ltrx_10k-063008.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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S
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended June 30, 2008
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ________ to ________
Commission
File Number 1-16027
LANTRONIX,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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33-0362767
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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15353
Barranca Parkway, Irvine, California 92618
(Address
of principal executive offices)
(949)
453-3990
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each exchange on which
registered
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Common
Stock, $0.0001 par value
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The NASDAQ Stock
Market LLC
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Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No S
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes £ No S
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 S No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 2b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer £
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Accelerated
filer £
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Non-accelerated
filed £
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Smaller
reporting company S
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ No S
The
aggregate market value of the registrant’s common stock held by non-affiliates
based upon the closing sales price of the common stock on December 31, 2007, as
reported by the NASDAQ Capital Market, was approximately $21,060,000. Shares of
common stock held by each current executive officer and director and by each
person who is known by the registrant to own 5% or more of the outstanding
common stock have been excluded from this computation in that such persons may
be deemed to be affiliates of the registrant. Share ownership information of
certain persons known by the registrant to own greater than 5% of the
outstanding common stock for purposes of the preceding calculation is based
solely on information on Schedule 13G filed with the Securities and Exchange
Commission and is as of December 31, 2007. This determination of affiliate
status is not a conclusive determination for other purposes.
As of
September 15, 2008, there were 60,497,876 shares of the Registrant’s common
stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of Part III of this Form 10-K incorporate information by reference
from portions of the registrant’s 2008 Definitive Proxy Statement to be filed
not later than 120 days after the close of the 2008 fiscal year.
LANTRONIX,
INC.
ANNUAL
REPORT ON FORM 10-K
For
the Fiscal Year Ended June 30, 2008
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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17
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Item
2.
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Properties
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17
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Item
3.
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Legal
Proceedings
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18
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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18
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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18
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Item
6.
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Selected
Financial Data (Not applicable)
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19
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk (Not
applicable)
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28
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Item
8.
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Financial
Statements and Supplementary Data
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28
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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28
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Item
9A.
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Controls
and Procedures
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28
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Item
9B.
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Other
Information
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28
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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29
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Item
11.
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Executive
Compensation
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29
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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29
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Item
13.
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Certain
Relationships and Related Transactions and Director Independence
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29
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Item
14.
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Principal
Accountant Fees and Services
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29
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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30
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FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements within the meaning of the federal
securities laws. Statements that are not purely historical should be
considered forward-looking statements. Often they can be identified
by the use of forward-looking words and phrases, such as “intend,” “may,”
“will,” “could,” “project,” “anticipate,” “expect,” “estimate,” “continue,”
“potential,” “plan,” “forecasts,” and the like. Statements concerning current
conditions may also be forward-looking if they imply a continuation of current
conditions. Examples of forward-looking statements include, but are not limited
to, statements concerning industry trends, anticipated demand for our products,
the impact of pending litigation, our overall business strategy, market
acceptance of new products, future customer and sales developments,
manufacturing forecasts, including the potential benefits of our contract
manufacturers sourcing and supplying raw materials, the significant role of
original equipment manufacturers in our business, the future cost and potential
benefits of our research and development efforts and liquidity and cash
resources forecasts.
Forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the forward-looking
statements. Readers are urged to carefully review the cautionary statements made
by the Company in this report concerning risks and other factors that may affect
the Company’s business and operating results, including those made in this
report under the caption “Risk Factors,” in Part I, Item 1A and elsewhere in
this report as well as the Company’s other reports filed with the Securities and
Exchange Commission (“SEC”). We may from time to time make additional
forward-looking statements in our filings with the SEC, in our reports to our
stockholders and elsewhere. Readers are cautioned not to place undue
reliance on these forward-looking statements. We do not
undertake any obligation to update any forward-looking statement that may be
made from time to time by us or on our behalf.
PART
I
ITEM
1. BUSINESS
Overview
We
design, develop and market devices that make it possible to access, manage,
control and configure electronic products over the Internet or other networks.
We are a leader in providing innovative networking solutions. We were initially
formed as “Lantronix,” a California corporation, in June 1989. We reincorporated
as “Lantronix, Inc.,” a Delaware corporation, in May 2000.
We have a
history of providing devices that enable information technology (“IT”) equipment
to network using standard protocols for connectivity, including Ethernet and
wireless. Our first device was a terminal server that allowed “dumb” terminals
to connect to a network. Building on the success of our terminal servers, in
1991 we introduced a complete line of print servers that enabled users to
inexpensively share printers over a network. Since then, we have continually
refined our core technology and have developed additional innovative networking
solutions that expand upon the business of providing our customers network
connectivity. With the expansion of networking and the Internet, our technology
focus has been increasingly broad and has expanded beyond IT equipment, so that
our device solutions provide a product manufacturer with the ability to network
its products within the industrial, service and commercial markets referred to
as machine-to-machine (“M2M”) networking.
Our
primary products and technology have focused on “device enablement” solutions
that enable individual electronic products to be connected to a network and the
data center market for “device management” solutions that connect or bridge
groups of devices onto the network for the primary purpose of remote access. We
are expanding our device management solutions to address applications outside
the data center and have recently launched new products to help manage equipment
at remote branch offices and a new product category that provides a reliable,
single point of control and data flow management for potentially thousands of
networked devices. Together, the device enablement and device management product
lines constitute our growth strategy and make up our “device networking
business.” In
addition, we continue to sell certain older legacy “non-core” products which we
expect to exit. Products within the non-core category include print servers,
visualization (optically-based video
extenders),
serial terminal servers and serial cards for servers. Expansion of our business
is directed at our device networking business and we no longer invest research
and development or marketing resources in our non-core product
lines.
Today,
our solutions include fully integrated hardware and software devices, as well as
software tools, to develop related customer applications. Because we deal with
network connectivity, we provide solutions to extremely broad market segments,
including information technology, security, industrial, retail, medical,
building automation, transportation and others. Our technology is used to
provide networking capabilities to products such as building heating ventilation
and air conditioning systems, elevators, process control equipment, vending
machines, thermostats, security cameras, RF ID readers, bar code scanners,
scales, temperature sensors, blood analyzers, turnstiles, card readers, point of
sale terminals, audio-visual projectors, time clocks, and virtually any product
that has some form of electronic control capability.
We sell
our products through a global network of distributors, resellers and
manufacturer representatives, systems integrators, value-added resellers
(“VARs”) and original equipment manufacturers (“OEMs”). In addition, we sell
directly to select accounts.
Our
common stock is currently traded on the NASDAQ Capital Market under the symbol
LTRX.
Our
worldwide headquarters is located in Irvine, California, and we have sales
offices in France, Japan and Hong Kong. We also have employees (primarily sales)
working from home offices in other areas of the world, including Germany, the
United Kingdom, Japan and the Netherlands.
We
provide information regarding our company and our products on our Internet
website, www.lantronix.com.
Our
Strategy
Our
business strategy is based on our proven capability to develop fully integrated
device enablement and remote connection solutions that increase the value of our
customers’ products and services by making it easy to access and monitor devices
over the Internet or private local network. Our technology is easy to integrate
and typically provides our customer’s device with compatibility with
industry-wide standards such as Ethernet, the Internet, WiFi, standard web
browsers and enterprise security standards. By using our device enablement
technology, customers can reduce basic data connection costs, reduce maintenance
and repair costs, create differentiation based on better service and can create
new revenue sources from device related services.
This
strategy is accomplished by providing our customers with hardware and software
that connect devices to a network and intelligently manage and control them.
With our 19 years of networking expertise, knowledge of industry trends and our
capability to develop solutions based on open industry-standards, we believe we
have been able to anticipate our customers’ device networking technology
requirements and offer solutions that enable them to achieve their connectivity
objectives. By providing a complete solution of hardware and integrated
software, we have been able to provide “turnkey” solutions for network enabling
a device, eliminating the need for our customers to build expensive design and
manufacturing expertise in-house. This results in savings to the customer both
in terms of financial investment and time.
The
following describes our M2M device networking product lines:
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·
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Device Enablement – We
offer an array of embedded and external device enablement solutions that
enable integrators and manufacturers of electronic and electro-mechanical
products to add network connectivity, manageability and control. Our
customers’ products emanate from a wide variety of applications within the
M2M market, from blood analyzers that relay critical patient information
directly to a hospital’s information system, to simple devices such as
time clocks, allowing the user to obtain information from these devices
and to improve how they are managed and controlled. We also offer
products such as multi-port device servers that enable devices outside the
data center to cost effectively share the network connection and convert
various protocols to industry standard interfaces such as Ethernet and the
Internet.
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·
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Device Management
– We
offer off-the-shelf appliances such as console servers, digital remote
keyboard, video, mouse extenders, and power control products that enable
IT professionals to remotely connect, monitor and control network
infrastructure equipment, distributed branch office equipment and large
groups of servers using highly secure out-of-band management
technology. In addition, we offer off-the-shelf appliances that
enable IT professionals to reliably, remotely and simply monitor,
configure and manage multiple devices from a single point of
control.
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The
following describes our non-core product line:
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·
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Non-core – Over the
years, we have innovated or acquired various product lines that are no
longer part of our primary, core markets described above. In general,
these non-core businesses represent decreasing markets and we minimize
research and development in these product lines. Included in this category
are terminal servers, visualization solutions, legacy print servers,
software and other miscellaneous products. We have announced the
end-of-life for almost all of our non-core products and expect a steep
decline in non-core revenues in fiscal 2009 while we complete the exit of
this product category.
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Products
Device Enablement
Solutions
Device
networking is the technology that enables connectivity within a multitude of
commercial and industrial vertical markets such as security, building
automation, medical, industrial automation, point-of-sale and many others. We
provide manufacturers, integrators and users with device enablement solutions
that in some applications include the technology for products to be connected,
managed and controlled over networks using standard protocols for connectivity,
including wired Ethernet and WiFi wireless. As common, everyday products
leverage the power of network connectivity, manufacturers and users are
realizing the benefits of networking. Our device enablement solutions represent
complete engineered solutions that dramatically shorten a manufacturer’s
development time to implement network connectivity, provide competitive
advantages with new features, greatly reducing engineering and marketing risks.
Our hardware solutions include large scale integration (“LSI”) chips, embedded
modules (embedded web servers) for mounting into our customer’s product
(completed circuit boards or intelligent connectors with electronic components
and the necessary connectors and software), and external hardware modules
(device servers) with one or two ports that can be connected to the customer’s
product by cables. Embedded and external hardware modules incorporate a
real-time operating system and application software required to make the devices
effective. We also offer application- and industry-specific solutions for
certain markets such as industrial device servers.
Our
device servers allow a wide range of equipment to be quickly network-enabled
without the need for intermediary gateways, workstations or PCs. Our device
servers and web servers eliminate the high cost of ownership associated with
networking, which frequently would otherwise require using PCs and workstations
to perform connectivity and remote management functions. Our solutions contain
high-performance processors capable of not only controlling the attached device,
but in many cases are also capable of accumulating data and status. The
accumulated data can then be formatted by the device server and presented to
users via SNMP or e-mail. Our device servers have a built-in HTTP
server, making them easy to manage using any standard Web browser.
In 2003,
we introduced our XPort® embedded web server, which represented an improvement
in technology and a reduction in physical size and price for this type of
functionality. The thumb-sized XPort® is a self-contained network communications
server and miniaturized web server enclosed within a rugged RJ-45 connector
package, which can be embedded in virtually any electronic product. Products
incorporating XPort® often have their own IP address on a network and can be
configured to be accessible from any web browser, including a wireless PC or
Internet-enabled cell phone, from anywhere in the world. The XPort® can serve up
Internet-standard web pages, initiate e-mails for notifications or alerts, and
can be configured to run other applications as defined and developed by the
device manufacturer. XPort® makes it simple for a product manufacturer to
connect, because the XPort® includes a complete, integrated solution with a
10/100 Base-T Ethernet connection, a reliable and proven operating system, an
embedded web server, flexible firmware, a full TCP/IP protocol stack, and
optional encryption. The relatively low price of the XPort®, and the speed and
ease with which a manufacturer can design the device into its products, can make
many products more attractive by cost-effectively providing network
connectivity.
In March
2004, we introduced WiPort™, a wireless (and wired) embedded web server with
substantially the same functionality as XPort®, but with an 802.11 standard
wireless configuration for embedded application in products and situations where
a wired Ethernet environment is not available or practical.
In August
2004, we introduced WiBox®, an external wireless device
server. WiBox® dual-port device servers enable users to connect
equipment to 802.11b/g networks via serial or Ethernet, quickly and easily. By
merging wireless networking and Lantronix device server technology, WiBox®
simplifies connectivity to devices in applications where mobility is required or
cabling is impractical.
