

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.

Schedule of anti-dilutive securities
	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2025		2024		2025		2024
	(In thousands)
Common stock equivalents		1,033		508		1,070		543

Intangible Assets

The following table presents details of intangible assets:

Schedule of intangible assets
	December 31, 2025							June 30, 2025
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
	(In thousands)
Developed technology	$	6,793	$	(6,185	)	$	608	$	6,793	$	(6,066	)	$	727
Customer relationships		19,116		(17,226	)		1,890		19,116		(16,321	)		2,795
Order backlog		297		(297	)		–		297		(149	)		148
Trademark and trade name		1,516		(1,471	)		45		1,516		(1,448	)		68
	$	27,722	$	(25,179	)	$	2,543	$	27,722	$	(23,984	)	$	3,738

We do not currently have any intangible assets with indefinite useful lives.

As of December 31, 2025, future estimated amortization expense is as follows:


Years Ending June 30,
(In thousands)
2026 (remainder)	$	367
2027		539
2028		256
2029		191
2030		191
Thereafter		999
Total future amortization	$	2,543

Restructuring, Severance and Related Charges

During the six months ended December 31, 2025, we incurred charges of approximately $136,000 related to certain headcount reductions. We may incur additional charges in future periods as we identify additional cost savings and efficiencies related to our business.

The following table presents details of the liability we recorded related to restructuring, severance and related activities:


	Six Months Ended
	December 31,
	2025
	(In thousands)
Beginning balance	$	479
Charges		136
Payments		(605	)
Ending balance	$	10

These balances are recorded in accrued payroll and related expenses in the accompanying unaudited condensed consolidated balance sheets.

Supplemental Cash Flow Information

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


	Six Months Ended
	December 31,
	2025		2024
	(In thousands)
Acquisition of property through operating leases	$	84	$	79
Acquisition of property through financing leases	$	7	$	–
Accrued property and equipment paid for in the subsequent period	$	49	$	14

4.	Warranty Reserve

The standard warranty periods we provide for our products typically range from one to five years. Certain products carry a limited lifetime warranty, which requires us to repair or replace a defective product or offer a refund of a portion of the purchase price based on a depreciated value at our option. 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, which is included in other current liabilities in the unaudited condensed consolidated balance sheets:

Schedule of warranty reserve
	Six Months Ended			Year Ended
	December 31,			June 30,
	2025			2025
	(In thousands)
Beginning balance	$	663		$	840
Charged to cost of revenue		152			220
Usage		(173	)		(397	)
Ending balance	$	642		$	663

Debt

Bank Line of Credit

On August 15, 2025, we entered into a Fourth Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”), which effectively refinanced our outstanding term loan with an asset-backed revolving line of credit secured by our accounts receivable. The new line provides us with a revolving credit facility of up to $15,000,000, subject to customary borrowing base limitations. The revolving credit facility is scheduled to mature on August 1, 2028. Borrowings under the revolving credit facility will bear interest on the outstanding principal equal to the greater of (i) 5.0% and (ii) the Prime Rate, as defined in the Loan Agreement, plus a margin of 0.0% to 0.5%, with the applicable margin depending on our liquidity.

The Loan Agreement requires us to comply with a minimum liquidity test. The Loan Agreement also includes customary representations and warranties and affirmative and negative covenants, including covenants that limit or restrict our ability to incur liens or indebtedness, dispose of assets, make investments, make restricted payments, merge or consolidate, and enter into certain transactions with our affiliates. The Loan Agreement includes customary events of default, including, among other things, non-payment defaults, covenant defaults, bankruptcy and insolvency defaults, and material judgment defaults. If any event of default under the Loan Agreement occurs (subject, in certain instances, to specified grace or cure periods), the principal, interest and any other monetary obligations on all the then outstanding amounts may become due and payable immediately.

The following table summarizes our outstanding debt:

Schedule of outstanding debt
	December 31,			June 30,
	2025			2025
	(In thousands)
Outstanding debt	$	9,828		$	11,829
Less: Unamortized debt issuance costs		(151	)		(75	)
Net Carrying amount of debt		9,677			11,754
Less: Current portion		–			(3,070	)
Non-current portion	$	9,677		$	8,684

During the three and six months ended December 31, 2025, we recognized $136,000 and $313,000, respectively, of interest expense in the accompanying unaudited condensed consolidated statements of operations related to interest and amortization of debt issuance associated with the debt. As of December 31, 2025 the available borrowing capacity on the line of credit was $1,398,000.

Financial Covenants

The Loan Agreement requires Lantronix to comply with a minimum liquidity test and a minimum interest coverage ratio.

Liquidity

The Loan Agreement requires that we maintain a minimum liquidity of $5,000,000 at SVB, as measured at the end of each month.

Maximum leverage ratio

The Loan Agreement requires that we maintain a minimum interest coverage ratio, calculated as the ratio of interest expense for the trailing 12-month period to the consolidated trailing 12-month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions of 1.50 to 1.00 for each calendar quarter.

As of December 31, 2025 we were in compliance with all financial covenants under the Loan Agreement.

6.	Stockholders’ Equity

Restricted Stock Units (“RSUs”)

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

Schedule of RSUs activity
	Number of Shares			Weighted- Average Grant Date Fair Value per Share
	(In thousands)
Balance of RSUs outstanding at June 30, 2025		2,107		$	3.76
Granted		924			4.05
Forfeited		(140	)		3.94
Vested		(696	)		4.13
Balance of RSUs outstanding at December 31, 2025		2,195		$	3.76

Performance Stock Units (“PSUs”)

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

Schedule of PSU activity
	Number of Shares
	(In thousands)
Balance of PSUs outstanding at June 30, 2025		995
Granted		579
Forfeited		(283	)
Balance of PSUs outstanding at December 31, 2025		1,291

Stock Options

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

Schedule of stock option activity
	Number of Shares			Weighted- Average Exercise Price per Share
	(In thousands)
Balance of options outstanding at June 30, 2025		215		$	4.51
Forfeited		(35	)		4.95
Expired		(3	)		3.16
Exercised		(95	)		4.47
Balance of options outstanding at December 31, 2025		82		$	4.43

Share-Based Compensation Expense

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


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2025		2024		2025		2024
	(In thousands)
Cost of revenue	$	29	$	48	$	64	$	112
Selling, general and administrative		1,354		1,044		2,808		2,170
Research and development		197		421		481		831
Total share-based compensation expense	$	1,580	$	1,513	$	3,353	$	3,113

The following table presents the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of December 31, 2025:


	Remaining		Remaining
	Unrecognized		Weighted-
	Compensation		Average Years
	Expense		To Recognize
	(In thousands)
RSUs	$	7,339		2.2
PSUs		3,406		1.9
	$	10,745

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 unrecognized share-based compensation expense will increase to the extent that we grant additional share-based awards.

7.	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,
	2025			2024			2025			2024
Effective tax rate		22	%		4	%		12	%		7	%

The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to (i) a tax benefit from our domestic losses being recorded with a full valuation allowance, (ii) our current estimates of pre-tax profitability for the full fiscal year and (iii) the effect of foreign earnings taxed at rates differing from the federal statutory rate.

We have a net deferred tax liability of $193,000 and $172,000 at December 31, 2025 and June 30, 2025, respectively. This balance represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred tax assets and is recorded in other non-current liabilities on the accompanying unaudited condensed consolidated balance sheets.

The realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC Topic 740, we have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets. We have determined that it was more likely than not that Lantronix would not realize the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income and have therefore provided a full valuation allowance against our deferred tax assets as of December 31, 2025 and June 30, 2025.

New Tax Legislation

In July 2025, the U.S. government enacted comprehensive legislation commonly referred to as the One Big Beautiful Bill Act of 2025 (the “OBBB Act”). The OBBB Act, which includes a broad range of tax reform provisions, including extending and modifying certain key Tax Cuts and Jobs Act provisions (both domestic and international). It includes reinstating the option to claim 100% accelerated depreciation deductions on qualified property and immediate expensing of domestic research and development costs. Income tax accounting guidance requires the effects of tax law changes to be recognized in the period of enactment. We have analyzed the impact of the OBBB Act to our current income tax position and have determined that it does not have material impact as we continue to project taxable losses and maintain a full valuation allowance against the future losses that would be generated by these favorable positions. We will continue to evaluate the potential future impact of the OBBB Act on our financial statements.

8.	Commitments and Contingencies

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or cash flows. We maintain insurance policies for settlements and judgments, as well as legal defense costs, although the amount of insurance coverage that we maintain may not be adequate to cover all claims or liabilities that may arise. In addition, provisions of the Company’s Certificate of Incorporation, Bylaws and indemnification agreements entered into with current and former directors and officers require us, among other things, to indemnify these directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers and to advance expenses to such directors or officers in connection therewith.

