Lantronix (LTRX) 10-Q 28 Apr 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Mar. 31, 2016	Apr. 22, 2016
Document And Entity Information
Entity Registrant Name	LANTRONIX INC
Entity Central Index Key	1,114,925
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		15,225,206
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,016

Unaudited Condensed Consolidate

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Current assets:
Cash and cash equivalents	$ 4,056	$ 4,989
Accounts receivable, net	3,131	2,658
Inventories, net	7,275	9,503
Contract manufacturers' receivable	321	369
Prepaid expenses and other current assets	568	400
Total current assets	15,351	17,919
Property and equipment, net	1,593	1,471
Goodwill	9,488	9,488
Other assets	54	93
Total assets	26,486	28,971
Current liabilities:
Accounts payable	2,527	3,633
Line of Credit	700	700
Accrued payroll and related expenses	1,435	1,685
Warranty reserve	139	163
Other current liabilities	3,513	3,849
Total current liabilities	8,314	10,030
Non-current liabilities:
Long-term capital lease obligations	134	152
Other non-current liabilities	324	80
Total liabilities	$ 8,772	$ 10,262
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock	$ 2	$ 2
Additional paid-in capital	207,046	206,326
Accumulated deficit	(189,705)	(187,990)
Accumulated other comprehensive income	371	371
Total stockholders' equity	17,714	18,709
Total liabilities and stockholders' equity	$ 26,486	$ 28,971

Unaudited Condensed Consolidat3

Unaudited Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended			9 Months Ended
	Mar. 31, 2016		Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Net revenue	$ 9,964	[1]	$ 10,444	$ 30,077	$ 32,715
Cost of revenue	5,186		5,735	15,643	17,237
Gross profit	4,778		4,709	14,434	15,478
Operating expenses:
Selling, general and administrative	3,469		3,914	11,008	11,981
Research and development	1,744		1,619	5,131	5,145
Total operating expenses	5,213		5,533	16,139	17,126
Loss from operations	(435)		(824)	(1,705)	(1,648)
Interest expense, net	(8)		(4)	(23)	(12)
Other income (expense), net	0		(5)	47	(25)
Loss before income taxes	(443)		(833)	(1,681)	(1,685)
Provision for income taxes	13		6	34	48
Net loss	$ (456)		$ (839)	$ (1,715)	$ (1,733)
Net loss per share (basic and diluted)	$ (.03)		$ (.06)	$ (.11)	$ (.12)
Weighted-average common shares (basic and diluted)	15,225		14,942	15,163	14,868
Net revenue from related parties	$ 0		$ 28	$ 113	$ 219
[1]	Includes net revenue from related parties.

Unaudited Condensed Consolidat4

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating activities
Net loss	$ (1,715)	$ (1,733)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation	671	770
Depreciation	614	680
Provision for excess and obsolete inventories	171	262
Changes in operating assets and liabilities:
Accounts receivable	(473)	1,000
Inventories	2,057	(598)
Contract manufacturers' receivable	48	(127)
Prepaid expenses and other current assets	(168)	31
Other assets	23	17
Accounts payable	(1,121)	(514)
Accrued payroll and related expenses	(250)	(187)
Warranty reserve	(24)	(39)
Other liabilities	(337)	179
Cash received related to tenant lease incentives	53	0
Net cash used in operating activities	(451)	(259)
Investing activities
Purchases of property and equipment	(478)	(474)
Net cash used in investing activities	(478)	(474)
Financing activities
Minimum tax withholding paid on behalf of employees for restricted shares	(46)	(53)
Proceeds from borrowing on line of credit	2,100	0
Payment of borrowings on line of credit	(2,100)	0
Net proceeds from issuances of common stock	95	158
Payment of capital lease obligations	(53)	(38)
Net cash provided by (used in) financing activities	(4)	67
Decrease in cash and cash equivalents	(933)	(666)
Cash and cash equivalents at beginning of period	4,989	6,264
Cash and cash equivalents at end of period	$ 4,056	$ 5,598

