8-K/A - LTRX - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2021

Lantronix, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	1-16027	33-0362767
(State or other jurisdiction<br><br>of incorporation)	(Commission File Number)	(IRS Employer<br><br>Identification No.)
7535 Irvine Center Drive, Suite 100<br><br>Irvine, California 92618
(Address of Principal Executive Offices, including zip code)
Registrant’s telephone number, including area code: (949) 453-3990
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securitiesregistered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. ☐

Explanatory Note

In its Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 2, 2021 (the “Initial Report”), Lantronix, Inc. reported that it completed the previously announced acquisition of the Transition Networks and Net2Edge businesses (collectively, the “Electronics & Software Segment” or “E&S Segment”) of Communications Systems, Inc. This Current Report on Form 8-K/A amends the Initial Report to provide the historical financial statements and unaudited pro forma information required by Item 9.01(a) and (b) of Form 8-K. This Current Report on Form 8-K/A should be read in conjunction with the Initial Report.

Item 9.01	Financial Statements and Exhibits.

(a) Financial statements of business acquired.

The audited combined carve-out financial statements of the E&S Segment as of and for the year ended December 31, 2020, the notes related thereto and the related Independent Auditors Report, issued by Baker Tilly US, LLP, dated August 10, 2021, are attached as Exhibit 99.1 and incorporated herein by reference. The unaudited condensed combined carve-out financial statements of the E&S Segment as of and for the three months ended March 31, 2021 and 2020, and the notes related thereto, are attached hereto as Exhibit 99.2 and incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma condensed combined balance sheet as of March 31, 2021, and the pro forma condensed combined statements of operations for the year ended June 30, 2020 and the nine months ended March 31, 2021, and the notes related thereto, that give effect to the acquisition of the E&S Segment are attached hereto as Exhibit 99.3 and incorporated herein by reference.

(d) Exhibits.

Exhibit<br><br> <br>No.	Description
23.1<br><br> <br><br><br> <br>99.1<br><br> <br><br><br> <br><br><br> <br>99.2	Consent of Baker Tilly US, LLP (consent of independent auditors).<br><br> <br><br><br> <br>Audited combined carve-out financial statements of the E&S Segment as of and for the year ended December 31, 2020 and the related Independent Auditors Report, issued by Baker Tilly US, LLP, dated August 10, 2021.<br><br> <br><br><br> <br>Unaudited condensed combined carve-out financial statements of the E&S Segment as of March 31, 2021 and for the three months ended March 31, 2021 and 2020.
99.3	Unaudited pro forma condensed combined balance sheet as of March 31, 2021 and unaudited pro forma condensed combined statements of operations for the year ended June 30, 2020 and nine months ended March 31, 2021.

Exhibit No.

Description

23.1 99.1 99.2

Consent of Baker Tilly US, LLP (consent of independent auditors). Audited combined carve-out financial statements of the E&S Segment as of and for the year ended December 31, 2020 and the related Independent Auditors Report, issued by Baker Tilly US, LLP, dated August 10, 2021. Unaudited condensed combined carve-out financial statements of the E&S Segment as of March 31, 2021 and for the three months ended March 31, 2021 and 2020.

99.3

Unaudited pro forma condensed combined balance sheet as of March 31, 2021 and unaudited pro forma condensed combined statements of operations for the year ended June 30, 2020 and nine months ended March 31, 2021.

| 2 |

| --- |

SIGNATURES

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

	LANTRONIX, INC.
August 10, 2021	/s/ Jeremy Whitaker
	Jeremy Whitaker
	Chief Financial Officer

| 3 |

| --- |

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the inclusion of our report dated August 10, 2021, with respect to the combined carve-out balance sheet of the Electronics & Software Segment of Communications Systems, Inc. as of December 31, 2020, and the related combined carve-out statements of operations, changes in net investment, and cash flows for the year then ended, and the related notes to the combined carve-out financial statements (collectively, the "combined carve-out financial statements"), in the Form 8-K/A of Lantronix, Inc. Our report dated August 10, 2021 relating to the combined carve-out financial statements contains an emphasis-of-matter paragraph that states that the accompany combined carve-out financial statements reflect the assets, liabilities, revenue, and expenses directly attributable to the carved out entities as well as allocations deemed reasonable by management.

/s/ Baker Tilly US, LLP

Minneapolis, Minnesota

August 10, 2021

Exhibit 99.1

Electronics & Software Segment

Combined Carve-Out Financial Statementsas of and for the Year Ended December 31, 2020

To the Board of Directors of

Communications Systems, Inc. and Subsidiaries

Report on the Combined Carve-Out Financial Statements

We have audited the accompanying combined carve-out financial statements of the Electronics & Software Segment of Communications Systems, Inc. (“E&S” or the “Companies”), which comprise the combined carve-out balance sheet as of December 31, 2020, and the related combined carve-out statements of operations, changes in net investment, and cash flows for the year then ended, and the related notes to the combined carve-out financial statements.