In
January 2007, we introduced the XPort® Direct™, an embedded networking device
gateway module and the latest offering in our XPort® family. The XPort® Direct™
embedded device gateway is a complete, miniaturized communications subsystem
targeted at applications that need to move commands, status and information over
IP networks or the Internet, to or from remote devices. The XPort® Direct™ is
designed to bring Ethernet and Internet connectivity to new high-volume,
cost-sensitive applications in commercial and consumer markets.
In
February 2007, we introduced the IntelliBox®-I/O 2100, a fully programmable
external device server, which automates
the task of managing remote equipment and associated reporting. Powered by
Lantronix EventTrak™ technology, the IntelliBox® enables customers to connect
their industrial, commercial, medical, retail and security equipment to IP
networks and the Internet to automatically monitor and respond to events in
real-time with no human intervention.
In April 2007, we introduced the
MatchPort™ b/g, our third generation, full-featured, secure, embedded wireless
(802.11 b/g) networking device server module. With the MatchPort™ b/g, OEM
manufacturers can easily design-in standards compliant, secure 802.11 b/g
wireless connectivity giving their products mobility and remote management
capabilities. MatchPort™ b/g is suited for a variety of vertical applications
including telematics/transportation, security access control,
building/industrial automation, medical, retail/POS and power/utilities
metering.
We also
offer products such as multi-port device servers that enable devices outside the
data center to cost effectively share the network connection and convert various
protocols to industry standard interfaces such as Ethernet and the
Internet.
In July
2007, we introduced the expansion of our Industrial Device Networking product
offerings with a new family of industrial Ethernet switches. The XPress-Pro SW™
series complements our current XPress line of industrial device servers by
adding a line of five and eight-port managed and unmanaged hardened Ethernet
switches.
In
January 2008, we introduced the MatchPort(r) Pro, a networking
solution for data sensitive, regulatory, and IT-driven applications that demand
the safest and most reliable technology such as medical records, financial
transactions, and government data. In addition, MatchPort b/g Pro features
SmartRoam, a breakthrough technology from Lantronix that provides users a higher
degree of reliability and mobility when moving throughout a building, warehouse,
or even across campus-wide networks.
Device Management
Solutions
Our
device management solutions are single and muti-port products (up
to 48 ports) that primarily provide IT professionals with the tools they need to
remotely connect to the out-of-band management ports on computers and associated
equipment. These solutions include console servers, remote keyboard,
video, mouse (“KVM”) servers and managed power distribution products and
terminal servers.
Our
customers use these solutions to monitor and run their systems to ensure the
performance and availability of critical business information systems, network
infrastructure and telecommunications equipment. The equipment our solutions
manage includes routers, switches, servers, phone switches and public branch
exchanges that are often located in remote or inaccessible
locations.
Our
console servers provide system administrators and network managers a way to
connect with their remote equipment through an interface called a console port,
helping them work more efficiently without having to leave their desk or office.
Console ports are usually found in Unix, Linux servers and on special purpose
data center equipment such as environmental monitoring/control systems,
communications switches and storage devices. With remote access, system downtime
can be reduced, improving business efficiency. Our console servers provide IT
professionals with peace-of-mind through extensive security features, and in
some cases, provisions for dial-in access via modem. These solutions are
provided in various configurations and can manage up to 48 devices from one
console server.
In
addition, our ManageLinx™ device management solutions provide M2M service
organizations with the tools they need to remotely connect many network-enabled
devices. These enterprise level solutions provide secure connectivity making it
simple to maintain, configure, monitor and control large device networking
deployments. ManageLinx™ will be entering initial customer testing in fiscal
2008
In
September 2005, we introduced SecureLinx™ Management Appliance, our first
management appliance for the data center market. This product enables IT
administrators to aggregate and manage an entire complex of multiple console
serves, remote KVM servers and power devices used in multiple racks of
equipment.
In March
2007, we introduced SecureLinx Spider™, our IP-based “Distributed
KVM” remote server management solution. The SecureLinx Spider™ is a
cable-friendly, single port, KVM to IP converter small enough to be held in one
hand. The SecureLinx Spider™ compresses video, keyboard and mouse signals,
sending them over the network or Internet to a remote PC or handheld device
running industry-standard Web
browsers.
Non-core
Businesses: Visualization Solutions, Print Servers and Other Legacy
Products
Over a
period of years, primarily as a result of product technology acquired through
acquisitions, we have product categories that no longer represent the focus of
future research and development and expansion; in other cases these products are
legacy products developed and sold in the past, but are no longer part of our
strategic focus. We have announced the end-of-life for almost all of our
non-core products and expect a steep decline in non-core revenues in fiscal 2009
while we complete the exit of this product category.
We offer
visualization solutions that provide switching and optical extension of high
performance video, audio, keyboard and mouse over long distances within a
building or campus environment. Products include video display extenders, analog
KVM extension systems and matrix hubs. Our analog remote KVM products provide a
valuable solution for extending and sharing audio, video, keyboard and mouse
signals among many users and over optical cable without loss of resolution. KVM
products enable a single keyboard, monitor and mouse to be switched between
multiple computers, providing immediate access and control from a single
location. The customers for these devices typically are companies that need to
isolate users from the core computing center for security reasons, or require
high speed video sources to be shared among many users. Our visualization
solutions can be found in government agencies and at customers involved with
large scale simulation and display applications. We announced the end of life of
these visualization products and exited this product line in 2007.
Early in
our business history, we provided external print servers that connect various
printers to a network for shared printing tasks. Over the years, we have updated
and continue to provide print servers that work with a myriad of operating
systems and network configurations. The requirement for external print servers
is decreasing, as printer manufacturers have incorporated networking hardware
and software as part of many printers. We intend to exit this product
line.
We
acquired a line of low-cost products that we market under the “Stallion”
brand. Stallion products include a variety of network servers and a
range of multi-port serial I/O cards. We intend to exit this product
line.
Various
other small categories of our legacy business are included in the non-core
category, such as software revenues and other product lines we have discontinued
or that are being de-emphasized.
The
following table presents net revenues by product line. Definitions of
these families have been modified slightly from time to time, and the data has
been revised to conform to the current definitions:
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Years
Ended June 30,
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Product
Line
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Primary
Product Function
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2008
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2007
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(In
thousands)
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Device
enablement
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Enable
electronic products to become network enabled.
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$ |
44,993 |
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$ |
39,734 |
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Device
management
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Allow
the user to control equipment by way of a network using a wide range of
protocols. This category includes console servers and remote
digital KVM.
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8,694 |
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8,866 |
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Total
device networking
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53,687 |
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48,600 |
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Non-core
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Includes
terminal servers, visualization solutions, legacy print servers, serial
board, software and miscellaneous products.
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3,899 |
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6,706 |
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Total
net revenues
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|
$ |
57,586 |
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$ |
55,306 |
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Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related
Information,” establishes standards for disclosures about operating segments in
annual consolidated financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. We operate in one segment, networking and Internet
connectivity.
Customers
Distributors
Our
principal customers are our distributors, which account for the largest
percentage of our net revenues. Distributors resell our products to a
wide variety of end customers, including consumers, corporate customers and
VARs. We sell to a group of thirteen major distributors, some of which operate
from multiple warehouses. Our major distributors in the Americas region include:
Ingram Micro, Tech Data, KMJ Communications, Arrow Electronics, Inc and Symmetry
Electronics. In Europe, the Middle East and Africa (“EMEA”) region, we
distribute to the following major distributors: Sphinx Computer Vertriebs GmbH,
Jade Communications, LTD, Atlantik Systems GmbH, transtec AG (a related party
due to common ownership by our largest stockholder), Astradis Elecktronik GmbH
and Acal plc. In the Asia Pacific region, we distribute to the
following major distributors: Nissin Systems, Co., Ltd and PowerCorp Pty
Ltd.
OEM
Manufacturers
We have
established a broad range of OEM customers in various industries, such as
industrial automation, medical, security, building automation, consumer and
audiovisual. To shorten the development cycle and add network connectivity to a
product, OEMs can use our external devices to network-enable their installed
base of products, while board-level embedded modules are typically used in new
product designs. Our capabilities and solutions enable OEMs to focus on their
core competencies, resulting in reduced research and development costs, fewer
integration problems and faster time to market.
End
User Businesses
We have a
broad range of end user customers in various vertical markets such as retail,
universities/education, manufacturing, healthcare/hospitals and
financial/banking. End user businesses require solutions that are simple to
install, set up and operate, and can provide immediate results. Generally, these
customers need to connect to a diverse range of products and equipment, without
modifying existing software and systems.
Our
external device enablement solutions enable end users to quickly, securely and
easily connect their devices and equipment to networks, extending the life of
existing investments. We provide a number of support services including
telephone-based sales and technical support as well as a wide array of
Internet-based resources. In many cases, the customer simply has to call in to
obtain assistance in identifying which networking device would be most
appropriate for their need. After buying the devices from us or one of our
distributors, a customer often only has to plug a cable from their device to our
external device, and then plug our device into their network.
Customer Concentrations
The
following table presents sales to our significant customers and a related party
as a percentage of net revenues:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Top five customers
(1)
|
|
|
38 |
% |
|
|
34 |
% |
|
Tech
Data
|
|
|
13 |
% |
|
|
8 |
% |
|
Ingram
Micro
|
|
|
8 |
% |
|
|
12 |
% |
|
Related
party
|
|
|
2 |
% |
|
|
2 |
% |
|
(1)
Includes Ingram Micro and Tech Data.
|
|
|
|
|
|
|
|
|
No other
customer represented more than 10% of our annual net revenues during these
fiscal years. An international customer, transtec AG, is a related party due to
common ownership by our largest stockholder and Lantronix director, Bernhard
Bruscha.
The
following table presents our net revenues by geographic region:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Americas
|
|
|
57.6 |
% |
|
|
63.2 |
% |
|
EMEA
|
|
|
28.9 |
% |
|
|
25.3 |
% |
|
Asia
Pacific
|
|
|
13.5 |
% |
|
|
11.5 |
% |
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Information
concerning our customer concentrations and sales by geographic region can be
found in Part IV, Item 15 of this Annual Report on Form 10-K and is presented in
footnote 13 to our notes of our consolidated financial statements. Please see
Part I, Item 1A “Risk Factors” below for a discussion of the risks associated
with foreign sales.
Sales
and Marketing
We
maintain both an inside and a field sales force to provide management and
support to our worldwide network of selling partners. Over the past several
years, we have expanded our network of sales partners and have developed an
indirect sales model, using manufacturers’ representatives, VARs and other
resellers throughout the world. We have sales managers in major regions
throughout the world to manage our relationship with our sales partners,
identify and develop major new sales opportunities and increase penetration at
existing high potential accounts. We implement marketing programs, tools and
services specifically geared to drive demand for our products.
The
following table presents the number of our employees that participate in sales
and marketing activities:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
66
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
We
believe that our multi-channel approach provides several advantages. We can
engage the customers and end users through their channel of choice, making our
solutions available from a variety of sources. We can concentrate on developing
new relationships at accounts that we believe represent our largest
opportunities while our sales partners continue to identify new incremental
opportunities and service existing customers.
Our
device enablement solutions are principally sold to manufacturers by our
worldwide OEM sales force and our group of manufacturers’ representatives. We
have continued to expand our use of manufacturers’ representatives and other
resellers, leveraging their established relationships to bring our device
enablement solutions to a greater number of customers within the OEM
market.
We market
and sell our device management solutions and select external device enablement
solutions through information technology resellers, industry-specific system
integrators, VARs and directly to end user organizations. Resellers and
integrators will often obtain our products through distributors. These
distributors supply our products to a broad range of VARs, system integrators,
direct marketers, government resellers and e-commerce resellers. In turn, these
distributor customers market, sell, install and, in most cases, support our
solutions to the end users.
Manufacturing
A key
element of our operations strategy is to outsource manufacturing to
produce reliable, high quality products at competitive prices and to achieve
on-time delivery to our customers. This practice enables us to concentrate
our resources on engineering, sales and marketing.
We utilize
contract manufacturers primarily located in the U.S.,
China, Malaysia and Taiwan. Our contract manufacturers
source raw materials, components and integrated circuits, in accordance
with our pre-determined specifications and forecasts, and perform printed
circuit board assembly, final assembly, functional testing and quality control.