9.	Segment Reporting

The following table presents segment revenue, gross profit, and net loss for the periods presented:

Schedule of segment disclosure
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2025			2024			2025			2024
	(In thousands)
Net revenue	$	29,774		$	31,161		$	59,568		$	65,584
Less cost of revenue:
Other costs of revenue		16,672			17,715			32,961			37,476
Share-based compensation		29			48			64			112
Amortization of manufacturing profit in acquired inventory		–			–			18			–
Depreciation and amortization		106			114			212			237
Total cost of revenue		16,807			17,877			33,255			37,825
Gross profit		12,967			13,284			26,313			27,759
Less:
Personnel-related expenses		8,465			8,446			16,955			17,049
Professional fees and outside services		781			1,069			1,886			2,561
Advertising and marketing		501			494			1,031			950
Facilities and insurance		1,058			1,083			2,132			2,142
Share-based compensation		1,551			1,465			3,289			3,001
Depreciation		301			459			641			879
Outside services		316			108			653			324
Product certifications		186			205			301			343
Other operating expenses		201			466			612			969
Restructuring, severance and related charges		43			193			136			1,093
Acquisition-related costs		40			208			83			237
Amortization of intangible assets		598			1,248			1,195			2,499
Interest expense, net		9			126			24			245
Other expense (income)		4			(8	)		(179	)		29
Provision for income taxes		243			94			285			312
Total segment expenses		14,297			15,656			29,044			32,633

Segment net loss	$	(1,330	)	$	(2,372	)	$	(2,731	)	$	(4,874	)

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, 2025 (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.

Unless otherwise indicated by the context, all references to the “Company”, “Lantronix”, “we”, “us”, and “our” in this Quarterly Report on Form 10-Q include Lantronix, Inc. and its consolidated subsidiaries.

Overview

Lantronix Inc. is a global leader in Edge AI and Industrial IoT solutions, delivering intelligent computing, secure connectivity, and remote management for mission-critical applications. Serving high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems (including drones), we enable customers to optimize operations and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and services powers applications from secure video surveillance and intelligent utility infrastructure to resilient out-of-band network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and a competitive edge in today’s AI-driven world.

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

Products and Solutions

We organize our portfolio services and products into the following product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Services.

Embedded IoT Solutions

Our embedded product portfolio includes a broad range of Compute System-on-Modules (“SoM”) and System-in-Package (“SiP”) solutions, together with wired and wireless connectivity products. As semiconductor technology continues to evolve and integrate more functionality, our compute modules now provide not only processing power but also the ability to run advanced AI and machine learning applications. This enables our customers to process and analyze digital inputs such as video, audio, and sensor data, directly at the device level, reducing latency, enhancing security, and enabling real-time decision making.

IoT System Solutions

Our IoT System Solutions portfolio includes a wide range of fully functional standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion. These products include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure network connectivity, power for IoT end devices through Power over Ethernet (“PoE”), application hosting, protocol conversion, media conversion, secure access for distributed IoT deployments and many other functions. By offering pre-certified products across multiple regions, Lantronix significantly reduces Original Equipment Manufacturer (“OEM”) customers’ regulatory certification costs and speeds up their time-to-market.

Software and Services

Our Software as a Service (“SaaS”) platform offers comprehensive single-pane-of-glass management for Out-of-Band (“OOB”) and IoT deployments. Our platform enables customers to easily deploy, monitor, manage and automate across their global deployments, all from a single platform login, virtually and seamlessly connected as if located directly on each device. Our platform eliminates the need to have 24/7 personnel on site and makes it easy to observe and address issues quickly, even in large-scale deployments.

We leverage our deep engineering expertise and product development best practices to deliver high-quality, innovative products cost-effectively and on schedule. Our engineering services model is flexible, offering either turnkey product development or team augmentation to accelerate complex product development challenges, such as camera tuning, voice control, machine learning, AI, computer vision, augmented/virtual reality, and more.

We also provide extended warranty, support and maintenance services related to our OOB and certain other product families.

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 judgments are those relating to revenue recognition, sales returns and allowances, inventory valuation, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets. These policies are described in further detail in our Annual Report on Form 10-K for the ficsal year ended June 30, 2025 and filed with the SEC on August 29, 2025 (the “Form 10-K”) and have not changed significantly during the six months ended December 31, 2025 as compared to what was previously disclosed in the Form 10-K.

Results of Operations – Three Months Ended December 31, 2025 Compared to the Three Months Ended December 31, 2024

Summary

In the three months ended December 31, 2025, our net revenue decreased by $1,387,000 or 4.5%, compared to the three months ended December 31, 2024. The decrease in net revenue was driven by a 28.6% decrease in net revenue in our IoT System Solutions product line, partially offset by increases in net revenue in our Embedded IoT Solutions product line of 28.6% and our Software and Services product line of 47.2%. We had a net loss of $1,330,000 for the three months ended December 31, 2025 compared to a net loss of $2,372,000 for the three months ended December 31, 2024. The improvement in net loss was primarily driven by a decrease in operating expenses of $1,403,000 for the three months ended December 31, 2025 compared to the three months ended December 31, 2024.

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
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Embedded IoT Solutions	$	13,865		46.6	%	$	10,784		34.6	%	$	3,081			28.6	%
IoT System Solutions		13,281		44.6	%		18,592		59.7	%		(5,311	)		(28.6	%)
Software & Services		2,628		8.8	%		1,785		5.7	%		843			47.2	%
	$	29,774		100.0	%	$	31,161		100.0	%	$	(1,387	)		(4.5	%)

	Three Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Americas	$	20,481		68.8	%	$	16,386		52.6	%	$	4,095			25.0	%
EMEA		5,138		17.3	%		9,036		29.0	%		(3,898	)		(43.1	%)
APJ		4,155		13.9	%		5,739		18.4	%		(1,584	)		(27.6	%)
	$	29,774		100.0	%	$	31,161		100.0	%	$	(1,387	)		(4.5	%)

Embedded IoT Solutions

Net revenue increased primarily due to (i) higher unit sales of our embedded compute products, which includes our drone and aerospace and defense programs, in the Americas and EMEA regions and (ii) higher unit sales of our embedded ethernet connectivity and wireless communication products in the Americas and APJ regions.

IoT System Solutions

Net revenue decreased primarily due to reduced sales to Gridspertise. We did not have any shipments to this customer in the current quarter, as compared to approximately $5.8 million the prior year quarter. The year-over-year decrease in revenue from this customer was partially offset by (i) increased unit sales of our network switches in the Americas and APJ regions and (ii) increased unit sales of our routers and modems products across all regions.

Software and Services

Net revenue increased primarily due to higher SaaS solutions revenue in the Americas and increased engineering services in EMEA..

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, direct and indirect personnel expenses related to professional services, 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
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Gross profit	$	12,967		43.6	%	$	13,284		42.6	%	$	(317	)		(2.4	%)

Gross profit as a percentage of revenue (referred to as “gross margin”) increased primarily as a result of our product sales mix. This was primarily driven by the absence of revenue from Gridspertise in the current period, and a slightly higher percentage of our current period revenue derived from software and services.

We currently expect that gross margin will fluctuate in the future, from period-to-period, based on changes in our product mix, average selling prices, and average manufacturing costs.

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, advertising and marketing expenses, and professional, legal and accounting fees.

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

	Three Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Personnel-related expenses	$	5,358				$	5,154				$	204			4.0	%
Professional fees and outside services		781					1,069					(288	)		(26.9	%)
Advertising and marketing		501					494					7			1.4	%
Facilities and insurance		494					385					109			28.3	%
Share-based compensation		1,354					1,044					310			29.7	%
Depreciation		252					348					(96	)		(27.6	%)
Other		–					317					(317	)		(100.0	%)
Selling, general and administrative	$	8,740		29.4	%	$	8,811		28.3	%	$	(71	)		(0.8	%)

Selling, general and administrative expenses decreased slightly due to lower legal fees and various professional and outside services costs. We recovered certain previously written-off receivables, the benefit of which is included in the “other” category in the table above. This was partially offset by (i) increased share-based compensation costs driven by new stock awards granted during the current fiscal year, and (ii) slightly higher personal-related expenses.

Research and Development

Research and development expenses consist of personnel-related expenses, share-based compensation, and 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 and timing of development activities.

The following table presents our research and development expenses:

	Three Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Personnel-related expenses	$	3,107				$	3,292				$	(185	)		(5.6	%)
Facilities		564					698					(134	)		(19.2	%)
Outside services		316					108					208			192.6	%
Product certifications		185					205					(20	)		(9.8	%)
Share-based compensation		197					421					(224	)		(53.2	%)
Other		251					260					(9	)		(3.5	%)
Research and development	$	4,620		15.5	%	$	4,984		16.0	%	$	(364	)		(7.3	%)

Research and development expenses decreased due to (i) lower personnel-related expenses in our engineering groups driven by restructuring activities during the previous fiscal year, (ii) lower facilities-related equipment and software costs, (iii) reduced share-based compensation costs based on the value of new and outstanding awards. These decreases were partially offset by increased spending on outsourced product development, which is included in the “outside services” category in the table above.