1. Summary of Significant Accou

1. Summary of Significant Accounting Policies	9 Months Ended
	Mar. 31, 2016
Accounting Policies [Abstract]
Summary of Significant Accounting Policies	The Company Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in our Annual Report on Form 10-K filed with the SEC on August 21, 2015. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at March 31, 2016 and the consolidated results of our operations for the three and nine months ended March 31, 2016 and our consolidated cash flows for the nine months ended March 31, 2016. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods. Reclassifications Certain reclassifications have been made to the prior year financial information to conform to the current period presentation. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. The standard permits the use of either a retrospective or cumulative effect transition method. In July 2015, FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard for the fiscal year beginning July 1, 2017. We are currently evaluating this standard and have not yet selected a transition method or the effective date on which we plan to adopt the standard, nor have we determined the effect of the standard on our financial statements and related disclosures. In August 2014, FASB issued a new standard that will require management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt about the entity’s ability to continue as a going concern. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2016. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In November 2015, FASB issued final guidance simplifying the balance sheet classification of deferred taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction – that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. Lantronix elected to adopt this guidance as of the fiscal quarter ended December 31, 2015. We have retrospectively applied this guidance to the accompanying unaudited condensed consolidated balance sheet as of June 30, 2015, which had the effect of increasing our working capital by $442,000 as compared to what was originally reported as of that date. In February 2016, FASB issued an accounting standard that revises lease accounting guidance. The standard requires lessees to put most leases on their balance sheets, but recognize expenses on their income statements in a manner similar to the previous guidance. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In March 2016, FASB issued guidance that changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required today, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. All of the guidance will be effective for Lantronix in the fiscal year beginning July 1, 2017. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures.

2. Supplemental Financial Infor

2. Supplemental Financial Information	9 Months Ended
	Mar. 31, 2016
Supplemental Financial Information Details - Other Liabilities
Supplemental Financial Information	Inventories Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and consist of the following: March 31, June 30, 2016 2015 (In thousands) Finished goods $ 4,059 $ 6,044 Raw materials 2,076 2,122 Finished goods held by distributors 1,140 1,337 Inventories, net $ 7,275 $ 9,503 Other Liabilities The following table presents details of our other liabilities: March 31, June 30, 2016 2015 (In thousands) Current Customer deposits and refunds $ 700 $ 854 Accrued raw materials purchases 726 916 Deferred revenue 458 690 Capital lease obligations 64 62 Deferred rent 52 40 Taxes payable 254 247 Accrued operating expenses 1,259 1,040 Total other current liabilities $ 3,513 $ 3,849 Non-current Deferred revenue $ 98 $ 80 Deferred rent 226 – Total other non-current liabilities $ 324 $ 80 Computation of Net Loss per Share Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the applicable period. The following table presents the computation of net loss per share: Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands, except per share data) Numerator: Net loss $ (456 ) $ (839 ) $ (1,715 ) $ (1,733 ) Denominator: Weighted-average common shares outstanding (basic and diluted) 15,225 14,942 15,163 14,868 Net loss per share (basic and diluted) $ (0.03 ) $ (0.06 ) $ (0.11 ) $ (0.12 ) The following table presents the common stock equivalents excluded from the diluted net loss per share calculation, because they were anti-dilutive for the periods presented. These excluded common stock equivalents could be dilutive in the future. Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands) Common stock equivalents 3,696 1,700 3,630 1,653 Facility Lease The lease for our new corporate headquarters in Irvine, California, commenced in July 2015. The lease agreement provided for a tenant improvement allowance from the landlord of up to $243,000 for tenant improvements and other qualified expenses. In connection with this allowance, the landlord paid for approximately $190,000 in tenant improvements, and, in September 2015, reimbursed Lantronix for the remaining $53,000. Separation Agreement with Former Chief Executive Officer In December 2015, we entered into a separation and release agreement (the “Separation Agreement”) with Kurt F. Busch, our former President and Chief Executive Officer. The Separation Agreement provided for (i) release of all claims by Mr. Busch in favor of Lantronix; (ii) a cash payment to Mr. Busch of $271,000, which was paid in January 2016; and (iii) the acceleration of vesting of 50,000 restricted stock units, for which we recorded a net $52,000 share-based compensation charge. Both the $271,000 cash payment and the share-based compensation charge were recorded in the three months ended December 31, 2015 and are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations for the nine months ended March 31, 2016. Restructuring In February 2016, we initiated a strategic realignment plan to enable us to reallocate resources intended to optimize our sales and product development efforts. The realignment activities were substantially completed in the three months ended March 31, 2016, and consisted of severance, lease termination and other associated costs. These activities resulted in total charges of approximately $247,000, and are included in the applicable functional line items within the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2016. We expect all remaining obligations accrued as of March 31, 2016 to be substantially paid by June 30, 2016. Supplemental Cash Flow Information The following table presents non-cash investing and financing transactions excluded from the unaudited condensed consolidated statements of cash flows: Nine Months Ended March 31, 2016 2015 (In thousands) Accrued property and equipment paid for in the subsequent period $ 15 $ – Non-cash acquisition of property and equipment under capital leases $ 37 $ 17 Non-cash tenant improvements paid by landlord $ 190 $ –