We believe this arrangement decreases our capital requirements and provides
better raw material and component pricing, enhancing our gross margins and
operating margins. Please see Part I, Item 1A “Risk Factors” below for a
discussion of the risks associated with contract manufacturing.
Research
and Development
Our research and development efforts
are focused on the development of technology and products that will enhance our
competitive position in the markets we serve. Products are developed in-house
and through outside research and development resources, which may be sourced on
an OEM basis.
The
following table presents the number of our employees that participate in
research and development activities and our research and development
expenses:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Number
of employees
|
|
|
41 |
|
|
|
45 |
|
|
Research
and development expenses
|
|
$ |
6,944 |
|
|
$ |
7,362 |
|
|
|
|
|
|
|
|
|
|
|
Developer
Relations
Recruiting, informing and participating
with third-party developers are integral parts of our ongoing strategy. We
encourage, enable and support others in the development of vertical applications
using our hardware, firmware and software products. With their help and
investment in creating additional applications and markets for our products, we
improve our ability to secure a defensible market position and loyal
customers.
Competition
The markets in which we compete are
dynamic and highly competitive. As these markets grow and develop, we expect
competition to intensify. The following sets forth a partial list of current and
potential competitors by techology:
Device
Network-enabling Technologies
Companies
such as Digi International, Inc., DPAC Technologies Corp., Echelon Corporation,
Freescale Semiconductor, Inc., Moxa Technologies, MRV Communications, Inc.,
Quatech, Inc., Raritan, Rose Electronics, Sena Technologies Inc., Wind River
Systems, Inc., and ZiLOG, Inc.
Equipment
for Device management Solutions
Companies
such as Avocent Corporation, Cisco Systems, Inc., Digi International, Inc., Moxa
Technologies, MRV Communications, Inc., Open Gear and Perle Systems.
The principal competitive factors that
affect the market for our products are:
|
|
·
|
product
quality, technological innovation, compatibility with standards and
protocols, reliability, functionality, ease of use and
compatibility;
|
|
|
·
|
potential
customers’ awareness and perception of our products and of
network-enabling technologies; and
|
|
|
·
|
the
customer’s decision to make versus
buy.
|
Intellectual
Property Rights
We have
developed proprietary methodologies, tools, processes and software in connection
with delivering our services. We have not historically relied on patents to
protect our proprietary rights, although we have recently begun to build a
patent portfolio. We have historically relied on a combination of copyright,
trademark, trade secret laws and contractual restrictions, such as
confidentiality agreements and licenses, to establish and protect our
proprietary rights.
On May 2, 2006, we entered into a
six-year patent cross-license and litigation dismissal agreement with Digi
International, Inc. (“Digi”). The cross-license includes all pre-existing
patents (not including design patents) held by us and Digi. In
addition, the cross-license covers all future patents (not including design
patents) during the six-year cross-license term.
Gordian,
Inc. (“Gordian”) developed certain intellectual property used in our micro
serial server line of products. These products represented and continue to
represent a significant portion of our net revenues. An agreement with Gordian
gives us joint ownership of the Gordian intellectual property that is embodied
in the products Gordian designed for us.
United
States and Foreign Government Regulation
Many of
our products and the industries in which they are used are subject to federal,
state or local regulation in the U.S. In addition, our products are exported
worldwide. Therefore, we are subject to the regulation of foreign governments.
For example, wireless communication is highly regulated in both the U.S. and
elsewhere. Some of our products employ encryption technology; the export of some
encryption software is restricted. At this time our activities comply with
existing laws, but we cannot determine whether future, more restrictive laws, if
enacted, would adversely affect us. Please see Part I, Item 1A “Risk Factors”
below for risks associated with foreign operations.
Federal,
state and local regulations impose various environmental controls on the
storage, handling, discharge and disposal of chemicals and gases used in our
manufacturing processes. Our company quality manual requires all subcontractors
and raw material suppliers to be ISO14001 certified. State agencies require us
to report usage of environmentally hazardous materials and we have retained the
appropriate personnel to help ensure compliance with all applicable
environmental regulations. We actively manage and monitor compliance through our
internal auditing program. We believe that our activities conform to present
environmental regulations; however, increasing public attention has been focused
on the environmental impact of semiconductor operations and these regulations
may require us to fund remedial action regardless of fault.
In
addition, the use and disposal of electronics is under increasing scrutiny and
various countries have begun to adopt regulations such as the European Union’s
Waste Electrical and Electronic Equipment (“WEEE”) and the Reduction of the use
of certain Hazardous Substances in electrical and electronic equipment (“RoHS”)
directives, which could require us to both redesign our products to comply with
the standards and develop compliance administration systems. We expect
additional countries and locations to adopt similar regulations in the future
which may be more stringent than the current regulations. Currently however, we
believe the majority of our commercial products are compliant with these
emerging regulations.
While we
have not experienced any materially adverse effects on our operations from
environmental regulations, there can be no assurance that changes in such
regulations will not impose the need for additional capital equipment or other
requirements. We have already invested significant resources into developing
compliance tracking systems, and further investments may be required. Any
failure by us to adequately restrict the discharge of hazardous substances could
subject us to future liabilities or could cause our manufacturing operations to
be suspended.
Employees
We have
never experienced a work stoppage, none of our employees are currently
represented by a labor union, and we consider our employee relations to be
good.
The
following table presents our part- and full-time employees:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
41 |
|
|
|
45 |
|
|
Sales
and marketing
|
|
|
66 |
|
|
|
66 |
|
|
Operations
|
|
|
20 |
|
|
|
21 |
|
|
General
and administrative
|
|
|
30 |
|
|
|
29 |
|
|
Total
employees
|
|
|
157 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
During
the first fiscal quarter ended September 30, 2008, we implemented a second
restructuring plan. As part of the second restructuring plan, an additional
28 employees
from all ranks and across all functional groups of Lantronix are expected to be
terminated.
Backlog
Normally,
we manufacture our products in advance of receiving firm product orders from our
customers based upon our forecasts of worldwide customer demand. Most customer
orders are placed on an as-needed basis and may be canceled or rescheduled by
the customer without significant penalty. Accordingly, backlog as of any
particular date is not necessarily indicative of our future sales. Because most
of our business is on an as-needed basis we do not rely on backlog as a metric
of our operations.
Available
Information
Our
annual report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to reports filed or furnished pursuant to Section 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), are available free of charge on our website at www.lantronix.com
shortly after we electronically file such material with, or furnish it to, the
SEC. The public may read and copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically. We assume no obligation to update or
revise forward looking statements in this Form 10-K, whether as a result of new
information, future events or otherwise, unless we are required to do so by
law.
Executive
Officers of the Registrant
The
following table presents the names, ages and positions held by all our executive
officers. There are no family relationships between any director or executive
officer and any other director or executive officer of Lantronix. Executive
officers serve at the discretion of the board of directors.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
D. Chase
|
|
48
|
|
President
and Chief Executive Officer
|
|
Reagan
Y. Sakai
|
|
49
|
|
Chief
Financial Officer and
Secretary
|
JERRY D.
CHASE has served as our President and Chief Executive Officer since February
2008. From September 2004 to July 2007, Mr. Chase was president, chief executive
officer and a board member for Terayon Communication Systems, a public cable,
telecom and satellite supplier of digital video networking applications. From
2001 to August 2004, Mr. Chase served as the chairman and chief executive
officer of Thales Broadcast & Multimedia (“TBM”), a telecom and test
equipment supplier, and from 1998 to 2001 was president and chief executive
officer of the U.S. subsidiary of TBM. Mr. Chase began his career as a Pilot and
Operations Officer in the U.S. Marine Corps, where he built a strong foundation
for leadership, process and crisis management. Following the Marine Corps, he
attended Harvard Business School, where he received his MBA.
REAGAN Y. SAKAI has served as our Chief
Financial Officer and Secretary since November 2006. Mr. Sakai has 25
years of increasingly responsible financial and management experience, most
recently as CFO for HyPerformix Corporation, a private software company based in
Austin, Texas. Earlier, he was CFO for VIEO Corporation, an early-stage software
company, and before that, he was CFO of Crossroads Systems Corporation, a public
data storage routing company, where he oversaw the company's highly successful
IPO in October 1999. Earlier in his career, Mr. Sakai held various financial
positions with Exabyte Corporation, Maxtor Corporation, McDATA Corporation, and
StorageTek Corporation. Mr. Sakai holds a BS degree and an MBA from the
University of Colorado at Boulder.
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. This section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto, and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in this Annual Report on
Form 10-K. If any of these risks or uncertainties actually occurs with material
adverse effects on Lantronix, our business, financial condition and results of
operations could be seriously harmed. In that event, the market price for our
common stock could decline and you may lose all or part of your
investment.
Our
quarterly operating results may fluctuate, which could cause our stock price to
decline.
We have
experienced, and expect to continue to experience, significant fluctuations in
net revenues, 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 you should not rely on
them to predict our future performance or the future performance of our stock. A
high percentage of our operating expenses are relatively fixed and are based on
our expectations of future net revenues. If we were to experience a reduction in
revenues in a quarter, we would likely be unable to adjust our short-term
expenditures. If this were to occur, our operating results for that fiscal
quarter would be harmed. If our operating results in future fiscal quarters fall
below the expectations of market analysts and investors, the price of our common
stock would likely fall. Other factors that might cause our operating results to
fluctuate on a quarterly basis include:
|
|
·
|
changes
in the mix of net revenues attributable to higher-margin and lower-margin
products;
|
|
|
·
|
customers’
decisions to defer or accelerate
orders;
|
|
|
·
|
variations
in the size or timing of orders for our
products;
|
|
|
·
|
changes
in demand for our products;
|
|
|
·
|
fluctuations
in exchange rates;
|
|
|
·
|
defects
and other product quality problems;
|
|
|
·
|
loss
or gain of significant customers;
|
|
|
·
|
short-term
fluctuations in the cost or availability of our critical
components;
|
|
|
·
|
announcements
or introductions of new products by our
competitors;
|
|
|
·
|
effects
of terrorist attacks in the U.S. and abroad;
and
|
|
|
·
|
changes
in demand for devices that incorporate our
products.
|
Our
common stock may be delisted, which could significantly harm our
business.
Our
common stock is currently listed on The Nasdaq Capital Market under the symbol
“LTRX.” We currently are not in compliance with the $1.00 minimum bid price
requirement for inclusion in The Nasdaq Capital Market; however, we have until
December 22, 2008, to regain compliance. If our common stock is delisted from
The Nasdaq Capital Market, some or all of the following could be reduced,
harming our investors:
|
|
·
|
the
liquidity of our common stock;
|
|
|
·
|
the
market price of our common stock;
|
|
|
·
|
the
number of institutional investors that will consider investing in our
common stock;
|
|
|
·
|
the
number of investors in general that will consider investing in our common
stock;
|
|
|
·
|
the
number of market makers in our common
stock;
|
|
|
·
|
the
availability of information concerning the trading
prices;
|
|
|
·
|
the
number of broker-dealers willing to execute trades in shares of our common
stock; and
|
|
|
·
|
our
ability to obtain financing for the continuation of our
operations.
|
If
a major distributor or customer cancels, reduces or delays purchases, our net
revenues might decline and our business could be adversely
affected.
The number and timing of sales to our
distributors have been difficult for us to predict. While our distributors are
customers in the sense they buy our products, they are also part of our product
distribution system. Some of our distributors could be acquired by a competitor
and stop buying product from us.
The
following table presents sales to our significant customers as a percentage of
net revenues:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Top five customers
(1)
|
|
|
38 |
% |
|
|
34 |
% |
|
Tech
Data
|
|
|
13 |
% |
|
|
8 |
% |
|
Ingram
Micro
|
|
|
8 |
% |
|
|
12 |
% |
|
Related
party
|
|
|
2 |
% |
|
|
2 |
% |
|
(1)
Includes Ingram Micro and Tech Data.
|
|
|
|
|
|
|
|
|
The loss
or deferral of one or more significant customers in a quarter could harm our
operating results. We have in the past, and might in the future, lose one or
more major customers. If we fail to continue to sell to our major customers in
the quantities we anticipate, or if any of these customers terminate our
relationship, our reputation, the perception of our products and technology in
the marketplace, could be harmed. The demand for our products from our OEM, VAR
and systems integrator customers depends primarily on their ability to
successfully sell their products that incorporate our device networking
solutions technology. Our sales are usually completed on a purchase order basis
and we have few long-term purchase commitments from our customers.