Results of Operations – Six Months Ended December 31, 2025 Compared to the Six Months Ended December 31, 2024

Summary

In the six months ended December 31, 2025, our net revenue decreased by $6,016,000 or 9.2%, compared to the six months ended December 31, 2024. The decrease in net revenue was driven by an 20.4% decrease in net revenue in our IoT System Solutions product line. These decreases were partially offset by a 4.8% increase in net revenue in our Embedded IoT Solutions product line and as well as a 10.7% increase in our Software and Services product line. We had a net loss of $2,731,000 for the six months ended December 31, 2025 compared to a net loss of $4,874,000 for the six months ended December 31, 2024. The decrease in net loss was primarily driven by a reduction in operating expenses of $3,133,000 for the six months ended December 31, 2025 compared to the six months ended December 31, 2024.

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
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Embedded IoT Solutions	$	25,332		42.5	%	$	24,171		36.9	%	$	1,161			4.8	%
IoT System Solutions		29,740		49.9	%		37,351		57.0	%		(7,611	)		(20.4	%)
Software & Services		4,496		7.6	%		4,062		6.1	%		434			10.7	%
	$	59,568		100.0	%	$	65,584		100.0	%	$	(6,016	)		(9.2	%)

	Six Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Americas	$	41,132		69.1	%	$	33,806		51.5	%	$	7,326			21.7	%
EMEA		10,225		17.2	%		19,520		29.8	%		(9,295	)		(47.6	%)
APJ		8,211		13.7	%		12,258		18.7	%		(4,047	)		(33.0	%)
	$	59,568		100.0	%	$	65,584		100.0	%	$	(6,016	)		(9.2	%)

Embedded IoT Solutions

Net revenue increased primarily due to higher unit sales of (i) our embedded compute product line in the Americas and EMEA regions, (ii) our legacy embedded ethernet connectivity products in the Americas and APJ regions, and (iii) our wireless communications products in the Americas and APJ regions. This increase was partially offset by lower unit sales of (i) our network interface card products in the Americas and EMEA regions and (ii) our OOB products in the Americas and EMEA regions.

IoT System Solutions

Net revenue decreased primarily due to reduced sales to Gridspertise. We did not have any shipments to this customer in the in the six months ended December 31, 2025, as compared to just over $11 million of revenue during the six months ended December 31, 2024. The year-over-year decrease in revenue from this customer was partially offset by (i) increased unit sales of our network switches in the Americas and APJ regions and (ii) increased unit sales of our telematic gateways in the Americas, APJ and EMEA regions.

Software & Services

Net revenue increased primarily due to higher SaaS solutions in the Americas and EMEA regions. This increase was partially offset by a decrease in our extended warranty services in the Americas region.

Gross Profit

The following table presents our gross profit:

	Six Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Gross profit	$	26,313		44.2	%	$	27,759		42.3	%	$	(1,446	)		(5.2	%)

Gross margin increased primarily as a result of our product sales mix. This was primarily driven by the absence of revenue from Gridspertise in the current period, and also a slightly higher percentage of our current period revenue derived from software and services.

We currently expect that gross margin will fluctuate in the future, from period-to-period, based on changes in our product mix, average selling prices, and average manufacturing costs.

Selling, General and Administrative

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

	Six Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Personnel-related expenses	$	10,758				$	10,485				$	273			2.6	%
Professional fees and outside services		1,886					2,561					(675	)		(26.4	%)
Advertising and marketing		1,031					950					81			8.5	%
Facilities and insurance		976					796					180			22.6	%
Share-based compensation		2,808					2,170					638			29.4	%
Depreciation		542					699					(157	)		(22.5	%)
Other		281					617					(336	)		(54.5	%)
Selling, general and administrative	$	18,282		30.7	%	$	18,278		27.9	%	$	4			0.0	%

Selling, general and administrative expenses in total remained relatively consistent year-over-year. In the current year, we saw decreases in (i) legal fees and certain other professional and outside services costs and (ii) the benefit from recovering certain receivables as described above. These were largely offset by increases in share-based compensation costs driven by stock award activity in the current fiscal year, and slightly higher headcount and insurance costs.

Research and Development

The following table presents our research and development expenses:

	Six Months Ended December 31,
			% of Net					% of Net			Change
	2025		Revenue			2024		Revenue			$			%
	(In thousands, except percentages)
Personnel-related expenses	$	6,197				$	6,564				$	(367	)		(5.6	%)
Facilities		1,156					1,346					(190	)		(14.1	%)
Outside services		653					324					329			101.5	%
Product certifications		301					343					(42	)		(12.2	%)
Share-based compensation		481					831					(350	)		(42.1	%)
Other		430					532					(102	)		(19.2	%)
Research and development	$	9,218		15.5	%	$	9,940		15.2	%	$	(722	)		(7.3	%)

Research and development expenses decreased due to (i) lower personnel-related expenses in our engineering groups resulting from restructuring activities in the previous fiscal year, (ii) lower facilities-related equipment and software costs, and (iii) reduced share-based compensation costs based on stock award activity in the current fiscal year. These decreases were partially offset by increased spending on outsourced product development, which is included in the “outside services” category in the table above.

Restructuring, Severance and Related Charges

During the three and six months ended December 31, 2025, we incurred charges of $43,000 and $136,000, respectively, related to headcount reductions. During the three and six months ended December 31, 2024, we incurred $193,000 and $1,093,000, respectively, of restructuring, severance and related charges.

We may incur additional restructuring, severance and related charges in future periods as we continue to identify cost savings and efficiencies related to our business.

Interest Expense, Net

For the three and six months ended December 31, 2025 and December 31, 2024, we incurred net interest expense due to borrowings on our credit facilities. We also earn interest income on our domestic cash balance.

Other Income (Expense), Net

Our other income (expense), net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currencies are the U.S. dollar.

Provision for Income Taxes

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 regarding our provision for income taxes.

Liquidity and Capital Resources

Liquidity

The following table presents our working capital and cash and cash equivalents balances:

	December 31,		June 30,
	2025		2025		Change
	(In thousands)
Working capital	$	49,533	$	46,971	$	2,562
Cash and cash equivalents	$	22,964	$	20,098	$	2,866

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our Loan Agreement (as defined in Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report), and cash generated from operations. We are subject to a variable amount of interest on the principal balance of our borrowings and could be adversely impacted by rising interest rates in the future. We believe that our current cash holdings, net cash provided by operating activities, and expected availability under our Loan Agreement will be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond. We continue to monitor our existing banking relationships and the availability of potential alternate sources of credit based on market conditions and our ongoing capital requirements. There can be no guarantee that we would be able to obtain any needed alternate financing on acceptable terms, or at all, or that such a financing would not result in a default under the Loan Agreement. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

We define 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 the Federal Deposit Insurance Corporation (“FDIC”). There can be no assurance that our deposits in excess of the FDIC limits will be backstopped by the U.S., or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

As of the date of this report, we have full access to and control of our cash and cash equivalents balance at Silicon Valley Bank and our other banking institutions. 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.

Bank Loan Agreement

Refer to Note 5 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,
	2025			2024			Change
	(In thousands)
Net cash provided by operating activities	$	5,783		$	3,003		$	2,780
Net cash used in investing activities	$	(166	)	$	(6,699	)	$	6,533
Net cash used in financing activities	$	(2,751	)	$	(3,331	)	$	580

Operating Activities

Cash provided by operating activities during the six months ended December 31, 2025 increased compared to the prior year period primarily as a result of strong collections on accounts receivable, and a reduction in net loss in the current period. For the six months ended December 31, 2025, our net loss included $5,448,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $3,066,000.

Accounts receivable decreased by $1,831,000, or 7.3%, from June 30, 2025 to December 31, 2025. The decrease was primarily due to the timing of payments from certain customers.

Contract manufacturers’ receivables decreased by $1,957,000, or 63.7%, from June 30, 2025 to December 31, 2025. The decrease is primarily due to timing of shipments of components to contract manufacturers during the fiscal period.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2025 and 2024 consisted of purchases of equipment totaling $166,000 and $241,000, respectively, primarily for computer hardware and tooling at our contract manufacturers and certain research and development projects. Net cash used in investing activities for the six months ended December 31, 2024 also includes the acquisition of Netcomm, which used cash of $6,458,000.

Financing Activities

Net cash used in financing activities during the six months ended December 31, 2025 resulted primarily from net principal payments and borrowings on our Loan Agreement, as well as from tax withholdings paid on behalf of employees for restricted shares. Net cash used in financing activities during the six months ended December 31, 2024 resulted primarily from tax withholdings paid on behalf of employees for restricted shares as well as principal payments on our previous term loan borrowings.