3. Warranty Reserve

3. Warranty Reserve	9 Months Ended
	Mar. 31, 2016
Standard Product Warranty Disclosure [Abstract]
Warranty Reserve	The warranty periods for our products generally range from one to five years. We establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience, and additionally, for any known product warranty issues. Our warranty obligation is affected by product failure rates, use of materials or service delivery costs that differ from our estimates. As a result, increases or decreases to warranty reserves could be required, which could impact our gross margins. The following table presents details of our warranty reserve: Nine Months Ended Year Ended March 31, June 30, 2016 2015 (In thousands) Beginning balance $ 163 $ 150 Charged to cost of revenues 59 112 Usage (83 ) (99 ) Ending balance $ 139 $ 163

4. Bank Line of Credit

4. Bank Line of Credit	9 Months Ended
	Mar. 31, 2016
Debt Disclosure [Abstract]
Bank Line of Credit	On September 30, 2014, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for (i) a renewal of our $4.0 million revolving line of credit with an extended maturity date of September 30, 2016 and (ii) a modification of the revolving credit line borrowing base formula to include a portion of our foreign accounts receivable to the borrowing base and increase the borrowing limit related to domestic accounts receivable. The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.0%, provided that we maintain a monthly quick ratio of 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.0%. At March 31, 2016, we did not meet the 1.0 or higher quick ratio. The Loan Agreement includes a covenant requiring us to maintain a certain Minimum Tangible Net Worth (“Minimum TNW”), which is currently required to be at least $6.0 million. This amount is subject to adjustment upward to the extent we raise additional equity or debt financing or achieve net income in future quarters. Our Actual Tangible Net Worth (“Actual TNW”) is calculated as total stockholders’ equity, less goodwill. If we continue to incur net losses, we may have difficulty satisfying the Minimum TNW financial covenant in the future, in which case we may be unable to borrow funds under the Loan Agreement and any amounts outstanding may need to be repaid immediately. The following table sets forth the Minimum TNW compared to our Actual TNW: March 31, 2016 (In thousands) Minimum TNW $ 6,000 Actual TNW $ 8,226 The following table presents certain information with respect to the Loan Agreement with SVB: March 31, June 30, 2016 2015 (In thousands) Outstanding borrowings on the line of credit $ 700 $ 700 Available borrowing capacity $ 1,844 $ 1,736 Outstanding letters of credit $ 51 $ 110 Our outstanding letters of credit were used as security deposits.