Management’s Responsibility for the Combined Carve-Out FinancialStatements

Management is responsible for the preparation and fair presentation of these combined carve-out financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of combined carve-out financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined carve-out financial statements based on our audit. We conducted our audit in accordance with auditing standards general accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined carve-out financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined carve-out financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined carve-out financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined carve-out financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined carve-out financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined carve-out financial statements referred to above present fairly, in all material respects, the financial position of the Electronics & Software Segment of Communications Systems, Inc. as of December 31, 2020 and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

| 1 |

| --- |

Emphasis of Matter

As discussed in Note 1, the accompanying combined carve-out financial statements reflect the assets, liabilities, revenue, and expenses directly attributable to the carved out entities, as well as allocations deemed reasonable by management, to present the financial position, results of operations, changes in net investment, and cash flows in the combined carve-out financial statements. Our opinion is not modified with respect to this matter.

/s/ Baker Tilly US, LLP

Minneapolis, Minnesota

August 10, 2021

| 2 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

COMBINED CARVE-OUT BALANCE SHEET

	December 31
	2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	302,509
Trade accounts receivable, net		5,775,422
Inventories, net		8,560,616
Other current assets		439,518
TOTAL CURRENT ASSETS		15,078,065
PROPERTY, PLANT AND EQUIPMENT, net		190,299
OTHER ASSETS:
Deferred income taxes		1,197,966
Operating lease right of use asset		129,164
TOTAL OTHER ASSETS		1,327,130
TOTAL ASSETS	$	16,595,494
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,669,166
Accrued compensation and benefits		1,039,619
Operating lease liability		86,310
Other accrued liabilities		1,205,864
Income taxes payable		1,440,918
TOTAL CURRENT LIABILITIES		5,441,877
LONG TERM LIABILITIES:
Uncertain tax positions		99,596
Operating lease liability		29,611
TOTAL LONG-TERM LIABILITIES		129,207
NET INVESTMENT IN ELECTRONICS & SOFTWARE		11,024,410
TOTAL LIABILITIES AND E&S NET INVESTMENT	$	16,595,494

See accompanying Notes to Combined Carve-Out Financial Statements

| 3 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

COMBINED CARVE-OUT STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

	Twelve Months Ended
	December 31, 2020
Sales	$	34,495,984
Cost of sales		19,606,468
Gross profit		14,889,516
Operating expenses:
Selling, general and administrative expenses		13,917,278
Operating income		972,238
Other income (expenses):
Investment and other expense		(10,289	)
Gain on sale of assets		209
Other expense, net		(10,080	)
Operating income before income taxes		962,158
Income tax expense		483,150
Net income		479,008
Other comprehensive income, net of tax:
Foreign currency translation adjustment		9,648
Comprehensive income	$	488,656

See accompanying Notes to Combined Carve-Out Financial Statements

| 4 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

COMBINED CARVE-OUT STATEMENT OF CHANGES IN NET INVESTMENT

				Accumulated
				Other
	Retained			Comprehensive
	Earnings			Loss			Total
BALANCE AT DECEMBER 31, 2019	$	13,180,194		$	(708,552	)	$	12,471,642
Net income		479,008			–			479,008
Noncash contributions from CSI		146,705			–			146,705
Distributions to CSI		(2,082,593	)		–			(2,082,593	)
Other comprehensive income		–			9,648			9,648
BALANCE AT DECEMBER 31, 2020	$	11,723,314		$	(698,904	)	$	11,024,410

See accompanying Notes to Combined Carve-Out Financial Statements

| 5 |

| --- |

ELECTRONICS & SOFTWARE CARVE-OUT

OF COMMUNICATIONS SYSTEMS, INC.

COMBINED CARVE-OUT STATEMENT OF CASH FLOWS

	Twelve Months Ended
	December 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	479,008
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		154,269
Share based compensation		124,448
Deferred taxes		231,832
Gain on sale of assets		(209	)
Changes in assets and liabilities:
Trade accounts receivable, net		4,144,854
Inventories, net		(98,084	)
Other assets, net		310,825
Accounts payable		(1,676,203	)
Accrued compensation and benefits		(973,081	)
Other accrued liabilities		(822,127	)
Income taxes payable		251,242
Net cash provided by operating activities		2,126,774
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(80,627	)
Proceeds from the sale of property, plant and equipment		3,000
Net cash used in investing activities		(77,627	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in CSI net investment		(2,082,593	)
Net cash used in financing activities		(2,082,593	)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH		38,143
NET INCREASE IN CASH AND CASH EQUIVALENTS		4,697
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		297,812
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	302,509

See accompanying Notes to Combined Carve-Out Financial Statements

| 6 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT OF COMMUNICATIONSSYSTEMS, INC.

NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Electronics & Software (“E&S”) is a segment of Communications Systems, Inc. (“CSI”, the “Company”, or “we”), a Minnesota corporation that was organized in 1969. E&S designs, develops and sells Intelligent Edge solutions that provide connectivity and power through Power over Ethernet (“PoE”) products and actionable intelligence to end devices in an Internet of Things (“IoT”) ecosystem through embedded and cloud-based management software. In addition, this segment continues to generate revenue from its traditional products consisting of media converters, Network Interface Cards (“NICs”), and Ethernet switches that offer the ability to affordably integrate the benefits of fiber optics into any data network.

On April 28, 2021, CSI entered into a securities purchase agreement with Lantronix, pursuant to which CSI has agreed, subject to specified terms and conditions, including approval of the transaction by its shareholders at a special meeting, to sell to Lantronix all of the issued and outstanding shares of our wholly-owned subsidiary, Transition Networks, Inc., and the entire issued share capital of our wholly-owned subsidiary, Transition Networks Europe Limited, which includes subsidiary Net2Edge Limited. On August 2, 2021, CSI and Lantronix completed the sale by CSI to Lantronix pursuant to the securities purchase agreement dated April 28, 2021.

The combined carve-out financial statements and footnotes herein contain only the operations of the E&S Segment.

Basis of Presentation: The accompanying combined carve-out financial statements as of and for the year ended December 31, 2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the only those balances related to the E&S Segment.

The financial information included herein was derived from the consolidated financial statements and accounting records of CSI and may not necessarily reflect the combined financial position, results of operations and cash flows of the E&S Segment in the future or what they would have been had the E&S Segment operated as a separate, stand-alone entity during the periods presented. The combined carve-out financial statements of the E&S Segment include all of the assets, liabilities, revenue, expenses, and cash flows of the E&S Segment, as well as expense allocations deemed reasonable by management, to present the combined carve-out financial position, results of operations and cash flows of the E&S Segment on a stand-alone basis. The combined carve-out financial statements only include assets and liabilities that are specifically attributable to the E&S Segment. Management believes expense allocations are reasonable; however, they may not be indicative of the actual level of expense that would have been incurred by the E&S Segment if these operations had operated as a separate, standalone entity or of the costs expected to be incurred in the future. Refer to Note 10 for further information related to expense allocation methodologies.

All intercompany accounts and transactions have been eliminated in preparing the combined carve-out financial statements of the E&S Segment.

Use of Estimates: The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses estimates based on the best information available in recording transactions and balances resulting from operations. Actual results could differ from those estimates. The Company’s estimates consist principally of reserves for doubtful accounts, sales returns, warranty costs, asset impairment evaluations, accruals for compensation plans, lower of cost or market inventory adjustments, provisions for income taxes and deferred taxes, and depreciable lives of fixed assets.

| 7 |

| --- |

Cash and cash equivalents: For purposes of the condensed combined carve-out statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Refer to Note 10 for further information related to cash management.

Inventories: Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Provision to reduce inventories to the lower of cost or net realizable value is made based on a review of excess and obsolete inventories, estimates of future sales, examination of historical consumption rates and the related value of component parts.

Property, plant and equipment: Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method. Depreciation included in cost of sales and selling, general and administrative expenses was $154,000 for 2020. Maintenance and repairs are charged to operations and additions or improvements are capitalized. Items of property sold, retired or otherwise disposed of are removed from the asset and accumulated depreciation accounts and any gains or losses on disposal are reflected in operations. No such losses were recorded in 2020.

Recoverability of long-lived assets: The Company reviews its long-lived assets periodically when impairment indicators exist as required under generally accepted accounting principles. Potential impairment is determined by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Warranty: The Company reserves for the estimated cost of product warranties at the time revenue is recognized. We estimate the costs of our warranty obligations based on our warranty policy or applicable contractual warranty, historical experience of known product failure rates, and use of materials and service delivery costs incurred in correcting product failures. Management reviews the estimated warranty liability on a quarterly basis to determine its adequacy.