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

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that this information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. Based on such evaluation our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2025.

Changes in Internal Control 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(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Refer to Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended December 31, 2025 (this “Report”), which is incorporated herein by reference, for a discussion of legal proceedings.

Item 1A.

Risk Factors

We operate in a rapidly changing environment that involves numerous risks and uncertainties. Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in this section, as well as other information contained in this Report and in our other filings with the SEC. This section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto included in Part I, Item 1 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part I, Item 2 of this Report. If any of these risks or uncertainties actually occurs, our business, financial condition, results of operations or prospects could be materially harmed. In that event, the market price for our common stock could decline and you could lose all or part of your investment. In addition, risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business.

The risks and uncertainties discussed below update and supersede the risks and uncertainties previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which was filed with the SEC on August 29, 2025. There have been no material changes to the risks and uncertainties previously disclosed in such Annual Report on Form 10-K.

Risks Related to Our Operations and Industry

We depend upon a relatively small number of distributors and end-user customers for a large portion of our revenue, and a decline in sales to these major customers would materially adversely affect our business, financial condition, and results of operations.

Historically, we have relied upon a small number of distributors and end-user customers for a significant portion of our net revenue. Our customer concentration could fluctuate, depending on future customer requirements, which will depend on market conditions in the industry segments in which our customers participate. The loss of one or more significant customers or a decline in sales to our significant customers could result in a material loss of sales and possible increase in excess inventories which would adversely affect our business, financial condition, and results of operations.

We have experienced and may in the future experience constraints in the supply of certain materials and components that could affect our operating results.

Some of our integrated circuits are only available from a single source and in some cases, are no longer being manufactured. From time to time, integrated circuits, and potentially other components used in our products, will be phased out of production by the manufacturer. When this happens, we attempt to purchase sufficient inventory to meet our needs until a substitute component can be incorporated into our products. Nonetheless, we may be unable to purchase sufficient components to meet our demands, or we may incorrectly forecast our demands, and purchase too many or too few components. In addition, our products use components that have been in the past and may in the future be subject to market shortages and substantial price fluctuations, whether due to a pandemic or epidemic, the war between Ukraine and Russia, conflict in the Middle East, hostilities in the Red Sea, tensions between China and Taiwan, increased tariffs and changes in U.S. trade policies or otherwise. For instance, the market is currently experiencing memory supply shortages, which may lead to higher costs and constrained availability of memory components. From time to time, we have been unable to meet customer orders because we were unable to purchase necessary components for our products. We do not have long-term supply arrangements with most of our vendors to obtain necessary components, including semiconductor chips, or technology for our products and instead purchase components on a purchase order basis. If we are unable to purchase components from these suppliers, our product shipments could be prevented or delayed, which could result in a loss of sales. If we are unable to meet existing orders or to enter into new orders because of a shortage in components, we will likely lose net revenue, risk losing customers and risk harm to our reputation in the marketplace, which could adversely affect our business, financial condition or results of operations.

Our business related to government contracts subjects us to additional risks.

We believe that the continued growth of our presence in the drone and defense technology markets will depend, to a certain degree, on the ability of our customers to win government contracts and subcontracts, in particular from the U.S. Department of Defense. The funding of U.S. government programs is uncertain and dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process. Many government customers are subject to budgetary constraints and our continued performance under these contracts or subcontracts, or award of additional contracts or subcontracts from these agencies, could be impacted by spending reductions, budget cutbacks, or government shutdowns. A significant decline in government expenditures generally, or with respect to programs for which we provide products, could lead to delays in negotiations of contracts or increased costs and could adversely affect our business.

U.S. government contracts generally permit the government to terminate the contract without prior notice, at the government’s convenience. On contracts for which we are a subcontractor or for which we provide our products to the contractor or subcontractor, the U.S. government could terminate the contract for convenience or otherwise, irrespective of our performance. Also, sales to the U.S. government and its contractors as well as foreign military and government customers, either directly or as a subcontractor to other contractors, often use a competitive bidding process and have unique purchasing and delivery requirements, which often makes the timing of sales to these customers unpredictable.

In addition, maintaining compliance with government regulations, including audit requirements of the U.S. government and our customers that are subject to these requirements, could require us to put in place controls and procedures to monitor compliance with applicable regulations that may be costly or burdensome to implement. Failure to comply with the terms of applicable government contracts or regulations, or an unfavorable audit, could result in the government or our customers ceasing to buy our products and services, a reduction of revenue, fines or civil or criminal liability, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Future operating results depend upon our ability to timely obtain components in sufficient quantities and on acceptable terms.

We and our contract manufacturers are responsible for procuring raw materials for our products. Our products incorporate some components and technologies that are only available from single or limited sources of supply. Depending on a limited number of suppliers exposes us to risks, including limited control over pricing, availability, quality and delivery schedules. Moreover, due to our limited sales, we may not be able to convince suppliers to continue to make components available to us unless there is demand for these components from their other customers. If any one or more of our suppliers cease to provide us with sufficient quantities of components in a timely manner or on terms acceptable to us, we would have to seek alternative sources of supply and we may have difficulty identifying additional or replacement suppliers for some of our components.

We outsource substantially all of our manufacturing to contract manufacturers in Asia. If our contract manufacturers are unable or unwilling to manufacture our products at the quality and quantity we request, our business could be harmed.

We use contract manufacturers based in Asia to manufacture substantially all of our products. Generally, we do not have guaranteed supply agreements with our contract manufacturers or suppliers. If any of these subcontractors or suppliers were to cease doing business with us, we might not be able to obtain alternative sources in a timely or cost-effective manner. Our reliance on third-party manufacturers, especially in countries outside of the U.S., exposes us to a number of significant risks, including:

	·	reduced control over delivery schedules, quality assurance, manufacturing yields and production costs;

	·	lack of guaranteed production capacity or product supply;

	·	effects of terrorist attacks or geopolitical conflicts abroad;

	·	reliance on these manufacturers to maintain competitive manufacturing technologies;

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

	·	reduced protection for intellectual property rights in some countries;

	·	differing labor regulations;

	·	disruptions to the business, financial stability or operations, including due to strikes, labor disputes or other disruptions to the workforce, of these manufacturers;

	·	compliance with a wide variety of complex regulatory requirements;

	·	fluctuations in currency exchange rates;

	·	changes in a country’s or region’s political or economic conditions;

	·	greater difficulty in staffing and managing foreign operations; and

	·	increased financial accounting and reporting burdens and complexities.

Any problems that we may encounter with the delivery, quality or cost of our products from our contract manufacturers or suppliers could cause us to lose net revenue, damage our customer relationships and harm our reputation in the marketplace, each of which could materially and adversely affect our business, financial condition or results of operations.

From time to time, we may transition the manufacturing of certain products from one contract manufacturer to another. For example, in connection to the increased tariffs imposed by the U.S. against China, we have transitioned our contract manufacturing out of China for U.S.-bound products. Although all of our contract manufacturers are now located outside of China, we have and may in the future incur substantial expenses, risk material delays or encounter other unexpected issues in connection with this transition or future transitions.

Certain of our products are sold into mature markets, which could limit our ability to continue to generate revenue from these products. Our ability to sustain and grow our business depends on our ability to develop, market, scale, and sell new products.

Certain of our products are sold into mature markets that are characterized by a trend of declining demand. As the overall market for these products decreases due to the adoption of new technologies, our revenues from these products have declined, and we expect they will continue to decline in the future. As a result, our future prospects will depend on our ability to develop and successfully market new products that address new and growing markets. Our failure to develop new products or failure to achieve widespread customer acceptance of any new products could cause us to lose market share and cause our revenues to decline. There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction, marketing and sale of new products or product enhancements. Factors that could cause delays include regulatory and/or industry approvals, product design cycle and failure to identify products or features that customers demand. In addition, the introduction and sale of new products often involves a significant technical evaluation, and we often face delays because of our customers’ internal procedures for evaluating, approving and deploying new technologies. For these and other reasons, the sales cycle associated with new products is typically lengthy, often lasting six to 24 months and sometimes longer. Therefore, there can be no assurance that our introduction or announcement of new product offerings will achieve any significant or sustainable degree of market acceptance or result in increased revenue in the near term.

Our software offerings are subject to risks that differ from those facing our hardware products.

We continue to dedicate engineering resources to our management software platform, applications, and SaaS offerings. These product and service offerings are subject to significant additional risks that are not necessarily related to our hardware products. Our ability to succeed with these offerings will depend in large part on our ability to provide customers with software products and services that offer features and functionality that address their specific needs. We may face challenges and delays in the development of this product line as the marketplace for products and services evolves to meet the needs and desires of customers. We cannot provide assurances that we will be successful in operating and growing this product line.