5. Stockholders' Equity

5. Stockholders' Equity	9 Months Ended
	Mar. 31, 2016
Equity [Abstract]
Stockholders' Equity	Stock Incentive Plans Our stock incentive plans permit the granting of stock options (both incentive and nonqualified stock options), restricted stock units (“RSUs”), stock appreciation rights, non-vested stock, and performance shares to certain employees, directors and consultants. As of March 31, 2016, no stock appreciation rights, non-vested stock, or performance shares were outstanding. Stock Options The following table presents a summary of activity during the nine months ended March 31, 2016 with respect to our stock options: Number of Shares Weighted Average Exercise Price per Share (In thousands) Balance of options outstanding at June 30, 2015 3,546 $ 2.19 Granted 924 1.26 Forfeited (420 ) 1.73 Expired (712 ) 2.28 Exercised – – Balance of options outstanding at March 31, 2016 3,338 $ 1.97 Restricted Stock Units The following table presents a summary of activity during the nine months ended March 31, 2016 with respect to our RSUs: Number of Shares Weighted Average Grant - Date Fair Value per Share (In thousands) Balance of RSUs outstanding at June 30, 2015 28 $ 1.98 Granted 70 1.28 Vested (78 ) 1.58 Balance of RSUs outstanding at March 31, 2016 20 $ 1.10 Employee Stock Purchase Plan Our 2013 Employee Stock Purchase Plan (the “ESPP”) is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions at the end of a specified purchase period. Each of our employees (including officers) is eligible to participate in the ESPP, subject to certain limitations as set forth in the ESPP. The following table presents a summary of activity under our ESPP during the nine months ended March 31, 2016: Number of Shares (In thousands) Shares available for issuance at June 30, 2015 906 Reserved for issuance – Issued (93 ) Shares available for issuance at March 31, 2016 813 In accordance with the terms of our ESPP, the purchase price of the 93,000 shares that were issued on November 13, 2015 was adjusted to $1.02 per share, which represents 85% of the closing market price of our common stock on that date. Share-Based Compensation Expense The following table presents a summary of share-based compensation expense included in each functional line item on our unaudited condensed consolidated statements of operations: Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands) Cost of revenues $ 14 $ 17 $ 52 $ 53 Selling, general and administrative 131 189 484 558 Research and development 41 44 135 159 Total share-based compensation expense $ 186 $ 250 $ 671 $ 770 The following table summarizes the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of March 31, 2016: Remaining Unrecognized Compensation Cost Remaining Weighted Average Years To Recognize (In thousands) Stock options $ 1,026 3.2 Restricted stock units 14 0.6 Stock purchase rights under ESPP 125 1.7 If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional share-based awards.

6. Income Taxes

6. Income Taxes	9 Months Ended
	Mar. 31, 2016
Income Tax Disclosure [Abstract]
Income Taxes	We utilize the liability method of accounting for income taxes. The following table presents our effective tax rates based upon the income tax provision for the periods shown: Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 Effective tax rate 3 % 1 % 2 % 3 % The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate. We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. As a result of our cumulative losses and uncertainty of generating future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of March 31, 2016 and June 30, 2015.

7. Commitments and Contingencie

7. Commitments and Contingencies	9 Months Ended
	Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	From time to time, we are subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that are expected to have, individually or in the aggregate, a material adverse effect on our business, prospects, financial position, operating results or cash flows. However, legal proceedings and claims are inherently uncertain, and there can be no assurance that existing or future legal matters arising in the ordinary course of business or otherwise will not have a material adverse effect on our business in the future.

8. Related Party Transactions

8. Related Party Transactions	9 Months Ended
	Mar. 31, 2016
Related Party Transactions [Abstract]
Related Party Transactions	In December 2015, we were informed that our largest stockholder and Lantronix director, Bernhard Bruscha, had sold his investment in Barix AG (“Barix”). Barix is an international customer of Lantronix, for which we have historically reported net revenues as a related party transaction. While we continue to sell to Barix, subsequent to December 2015, such revenues are no longer classified as net revenue from related parties.

1. Summary of Significant Acc13

1. Summary of Significant Accounting Policies (Policies)	9 Months Ended
	Mar. 31, 2016
Accounting Policies [Abstract]
The Company	The Company Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a specialized networking company providing machine to machine (“M2M”) and Internet of Things (“IoT”) solutions. Our products deliver secure connectivity, device management and mobility for today's increasingly connected world. By networking and managing devices and machines that have never before been connected, we enable our customers to realize the possibilities of the IoT.
Basis of Presentation	Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in our Annual Report on Form 10-K filed with the SEC on August 21, 2015. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at March 31, 2016 and the consolidated results of our operations for the three and nine months ended March 31, 2016 and our consolidated cash flows for the nine months ended March 31, 2016. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods.
Reclassifications	Reclassifications Certain reclassifications have been made to the prior year financial information to conform to the current period presentation.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. The standard permits the use of either a retrospective or cumulative effect transition method. In July 2015, FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard for the fiscal year beginning July 1, 2017. We are currently evaluating this standard and have not yet selected a transition method or the effective date on which we plan to adopt the standard, nor have we determined the effect of the standard on our financial statements and related disclosures. In August 2014, FASB issued a new standard that will require management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt about the entity’s ability to continue as a going concern. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2016. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In November 2015, FASB issued final guidance simplifying the balance sheet classification of deferred taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction – that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. Lantronix elected to adopt this guidance as of the fiscal quarter ended December 31, 2015. We have retrospectively applied this guidance to the accompanying unaudited condensed consolidated balance sheet as of June 30, 2015, which had the effect of increasing our working capital by $442,000 as compared to what was originally reported as of that date. In February 2016, FASB issued an accounting standard that revises lease accounting guidance. The standard requires lessees to put most leases on their balance sheets, but recognize expenses on their income statements in a manner similar to the previous guidance. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In March 2016, FASB issued guidance that changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required today, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. All of the guidance will be effective for Lantronix in the fiscal year beginning July 1, 2017. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures.