Our future success also depends on our
ability to attract new customers, which often involves an extended selling
process. The sale of our products often involves a significant technical
evaluation, and we often face delays because of our customers’ internal
procedures for evaluating and deploying new technologies. For these and other
reasons, the sales cycle associated with our products is typically lengthy,
often lasting six to nine months and sometimes longer. Therefore, if we were to
lose a major customer, we might not be able to replace the customer in a timely
manner, or at all. This would cause our net revenues to decrease and could cause
our stock price to decline.
If we fail to develop or enhance our
products to respond to changing market conditions and government and industry
standards, our competitive position will suffer and our business will be
adversely affected.
Our future success depends in large
part on our ability to continue to enhance existing products, lower product cost
and develop new products that maintain technological competitiveness and meet
government and industry standards. The demand for network-enabled products is
relatively new and can change as a result of innovations, new technologies or
new government and industry standards. For example, a recent directive in the
European Union bans the use of lead and other heavy metals in electrical and
electronic equipment after July 1, 2006. As a result, in advance of this
deadline, some of our customers selling products in Europe had begun demanding
product from component manufacturers that did not contain these banned
substances. Any failure by us to develop and introduce new products or
enhancements in response to new government and industry standards could harm our
business, financial condition or results of operations. These requirements might
or might not be compatible with our current or future product offerings. We
might not be successful in modifying our products and services to address these
requirements and standards. For example, our competitors might develop competing
technologies based on Internet Protocols, Ethernet Protocols or other protocols
that might have advantages over our products. If this were to happen, our net
revenues might not grow at the rate we anticipate, or could decline.
Delays
in deliveries or quality problems with our component suppliers could damage our
reputation and could cause our net revenues to decline and harm our results of
operations.
We and our contract manufacturers are
responsible for procuring raw materials for our products. Our products
incorporate components or technologies that are only available from single or
limited sources of supply. In particular, 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 used in our products will
be phased out of production. 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 might be unable to purchase
sufficient components to meet our demands, or we might incorrectly forecast our
demands, and purchase too many or too few components. In addition, our products
use components that have, in the past, been subject to market shortages and
substantial price fluctuations. From time to time, we have been unable to meet
our orders because we were unable to purchase necessary components for our
products. We do not have long-term supply arrangements with many of our vendors
to obtain necessary components or technology for our products. If we are unable
to purchase components from these suppliers, 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 revenues and risk losing customers and
harming our reputation in the marketplace, which could adversely affect our
business, financial condition or results of operations. We have recently
redesigned many of our products to comply with the new environmental regulation
such as the Reduction of Hazardous Substances (“RoHS”) directive. These
regulations are relatively new for our supply chain and interruptions in parts
supply due to the additional complexities and limited number of second source
supply choices could adversely impact our business.
If
we lose the services of any of our contract manufacturers or suppliers, we may
not be able to obtain alternate sources in a timely manner, which could harm our
customer relations and adversely affect our net revenues and harm our results of
operations.
We do not
have long-term agreements with our contract manufacturers or suppliers. If any
of these subcontractors or suppliers ceased doing business with us, we may
not be able to obtain alternative sources in a timely or cost-effective manner.
Due to the amount of time that it usually takes us to qualify contract
manufacturers and suppliers, we could experience delays in product shipments if
we are required to find alternative subcontractors and suppliers. Some of our
suppliers have or provide technology or trade secrets, the loss of which could
be disruptive to our procurement and supply processes. If a competitor should
acquire one of our contract manufacturers or suppliers, we could be subjected to
more difficulties in maintaining or developing alternative sources of supply of
some components or products. Any problems that we may encounter with the
delivery, quality or cost of our products could damage our customer
relationships and materially and adversely affect our business, financial
condition or results of operations.
Environmental
regulations such as the Waste Electrical and Electronic Equipment
(“WEEE”) and RoHS directives may require us to redesign our products
and to develop compliance administration systems.
Various
countries have begun to require companies selling a broad range of electrical
equipment to conform to regulations such as the WEEE and RoHS directives and we
expect additional countries and locations to adopt similar regulations in the
future. New environmental standards such as these could require us to redesign
our products in order to comply with the standards, and require the development
of compliance administration systems. We have already invested significant
resources into developing compliance tracking systems, and further investments
may be required. Additionally, we may incur significant costs to redesign our
products and to develop compliance administration systems; however alternative
designs may have an adverse effect on our gross profit margin. If we cannot
develop compliant products timely or properly administer our compliance
programs, our revenues may also decline due to lower sales, which would
adversely affect our operating results.
If our research and development
efforts are not successful, our net revenues could decline and our business
could be harmed.
If we are unable to develop new
products as a result of our research and development efforts, or if the products
we develop are not successful, our business could be harmed. Even if we do
develop new products that are accepted by our target markets, we do not know
whether the net revenues from these products will be sufficient to justify our
investment in research and development. In addition, if we do not invest
sufficiently in research and development, we may be unable to maintain our
competitive position. Our investment in research and development may decrease,
which may put us at a competitive disadvantage compared to our competitors and
adversely affect our market position.
We
expect the average selling prices of our products to decline and material costs
to increase, which could reduce our net revenues, gross margins and
profitability.
In the past, we have experienced some
reduction in the average selling prices and gross margins of products, and we
expect that this will continue for our products as they mature. 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 decline as a result of other reasons, including promotional
programs and customers who negotiate price reductions in exchange for
longer-term purchase commitments. We also may not be able to increase the price
of our products if the prices of components or our overhead costs increase. In
addition, we may be unable to adjust our prices in response to currency exchange
rate fluctuations resulting in lower gross margins. We also may be
unable to adjust our prices in response to price increases by our suppliers
resulting in lower gross margins. Further, as is characteristic of
our industry, the average selling prices of our products have historically
decreased over the products’ life cycles and we expect this pattern to
continue. If any of these were to occur, our gross margins could
decline and we may not be able to reduce the cost to manufacture our products to
keep up with the decline in prices.
Current
or future litigation could adversely affect us.
We are
subject to a wide range of claims and lawsuits in the course of our
business. For example, we recently concluded multiple securities
lawsuits with our stockholders and litigation with a former executive
officer. We may have an obligation to continue to indemnify the
former executive officer and defend him in the litigation regarding the
securities violation with which he has been charged. There is a risk
that our insurance carriers may not reimburse us for such costs. 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.
Our products may contain undetected
software or hardware errors or defects that could lead to an increase in our
costs, reduce our net revenues or damage our reputation.
We currently offer warranties ranging
from one to two years on each of our products. Our products could contain
undetected errors or defects. If there is a product failure, we might have to
replace all affected products without being able to book revenue for replacement
units, or we may have to refund the purchase price for the units. We do not have
a long history with which to assess the risks of unexpected product failures or
defects for our device server product line. 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 loss of net revenues and claims against us. Significant product
warranty claims against us could harm our business, reputation and financial
results and cause the price of our stock to decline.
If
software that we license or acquire from the open source software community and
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 components developed and maintained by third-party
software vendors or 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.
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 outsource substantially all of our
manufacturing to four manufacturers in Asia: Venture Electronics Services, Uni
Precision Industrial Ltd., Universal Scientific Industrial Company, LTD and Hana
Microelectronics, Inc. In addition, two independent third party foundries
located in Asia manufacture substantially all of our large scale integration
chips. Our reliance on these third-party manufacturers 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;
and
|
|
|
·
|
reliance
on these manufacturers to maintain competitive manufacturing
technologies.
|
Our agreements with these manufacturers
provide for services on a purchase order basis. If our manufacturers were to
become unable or unwilling to continue to manufacture our products at requested
quality, quantity, yields and costs, or in a timely manner, our business would
be seriously harmed. As a result, we would have to attempt to identify and
qualify substitute manufacturers, which could be time consuming and difficult,
and might result in unforeseen manufacturing and operations problems. For
example, Jabil Circuit, Inc. acquired Varian, Inc. in March 2005 and closed the
facility that manufactured our products. We transferred this production to
another contract manufacturer. Moreover, as we shift products among third-party
manufacturers, we may incur substantial expenses, risk material delays or
encounter other unexpected issues.
In addition, a natural disaster could
disrupt our manufacturers’ facilities and could inhibit our manufacturers’
ability to provide us with manufacturing capacity in a timely manner or at all.
If this were to occur, we likely would be unable to fill customers’ existing
orders or accept new orders for our products. The resulting decline in net
revenues would harm our business. We also are responsible for forecasting the
demand for our individual products. These forecasts are used by our contract
manufacturers to procure raw materials and manufacture our finished goods. If we
forecast demand too high, we may invest too much cash in inventory, and we may
be forced to take a write-down of our inventory balance, which would reduce our
earnings. If our forecast is too low for one or more products, we may be
required to pay charges that would increase our cost of revenues or we may be
unable to fulfill customer orders, thus reducing net revenues and therefore
earnings.
Our
international activities are subject to uncertainties, which include
international economic, regulatory, political and other risks that could harm
our business, financial condition or results of operations.
The following table presents our sales
within geographic regions:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Americas
|
|
|
57.6 |
% |
|
|
63.2 |
% |
|
EMEA
|
|
|
28.9 |
% |
|
|
25.3 |
% |
|
Asia
Pacific
|
|
|
13.5 |
% |
|
|
11.5 |
% |
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
We expect
that international revenues will continue to represent a significant portion of
our net revenues in the foreseeable future. Doing business internationally
involves greater expense and many risks. For example, because the products we
sell abroad and the products and services we buy abroad may be priced in foreign
currencies, we could be affected by fluctuating exchange rates. In the past, we
have lost money because of these fluctuations. We might not successfully protect
ourselves against currency rate fluctuations, and our financial performance
could be harmed as a result. In addition, we use contract manufacturers based in
Asia to manufacture substantially all of our products. International revenues
and operations are subject to numerous risks, including:
|
|
·
|
unexpected
changes in regulatory requirements, taxes, trade laws and
tariffs;
|
|
|
·
|
reduced
protection for intellectual property rights in some
countries;
|
|
|
·
|
differing
labor regulations;
|
|
|
·
|
compliance
with a wide variety of complex regulatory
requirements;
|
|
|
·
|
fluctuations
in currency exchange rates;
|
|
|
·
|
changes
in a country’s or region’s political or economic
conditions;
|
|
|
·
|
effects
of terrorist attacks in the U.S. and
abroad;
|
|
|
·
|
greater
difficulty in staffing and managing foreign operations;
and
|
|
|
·
|
increased
financial accounting and reporting burdens and
complexities.
|
Our
international operations require significant attention from our management and
substantial financial resources. We do not know whether our investments in other
countries will produce desired levels of net revenues or
profitability.
We
are exposed to foreign currency exchange risks, which could harm our business
and operating results.
We hold a
significant portion of our cash balance in foreign currencies (particularly
euros), and as such are exposed to adverse changes in exchange rates associated
with foreign currency fluctuations. However, we do not currently engage in any
hedging transactions to mitigate these risks. Although from time to time we
review our foreign currency exposure and evaluate whether we should enter into
hedging transactions, we may not adequately hedge against any future volatility
in currency exchange rates and, if we engage in hedging transactions, the
transactions will be based on forecasts which later may prove to be inaccurate.
Any failure to hedge successfully or anticipate currency risks properly could
adversely affect our operating results.
If we are unable to sell our
inventory in a timely manner it could become obsolete, which could require us to
increase our reserves and harm our operating results.
At any time, competitive products may
be introduced with more attractive features or at lower prices than ours. There
is a risk that we may be unable to sell our inventory in a timely manner to
avoid it becoming obsolete.
The
following table presents our reserve for excess and obsolete
inventory:
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In
thousands)
|
|
|
Finished
goods
|
|
$ |
5,707 |
|
|
$ |
7,848 |
|
|
Raw
materials
|
|
|
1,836 |
|
|
|
2,653 |
|
|
Inventory
at distributors
|
|
|
2,008 |
|
|
|
1,876 |
|
|
Large
scale integration chips *
|
|
|
809 |
|
|
|
1,530 |
|
|
Inventories,
gross
|
|
|
10,360 |
|
|
|
13,907 |
|
|
Reserve
for excess and obsolete inventory
|
|
|
(2,322 |
) |
|
|
(2,926 |
) |
|
Inventories,
net
|
|
$ |
8,038 |
|
|
$ |
10,981 |
|
|
*
This item is sold individually and embedded into the Company's
products.
|
|
|
|
|
|
|
|
|
In the
event 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
reserves and our operating results could be substantially harmed.
We
are subject to export control regulations that could restrict our ability to
increase our international revenue and may adversely affect our
business.