In light of these risks and uncertainties, we may not be able to establish or maintain market share for our software and SaaS offerings. As we develop new product lines, we must adapt to market conditions that are unfamiliar to us, such as competitors and distribution channels that are different from those we have known in the past. We have and will encounter competition from other solutions providers, many of whom may have more significant resources than us with which to compete. There can be no assurance that we will recover our investments in this segment, or that we will receive meaningful revenue from or realize a profit from this new segment.

We may experience significant fluctuation in our revenue because the timing of large orders placed by some of our customers is often project-based.

Our operating results fluctuate because we often receive large orders from customers that coincide with the timing of the customer’s project. Sales of our products and services may be delayed if customers delay approval or commencement of projects due to budgetary constraints, internal acceptance review procedures, timing of budget cycles or timing of competitive evaluation processes. In addition, sometimes our customers make significant one-time hardware purchases for projects which are not repeated. We sell primarily on a purchase order basis rather than pursuant to long-term contracts, and we expect fluctuations in our revenues as a result of one-time project-based purchases to continue in the future. In addition, our sales may be subject to significant fluctuations based on the acceleration, delay or cancellation of customer projects, or our failure to complete one or a series of significant potential sales. Because a significant portion of our operating expenses are fixed, even a single order can have a disproportionate effect on our operating results. As a result of the factors discussed above, and due to the complexities of the industry in which we operate, it is difficult for us to forecast demand for our current or future products with any degree of certainty, which means it is difficult for us to forecast our sales. If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

The lengthy sales cycle for our products and services, along with delays in customer completion of projects, make the timing of our revenues difficult to predict.

We have a lengthy sales cycle for many of our products that generally extends between three and 24 months and sometimes longer due to a lengthy customer evaluation and approval process. The length of this process can be affected by factors over which we have little or no control, including the customer’s budgetary constraints, timing of the customer’s budget cycles, and concerns by the customer about the introduction of new products by us or by our competitors. As a result, sales cycles for customer orders vary substantially among different customers. The lengthy sales cycle is one of the factors that has caused, and may continue to cause, our revenues and operating results to vary significantly from quarter to quarter. In addition, we may incur substantial expenses and devote significant management effort to develop potential relationships that do not result in agreements or revenues, which may prevent us from pursuing other opportunities. Accordingly, excessive delays in sales could be material and adversely affect our business, financial condition or results of operations.

The nature of our products, customer base and sales channels results in lack of visibility into future demand for our products, which makes it difficult for us to forecast our manufacturing and inventory requirements.

We use forecasts based on anticipated product orders to manage our manufacturing and inventory levels and other aspects of our business. However, several factors contribute to a lack of visibility with respect to future orders, including:

	·	the lengthy and unpredictable sales cycle for our products that can extend from six to 24 months or longer;

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

	·	we primarily sell our products indirectly through distributors;

	·	the uncertainty of the extent and timing of market acceptance of our new products;

	·	the need to obtain industry certifications or regulatory approval for our products;

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

	·	the diversity of our product lines and geographic scope of our product distribution;

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

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

This lack of visibility impacts our ability to forecast our inventory requirements. If we overestimate our customers’ future requirements for products, we may have excess inventory, which would increase our costs and potentially require us to write-off inventory that becomes obsolete. Additionally, if we underestimate our customers’ future requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products to our customers, harm our reputation, and cause our revenues to decline. If any of these events occur, they could prevent us from achieving or sustaining profitability and the value of our common stock may decline.

Delays in qualifying revisions of existing products for certain of our customers could result in the delay or loss of sales to those customers, which could negatively impact our business and financial results.

Our industry is characterized by intense competition, rapidly evolving technology and continually changing customer preferences and requirements. As a result, we frequently develop and introduce new versions of our existing products, which we refer to as revisions.

Prior to purchasing our products, some of our customers require that products undergo a qualification process, which may involve testing of the products in the customer’s system. A subsequent revision to a product’s hardware or firmware, changes in the manufacturing process or our selection of a new supplier may require a new qualification process, which may result in delays in sales to customers, loss of sales, or us holding excess or obsolete inventory.

After products are qualified, it can take additional time before the customer commences volume production of components or devices that incorporate our products. If we are unsuccessful or delayed in qualifying any new or revised products with a customer, that failure or delay would preclude or delay sales of these products to the customer, and could negatively impact our financial results. In addition, new revisions to our products could cause our customers to alter the timing of their purchases, by either accelerating or delaying purchases, which could result in fluctuations of our net revenue from quarter to quarter.

We depend on distributors for a majority of our sales and to complete order fulfillment.

We depend on the resale of products through distributor accounts for a substantial majority of our worldwide net revenue. In addition, sales through our top five distributors accounted for approximately 37% of our net revenue in fiscal 2025. A significant reduction of effort by one or more distributors to sell our products or a material change in our relationship with one or more distributors may reduce our access to certain end customers and adversely affect our ability to sell our products. Furthermore, if a key distributor materially defaults on a contract or otherwise fails to perform, our business and financial results would suffer.

In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Our business could be harmed if the financial health of these distributors impairs their performance and we are unable to secure alternate distributors.

Our ability to sustain and grow our business depends in part on the success of our distributors and resellers.

A substantial part of our revenues is generated through sales by distributors and resellers. To the extent they are unsuccessful in selling our products, or if we are unable to obtain and retain a sufficient number of high-quality distributors and resellers, our operating results could be materially and adversely affected. In addition, our distributors and resellers may devote more resources to marketing, selling and supporting products and services that are competitive with ours, than to our products. They also may have incentives to promote our competitors’ products over our products, particularly for our competitors with larger volumes of orders, more diverse product offerings and a longer relationship with our distributors and resellers. In these cases, one or more of our important distributors or resellers may stop selling our products completely or may significantly decrease the volume of products they sell on our behalf. This sales structure also could subject us to lawsuits, potential liability and reputational harm if, for example, any of our distributors or resellers misrepresents the functionality of our products or services to customers or violates laws or our corporate policies. If we fail to effectively manage our existing or future distributors and resellers effectively, our business and operating results could be materially and adversely affected.

Changes to the average selling prices of our products could affect our net revenue and gross margins and adversely affect results of operations.

In the past, we have experienced reductions in the average selling prices and gross margins of our products. We expect competition to continue to increase, and we anticipate this could result in additional downward pressure on our pricing. Our average selling prices for our products might also decline as a result of other reasons, including promotional programs introduced by us or our competitors and customers who negotiate price concessions. To the extent we are able to increase prices, we may experience a decline in sales volumes if customers decide to purchase competitive products. If any of these were to occur, our gross margins could decline and we might not be able to reduce the cost to manufacture our products enough or at all to keep up with the decline in prices.

The effect of a pandemic or major public health concern, such as the COVID-19 pandemic, could result in material adverse effects on our business, financial position, results of operations and cash flows.

Pandemics or similar outbreaks have had, and may in the future have, an adverse impact on the economy, our business and the businesses of our suppliers, and our results of operations and financial condition. For example, the COVID-19 pandemic resulted in industry events, trade shows and business travel being suspended, cancelled and/or significantly curtailed. If these activities are suspended, cancelled and/or significantly curtailed in the future, whether due to a possible pandemic and similar outbreak, our sales may be negatively impacted in the future.

In addition, the impact of possible pandemics subjects us to various risks and uncertainties that could materially adversely affect our business, results of operations and financial condition, including the following:

	·	significant volatility or decreases in the demand for our products or extended sales cycles;

	·	changes in customer behavior and preferences, as customers may experience financial difficulties and/or may delay orders or reduce their spending;

	·	adverse impacts on our ability to distribute or deliver our products or services, as well as temporary disruptions, restrictions or closures of the facilities of our suppliers or customers and their contract manufacturers;

	·	further disruptions in our contract manufacturers’ ability to manufacture our products, as some contract manufacturers and suppliers of materials used in the production of our products are, or may be, located in areas more severely impacted by a possible pandemic, which has in the past limited and could in the future limit, our ability to obtain sufficient materials to produce and manufacture our products; and

	·	volatility in the availability of raw materials and components that our contract manufacturers purchase and volatility in raw material and other input costs.

The duration and extent of a future pandemics or other similar outbreak’s effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted at this time. The adverse impact of a possible future pandemic or similar outbreak on our business, results of operations and financial condition may be material.

If we are unable to sell our inventory in a timely manner, it could become obsolete, which could require us to write-down or write off obsolete inventory, which could harm our operating results.

At any time, competitive products may be introduced with more attractive features or at lower prices than ours. If this occurs, and for other reasons, we may not be able to accurately forecast demand for our products and our inventory levels may increase. There is a risk that we may be unable to sell our inventory in a timely manner to avoid it becoming obsolete. If we are required to substantially discount our inventory or are unable to sell our inventory in a timely manner, we would be required to increase our inventory reserves or write off obsolete inventory and our operating results could be substantially harmed.