2. Supplemental Financial Inf14

2. Supplemental Financial Information (Tables)	9 Months Ended
	Mar. 31, 2016
Supplemental Financial Information Details - Other Liabilities
Schedule of Inventory	March 31, June 30, 2016 2015 (In thousands) Finished goods $ 4,059 $ 6,044 Raw materials 2,076 2,122 Finished goods held by distributors 1,140 1,337 Inventories, net $ 7,275 $ 9,503
Schedule of Other Liabilities	March 31, June 30, 2016 2015 (In thousands) Current Customer deposits and refunds $ 700 $ 854 Accrued raw materials purchases 726 916 Deferred revenue 458 690 Capital lease obligations 64 62 Deferred rent 52 40 Taxes payable 254 247 Accrued operating expenses 1,259 1,040 Total other current liabilities $ 3,513 $ 3,849 Non-current Deferred revenue $ 98 $ 80 Deferred rent 226 – Total other non-current liabilities $ 324 $ 80
Schedule of Computation of Net Loss per Share	Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands, except per share data) Numerator: Net loss $ (456 ) $ (839 ) $ (1,715 ) $ (1,733 ) Denominator: Weighted-average common shares outstanding (basic and diluted) 15,225 14,942 15,163 14,868 Net loss per share (basic and diluted) $ (0.03 ) $ (0.06 ) $ (0.11 ) $ (0.12 )
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share	Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands) Common stock equivalents 3,696 1,700 3,630 1,653
Schedule of non-cash investing and financing transactions	Nine Months Ended March 31, 2016 2015 (In thousands) Accrued property and equipment paid for in the subsequent period $ 15 $ – Non-cash acquisition of property and equipment under capital leases $ 37 $ 17 Non-cash tenant improvements paid by landlord $ 190 $ –

3. Warranty Reserve (Tables)

3. Warranty Reserve (Tables)	9 Months Ended
	Mar. 31, 2016
Standard Product Warranty Disclosure [Abstract]
Warranty reserve	Nine Months Ended Year Ended March 31, June 30, 2016 2015 (In thousands) Beginning balance $ 163 $ 150 Charged to cost of revenues 59 112 Usage (83 ) (99 ) Ending balance $ 139 $ 163

4. Bank Line of Credit and Debt

4. Bank Line of Credit and Debt (Tables)	9 Months Ended
	Mar. 31, 2016
Debt Disclosure [Abstract]
Schedule of Minimum Tangible Net Worth	March 31, 2016 (In thousands) Minimum TNW $ 6,000 Actual TNW $ 8,226
Outstanding balances of loans	March 31, June 30, 2016 2015 (In thousands) Outstanding borrowings on the line of credit $ 700 $ 700 Available borrowing capacity $ 1,844 $ 1,736 Outstanding letters of credit $ 51 $ 110

5. Stockholders Equity (Tables)

5. Stockholders Equity (Tables)	9 Months Ended
	Mar. 31, 2016
Summary of stock option activity	Number of Shares Weighted Average Exercise Price per Share (In thousands) Balance of options outstanding at June 30, 2015 3,546 $ 2.19 Granted 924 1.26 Forfeited (420 ) 1.73 Expired (712 ) 2.28 Exercised – – Balance of options outstanding at March 31, 2016 3,338 $ 1.97
Schedule of share-based compensation expense	Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 (In thousands) Cost of revenues $ 14 $ 17 $ 52 $ 53 Selling, general and administrative 131 189 484 558 Research and development 41 44 135 159 Total share-based compensation expense $ 186 $ 250 $ 671 $ 770
Schedule of unrecognized compensation costs	Remaining Unrecognized Compensation Cost Remaining Weighted Average Years To Recognize (In thousands) Stock options $ 1,026 3.2 Restricted stock units 14 0.6 Stock purchase rights under ESPP 125 1.7
Restricted Stock Units (RSUs) [Member]
Summary of other than options activity	Number of Shares Weighted Average Grant - Date Fair Value per Share (In thousands) Balance of RSUs outstanding at June 30, 2015 28 $ 1.98 Granted 70 1.28 Vested (78 ) 1.58 Balance of RSUs outstanding at March 31, 2016 20 $ 1.10
ESPP [Member]
Summary of other than options activity	Number of Shares (In thousands) Shares available for issuance at June 30, 2015 906 Reserved for issuance – Issued (93 ) Shares available for issuance at March 31, 2016 813