Our
products and technologies are subject to U.S. export control laws, including the
Export Administration Regulations, administered by the Department of Commerce
and the Bureau of Industry Security, and their foreign counterpart laws and
regulations, which may require that we obtain an export license before we can
export certain products or technology to specified countries. These export
control laws, and possible changes to current laws, regulations and policies,
could restrict our ability to sell products to customers in certain countries or
give rise to delays or expenses in obtaining appropriate export licenses.
Failure to comply with these laws and regulations could result in government
sanctions, including substantial monetary penalties, denial of export
privileges, and debarment from government contracts. Any of these could
adversely affect our operations and, as a result, our financial results could
suffer.
If we are unable to attract, retain
or motivate key senior management and technical personnel, it could seriously
harm our business.
Our financial performance depends
substantially on the performance of our executive officers, key technical,
marketing and sales employees. We are also 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.
If
our OEM customers develop their own expertise in network-enabling products, it
could result in reduced sales of our products and harm our operating
results.
We sell to both resellers and
OEMs. Selling products to OEMs involves unique risks, including the
risk that OEMs will develop internal expertise in network-enabling products or
will otherwise incorporate network functionality in their products without using
our device networking solutions. If this were to occur, our sales to OEMs would
likely decline, which could reduce our net revenues and harm our operating
results.
New
product introductions and pricing strategies by our competitors could reduce our
market share or cause us to reduce the prices of our products, which would
reduce our net revenues and gross margins.
The
market for our products is intensely competitive, subject to rapid change and is
significantly affected by new product introductions and pricing strategies of
our competitors. We face competition primarily from companies that
network-enable devices, semiconductor companies, companies in the automation
industry and companies with significant networking expertise and research and
development resources. Our competitors might offer new products with features or
functionality that are equal to or better than our products. In addition, since
we work with open standards, our customers could develop products based on our
technology that compete with our offerings. We might not have sufficient
engineering staff or other required resources to modify our products to match
our competitors. Similarly, competitive pressure could force us to reduce the
price of our products. In each case, we could lose new and existing customers to
our competition. If this were to occur, our net revenues could decline and our
business could be harmed.
Current
or future litigation over intellectual property rights could adversely affect
us.
Substantial
litigation regarding intellectual property rights exists in our
industry. For example, in May 2006 we settled a patent infringement
lawsuit with Digi in which we signed an agreement with Digi to cross-license
each other’s patents. In addition, we paid Digi $600,000 as part of
the settlement. 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.
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.
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 have not historically relied on
patents to protect our proprietary rights, although we are now building a patent
portfolio. In May 2006, we entered into a patent cross-license agreement with
Digi in which the parties agreed to cross-license each other’s patents, which
could reduce the value of our existing patent portfolio. We rely
primarily on a combination of laws, such as 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 common law trademark rights based upon use that
precedes the registration of our
marks;
|
|
|
·
|
other
companies might assert other rights to market products using our
trademarks;
|
|
|
·
|
policing
unauthorized use of our products and trademarks is difficult, expensive
and time-consuming, and we might be unable to determine the extent of this
unauthorized use;
|
|
|
·
|
courts
may determine that our software programs use open source software in such
a way that deprives the entire programs of intellectual property
protection; and
|
|
|
·
|
current
federal laws that prohibit software copying provide only limited
protection from software pirates.
|
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 products, 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.
Acquisitions,
strategic partnerships, joint ventures or investments may impair our capital and
equity resources, divert our management’s attention or otherwise negatively
impact our operating results.
We may
pursue acquisitions, strategic partnerships and joint ventures that we believe
would allow us to complement our growth strategy, increase market share in our
current markets and expand into adjacent markets, broaden our technology and
intellectual property and strengthen our relationships with distributors and
OEMs. Any future acquisition, partnership, joint venture or investment may
require that we pay significant cash, issue stock or incur substantial debt.
Acquisitions, partnerships or joint ventures may also result in the loss of key
personnel and the dilution of existing stockholders as a result of issuing
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 contribute to increased fixed costs and may expose us to
unanticipated liabilities and otherwise harm our operating results.
Business
interruptions could adversely affect our business.
Our
operations and those of our suppliers are vulnerable to interruption by fire,
earthquake, power loss, telecommunications failure, terrorist attacks 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, our business could
be materially and adversely affected.
If we fail to maintain an effective
system of disclosure controls or internal controls over financial reporting, our
business and stock price could be adversely affected.
Section 404
of the Sarbanes-Oxley Act of 2002 requires companies to evaluate periodically
the effectiveness of their internal controls over financial reporting, and to
include a management report assessing the effectiveness of their internal
controls as of the end of each fiscal year. Beginning with our annual report on
Form 10-K for our fiscal year ending June 30, 2008, we were required to comply
with the requirement of Section 404 of the Sarbanes-Oxley Act of 2002 to include
in each of our annual reports an assessment by our management of the
effectiveness of our internal controls over financial
reporting. Beginning with our annual report on Form 10-K for our
fiscal year ending June 30, 2010, our independent registered public
accounting firm will issue a report assessing the effectiveness of our internal
controls.
Our
management does not expect that our internal controls over financial reporting
will prevent all errors or frauds. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
involving us have been, or will be, detected. These inherent limitations include
the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple errors or mistakes. Controls can also be
circumvented by individual acts of a person, or by collusion among two or more
people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and we cannot assure you that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies and procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to errors or
frauds may occur and not be detected.
We cannot
assure you that we or our independent registered public accounting firm will not
identify a material weakness in our disclosure controls and internal controls
over financial reporting in the future. If our internal controls over financial
reporting are not considered adequate, we may experience a loss of public
confidence, which could have an adverse effect on our business and our stock
price.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
We lease a building in Irvine,
California, that comprises our corporate headquarters and includes
administration, sales, marketing, research and development, warehouse and order
fulfillment functions. During fiscal 2005, we extended the lease for our Irvine
facility until July 2010. In addition, we have sales offices in
France, Japan and Hong Kong. Our leased facilities comprise an aggregate of
approximately 55,000 square feet of which our Irvine facility represents the
majority.
We
believe our existing facilities are adequate to meet our needs. If additional
space is needed in the future, we believe that suitable space will be available
on commercially reasonable terms.
ITEM
3. LEGAL PROCEEDINGS
The legal
proceedings as required by this item are incorporated by reference from Part IV,
Item 15 of this Form 10-K and are presented under footnotes 10 and 11 to our
notes to our consolidated financial statements.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No
matters were submitted to a vote of our security holders during the fourth
fiscal quarter ended June 30, 2008.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price
Range of Common Stock
Our common stock was traded on the
NASDAQ National Market under the symbol “LTRX” from our initial public offering
on August 4, 2000 through October 22, 2002. On October 23, 2002 our listing was
changed to the NASDAQ SmallCap Market, which has since been renamed the NASDAQ
Capital Market. The number of holders of record of our common stock as of
September 15, 2008 was approximately 76. The following table sets forth, for the
periods indicated, the high and low sales prices for our common
stock:
|
|
|
High
|
|
|
Low
|
|
|
Year
Ended June 30, 2008
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
1.43 |
|
|
$ |
0.99 |
|
|
Second
Quarter
|
|
|
1.14 |
|
|
|
0.76 |
|
|
Third
Quarter
|
|
|
0.96 |
|
|
|
0.49 |
|
|
Fourth
Quarter
|
|
|
1.00 |
|
|
|
0.61 |
|
|
Year
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
2.13 |
|
|
$ |
1.29 |
|
|
Second
Quarter
|
|
|
1.78 |
|
|
|
1.36 |
|
|
Third
Quarter
|
|
|
1.90 |
|
|
|
1.57 |
|
|
Fourth
Quarter
|
|
|
1.61 |
|
|
|
1.24 |
|
We
believe that a number of factors, including but not limited to quarterly
fluctuations in results of operations, may cause the market price of our common
stock to fluctuate significantly. See Part II, Item 7 of this Form
10-K.
Dividend
Policy
We have never declared or paid cash
dividends on our common stock. We do not anticipate paying any cash dividends on
our common stock in the foreseeable future, and we intend to retain any future
earnings for use in the expansion of our business and for general corporate
purposes.
Recent
Sales of Unregistered Securities
We did
not repurchase any of our common stock during the fourth fiscal quarter of
2008. Since July 1, 2003, we have issued the following unregistered
securities:
In June 2006, we issued an aggregate of
84,053 shares of our common stock in connection with the settlement of
securities claims brought by former stockholders of Synergetic Micro Systems,
Inc. These shares were issued pursuant to the exemption provided by
Section 3(a)(10) of the Securities Act.
In March
2008, we issued warrants to purchase 1,079,615 shares of our common stock in
connection with our settlement of the Class Action lawsuit. These
securities were issued pursuant to the exemption provided by Section 3(a)(10) of
the Securities Act.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7. 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 in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this report. In
addition to historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those anticipated by these forward-looking
statements due to factors including, but not limited to, those factors set forth
under Part I, Item 1A “Risk Factors” and elsewhere in this report.
Overview
We
design, develop and market devices that make it possible to access, manage,
control and configure electronic devices over the Internet and other networks.
We are a leader in providing innovative networking solutions. We were initially
formed as “Lantronix,” a California corporation, in June 1989. We reincorporated
as “Lantronix, Inc.,” a Delaware corporation in May 2000. Our products are sold
to distributors, OEMs, VARs, and systems integrators, as well as directly to end
users.
Fiscal
Year 2008 Financial Highlights and Other Information
A
summary of the key factors and significant events which impacted our financial
performance during the fiscal year ended June 30, 2008 are as
follows:
|
|
·
|
Net
revenues were $57.6 million for the fiscal year ended June 30, 2008, an
increase of $2.3 million, or 4.1%, compared to $55.3 million for the
fiscal year ended June 30, 2007. The increase was primarily the result of
a $5.1 million, or 10.5%, increase in our device networking product lines
offset by a $2.8 million, or 41.9%, decrease in our non-core product
lines.
|
|
|
·
|
Gross
profit as a percentage of net revenues was 50.5% for the fiscal year ended
June 30, 2008 compared to 51.2% for the fiscal year ended June 30, 2007.
The decrease in gross profit margin percentage was primarily attributable
to an increase in certain inventory reserves in connection with a review
of our product offerings as part of our effort to simplify our product
portfolio by discontinuing slow-moving and non-strategic
products.
|
|
|
·
|
Loss
from operations was $2.6 million, or 4.5%, of net revenues for the fiscal
year ended June 30, 2008 compared to $2.4 million, or 4.4%, for the fiscal
year ended June 30, 2007. The loss from operations for the
fiscal year ended June 30, 2008 included a restructuring charge of
$757,000.
|
|
|
·
|
Net
loss was $2.5 million, or $0.04 per basic and diluted share, for the
fiscal year ended June 30, 2008, compared to $1.7 million, or
$0.03 per basic and diluted share, for the fiscal year ended June 30,
2007. The net loss for the fiscal year ended June 30, 2008 included a
restructuring charge of $757,000. The net loss for the fiscal
year ended June 30, 2007 included a gain on the sale of long-term
investment of $700,000.
|
|
|
·
|
Cash
and cash equivalents were $7.4 million as of June 30, 2008 compared to
$7.6 million as of June 30,
2007.
|
|
|
·
|
Net
accounts receivable were $4.2 million as of June 30, 2008 compared to $3.4
million as of June 30, 2007. Annual days sales outstanding
(“DSO”) in receivables were 24 days for the fiscal year ended June
30, 2008 as compared to 21 days for the fiscal year ended June
30, 2007. Our accounts receivable and DSO are primarily affected by the
timing of shipments within a quarter, our collections performance and the
fact that a significant portion of our revenues are recognized on a
sell-through basis (upon shipment from distributor inventories rather than
as goods are shipped to
distributors).
|
|
|
·
|
Net
inventories were $8.0 million as of June 30, 2008 compared to
$11.0 million as of June 30, 2007. Annual inventory turns were 3.0
for the fiscal year ended June 30, 2008 as compared to 2.8 for the fiscal
year ended June 30, 2007.
|
Recent
Accounting Pronouncements
In
September 2006 the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. In February 2008 the FASB approved FASB Staff Position 157-2,
“Effective Date of FASB Statement No. 157,” which delays the effective date
of SFAS 157 for non-financial assets and liabilities to fiscal years
beginning after November 15, 2008. We are currently evaluating the impact,
if any, that SFAS 157 may have on our future consolidated financial
statements related to non-financial assets and liabilities.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants and
the SEC did not or are not believed by us to have a material impact on our
present or future consolidated financial statements.