Our failure to compete successfully in our highly competitive market could result in reduced prices and loss of market share.

The market in which we operate is intensely competitive, subject to rapid technological advances and highly sensitive to evolving industry standards. The market can also be affected significantly by new product and technology introductions and marketing and pricing activities of industry participants. Our products compete directly with products produced by a number of our competitors. Many of our competitors and potential competitors have greater financial and human resources for marketing and product development, more experience conducting research and development activities, greater experience obtaining regulatory approval for new products, larger distribution and customer networks, more established relationships with contract manufacturers and suppliers, and more established reputations and name recognition. For these and other reasons, we may not be able to compete successfully against our current or potential future competitors. In addition, the amount of competition we face in the marketplace may change and grow as the market for IoT and machine-to-machine networking solutions grows and new companies enter the marketplace. Present and future competitors may be able to identify new markets, adapt new technologies, develop and commercialize products more quickly and gain market acceptance of products with greater success. As a result of these competitive factors, we may fail to meet our business objectives and our business, financial condition and operating results could be materially and adversely affected.

Acquisitions, strategic partnerships, joint ventures or investments may impair our capital and equity resources, divert our management’s attention or otherwise negatively impact our operating results.

We have in the past and may in the future pursue acquisitions, strategic partnerships and joint ventures that we believe would allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets, broaden our technology and intellectual property and strengthen our relationships with distributors, OEMs and original design manufacturers. We acquired Maestro, Intrinsyc, the Transition Networks and Net2Edge businesses of Communication Systems, Inc., Uplogix, Inc. (“Uplogix”), and Netcomm Wireless Pty Ltd (“Netcomm”) in calendar years 2019, 2020, 2021, 2022 and 2024, respectively. Our previous acquisitions have required, and any future acquisition, partnership, joint venture or investment may also require, that we pay significant cash, issue equity and/or incur substantial debt. Acquisitions, partnerships or joint ventures may also result in the loss of key personnel and the dilution of existing stockholders to the extent we are required to issue equity securities. In addition, acquisitions, partnerships or joint ventures require significant managerial attention, which may be diverted from our other operations. These capital, equity and managerial commitments may impair the operation of our business. Furthermore, acquired businesses may not be effectively integrated, may be unable to maintain key pre-acquisition business relationships, may not result in expected synergies, an increase in revenues or earnings or the delivery of new products, may contribute to increased fixed costs, and may expose us to unanticipated liabilities. If any of these occur, we may fail to meet our business objectives and our business, financial condition and operating results could be materially and adversely affected.

We may experience difficulties associated with utilizing third-party logistics providers.

A portion of our physical inventory management process, as well as the shipping and receiving of our inventory, is performed by a third-party logistics provider in Hong Kong. There is a possibility that third-party logistics providers will not perform as expected and we could experience delays in our ability to ship, receive, and process the related data in a timely manner. This could adversely affect our financial position, results of operations, cash flows and the market price of our common stock.

Relying on third-party logistics providers could increase the risk of the following: failing to receive accurate and timely inventory data, theft or poor physical security of our inventory, inventory damage, ineffective internal controls over inventory processes or other similar business risks out of our immediate control.

Risks Related to Technology, Cybersecurity and Intellectual Property

Cybersecurity breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.

Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. There have been several highly publicized cases in which organizations of various types and sizes have reported the unauthorized disclosure of customer or other confidential information, as well as cyberattacks involving the dissemination, theft and destruction of corporate information, intellectual property, cash or other valuable assets. There have also been several highly publicized cases in which hackers have requested “ransom” payments in exchange for not disclosing customer or other confidential information or for not disabling the target company’s computer or other systems. The secure processing, maintenance and transmission of the information that we collect and store on our systems is critical to our operations and implementing security measures designed to prevent, detect, mitigate or correct these or other cybersecurity threats involve significant costs.

Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced, and we expect to continue experiencing, threats to our data and systems, including malware, phishing and computer virus attacks, and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. In addition, due to the fast pace and unpredictability of cybersecurity threats, including from emerging technologies, such as advanced forms of machine learning, AI, and quantum computing, long-term implementation plans designed to address cybersecurity risks become obsolete quickly and, in some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause. In addition, such threats could be introduced as a result of our customers and business partners incorporating the output of an AI tool that includes a threat, such as introducing malicious code by incorporating AI generated source code. Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business.

If unauthorized access is obtained to the personal and/or proprietary data we collect and store, our products become subject to cybersecurity breaches, or if public perception is that they are vulnerable to cyberattacks, our reputation and business could suffer.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees, on our networks and third-party cloud software providers. If there is unauthorized access to such information, we may incur significant costs or liabilities and lose customer confidence in us, which would harm our reputation and results of operations. In addition, we could be subject to liability or our reputation could be harmed if technologies integrated into our products, or our products, fail to prevent cyberattacks, or if our partners or customers fail to safeguard the systems with security policies that conform to industry best practices. In addition, any cyberattack or security breach that affects a competitor’s products could lead to the negative perception that our solutions are or could be subject to similar attacks or breaches.

Some of our software offerings may be subject to various cybersecurity risks, which are particularly acute in the cloud-based technologies operated by us and other third parties that form a part of our solutions.

In connection with certain implementations of our management software platform, application, and SaaS offerings, we expect to store, convey and process data produced by devices. This data may include confidential or proprietary information, intellectual property or personally identifiable information of our customers or other third parties with whom they do business. It is important for us to maintain solutions and related infrastructure that are perceived by our customers and other parties with whom we do business to provide a reasonable level of reliability and security. Despite available security measures and other precautions, the infrastructure and transmission methods used by our products and services may be vulnerable to interception, attack or other disruptive problems. Additionally, some of our products include capabilities to support AI which may further increase our products susceptibility or perceived susceptibility of security risks.

If a cyberattack or other security incident were to allow unauthorized access to or modification of our customers’ data or our own data, whether due to a failure with our systems or related systems operated by third parties, we could suffer damage to our brand and reputation. The costs we would incur to address and fix these incidents could significantly increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.

Failure to comply with data privacy laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.

Certain of our products and services as well as the operations of our business may involve access or exposure to personally identifiable or otherwise confidential information and customer data and systems, the misuse or improper disclosure of which could result in legal liability. The collection, hosting, transfer, disclosure, use, storage and security of personal information is subject to federal, state and foreign data privacy laws. These laws, (“Privacy and Data Protection Requirements”) which are not uniform, do one or more of the following: regulate the collection, transfer (including in some cases, the transfer outside the country of collection), processing, storage, use and disclosure of personal information, and require notice to individuals of privacy practices and in some cases consent to collection of personal information; give individuals certain access, correction and deletion rights with respect to their personal information; and prevent the use or disclosure of personal information, or require providing opt-outs for the use and disclosure of personal information, for secondary purposes such as marketing. Under certain circumstances, some of these laws require us to provide notification to affected individuals, data protection authorities and/or other regulators in the event of a data breach. In many cases, these laws apply not only to third-party transactions, but also to transfers of information among us and our subsidiaries.

Laws and regulations in this area are evolving and generally becoming more stringent. For example, the European General Data Protection Regulation (the “GDPR”) requires us to meet stringent requirements regarding (i) our access, use, disclosure, transfer, protection, or otherwise processing of personal information; and (ii) the ability of data subjects to exercise their related various rights such as to access, correct or delete or limit the use of their personal data. Under the GDPR and the U.K.’s version of the GDPR, information transfers from the European Union and the U.K. to the U.S. are generally prohibited unless certain measures are followed.

The 2018 California Consumer Privacy Act and California Privacy Rights Act of 2020 provide individuals similar rights with respect to the processing of their personal data. Multiple states in the U.S. have enacted such privacy laws, and data privacy laws are scheduled to become effective in several others in 2026.

There is also the possibility of federal privacy legislation and increased enforcement by the Federal Trade Commission under its power to regulate unfair and deceptive trade practices. Markets in the Asia Pacific region have also recently adopted GDPR-like legislation, including China’s Personal Information Protection Law. Failure to meet Privacy and Data Protection Law requirements could result in significant civil penalties (including fines up to 4% of annual worldwide revenue under the GDPR) as well as criminal penalties. Privacy and data protection law requirements also confer a private right of action in some countries, including under the GDPR.

As these laws continue to evolve, we may be required to make changes to our systems, services, solutions and/or products to enable us and/or our clients to meet the new legal requirements, including by taking on more onerous obligations, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations and our ability to market to customers. Changes in these laws, or the interpretation and application thereof, may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demand in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition, and results of operations.

Issues related to the responsible use of AI may result in reputational, competitive and financial harm and liability.