The following table presents the changes in the Company’s warranty liability for the E&S Segment, included in other accrued liabilities in the combined carve-out balance sheet, which relate to normal product warranties and a five-year obligation to provide for potential future liabilities for certain network equipment sales:

	Year Ended
	December 31, 2020
Beginning balance	$	513,000
Amounts charged to expense		59,000
Actual warranty costs paid		(67,000	)
Ending balance	$	505,000

Revenue recognition: The E&S Segment recognizes revenue upon delivery of its connectivity infrastructure and data transmission products. To determine when revenue should be recognized, it is important to determine when the transfer of control has occurred. The Company has determined that control transfers for these products upon shipment or delivery to the customer, in accordance with the agreed upon shipping terms. As such, the timing of revenue recognition occurs at a specific point in time. Sales are made directly to customers and through distributors. Payment terms for distributors are consistent with the terms of the Company’s direct customers. The Company records a provision for sales returns, sales incentives and warranty costs at the time of the sale based on historical experience and current trends. See Note 2 for further discussion regarding revenue recognition.

| 8 |

| --- |

Research and development: Research and development costs consist primarily of designing, prototyping, and testing of equipment and supplies associated with developing new products and enhancing existing products, including personnel costs, outside testing services, equipment, and supplies. Research and development costs are expensed when incurred and totaled $2,808,000 for year ended December 31, 2020.

Employee Retirement Benefits: The Company has an Employee Savings Plan (401(k)) and matches at its discretion a percentage of employee contributions up to six percent of compensation. Contributions to the plan for the E&S Segment during the year ended December 31, 2020 was $205,000.

Share based compensation: The Company accounts for share based compensation awards on a fair value basis. The estimated grant date fair value of each stock-based award is recognized in income over the requisite service period (generally the vesting period). The estimated fair value of each option is calculated using the Black-Scholes option-pricing model.

Accounting standards issued:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” The amendments in this update replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses. This ASU is intended to provide financial statement users with more decision-useful information about expected credit losses and is effective for annual periods and interim periods for those annual periods beginning after December 15, 2022, which for us is the first quarter ending March 31, 2023. Entities may early adopt beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-13 on our combined financial statements.

NOTE 2 – REVENUE RECOGNITION

In accordance with Accounting Standards Codification (“ASC”) 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration that the Company expects to receive in exchange for these goods or services.

The Company has determined that the revenue recognition for the E&S Segment occurs upon delivery of the Company’s connectivity infrastructure and data transmission products. To determine when revenue should be recognized, it is important to determine when the transfer of control has occurred. The Company has determined that control transfers for these products upon shipment or delivery to the customer, in accordance with the agreed upon shipping terms. As such, the timing of revenue recognition occurs at a specific point in time.

Significant Judgments

To determine the transaction price, the Company estimates the amount of variable consideration at the outset of the contract, depending on the facts and circumstances relative to the contract. The Company may provide credits or incentives to its customers, which are accounted for as either variable consideration or consideration payable to the customer. The Company estimates product returns based on historical return rates. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant revenue reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. The Company will assess if any incentives it offers to its customer is a consideration payable. The Company accounts for consideration payable to a customer as a reduction of the transaction price, and therefore, of revenue. For contracts with more than one performance obligation, the consideration is allocated between separate products and services based on their stand-alone selling prices. Judgment is required to determine standalone selling prices for each distinct performance obligation. The Company generally determines standalone selling prices based on the actual prices charged to customers and has an established range of amounts that fall within stand-alone selling price for its distinct performance obligations. The Company evaluates this range quarterly.

| 9 |

| --- |

Costs to Obtain or Fulfill a Contract

The Company evaluates “Other Assets and Deferred Costs” (ASC 340-40), for the accounting for certain costs to obtain and fulfill contracts (or, in some cases, an anticipated contract) with a customer. ASC 340-40 is applicable only to incremental contract costs, those that an entity would not have incurred if the contract had not been obtained, and requires the capitalization of these costs as well as provides guidance on the amortization and impairment considerations. The Company elects the practical expedient and expenses certain costs to obtain contracts when applicable. There were no material costs to obtain a contract in the year ended December 31, 2020.

Transaction Price Allocated to Future Performance Obligations

To determine the allocation of the transaction price and amounts allocated to the performance obligations, the Company first determined the standalone selling price for each distinct performance obligation in the contract in order to determine the allocations of the transaction price in proportion to the standalone selling price for each performance obligation in the contract in accordance with ASC 606-10-32-31 and 32-33. Judgment is required to determine standalone selling price for each distinct performance obligation. The Company generally determines standalone selling prices based on the actual prices charged to customers and has an established range of amounts that fall within stand-alone selling price for its distinct performance obligations. The Company evaluates this range quarterly.

Practical Expedients and Exemptions

The Company adopted various practical expedients and policy elections related to the accounting for significant finance components, sales taxes, shipping and handling, costs to obtain a contract and immaterial promised goods or services. The practical expedient to disclose the unfulfilled performance obligations was not made as they are expected to be fulfilled within one year.

Disaggregation of revenue

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that best reflects the consideration we expect to receive in exchange for those goods or services. In accordance with ASC 606-10-50-5, the following tables present how we disaggregate our revenues.