6. Income Taxes (Tables)

6. Income Taxes (Tables)	9 Months Ended
	Mar. 31, 2016
Income Taxes Tables
Effective tax rate	Three Months Ended Nine Months Ended March 31, March 31, 2016 2015 2016 2015 Effective tax rate 3 % 1 % 2 % 3 %

1. Summary of Significant Acc19

1. Summary of Significant Accounting Policies (Details Narrative) $ in Thousands	9 Months Ended
	Mar. 31, 2016USD ($)
Accounting Policies [Abstract]
Increase in working capital	$ 442,000

2. Supplemental Financial Inf20

2. Supplemental Financial Information (Details - Inventories) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Supplemental Financial Information Details - Other Liabilities
Finished goods	$ 4,059	$ 6,044
Raw materials	2,076	2,122
Finished goods held by distributors	1,140	1,337
Inventories, net	$ 7,275	$ 9,503

2. Supplemental Financial Inf21

2. Supplemental Financial Information (Details - Other liabilities) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Current
Customer deposits and refunds	$ 700	$ 854
Accrued raw materials purchases	726	916
Deferred revenue	458	690
Capital lease obligations	64	62
Deferred rent	52	40
Taxes payable	254	247
Accrued operating expenses	1,259	1,040
Total other current liabilities	3,513	3,849
Non-current
Deferred revenue	98	80
Deferred rent	226	0
Total other non-current liabilities	$ 324	$ 80

2. Supplemental Financial Inf22

2. Supplemental Financial Information (Details - Computation of Net Loss per Share) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Numerator:
Net loss	$ (456)	$ (839)	$ (1,715)	$ (1,733)
Denominator:
Weighted-average shares outstanding (basic and diluted)	15,225	14,942	15,163	14,868
Net loss per share (basic and diluted)	$ (.03)	$ (.06)	$ (.11)	$ (.12)

2. Supplemental Financial Inf23

2. Supplemental Financial Information (Details - Common Stock Equivalents) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Supplemental Financial Information Details - Other Liabilities
Common stock equivalents	3,696	1,700	3,630	1,653

2. Supplemental Financial Inf24

2. Supplemental Financial Information (Details - Supplemental Cash Flow Information) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Supplemental Cash Flow Information [Abstract]
Accrued property and equipment paid for in the subsequent period	$ 15	$ 0
Non-cash acquisition of property and equipment under capital leases	37	17
Non-cash tenant improvements paid by landlord	$ 190	$ 0

2. Supplemental Cash Flow Infor

2. Supplemental Cash Flow Information (Details Narrative) shares in Thousands, $ in Thousands	9 Months Ended
	Mar. 31, 2016USD ($)shares
Restructuring costs	$ 247
Kurt Busch [Member]
Separation and release payment	$ 271
RSU's vested | shares	50
Share-based compensation for RSU's	$ 52

3. Warranty Reserve (Details)

3. Warranty Reserve (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Mar. 31, 2016	Jun. 30, 2015
Standard Product Warranty Disclosure [Abstract]
Beginning balance	$ 163	$ 150
Charged to cost of revenues	59	112
Usage	(83)	(99)
Ending balance	$ 139	$ 163

4. Bank Line of Credit and De27

4. Bank Line of Credit and Debt (Details - TNW) $ in Thousands	Mar. 31, 2016USD ($)
Line of Credit Facility [Abstract]
Minimum TNW	$ 6,000
Actual TNW	$ 8,226

4. Bank Line of Credit (Details

4. Bank Line of Credit (Details - Available Borrowing Capacity) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Line of Credit Facility [Abstract]
Outstanding borrowings on the line of credit	$ 700	$ 700
Available borrowing capacity	1,844	1,736
Outstanding letters of credit	$ 51	$ 110