We offer products that include capabilities to support AI deployment and we expect this part of our business to grow. As with many new emerging technologies, AI presents risks and challenges and increasing ethical concerns relating to its responsible use that could affect the adoption of AI, and thus our business. Third-party misuse of AI applications, models, or solutions, or ineffective or inadequate AI development or deployment practices by us or our customers or business partners, could cause harm to individuals, our business or impair the public’s acceptance of AI. Moreover, we may be subject to competitive harm, regulatory action and legal liability as a result of new proposed legislation regulating AI, new applications of existing data protection, privacy and intellectual property and other laws. Such regulations could cause us to incur greater compliance costs and could also impact our ability to sell or the ability of our customers and users worldwide to acquire, deploy and use systems that include our AI-related products and services, which could thus require us to change our business practices and could adversely affect our business, financial condition and results of operations. If the AI-related products that we offer have unintended consequences or unintended usage or customization by our customers or are otherwise controversial due to their perceived or actual impact on human rights, privacy, employment or other social, economic or political issues the public’s acceptance of AI may be impaired and may result in reputational and financial harm and liability to our business.

If software that we incorporate into our products were to become unavailable or no longer available on commercially reasonable terms, it could adversely affect sales of our products, which could disrupt our business and harm our financial results.

Certain of our products contain software developed and maintained by third-party software vendors or which are available through the “open source” software community. We also expect that we may incorporate software from third-party vendors and open source software in our future products. Our business would be disrupted if this software, or functional equivalents of this software, were either no longer available to us or no longer offered to us on commercially reasonable terms. In either case, we would be required to either redesign our products to function with alternate third-party software or open source software, or develop these components ourselves, which would result in increased costs and could result in delays in our product shipments. Furthermore, we might be forced to limit the features available in our current or future product offerings.

Our products may contain undetected software or hardware errors or defects that could lead to an increase in our costs, reduce our net revenue or damage our reputation.

We currently offer warranties ranging from one to five years on each of our products. Our products could contain undetected software or hardware errors or defects. If there is a product failure, we might have to replace all affected products, or we might have to refund the purchase price for the units. Regardless of the amount of testing we undertake, some errors might be discovered only after a product has been installed and used by customers. Any errors discovered after commercial release could result in financial losses and claims against us. Significant product warranty claims against us could harm our business, reputation and financial results and cause the market price of our common stock to decline.

We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position or require us to incur significant expenses to enforce our rights.

We rely primarily on a combination of laws, such as patent, copyright, trademark and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Despite any precautions that we have taken:

	·	laws and contractual restrictions might not be sufficient to prevent misappropriation of our technology or deter others from developing similar technologies;

	·	other companies might claim intellectual property rights based upon prior use that negatively impacts our ability to enforce our trademarks and patents; and

	·	policing unauthorized use of our patented technology and trademarks is difficult, expensive and time-consuming, and we might be unable to determine the extent of this unauthorized use.

Also, the laws of some of the countries in which we market and manufacture our products offer little or no effective protection of our proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it. Consequently, we may be unable to prevent our proprietary technology from being exploited by others in the U.S. or abroad, which could require costly efforts to protect our technology. Policing the unauthorized use of our technology, trademarks and other proprietary rights is expensive, difficult and, in some cases, impracticable. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which may harm our business, financial condition and results of operations.

The impact of natural disasters and other business interruptions could negatively impact our supply chain and customers resulting in an adverse impact to our revenues and profitability.

Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters. A natural disaster could damage equipment and inventory at our suppliers’ facilities, adversely affecting our supply chain. If we are unable to obtain these materials, we could experience a disruption to our supply chain that would hinder our ability to produce our products in a timely manner, or cause us to seek other sources of supply, which may be more costly or which we may not be able to procure on a timely basis. In addition, our customers may not follow their normal purchasing patterns or temporarily cease purchasing from us due to impacts to their businesses in the region, creating unexpected fluctuations or decreases in our revenues and profitability. Natural disasters in other parts of the world on which our operations are reliant also could have material adverse impacts on our business.

In addition, our operations and those of our suppliers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, cybersecurity breaches, IT systems failure, terrorist attacks, climate change and other events beyond our control. A substantial portion of our facilities, including our corporate headquarters and other critical business operations, are located near major earthquake faults and, therefore, may be more susceptible to damage if an earthquake occurs. We do not carry earthquake insurance for direct earthquake-related losses. If a business interruption occurs, whether due to a natural disaster or otherwise, our business could be materially and adversely affected.

Risks Related to Liquidity and Capital Resources

We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.

We regularly maintain domestic cash deposits in the Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to widespread demands for customer withdrawals and liquidity constraints that may result in market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank (“SVB”), Signature Bank Corp., and Silvergate Capital Corp., each failed and were taken into receivership by the FDIC. At that time, we maintained deposits amounting to approximately 85% of our total cash at SVB. While we were able to regain full access to our deposits with SVB and have taken steps to diversify our banking relationships since then, our loan agreement with SVB currently requires us to hold 75% of our US cash balances at SVB. Consequently, any future failure of that bank could simultaneously prevent access to both a substantial portion of our cash holdings and to our credit line for funds needed to meet our working capital requirements and other financial commitments. Our cash balances are concentrated at a small number of financial institutions. In addition, macroeconomic conditions have caused turmoil in the banking sector in the past and may do so again in the future. A failure to timely access our cash on deposit with SVB or other banks could require the scaling back of our operations and production, negatively affect our credit, and prevent us from fulfilling contractual obligations. Moreover, there can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or any applicable foreign government in the future or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a future failure or liquidity crisis, and such uninsured deposits may ultimately be lost. In addition, if any of the parties with whom we conduct business are unable to access funds due to the status of their financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.

We have a history of losses.

We have historically incurred net losses. There can be no assurance that we will generate net profits in future periods. Further, there can be no assurance that we will be cash flow positive in future periods. In the event that we fail to achieve profitability in future periods, the value of our common stock may decline. In addition, if we are unable to achieve or maintain positive cash flows, we would be required to seek additional funding, which may not be available on favorable terms, if at all.

We may need additional capital and it may not be available on acceptable terms, or at all.

To remain competitive, we must continue to make significant investments to operate our business and develop our products. Our future capital requirements will depend on many factors, including the timing and amount of our net revenue, research and development expenditures, expenses associated with any strategic partnerships or acquisitions and infrastructure investments, and expenses related to litigation, each of which could negatively affect our ability to generate additional cash from operations. If cash generated from operations is insufficient to satisfy our working capital requirements, we may need to raise additional capital. Looking ahead at long-term needs, we may need to raise additional funds for a number of purposes, including, but not limited to:

	·	to fund working capital requirements;

	·	to update, enhance or expand the range of products we offer;

	·	to refinance existing indebtedness;

	·	to increase our sales and marketing activities;

	·	to respond to competitive pressures or perceived opportunities, such as investment, acquisition and international expansion activities; or

	·	to acquire additional businesses

We may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures, or other similar arrangements, it may be necessary to relinquish valuable rights to our potential future products or proprietary technologies, or grant licenses on terms that are not favorable to us. There can be no assurance that we will be able to raise any needed capital on terms acceptable to us, if at all. If we are unable to secure additional financing in sufficient amounts or on favorable terms, we may not be able to develop or enhance our products, take advantage of future opportunities, respond to competition or continue to operate our business.

The terms of our amended and restated credit facility may restrict our financial and operational flexibility and, in certain cases, our ability to operate.

The terms of our Fourth Amended and Restated Loan and Security Agreement (the “Loan Agreement”) restrict, among other things, our ability to incur liens or indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain transactions with our affiliates. Further, we are currently and may in the future be required to maintain specified financial ratios, including pursuant to a minimum interest coverage ratio, and to satisfy a minimum liquidity test. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet those tests. Pursuant to our Loan Agreement, we have pledged substantially all of our assets to our senior lender, SVB. In addition, our Loan Agreement requires us to hold 75% of our US cash balances at SVB, which may limit our ability to manage our cash holdings effectively.

Risks Related to International Operations

Future imposition of tariffs could materially and adversely affect our business and results of operations.

We cannot predict whether, and to what extent, there may be changes to international trade agreements or whether additional quotas, duties, tariffs, exchange controls or other restrictions on our products will be changed or imposed. If we are unable to source our products from the countries where we wish to purchase them, either because of regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition and results of operations. Furthermore, imposition of tariffs or other developments may result in our implementing local or alternative sourcing initiatives that make it more difficult to sell our products in foreign countries, which would negatively impact our business and operating results.

We face risks associated with our international operations that could impair our ability to grow our revenues abroad as well as our overall financial condition.