For the E&S segment, we analyze revenue by region and product group, which is as follows for the year ended December 31, 2020:

	Year Ended
	December 31, 2020
North America	$	29,721,000
International		4,775,000
	$	34,496,000
	December 31, 2020
---	---	---
Intelligent edge solutions	$	12,162,000
Traditional products		22,334,000
	$	34,496,000

| 10 |

| --- |

NOTE 3 – LEASES

In accordance with ASC Topic 842, the Company recognizes assets and liabilities for the rights and obligations created by leases that extend more than twelve months from the date of the balance sheet. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. Because the rate implicit in each individual lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

The E&S Segment has entered into an operating lease for one office location, which has a remaining lease term of less than 2 years. The lease includes an option to terminate the lease in 2022. As of December 31, 2020, total ROU assets and operating lease liabilities were $129,000 and $116,000, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. The Company recognized $85,000 for the year ended December 31, 2020.

Information related to the Company’s ROU assets and related lease liabilities for the E&S Segment were as follows:

	Year Ended
	December 31, 2020
Cash paid for operating leases	$	85,000
	As of
---	---	---
	December 31, 2020
Weighted-average remaining lease term		1.6 years
Weighted-average discount rate		4.5%

Maturities of lease liabilities as of December 31, 2020 were as follows:

2021	$	91,000
2022		30,000
Total lease payments		121,000
Less imputed interest		(5,000	)
Total operating lease liabilities	$	116,000

| 11 |

| --- |

NOTE 4 - STOCK-BASED COMPENSATION

CSI grants stock-based awards, including stock options, restricted stock awards, and restricted stock units to certain employees, including those of the E&S Segment and other employees that provide services to the E&S Segment. Stock-based compensation expense is measured at the grant date based on the fair value of the award and recognized as expense over the vesting or service period, as applicable, of the stock-based award. Forfeitures are accounted for as they occur.

Share-based compensation expense recognized was $124,000 for the year ended December 31, 2020. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.

NOTE 5 - INVENTORIES

Inventories of the E&S Segment summarized below are priced at the lower of first-in, first-out cost or net realizable value:

	December 31
	2020
Finished goods	$	7,848,000
Raw and processed materials		713,000
	$	8,561,000

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

E&S Segment’s property, plant and equipment and the estimated useful lives are as follows:

	Estimated	December 31
	useful life	2020
Buildings and improvements	3-40 years	$	28,000
Machinery and equipment	3-15 years		2,457,000
Furniture and fixtures	3-10 years		2,645,000
			5,130,000
Less accumulated depreciation			(4,940,000	)
		$	190,000

NOTE 7 – COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is exposed to legal actions and claims and incurs costs to defend against these actions and claims. Company management is not aware of any outstanding or pending legal actions or claims that would materially affect the Company’s financial position, results of operations, or cash flows of the E&S Segment.

| 12 |

| --- |

NOTE 8 – INCOME TAXES

Income tax expense from continuing operations of the E&S Segment consists of the following:

	Year Ended
	December 31, 2020
Current year income taxes:
Federal	$	244,000
State		7,000
		251,000
Deferred income taxes:
Federal	$	225,000
State		7,000
		232,000
Income tax expense	$	483,000

Net2Edge, Ltd., formally known as Transition Networks EMEA, Ltd., operates in the U.K. and is subject to U.K. rather than U.S. income taxes. Net2Edge, Ltd. had pretax losses of $955,000 in 2020. At December 31, 2020, Net2Edge, Ltd.’s net operating loss carry-forward was $9,700,000, of which a full valuation allowance is recorded.

The provision for income taxes varied from the federal statutory tax rate as follows:

	Year Ended
	December 31, 2020
Tax at U.S. statutory rate		21.0%
State income taxes, net of federal benefit		1.4
Permanent differences		3.4
Foreign income taxes, net		2.0
Effect of change in uncertain tax positions		1.5
Change in valuation allowance		18.7
Other		2.2
Effective tax rate		50.2%

| 13 |

| --- |

Deferred tax assets and liabilities related to the following:

	December 31
	2020
Deferred tax assets:
Allowance for doubtful accounts	$	23,000
Inventory		782,000
Accrued and prepaid expenses		194,000
Stock compensation		319,000
Intangible assets		28,000
Foreign net operating loss carry-forwards and credits		1,844,000
Federal and state credits		149,000
Other		5,000
Gross deferred tax assets		3,344,000
Valuation allowance		(1,993,000	)
Net deferred tax assets		1,351,000
Deferred tax liabilities
Depreciation		(153,000	)
Net deferred tax liability		(153,000	)
Total net deferred tax asset	$	1,198,000

During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014. The Company amended prior year tax returns to claim these credits and offset prior year taxes paid. Credits not used to reduce taxes are available to be carried forward. At December 31, 2020, the Company has an estimated state research and development credit carryforward related to the E&S Segment of approximately $210,000.