Critical
Accounting Policies and Estimates
The
preparation of financial statements and related disclosures in accordance with
accounting principles generally accepted in the U.S. requires us to make
judgments, estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of net revenues and expenses during the reporting period. We regularly evaluate
our estimates and assumptions related to net revenues, allowances for doubtful
accounts, sales returns and allowances, inventory valuation, valuation of
deferred income taxes, goodwill and purchased intangible asset valuations,
warranty reserves, restructuring costs, litigation and other contingencies. We
base our estimates and assumptions on historical experience and on various other
factors that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. To the extent
there are material differences between our estimates and the actual results, our
future results of operations will be affected.
We
believe the following critical accounting policies require us to make
significant judgments and estimates in the preparation of our consolidated
financial statements:
Revenue
Recognition
We
do not recognize revenue until all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services have been
rendered; our price to the buyer is fixed or determinable; and collectibility is
reasonably assured. A significant portion of our sales are made to
distributors under agreements which contain a limited right to return unsold
product and price protection provisions. Therefore,
the recognition of net revenues and related cost of revenues from sales to
distributors are deferred until the distributor resells the product. Net
revenues from certain smaller distributors for which point-of-sale information
is not available, is recognized approximately one month after the shipment date.
This estimate approximates the timing of the sale of the product by the
distributor to the end user.
When
product revenues are recognized, we establish an estimated allowance for future
product returns based on historical returns experience; when price reductions
are approved, we establish an estimated liability for price protection payable
on inventories owned by product resellers. Should actual product returns or
pricing adjustments exceed our estimates, additional reductions to revenues
would result.
Our
products typically carry a one- or two-year
warranty. In addition, certain products that were sold prior to
August 2003 carry a five-year warranty. Although we engage in extensive product
quality programs and processes, our warranty obligation is affected by product
failure rates, use of materials or service delivery costs that differ from our
estimates. As a result, additional warranty reserves could be required, which
could reduce gross margins. Additionally, we sell extended warranty services,
which extend the warranty period for an additional one to three years, depending
upon the product. Warranty net revenues are recognized ratably over the warranty
service period.
Allowance for Doubtful
Accounts
We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Our allowance for
doubtful accounts is based on our assessment of the collectibility of specific
customer accounts, the aging of accounts receivable, our history of bad debts
and the general condition of the industry. If a major customer’s credit
worthiness deteriorates, or our customers’ actual defaults exceed our historical
experience, our estimates could change and impact our reported
results.
We also
maintain a reserve for uncertainties relative to the collection of officer notes
receivable. Factors considered in determining the level of this reserve include
the value of the collateral securing the notes, our ability to effectively
enforce collection rights and the ability of the former officers and Lantronix
director to honor their obligations.
Inventory
Valuation
Our
policy is to value inventories at the lower of cost or market on a part-by-part
basis. This policy requires us to make estimates regarding the market value of
our inventories, including an assessment of excess and obsolete inventories. We
determine excess and obsolete inventories based on an estimate of the future
sales demand for our products within a specified time horizon, generally three
to twelve months. The estimates we use for demand are also used for near-term
capacity planning and inventory purchasing and are consistent with our revenue
forecasts. In addition, specific reserves are recorded to cover risks in the
area of end of life products, inventory located at our contract manufacturers,
deferred inventory in our sales channel and warranty replacement
stock.
If our
sales forecast is less than the inventory we have on hand at the end of an
accounting period, we may be required to take excess and obsolete inventory
charges, which will decrease gross margin and net operating results for that
period.
Valuation of Deferred Income
Taxes
We have
recorded a valuation allowance to reduce our net deferred tax assets to zero,
primarily due to historical net operating losses and uncertainty of generating
future taxable income. We consider estimated future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for a
valuation allowance. If we determine that it is more likely than not that we
will realize a deferred tax asset, which currently has a valuation allowance, we
would be required to reverse the valuation allowance that would be reflected as
an income tax benefit at that time.
Goodwill and Purchased Intangible
Assets
The
purchase method of accounting for acquisitions requires extensive use of
accounting estimates and judgments to allocate the purchase price to the fair
value of the net tangible and intangible assets acquired, including in-process
research and development. The amounts and useful lives assigned to intangible
assets impact future amortization. If the assumptions and estimates used to
allocate the purchase price are not correct, purchase price adjustments or
future asset impairment charges could be required.
We
perform goodwill impairment tests on an annual basis, and more frequently if
events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Goodwill impairment
testing requires us to compare the fair value of each reporting unit to its
carrying amount, including goodwill, and record an impairment charge if the
carrying amount of a reporting unit exceeds its estimated fair value. The
determination of a reporting unit’s fair value requires significant judgment and
is based on management’s best estimate, which generally considers the unit’s
expected future earnings. If actual results are not consistent with our
assumptions and judgments used in estimating fair value, we may be exposed to
additional goodwill impairment losses. As of June 30, 2008, we have $9.5 million
of goodwill reflected in our consolidated balance sheet.
We
evaluate purchased intangible assets when indicators of impairment, such as
reductions in demand or significant economic slowdowns, are present. Reviews are
performed to determine whether the carrying values of these assets are impaired
based on a comparison to the undiscounted expected future cash flows. If the
comparison indicates that there is impairment, the expected future cash flows
using a discount rate based upon our weighted average cost of capital is used to
estimate the fair value of the assets. Impairment is based on the excess of the
carrying amount over the fair value of those assets. Significant management
judgment is required in the forecast of future operating results that is used in
the preparation of expected discounted cash flows. It is reasonably possible
that the estimates of anticipated future net revenues, the remaining estimated
economic lives of the products and technologies, or both, could differ from
those used to assess the recoverability of our purchased intangible assets. In
the event they are lower, additional impairment charges or shortened useful
lives of certain purchased intangible assets could be required. As of June 30,
2008, we have approximately $382,000 of purchased intangible assets reflected in
our consolidated balance sheet.
Fiscal
Years Ended June 30, 2008 and 2007
Net
Revenues by Product Line
The following table presents net
revenues by product line:
| |
|
Years
Ended June 30,
|
|
|
|
|
| |
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Change
|
|
| |
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
| |
|
(In
thousands, except percentages)
|
|
Device
enablement
|
|
$ |
44,993 |
|
|
|
78.1 |
% |
|
$ |
39,734 |
|
|
|
71.9 |
% |
|
$ |
5,259 |
|
|
|
13.2 |
% |
|
Device
management
|
|
|
8,694 |
|
|
|
15.1 |
% |
|
|
8,866 |
|
|
|
16.0 |
% |
|
|
(172 |
) |
|
|
(1.9 |
%) |
|
Device
networking
|
|
|
53,687 |
|
|
|
93.2 |
% |
|
|
48,600 |
|
|
|
87.9 |
% |
|
|
5,087 |
|
|
|
10.5 |
% |
|
Non-core
|
|
|
3,899 |
|
|
|
6.8 |
% |
|
|
6,706 |
|
|
|
12.1 |
% |
|
|
(2,807 |
) |
|
|
(41.9 |
%) |
|
Net
revenues
|
|
$ |
57,586 |
|
|
|
100.0 |
% |
|
$ |
55,306 |
|
|
|
100.0 |
% |
|
$ |
2,280 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
increase in net revenues for the fiscal year ended June 30, 2008 compared to the
fiscal year ended June 30, 2007 was primarily a result of an increase in net
revenues from our device enablement products offset by a decrease in our
non-core and device management products. The increase in our device enablement
products for the fiscal year ended June 30, 2008 compared to the fiscal year
ended June 30, 2007 was primarily due to an increase in sales of our embedded
and external device enablement products. We are no longer investing in the
development of our non-core product lines and we expect net revenues related to
these products to continue to decline in the future as we focus our investment
in our device networking product lines.
Net
Revenues by Geographic Region
The following table presents net
revenues by geographic region:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
| |
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
Change
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
$
|
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Americas
|
|
$ |
33,167 |
|
|
|
57.6 |
% |
|
$ |
34,950 |
|
|
|
63.2 |
% |
|
$ |
(1,783 |
) |
|
|
(5.1 |
%) |
|
EMEA
|
|
|
16,644 |
|
|
|
28.9 |
% |
|
|
14,002 |
|
|
|
25.3 |
% |
|
|
2,642 |
|
|
|
18.9 |
% |
|
Asia
Pacific
|
|
|
7,775 |
|
|
|
13.5 |
% |
|
|
6,354 |
|
|
|
11.5 |
% |
|
|
1,421 |
|
|
|
22.4 |
% |
|
Net
revenues
|
|
$ |
57,586 |
|
|
|
100.0 |
% |
|
$ |
55,306 |
|
|
|
100.0 |
% |
|
$ |
2,280 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in net revenues in the Americas region for the fiscal year ended June
30, 2008 compared to the fiscal year ended June 30, 2007 was primarily
attributable to a decrease in sales of non-core and device management products
offset by an increase in sales of device enablement products. The increase in
net revenues in the EMEA (“Europe, Middle East and Africa”) region for the
fiscal year ended June 30, 2008 compared to the fiscal year ended June 30, 2007
was primarily due to an increase in sales of our device enablement products. The
increase in net revenues in the Asia Pacific region for the fiscal year ended
June 30, 2008 compared to the fiscal year ended June 30, 2007 was primarily
attributable to an increase in sales of device enablement products.
Net
Revenues by Significant Customer
The following table presents net
revenues by significant customer and a related party as a percentage of net
revenues:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Top five customers
(1)
|
|
|
38 |
% |
|
|
34 |
% |
|
Tech
Data
|
|
|
13 |
% |
|
|
8 |
% |
|
Ingram
Micro
|
|
|
8 |
% |
|
|
12 |
% |
|
Related
party
|
|
|
2 |
% |
|
|
2 |
% |
|
(1)
Includes Ingram Micro and Tech Data.
|
|
|
|
|
|
|
|
|
An
international customer, transtec AG, is a related party due to common ownership
by our largest stockholder and Lantronix director, Bernhard
Bruscha.
Gross
Profit
Gross
profit represents net revenues less cost of revenues. Cost of revenues consisted
primarily of the cost of raw material components, subcontract labor assembly
from contract manufacturers, manufacturing overhead, amortization of purchased
intangible assets, establishing or relieving inventory reserves for excess and
obsolete products or raw materials, warranty costs, royalties and share-based
compensation.
The following table presents gross
profit:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Change
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Gross
profit
|
|
$ |
29,068 |
|
|
|
50.5 |
% |
|
$ |
28,342 |
|
|
|
51.2 |
% |
|
$ |
726 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in gross profit margin percentage for the fiscal year ended June 30,
2008 compared to the fiscal year ended June 30, 2007 was primarily attributable
to an increase in certain inventory reserves in connection with a review of our
product offerings as part of our effort to simplify our product portfolio by
discontinuing slow-moving and non-strategic products.
Selling,
General and Administrative
Selling,
general and administrative expenses consisted of personnel-related expenses
including salaries and commissions, share-based compensation, facility expenses,
information technology, trade show expenses, advertising and professional legal
and accounting fees offset by reimbursement of legal fees from insurance
proceeds.
The
following table presents selling, general and administrative
expenses:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
%
of Net
|
|
Change
|
|
|
|
|
2008
|
|
Revenues
|
|
2007
|
|
Revenues
|
|
$
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Personnel-related
expenses
|
|
$ |
13,663 |
|
|
|
$ |
12,521 |
|
|
|
$ |
1,142 |
|
|
|
9.1 |
% |
|
Professional
fees & outside services
|
|
|
2,569 |
|
|
|
|
2,704 |
|
|
|
|
(135 |
) |
|
|
(5.0 |
%) |
|
Advertising
and marketing
|
|
|
2,959 |
|
|
|
|
3,234 |
|
|
|
|
(275 |
) |
|
|
(8.5 |
%) |
|
Facilities
|
|
|
1,600 |
|
|
|
|
2,042 |
|
|
|
|
(442 |
) |
|
|
(21.6 |
%) |
|
Share-based
compensation
|
|
|
847 |
|
|
|
|
922 |
|
|
|
|
(75 |
) |
|
|
(8.1 |
%) |
|
Depreciation
|
|
|
368 |
|
|
|
|
288 |
|
|
|
|
80 |
|
|
|
27.8 |
% |
|
Other
|
|
|
1,886 |
|
|
|
|
1,532 |
|
|
|
|
354 |
|
|
|
23.1 |
% |
|
Selling,
general and administrative
|
|
$ |
23,892 |
|
41.5%
|
|
$ |
23,243 |
|
42.0%
|
|
$ |
649 |
|
|
|
2.8 |
% |
In order
of significance, the increase in selling, general and administrative expense for
the fiscal year ended June 30, 2008 compared to the fiscal year ended June 30,
2007 was primarily due to: (i) an increase in personnel-related expenses as a
result of severance charges related to the departure of the former president and
chief executive officer and other former employees; offset by (ii) a decrease in
facilities expenses as a result of lower insurance and other allocated facility
costs, (iii) a decrease in advertising and marketing spending due to the timing
of product launches and more focused marketing spending and (iv) a decrease in
professional fees & outside services.