We believe that our future growth is dependent in part upon our ability to increase sales in international markets. These sales are subject to a variety of risks, including geopolitical events, fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements. In addition, we are subject to the risks inherent in conducting business internationally, including political and economic instability and unexpected changes in diplomatic and trade relationships. In many markets where we operate, business and cultural norms are different than those in the U.S., and practices that may violate laws and regulations applicable to us such as the Foreign Corrupt Practices Act (the “FCPA”) unfortunately are more commonplace. Although we have implemented policies and procedures with the intention of ensuring compliance with these laws and regulations, our employees, contractors and agents, as well as distributors and resellers involved in our international sales, may take actions in violation of our policies. Many of our vendors and strategic business allies also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if one or more of our business partners are not able to successfully manage these risks. There can be no assurance that one or more of these factors will not have a material adverse effect on our business strategy and financial condition.

Foreign currency exchange rates may adversely affect our results.

We are exposed to market risk primarily related to foreign currencies and interest rates. In particular, we are exposed to changes in the value of the U.S. dollar versus the local currency in which our products are sold and our services are purchased, including devaluation and revaluation of local currencies. Accordingly, fluctuations in foreign currency rates could adversely affect our revenues and operating results.

Risks Related to Regulatory Compliance and Legal Matters

Our inability to obtain appropriate industry certifications or approvals from governmental regulatory bodies could impede our ability to grow revenues in our wireless products.

The sale of our wireless products in some geographical markets is sometimes dependent on the ability to gain certifications and/or approvals by relevant governmental bodies. In addition, many of our products are certified as meeting various industry quality and/or compatibility standards. Failure to obtain these certifications or approvals, or delays in receiving any needed certifications or approvals, could impact our ability to compete effectively or at all in these markets and could have an adverse impact on our revenues.

Our failure to comply effectively with regulatory laws pertaining to our foreign operations could have a material adverse effect on our revenues and profitability.

We are required to comply with U.S. government export regulations in the sale of our products to foreign customers, including requirements to properly classify and screen our products against a denied parties list prior to shipment. We are also required to comply with the provisions of the FCPA and all other anti-corruption laws, such as the U.K. Anti-Bribery Act, of all other countries in which we do business, directly or indirectly, including compliance with the anti-bribery prohibitions and the accounting and recordkeeping requirements of these laws. Violations of the FCPA or other similar laws could trigger sanctions, including ineligibility for U.S. government insurance and financing, as well as large fines. Failure to comply with the aforementioned regulations could also affect our decision to sell our products in international jurisdictions, which could have a material adverse effect on our revenues and profitability.

Our failure to comply effectively with the requirements of applicable environmental legislation and regulation could have a material adverse effect on our revenues and profitability.

Certain states and countries have passed regulations relating to chemical substances in electronic products and requiring electronic products to use environmentally friendly components. For example, the European Union has the Waste Electrical and Electronic Equipment Directive, the Restrictions of Hazardous Substances Directive, and the Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals. In the future, China and other countries including the U.S. may adopt further environmental compliance programs. In order to comply with these regulations, we may need to redesign our products to use different components, which may be more expensive, if they are available at all. If we fail to comply with these regulations, we may not be able to sell our products in jurisdictions where these regulations apply, which could have a material adverse effect on our revenues and profitability.

Evolving expectations from investors, customers, lawmakers, regulators, and other stakeholders regarding environmental, social and governance practices and disclosures may adversely affect our reputation, adversely impact our ability to attract and retain employees or customers, expose us to increased scrutiny from the investment community or enforcement authorities or otherwise adversely impact our business and results of operations.

We may become subject to increased scrutiny and evolving expectations from investors, customers, lawmakers, regulators, and other stakeholders on environmental, social and governance (“ESG”) practices and disclosures, including those related to environmental stewardship, climate change, diversity, equity and inclusion, forced labor, racial justice, and workplace conduct. Regulators have imposed in the past, and may impose in the future, ESG-related rules and guidance, which may conflict with one another and impose additional costs on us or expose us to new or additional risks. Moreover, certain organizations that provide information to investors have developed ratings for evaluating companies on their approach to different ESG-related matters, and unfavorable ratings of us or our industry may lead to negative investor sentiment and the diversion of investment to other companies or industries. As a smaller company, we may not have resources to meet the evolving ESG-related expectations of the investment community.

Current or future litigation, including related to intellectual property, could adversely affect us.

We are subject to a wide range of claims and lawsuits in the course of our business. Any lawsuit may involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources. The results of litigation are inherently uncertain, and adverse outcomes are possible. Adverse outcomes may have a material adverse effect on our business, financial condition or results of operations.

In particular, litigation regarding intellectual property rights occurs frequently in our industry. There is a risk that other third parties could claim that our products, or our customers’ products, infringe on their intellectual property rights or that we have misappropriated their intellectual property. In addition, software, business processes and other property rights in our industry might be increasingly subject to third-party infringement claims as the number of competitors grows and the functionality of products in different industry segments overlaps. Other parties might currently have, or might eventually be issued, patents that pertain to the proprietary rights we use. Any of these third parties might make a claim of infringement against us. The results of litigation are inherently uncertain, and adverse outcomes are possible.

Responding to any infringement claim, regardless of its validity, could:

	·	be time-consuming, costly and/or result in litigation;

	·	divert management’s time and attention from developing our business;

	·	require us to pay monetary damages, including treble damages if we are held to have willfully infringed;

	·	require us to enter into royalty and licensing agreements that we would not normally find acceptable;

	·	require us to stop selling or to redesign certain of our products; or

	·	require us to satisfy indemnification obligations to our customers.

If any of these occur, our business, financial condition or results of operations could be adversely affected.

General Risk Factors

High interest rates may negatively impact our results of operations and financing costs.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies. Higher interest rates may hinder opportunities in markets where we do business, have negative impacts on the global economy, and may lead customers to decrease or delay spending on products and projects, including on products that we sell, which may have a material adverse effect on our business, financial condition and results of operations. In addition, higher interest rates impact the amount of interest we pay for our debt obligations and leases and continue and sustained increases in interest rates has in the past and may in the future negatively impact our financing costs or cash flow.

If we are unable to attract, retain or motivate key senior management and technical personnel, it could materially harm our business.

Our financial performance depends substantially on the performance of our executive officers and of key engineers, marketing and sales employees. We are particularly dependent upon our technical personnel, due to the specialized technical nature of our business. If we were to lose the services of our executive officers or any of our key personnel and were not able to find replacements in a timely manner, our business could be disrupted, other key personnel might decide to leave, and we might incur increased operating expenses associated with finding and compensating replacements.

Our quarterly operating results may fluctuate, which could cause the market price of our common stock to decline.

We have experienced, and expect to continue to experience, significant fluctuations in net revenue, expenses and operating results from quarter to quarter. We therefore believe that quarter to quarter comparisons of our operating results are not a good indication of our future performance, and investors should not rely on them to predict our future operating or financial performance or the future performance of the market price of our common stock. A high percentage of our operating expenses are relatively fixed and are based on our forecast of future revenue. If we were to experience an unexpected reduction in net revenue in a quarter, we would likely be unable to adjust our short-term expenditures significantly. If this were to occur, our operating results for that fiscal quarter would be harmed. In addition, if our operating results in future fiscal quarters were to fall below the expectations of equity analysts and investors, the market price of our common stock would likely fall.

The market price of our common stock may be volatile based on a number of factors, many of which are not under our control.

The market price of our common stock has been highly volatile. The market price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are out of our control, including:

	·	adverse changes in domestic or global economic, market and other conditions;

	·	new products or services offered by our competitors;

	·	our completion of or failure to complete significant one-time sales of our products;

	·	actual or anticipated variations in quarterly operating results;

	·	changes in financial estimates by securities analysts;

	·	announcements of technological innovations;

	·	our announcement of significant mergers, acquisitions, strategic partnerships, joint ventures or capital commitments;

	·	conditions or trends in the industry;

	·	additions or departures of key personnel;

	·	increased competition from industry consolidation; and

	·	sales of common stock by our stockholders or us or repurchases of common stock by us.

In addition, the Nasdaq Capital Market often experiences price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of companies listed on the Nasdaq Capital Market.

Item 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

Insider Trading Arrangements

During the quarter ended December 31, 2025, no director or officer of the Company adopted, terminated or modified a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6.

Exhibits

			Incorporated by Reference
Exhibit Number	Description	Provided Herewith	Form	Exhibit	Filing Date

3.1	Amended and Restated Certificate of Incorporation of Lantronix, Inc., as amended		10-K	3.1	08/29/2013

3.2	Amended and Restated Bylaws of Lantronix, Inc.		8-K	3.2	11/15/2012

10.1*	Amendment to Offer Letter, dated as of January 1, 2026, between Brent Stringham and Lantronix, Inc.		8-K	10.1	01/06/2026

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	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	X
101.SCH	Inline XBRL Taxonomy Extension Schema Document	X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	X
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

_________________

*	Indicates management contract or compensatory plan, contract or arrangement.

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 5, 2026	By:	/s/ SALEEL AWSARE
		Saleel Awsare
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ BRENT STRINGHAM
		Brent Stringham
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

LANTRONIX INC 10-Q