The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

Changes in the Company’s uncertain tax positions are summarized as follows:

	December 31
	2020
Uncertain tax positions – Beginning Balance	$	86,000
Gross increases - current period tax positions		14,000
Uncertain tax positions – Ending Balance	$	100,000

| 14 |

| --- |

Included in the balance of uncertain tax positions at December 31, 2020 are $100,000 of tax benefits that if recognized would affect the tax rate. The Company’s unrecognized tax benefits will be reduced by $0 in the next twelve months due to statute of limitations expirations. There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included no accruals for interest and penalties at December 31, 2020. The Company’s 2020 income tax expense decreased by $0 due to net decreases for accrued interest and penalties.

NOTE 9 – MAJOR CUSTOMERS AND CONCENTRATION

The E&S Segment manufactures its products in Asia and the United States and makes sales in both the U.S. and international markets. Net long-lived assets held in foreign countries were approximately $49,000 at December 31, 2020.

The customers representing more than 10% of net sales of the E&S Segment is as follows:

	Year Ended
	December 31, 2020
Customer A		23%
Customer B		21%
Customer C		12%

The customer receivables representing more than 10% of accounts receivables of the E&S Segment were as follows:

	December 31
	2020
Customer A		17%
Customer B		30%
Customer C		14%
Customer D		13%

NOTE 10 – RELATED PARTY TRANSACTIONS AND EXPENSE ALLOCATION

The E&S Segment has received certain management and administrative services from CSI (referred to as “shared services”) including, but not limited to, accounting and finance, information technology, human resources, and building space for office use and use in operations. The operating costs and expenses associated with these services have been allocated to the E&S Segment on the basis of direct usage when identifiable, with the remainder allocated pro rata based on employee headcount, facility space occupied, or revenue, as applicable. The E&S Segment recognized allocations for shared services for the year ended December 31, 2020 all of which are included in the combined carve-out statements of operations as follows:

	Year Ended
	December 31, 2020
Cost of sales	$	402,000
Selling, general and administrative expenses		2,153,000
Total operating expenses	$	2,555,000

| 15 |

| --- |

Additionally, CSI primarily uses a centralized approach to cash management and financing of its operations with related activity between the E&S Segment and CSI reflected in “Net Investment in Electronics & Software” within the combined carve-out balance sheets. These transactions include (a) cash deposits from customer payments and other cash receipts that are transferred to CSI on a regular basis, (b) cash contributions from CSI to the E&S Segment, and (c) allocation of CSI’s shared services. Cash and cash equivalents of $303,000 as of December 31, 2020, reflects cash that remained outside of the centralized cash management program.

NOTE 11 – SUBSEQUENT EVENTS

On August 2, 2021, CSI and Lantronix completed the sale by CSI to Lantronix of all of the issued and outstanding stock of CSI’s wholly owned subsidiary, Transition Networks, Inc., and the entire issued share capital of its wholly owned subsidiary, Transition Networks Europe Limited pursuant to the securities purchase agreement dated April 28, 2021.

| 16 |

| --- |

Exhibit 99.2

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

UNAUDITED CONDENSED COMBINED CARVE-OUT BALANCE SHEETS

	March 31		December 31
	2021		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	250,589	$	302,509
Trade accounts receivable, net		5,508,857		5,775,422
Inventories		8,090,248		8,560,616
Other current assets		450,795		439,518
TOTAL CURRENT ASSETS		14,300,489		15,078,065
PROPERTY, PLANT AND EQUIPMENT, net		161,038		190,299
OTHER ASSETS:
Deferred income taxes		1,239,948		1,197,966
Operating lease right of use asset		109,369		129,164
TOTAL OTHER ASSETS		1,349,317		1,327,130
TOTAL ASSETS	$	15,810,844	$	16,595,494
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,019,862	$	1,669,166
Accrued compensation and benefits		970,099		1,039,619
Operating lease liability		88,027		86,310
Other accrued liabilities		1,170,073		1,205,864
Income taxes payable		1,379,429		1,440,918
TOTAL CURRENT LIABILITIES		5,627,490		5,441,877
LONG TERM LIABILITIES:
Uncertain tax positions		100,051		99,596
Operating lease liability		7,487		29,611
TOTAL LONG-TERM LIABILITIES		107,538		129,207
NET INVESTMENT IN ELECTRONICS & SOFTWARE		10,075,816		11,024,410
TOTAL LIABILITIES AND E&S NET INVESTMENT	$	15,810,844	$	16,595,494