Research
and Development
Research
and development expenses consisted of personnel-related expenses including
share-based compensation, as well as expenditures to third-party vendors for
research and development activities.
The following table presents research
and development expenses:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
%
of Net
|
|
Change
|
|
|
|
|
2008
|
|
Revenues
|
|
2007
|
|
Revenues
|
|
$
|
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Personnel-related
expenses
|
|
$ |
5,102 |
|
|
|
$ |
5,308 |
|
|
|
$ |
(206 |
) |
|
|
(3.9 |
%) |
|
Facilities
|
|
|
876 |
|
|
|
|
666 |
|
|
|
|
210 |
|
|
|
31.5 |
% |
|
Professional
fees & outside services
|
|
|
209 |
|
|
|
|
519 |
|
|
|
|
(310 |
) |
|
|
(59.7 |
%) |
|
Share-based
compensation
|
|
|
341 |
|
|
|
|
378 |
|
|
|
|
(37 |
) |
|
|
(9.8 |
%) |
|
Depreciation
|
|
|
57 |
|
|
|
|
41 |
|
|
|
|
16 |
|
|
|
39.0 |
% |
|
Other
|
|
|
359 |
|
|
|
|
450 |
|
|
|
|
(91 |
) |
|
|
(20.2 |
%) |
|
Research
and development
|
|
$ |
6,944 |
|
12.1%
|
|
$ |
7,362 |
|
13.3%
|
|
$ |
(418 |
) |
|
|
(5.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in research and development expenses for the fiscal year ended June 30,
2008 compared to the fiscal year ended June 30, 2007 was primarily due to: (i) a
decrease in professional fees & outside services and (ii) a decrease in
personnel-related expenses.
Restructuring
Charges
The following table presents
restructuring charges:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Change
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$
|
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Restructuring
charge
|
|
$ |
757 |
|
|
|
1.3 |
% |
|
$ |
- |
|
|
|
0.0 |
% |
|
$ |
757 |
|
|
|
0.0 |
% |
During
the fourth fiscal quarter ended June 30, 2008, we implemented a restructuring
plan to optimize our organization to better leverage existing customer and
partner relationships to drive revenue growth and profitability. As part of the
restructuring plan, 10 employees
from the senior-level ranks of the sales, marketing, operations and engineering
groups were terminated.
Interest
Expense, Net
The following table presents interest
expense, net:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Change
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Interest
expense, net
|
|
$ |
(150 |
) |
|
|
(0.3 |
%) |
|
$ |
(13 |
) |
|
|
(0.0 |
%) |
|
$ |
(137 |
) |
|
|
1053.8 |
% |
The
increase in interest expense, net, is primarily due to interest expense related
to the addition of capital leases during the fiscal year ended June 30, 2008 and
lower yields on cash deposits.
Other
Income, Net
The following table presents other
income, net:
|
|
|
Years
Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Change
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$
|
|
|
|
%
|
|
|
|
|
(In
thousands, except percentages)
|
|
|
Other
income, net
|
|
$ |
120 |
|
|
|
0.2 |
% |
|
$ |
749 |
|
|
|
1.4 |
% |
|
$ |
(629 |
) |
|
|
(84.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net, for the fiscal year ended June 30, 2008 is primarily due to
$104,000 of income recognized on the sale of marketable securities. Other
income, net, for the fiscal year ended June 30, 2007 is primarily due to
$700,000 of income recognized on the sale of our investment in
Xanboo.
Provision (Benefit) for Income
Taxes
On July
1, 2007, we adopted Financial Accounting Standards Board Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of
FASB Statement No. 109” (“FIN 48”). In connection with the adoption of
FIN 48, we recognized an adjustment of approximately $226,000 to the beginning
balance of accumulated deficit on our consolidated balance sheet. Our
continuing practice is to recognize interest and/or penalties related to income
tax matters in income tax expense. As of June 30, 2008, we had recorded $153,000
of uncertain tax positions including approximately $75,000 of accrued interest
and penalties related to these uncertain tax positions.
At July
1, 2007, our fiscal 2001 through fiscal 2008 tax years remain open to
examination by the Federal and state taxing authorities. However, we
have net operating losses (“NOLs”) beginning in fiscal 2001 which would cause
the statute of limitations to remain open for the year in which the NOL was
incurred.
The following table presents our
effective tax rate based upon our income tax provision:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
4.5 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
We utilize the liability method of
accounting for income taxes as set forth in Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes.” The tax benefit is the result
of a reduction in estimated foreign taxes and penalties. The federal statutory
rate was 34% for all periods. The difference between our effective tax rate and
the federal statutory rate resulted primarily from the effect of our domestic
losses recorded without a tax benefit, as well as the effect of foreign earnings
taxed at rates differing from the federal statutory rate. We record net deferred
tax assets to the extent we believe these assets will more likely than not be
realized.
As a result of our cumulative losses,
we provided a full valuation allowance against our net deferred tax assets for
the fiscal years ended June 30, 2008 and 2007. As of June 30, 2008, we had
net operating loss carryovers of $76.5 million and $43.8 million for federal and
California income tax purposes, respectively. The federal and California net
operating loss carryovers begin to expire in fiscal years 2021 and 2013,
respectively.
Liquidity
and Capital Resources
Liquidity
Since
inception through fiscal 2008, we have financed our operations primarily through
the issuance of common stock and operating activities. We refer to the sum of
cash and cash equivalents and marketable securities as “cash” for the purposes
of discussing our cash balance and liquidity.
The
following table presents details of our working capital and cash:
|
|
|
June
30,
|
|
|
Increase
|
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Working
capital
|
|
$ |
5,686 |
|
|
$ |
5,587 |
|
|
$ |
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,434 |
|
|
$ |
7,582 |
|
|
$ |
(148 |
) |
|
Marketable
securities
|
|
|
- |
|
|
|
97 |
|
|
|
(97 |
) |
|
Total
cash, cash equivalents and marketable securities
|
|
$ |
7,434 |
|
|
$ |
7,679 |
|
|
$ |
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital increased and cash balances decreased from the prior year primarily as a
result of a decrease in accounts payable and an increase in accounts receivable
partially offset by a decrease in net inventories and an increase in
restructuring reserves, other liabilities and accrued payroll. In
addition, the change in our cash balance is significantly impacted by our cash
management activities, which included the timing of cash payments to our vendors
and the timing of cash receipts from our customers.
We
believe that our existing cash and cash equivalents and funds available from our
line of credit will be adequate to meet our anticipated cash needs through at
least the next twelve months. Our future capital requirements will depend on
many factors, including the timing and amount of our net revenues, research and
development, expenses associated with any strategic partnerships or acquisitions
and infrastructure investments, and expenses related to government
investigations and litigation, which could affect our ability to generate
additional cash. If cash generated from operations and financing activities is
insufficient to satisfy our working capital requirements, we may need to raise
capital by borrowing funds through bank loans, the selling of securities or
other means. There can be no assurance that we will be able to raise any such
capital on terms acceptable to us, if at all. If we are unable to secure
additional financing, 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.
In May
2006, we entered into a two-year secured revolving Loan and Security Agreement
(“Line of Credit”) with a bank, which provides for borrowings up to $5.0
million. The borrowing capacity is limited to eligible accounts receivable as
defined under the Line of Credit. As of June 30, 2008, we had no borrowings
against the Line of Credit.
In August
2008, we amended the Line of Credit, which provides for a three-year $2 million
Term Loan and a two-year $3 million Revolving Credit Facility. The Term Loan was
funded during August 2008 and is payable in 36 equal installments of principal
and monthly accrued interest.
Borrowings
under the Term Loan and Revolving Credit Facility bear interest at the greater
of 6.25% or prime rate plus 1.25% per annum. If we achieve two consecutive
quarters of positive EBITDAS (as defined in the Line of Credit) greater than
$1.00, and only for so long as we maintain EBITDAS greater than $1.00 at the end
of each subsequent fiscal quarter, then the borrowings under the Term Loan and
Revolving Credit Facility will bear interest at the greater of 5.75% or prime
rate plus 0.75% per annum.
The
following table presents our available borrowing capacity and outstanding
letters of credit, which were used to secure equipment leases, deposits for a
building lease, foreign value added tax account deposits and security
deposits:
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In
thousands)
|
|
|
Available
borrowing capacity
|
|
$ |
3,163 |
|
|
$ |
3,462 |
|
|
Outstanding
letters of credit
|
|
$ |
732 |
|
|
$ |
1,280 |
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2008, approximately $801,000 of our cash was held in foreign subsidiary
bank accounts. This cash is unrestricted with regard to foreign liquidity needs;
however, our ability to utilize a portion of this cash to satisfy liquidity
needs outside of such foreign locations is subject to approval by the foreign
location board of directors.
Cash
Flows
The
following table presents the major components of the consolidated statements of
cash flows:
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In
thousands)
|
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,508 |
) |
|
$ |
(1,723 |
) |
|
Adjustments
to reconcile net loss to cash provided by (used in) operating
activities
|
|
|
3,104 |
|
|
|
1,291 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(826 |
) |
|
|
(350 |
) |
|
Inventories
|
|
|
2,539 |
|
|
|
(2,881 |
) |
|
Contract
manufacturers' receivable
|
|
|
594 |
|
|
|
(221 |
) |
|
Prepaid
expenses and other current assets
|
|
|
27 |
|
|
|
7 |
|
|
Other
assets
|
|
|
4 |
|
|
|
5 |
|
|
Accounts
payable
|
|
|
(3,340 |
) |
|
|
3,152 |
|
|
Accrued
payroll and related expenses
|
|
|
164 |
|
|
|
397 |
|
|
Accrued
settlements
|
|
|
- |
|
|
|
(400 |
) |
|
Warranty
reserve
|
|
|
(104 |
) |
|
|
(247 |
) |
|
Restructuring
reserve
|
|
|
(13 |
) |
|
|
(80 |
) |
|
Other
liabilities
|
|
|
486 |
|
|
|
58 |
|
|
Net
cash provided by (used in) operating activities
|
|
|
127 |
|
|
|
(992 |
) |
|
Net
cash (used in) provided by investing activities
|
|
|
(579 |
) |
|
|
208 |
|
|
Net
cash provided by financing activities
|
|
|
106 |
|
|
|
565 |
|
|
Effect
of foreign exchange rate changes on cash
|
|
|
198 |
|
|
|
72 |
|
|
Decrease
in cash and cash equivalents
|
|
$ |
(148 |
) |
|
$ |
(147 |
) |
|
|
|
|
|
|
|
|
|
|
Operating
activities provided cash during the fiscal year ended June 30, 2008. This was
primarily the result of non-cash reconciling items offset by a net
operating loss and cash used by operating assets and liabilities. In order
of significance, the changes in operating assets and liabilities which had a
significant impact on the cash used in operating activities included: (i) a
decrease accounts payable as a result of the timing of cash payments to vendors;
(ii) a decrease in inventories as a result of a $2.1 million decrease in
finished goods inventory and a $721,000 decrease in large scale integration
chips, which are sold individually and embedded in our products; (iii) changes
in accounts receivable and contract manufacturers’ receivable as a result of the
timing of collections; and (iv) an increase in accrued payroll and related
expenses due to the timing of our fiscal year end payroll. The
non-cash reconciling items that had a significant impact on net loss
included share-based compensation of $1.3 million, restructuring charge of
$757,000, depreciation and amortization of $654,000 and provision for
inventories of $404,000 partially offset by a gain on the sale of investment of
$104,000.
Operating
activities used cash during the fiscal year ended June 30, 2007. This was
primarily the result of a net operating loss and cash used by operating
assets and liabilities offset by non-cash reconciling items. In order of
significance, the changes in operating assets and liabilities which had a
significant impact on the cash used in operating activities included (i) an
increase in inventories as a result of an increase in large scale integration
chips, which are sold individually and embedded in our products and incremental
inventories to support the launch of new products; (ii) payment of accrued
settlements; (iii) an increase in accounts receivable as a result of increased
sales from the prior year; offset by an increase in (iv) accounts payable as a
result of the timing of cash payments to vendors; and (v) an increase in accrued
payroll and related expenses due to the timing of our fiscal year end payroll.