4. Bank Line of Credit and De29

4. Bank Line of Credit and Debt (Details Narrative) $ in Thousands	9 Months Ended
	Mar. 31, 2016USD ($)
Line of Credit Facility [Abstract]
Revolving Line description	On September 30, 2014, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for (i) a renewal of our $4.0 million revolving line of credit with an extended maturity date of September 30, 2016 and (ii) a modification of the revolving credit line borrowing base formula to include a portion of our foreign accounts receivable to the borrowing base and increase the borrowing limit related to domestic accounts receivable.
Maximum borrowing amount	$ 4,000
Maturity date	Sep. 30, 2016
Interest rate description	The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.0%, provided that we maintain a monthly quick ratio of 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.0%. At March 31, 2016, we did not meet the 1.0 or higher quick ratio.
Minimum Tangible Net Worth required	$ 6,000

5. Stockholders' Equity (Detail

5. Stockholders' Equity (Details - Stock Option Awards) - Options shares in Thousands	9 Months Ended
	Mar. 31, 2016$ / sharesshares
Number of shares (in thousands)
Number of Shares Options Outstanding, Beginning | shares	3,546
Number of Shares Options Granted | shares	924
Number of Shares Options Forfeited | shares	(420)
Number of Shares Options Expired | shares	(712)
Number of Shares Options Exercised | shares	0
Number of Shares Options Outstanding, Ending | shares	3,338
Weighted Average Exercise Price per share
Exercise Price Outstanding, Beginning | $ / shares	$ 2.19
Exercise Price Granted | $ / shares	1.26
Exercise Price Forfeited | $ / shares	1.73
Exercise Price Expired | $ / shares	$ 2.28
Exercise Price Exercised | $ / shares
Exercise Price Outstanding, Ending | $ / shares	$ 1.97

5. Stockholders' Equity (Deta31

5. Stockholders' Equity (Details - RSUs) - Restricted Stock Units (RSUs) [Member] shares in Thousands	9 Months Ended
	Mar. 31, 2016$ / sharesshares
Number of shares (in thousands)
Beginning balance RSU's | shares	28
Granted | shares	70
Vested | shares	(78)
Ending balance RSU's | shares	20
Weighted Average Grant Date Fair Value Per Share Abstract
RSU Shares Weighted-Average Grant-Date Fair Value per Share, beginning | $ / shares	$ 1.98
RSU Shares Granted, Weighted-Average Grant-Date Fair Value per Share | $ / shares	1.28
RSU Shares Vested, Weighted-Average Grant-Date Fair Value per Share | $ / shares	1.58
RSU Shares Weighted-Average Grant-Date Fair Value per Share, ending | $ / shares	$ 1.10

5. Stockholders' Equity (Deta32

5. Stockholders' Equity (Details - Employee Stock Purchase Plan) - ESPP [Member] shares in Thousands	9 Months Ended
	Mar. 31, 2016shares
Shares available for issuance at beginning of period	906
Shares reserved for issuance	0
Shares issued	(93)
Shares available for issuance at end of period	813

5. Stockholders' Equity (Deta33

5. Stockholders' Equity (Details - Share-Based Compensation Expense) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Total share-based compensation	$ 186	$ 250	$ 671	$ 770
Cost of revenues
Total share-based compensation	14	17	52	53
Selling, general and administrative
Total share-based compensation	131	189	484	558
Research and development
Total share-based compensation	$ 41	$ 44	$ 135	$ 159

5. Stockholders' Equity (Deta34

5. Stockholders' Equity (Details - Unrecognized compensation expense) $ in Thousands	9 Months Ended
	Mar. 31, 2016USD ($)
Options
Unrecognized compensation cost	$ 1,026
Remaining weighted average years to recognize	3 years 2 months 12 days
Restricted Stock Units (RSUs) [Member]
Unrecognized compensation cost	$ 14
Remaining weighted average years to recognize	7 months 6 days
ESPP [Member]
Unrecognized compensation cost	$ 125
Remaining weighted average years to recognize	1 year 8 months 12 days

5. Stockholders' Equity (Deta35

5. Stockholders' Equity (Details Narrative) - ESPP Member shares in Thousands	9 Months Ended
	Mar. 31, 2016$ / sharesshares
Common stock shares issued | shares	93
Weighted average purchase price per share | $ / shares	$ 1.02
Closing market price percentage	85.00%

6. Income Taxes (Details)

6. Income Taxes (Details)	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Taxes Details
Effective tax rate	3.00%	1.00%	2.00%	3.00%