See accompanying Notes to Unaudited Condensed Combined Carve-Out Financial Statements

| 1 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

UNAUDITED CONDENSED COMBINED CARVE-OUT STATEMENTS OF OPERATIONS

	Three Months Ended March 31
	2021			2020
Sales	$	8,364,527		$	8,536,404
Cost of sales		4,780,717			4,806,767
Gross profit		3,583,810			3,729,637
Operating expenses:
Selling, general and administrative expenses		3,714,277			3,897,136
Transaction costs		271,112			–
Total operating expenses		3,985,389			3,897,136
Operating loss		(401,579	)		(167,499	)
Other income (expenses):
Investment and other (expense) income		(19,403	)		14,067
Other (expense) income, net		(19,403	)		14,067
Operating loss before income taxes		(420,982	)		(153,432	)
Income tax (benefit) expense		(103,016	)		44,876
Net loss		(317,966	)		(198,308	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		19,731			(132,103	)
Comprehensive loss	$	(298,235	)	$	(330,411	)

See accompanying Notes to Unaudited Condensed Combined Carve-Out Financial Statements

| 2 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

UNAUDITED CONDENSED COMBINED CARVE-OUT STATEMENTS OF CHANGES IN NET INVESTMENT

				Accumulated
				Other
	Retained			Comprehensive
	Earnings			Loss			Total
BALANCE AT DECEMBER 31, 2020	$	11,723,314			(698,904	)	$	11,024,410
Net loss		(317,966	)		–			(317,966	)
Noncash contributions from CSI		46,267			–			46,267
Distributions to CSI		(696,626	)		–			(696,626	)
Other comprehensive income		–			19,731			19,731
BALANCE AT MARCH 31, 2021	$	10,754,989		$	(679,173	)	$	10,075,816

See accompanying Notes to Unaudited Condensed Combined Carve-Out Financial Statements

| 3 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT

OF COMMUNICATIONS SYSTEMS, INC.

UNAUDITED CONDENSED COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS

	Three Months Ended March 31
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(317,966	)	$	(198,308	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		33,773			40,359
Share based compensation		46,267			25,727
Deferred taxes		(41,982	)		38,824
Changes in assets and liabilities:
Trade accounts receivable		268,789			3,886,867
Inventories		470,368			369,233
Other assets, net		(10,735	)		40,855
Accounts payable		350,252			(1,592,341	)
Accrued compensation and benefits		(69,916	)		(920,549	)
Other accrued liabilities		(36,908	)		(411,824	)
Income taxes payable		(61,034	)		6,052
Net cash provided by operating activities		630,908			1,284,895
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(4,100	)		(39,301	)
Net cash used in investing activities		(4,100	)		(39,301	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in CSI net investment		(696,626	)		(1,001,993	)
Net cash used in financing activities		(696,626	)		(1,001,993	)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH		17,898			(36,822	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(51,920	)		206,779
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		302,509			297,812
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	250,589		$	504,591

See accompanying Notes to Unaudited Condensed Combined Carve-Out Financial Statements

| 4 |

| --- |

ELECTRONICS & SOFTWARE SEGMENT OF COMMUNICATIONSSYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED COMBINED CARVE-OUTFINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Electronics & Software (“E&S”) is a segment of Communications Systems, Inc. (“CSI”), a Minnesota corporation that was organized in 1969. E&S designs, develops and sells Intelligent Edge solutions that provide connectivity and power through Power over Ethernet (“PoE”) products and actionable intelligence to end devices in an Internet of Things (“IoT”) ecosystem through embedded and cloud-based management software. In addition, this segment continues to generate revenue from its traditional products consisting of media converters, Network Interface Cards (“NICs”), and Ethernet switches that offer the ability to affordably integrate the benefits of fiber optics into any data network.

On April 28, 2021, CSI entered into a securities purchase agreement with Lantronix, Inc. (“Lantronix”), pursuant to which CSI has agreed, subject to specified terms and conditions, including approval of the transaction by its shareholders at a special meeting, to sell to Lantronix all of the issued and outstanding shares of our wholly-owned subsidiary, Transition Networks, Inc., and the entire issued share capital of our wholly-owned subsidiary, Transition Networks Europe Limited, which includes subsidiary Net2Edge Limited. On August 2, 2021, CSI and Lantronix completed the sale by CSI to Lantronix pursuant to the securities purchase agreement dated April 28, 2021.

The unaudited condensed combined carve-out financial statements and footnotes herein contain only the operations of the E&S Segment.

Basis of Presentation: The accompanying unaudited condensed combined carve-out financial statements as of March 31, 2021 and the three-month periods ended March 31, 2021 and 2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include only those balances related to the E&S Segment.

These financial statements are presented without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.