The non-cash reconciling items that had a significant impact on net loss
included share-based compensation of $1.4 million and depreciation and
amortization of $473,000 partially offset by a gain on the sale of a long-term
investment of $700,000.
Investing
activities used cash during the fiscal year ended June 30, 2008. This was
primarily due to cash used in the purchase of property and equipment offset by
net proceeds received in connection with a sale of an investment.
Investing
activities provided cash during the fiscal year ended June 30, 2007. This was
primarily due to net proceeds received in connection with the partial sale of
our equity interest in Xanboo of $700,000 offset by cash used in the purchase of
property and equipment.
Financing
activities provided cash during the fiscal year ended June 30, 2008. This was
primarily due to proceeds from the sale of common shares through employee stock
option exercises and the Employee Stock Purchase Plan offset by payments on
capital lease obligations.
Financing
activities provided cash during the fiscal year ended June 30, 2007. This was
primarily due to proceeds from the sale of common shares through employee stock
option exercises and the Employee Stock Purchase Plan offset by payments on
capital lease obligations.
Off-Balance
Sheet Arrangements
We did
not have any off-balance sheet arrangements as of June 30, 2008 and
2007.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Our financial statements, related notes
thereto and supplementary data required by this item are incorporated by
reference from Part IV, Item 15 of this Form 10-K and are presented beginning on
page F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures
We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of our fiscal year. Based upon that evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act (i) is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and our
Chief Financial Officer to allow timely decisions regarding required
disclosure.
(b) Changes in internal controls over
financial reporting
There
have been no changes in our internal controls over financial reporting
identified during the fiscal quarter that ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was designed to
provide reasonable assurance to management and the board of directors regarding
the effectiveness of our internal control processes over the preparation and
fair presentation of published financial statements.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to the
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.
ITEM
9B. OTHER INFORMATION
None.
PART
III
Certain
information required by Part III is included in our 2008 Definitive Proxy
Statement (or “Proxy Statement) and is incorporated herein by reference. The
Proxy Statement will be filed pursuant to Regulation 14A of the Exchange Act not
later than 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The names
of our executive officers and their ages, titles and biographies as of the date
hereof are set forth in Part I, Item 1 in the section entitled “Executive
Officers of the Registrant” above, and are incorporated herein by
reference.
The
following information is included in our Proxy Statement and is incorporated
herein by reference:
|
|
·
|
Information
regarding our directors is set forth under the proposal “Election of
Directors.”
|
|
|
·
|
Information
regarding our Audit Committee and designated “audit committee financial
experts” is set forth under “Election of Directors — Audit
Committee.”
|
|
|
·
|
Information
regarding Section 16(a) beneficial ownership reporting compliance is
set forth Other Information — Section 16(a)
Beneficial Ownership Reporting
Compliance.”
|
|
|
·
|
Information
on our code of business conduct and ethics for directors, officers and
employees (or “Code of Ethics”) is set forth under “Election of Directors
— Code of Ethics and
Complaint Procedure.”
|
We have
adopted the Code of Ethics, which applies to all of our directors, officers, and
employees. The Code of Ethics operates as a tool to help our directors,
officers, and employees understand and adhere to the high ethical standards we
expect. Our Code of Ethics can be found on our website at www.lantronix.com. We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding
an amendment to, or waiver from, a provision of the Code of Ethics by posting
such information on our website at the address specified above.
ITEM
11. EXECUTIVE COMPENSATION
Information regarding executive
compensation is incorporated herein by reference to the sections in the Proxy
Statement under the headings “Compensation Discussion and Analysis,”
“Compensation Committee Interlocks and Insider Participation in Compensation
Decisions,” “Compensation Committee Report,” “Executive Officers,” “Summary
Compensation Table,” “Grant of Plan Based Awards,” “Outstanding Equity Awards,”
“Option Exercises and Stock Vested,” “Pension Benefits,” and “Nonqualified
Deferred Compensation.”
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding security
ownership of certain beneficial owners, directors and executive officers is set
forth under “Election of Directors” and “Security Ownership of Certain
Beneficial Owners and Management” in the Proxy Statement and is incorporated
herein by reference.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
Information regarding certain
relationships and related transactions is set forth under “Election
of
Directors”
and Other Information — Related Party Transactions” in the Proxy Statement and
is incorporated herein by reference.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Information regarding principal auditor
fees and services is set forth under the proposal “Ratification of Appointment
of Independent Registered Public Accountants” in the Proxy Statement and is
incorporated herein by reference.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) 1. Consolidated Financial
Statements
The following financial statements of
the Company and related Report of Independent Registered Public Accounting Firm
is filed as part of this Annual Report on Form 10-K.
|
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm, McGladrey & Pullen,
LLP
|
|
F-2
|
|
Consolidated
Balance Sheets as of June 30, 2008 and 2007
|
|
F-3
|
|
Consolidated
Statements of Operations for the fiscal years ended June 30, 2008
and 2007
|
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity for the fiscal years ended June 30,
2008 and 2007
|
|
F-5
|
|
Consolidated
Statements of Cash Flows for the fiscal years ended June 30, 2008 and
2007
|
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
|
F-7 – F-27
|
2. Exhibits
The exhibits listed on the accompanying
index to exhibits immediately following the financial statements are filed as
part of, or hereby incorporated by reference into, this Form 10-K.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Lantronix,
Inc.
Irvine,
California
We have
audited the consolidated balance sheets of Lantronix, Inc. as of June 30, 2008
and 2007, and the related consolidated statements of operations, stockholders’
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Lantronix, Inc. as of June
30, 2008 and 2007, and the results of its operations and its cash flows for the
years then ended, in conformity with U.S. generally accepted accounting
principles.
As
described in Note 1 to the consolidated financial statements, effective July 1,
2007 the Company changed its method of accounting for uncertainty in income
taxes.
We were
not engaged to examine management’s assertion about the effectiveness of
Lantronix, Inc.’s internal control over financial reporting as of June 30, 2008
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting and, accordingly, we do not express an opinion
thereon.
/s/
McGladrey & Pullen, LLP
Irvine,
California
September
16, 2008
|
LANTRONIX,
INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,434 |
|
|
$ |
7,582 |
|
|
Marketable
securities
|
|
|
- |
|
|
|
97 |
|
Accounts
receivable (net of allowance for doubtful accounts of $173
and $105 at June 30, 2008 and 2007, respectively)
|
|
|
4,166 |
|
|
|
3,411 |
|
|
Inventories,
net
|
|
|
8,038 |
|
|
|
10,981 |
|
|
Contract
manufacturers' receivable
|
|
|
676 |
|
|
|
1,270 |
|
|
Prepaid
expenses and other current assets
|
|
|
566 |
|
|
|
578 |
|
|
Total
current assets
|
|
|
20,880 |
|
|
|
23,919 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
2,271 |
|
|
|
1,911 |
|
|
Goodwill
|
|
|
9,488 |
|
|
|
9,488 |
|
|
Purchased
intangible assets, net
|
|
|
382 |
|
|
|
485 |
|
Officer
loans (net of allowance of $3,115 at
June 30, 2008 and 2007)
|
|
|
94 |
|
|
|
129 |
|
|
Other
assets
|
|
|
50 |
|
|
|
26 |
|
|
Total
assets
|
|
$ |
33,165 |
|
|
$ |
35,958 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
7,684 |
|
|
$ |
11,017 |
|
|
Accrued
payroll and related expenses
|
|
|
2,203 |
|
|
|
1,993 |
|
|
Warranty
reserve
|
|
|
342 |
|
|
|
446 |
|
|
Restructuring
reserve
|
|
|
744 |
|
|
|
- |
|
|
Accrued
settlements
|
|
|
- |
|
|
|
1,068 |
|
|
Other
current liabilities
|
|
|
4,221 |
|
|
|
3,808 |
|
|
Total
current liabilities
|
|
|
15,194 |
|
|
|
18,332 |
|
|
Long-term
liabilities
|
|
|
210 |
|
|
|
256 |
|
|
Long-term
capital lease obligations
|
|
|
515 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; 5,000,000 shares authorized; none
issued and outstanding
|
|
|
- |
|
|
|
- |
|
|
Common
stock, $0.0001 par value; 200,000,000 shares authorized; 60,312,363
and 59,879,488 shares issued and outstanding at June
30, 2008 and 2007, respectively
|
|
|
6 |
|
|
|
6 |
|
|
Additional
paid-in capital
|
|
|
187,626 |
|
|
|
184,953 |
|
|
Accumulated
deficit
|
|
|
(170,907 |
) |
|
|
(168,173 |
) |
|
Accumulated
other comprehensive income
|
|
|
521 |
|
|
|
442 |
|
|
Total
stockholders' equity
|
|
|
17,246 |
|
|
|
17,228 |
|
|
Total
liabilities and stockholders' equity
|
|
$ |
33,165 |
|
|
$ |
35,958 |
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
LANTRONIX,
INC.
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(In
thousands, except per share data)
|
|
|
|
|
Years
Ended June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
revenue (1)
|
|
$ |
57,586 |
|
|
$ |
55,306 |
|
|
Cost
of revenue
|
|
|
28,518 |
|
|
|
26,964 |
|
|
Gross
profit
|
|
|
29,068 |
|
|
|
28,342 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
23,892 |
|
|
|
23,243 |
|
|
Research
and development
|
|
|
6,944 |
|
|
|
7,362 |
|
|
Restructuring
charge
|
|
|
757 |
|
|
|
- |
|
|
Litigation
settlement cost
|
|
|
- |
|
|
|
90 |
|
|
Amortization
of purchased intangible assets
|
|
|
72 |
|
|
|
72 |
|
|
Total
operating expenses
|
|
|
31,665 |
|
|
|
30,767 |
|
|
Loss
from operations
|
|
|
(2,597 |
) |
|
|
(2,425 |
) |
|
Interest
expense, net
|
|
|
(150 |
) |
|
|
(13 |
) |
|
Other
income, net
|
|
|
120 |
|
|
|
749 |
|
|
Loss
before income taxes
|
|
|
(2,627 |
) |
|
|
(1,689 |
) |
|
Provision
(benefit) for income taxes
|
|
|
(119 |
) |
|
|
34 |
|
|
Net
loss
|
|
$ |
(2,508 |
) |
|
$ |
(1,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share (basic and diluted)
|
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares (basic and diluted)
|
|
|
60,134 |
|
|
|
59,603 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
net revenue from related party
|
|
$ |
974 |
|
|
$ |
1,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
LANTRONIX,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
Balance
at June 30, 2006
|
|
|
59,204,172 |
|
|
$ |
6 |
|
|
$ |
182,857 |
|
|
$ |
(166,450 |
) |
|
$ |
365 |
|
|
$ |
16,778 |
|
|
Stock
options exercised
|
|
|
344,393 |
|
|
|
- |
|
|
|
346 |
|
|
|
- |
|
|
|
- |
|
|
|
346 |
|
|
Employee
stock purchase plan
|
|
|
330,923 |
|
|
|
- |
|
|
|
361 |
|
|
|
- |
|
|
|
- |
|
|
|
361 |
|
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,389 |
|
|
|
- |
|
|
|
- |
|
|
|
1,389 |
|
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68 |
|
|
|
68 |
|
|
Change
in net unrealized income on investment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
9 |
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,723 |
) |
|
|
- |
|
|
|
(1,723 |
) |
|
Comprehensive
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,646 |
) |
|
Balance
at June 30, 2007
|
|
|
59,879,488 |
|
|
$ |
6 |
|
|
$ |
184,953 |
|
|
$ |
(168,173 |
) |
|
$ |
442 |
|
|
$ |
17,228 |
|
|
Stock
options exercised
|
|
|
129,396 |
|
|
|
- |
|
|
|
75 |
|
|
|
- |
|
|
|
- |
|
|
|
75 |
|
|
Employee
stock purchase plan
|
|
|
303,479 |
|
|
|
- |
|
|
|
254 |
|
|
|
- |
|
|
|
- |
|
|
|
254 |
|
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,287 |
|
|
|
- |
|
|
|
- |
|
|
|
1,287 |
|
|
Issuance
of warrants in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
shareholder settlement
|
|
|
- |
|
|
|
- |
|
|
|
1,057 |
|
|
|
- |
|
|
|
- |
|
|
|
1,057 |
|
|
Cumulative
effect to prior year accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deficit
related to the adoption of FIN 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(226 |
) |
|
|
- |
|
|
|
(226 |
) |
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176 |
|
|