The financial information included herein was derived from the consolidated financial statements and accounting records of CSI and may not necessarily reflect the combined financial position, results of operations and cash flows of the E&S Segment in the future or what they would have been had the E&S Segment operated as a separate, stand-alone entity during the periods presented. The unaudited condensed combined carve-out financial statements of the E&S Segment include all of the assets, liabilities, revenue, expenses, and cash flows of the segment, as well as expense allocations deemed reasonable by management, to present the condensed combined financial position, results of operations and cash flows of the E&S Segment on a stand-alone basis. The unaudited condensed combined carve-out financial statements only include assets and liabilities that are specifically attributable to the E&S Segment. Management believes expense allocations are reasonable; however, they may not be indicative of the actual level of expense that would have been incurred by the E&S Segment if these operations had operated as a separate, standalone entity or of the costs expected to be incurred in the future. Refer to Note 10 for further information related to expense allocation methodologies.

All intercompany accounts and transactions have been eliminated in preparing the unaudited condensed combined carve-out financial statements of the E&S Segment.

| 5 |

| --- |

Cash and cash equivalents: For purposes of the condensed combined carve-out statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Refer to Note 10 for further information related to cash management.

Property, plant and equipment: Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method. Depreciation included in cost of sales and selling, general and administrative expenses was $34,000 and $40,000 for the three months ended March 31, 2021 and 2020, respectively. Maintenance and repairs are charged to operations and additions or improvements are capitalized. Items of property sold, retired or otherwise disposed of are removed from the asset and accumulated depreciation accounts and any gains or losses on disposal are reflected in operations.

The following table presents the changes in the Company’s warranty liability for the E&S Segment, included in other accrued liabilities in the unaudited condensed combined carve-out balance sheets, which relate to normal product warranties and a five-year obligation to provide for potential future liabilities for certain network equipment sales:

	Three Months Ended March 31
	2021			2020
Beginning balance	$	505,000		$	513,000
Amounts charged to expense		16,000			7,000
Actual warranty costs paid		(24,000	)		(15,000	)
Ending balance	$	497,000		$	505,000

| 6 |

| --- |

Accounting standards issued:

NOTE 2 – REVENUE RECOGNITION

Significant Judgments

| 7 |

| --- |

Costs to Obtain or Fulfill a Contract

Transaction Price Allocated to Future Performance Obligations

Practical Expedients and Exemptions

Disaggregation of revenue

For the E&S segment, we analyze revenue by region and product group, which is as follows for the three months ended March 31, 2021 and 2020:

	Electronics & Software Sales by Region
	Three Months Ended March 31
	2021		2020
North America	$	7,201,000	$	7,448,000
International		1,164,000		1,088,000
	$	8,365,000	$	8,536,000
	Electronics & Software Sales by Product Group
---	---	---	---	---
	Three Months Ended March 31
	2021		2020
Intelligent edge solutions	$	3,713,000	$	3,354,000
Traditional products		4,652,000		5,182,000
	$	8,365,000	$	8,536,000

| 8 |

| --- |

NOTE 3 – LEASES

The E&S Segment has entered into an operating lease for one office location, which has a remaining lease term of less than 2 years. The lease includes an option to terminate the lease in 2022. As of March 31, 2021, total ROU assets and operating lease liabilities were $109,000 and $96,000, respectively. As of December 31, 2020, total ROU assets and operating lease liabilities were $129,000 and $116,000, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. The Company recognized $23,000 and $21,000 in lease expense for the three months ended March 31, 2021 and 2020, respectively.

Information related to the Company’s ROU assets and related lease liabilities for the E&S Segment were as follows:

	Three Months Ended March 31
	2021		2020
Cash paid for operating leases	$	23,000	$	21,000
	As of
---	---
	March 31, 2021
Weighted-average remaining lease term	1.3 years
Weighted-average discount rate	4.5%

Maturities of lease liabilities as of March 31, 2021 were as follows:

Q2 - Q4 2021	$	68,000
2022		30,000
Total lease payments		98,000
Less imputed interest		(2,000	)
Total operating lease liabilities	$	96,000

NOTE 4 - STOCK-BASED COMPENSATION

Share-based compensation expense recognized for the three months ended March 31, 2021 and 2020 was $46,000 and $26,000, respectively. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.

| 9 |

| --- |

NOTE 5 - INVENTORIES

Inventories of the E&S Segment summarized below are priced at the lower of first-in, first-out cost or net realizable value:

	March 31		December 31
	2021		2020
Finished goods	$	7,429,000	$	7,848,000
Raw and processed materials		661,000		713,000
	$	8,090,000	$	8,561,000

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

E&S Segment’s property, plant and equipment and the estimated useful lives are as follows:

	Estimated	March 31			December 31
	useful life	2021			2020
Buildings and improvements	3-40 years	$	29,000		$	28,000
Machinery and equipment	3-15 years		2,463,000			2,457,000
Furniture and fixtures	3-10 years		2,645,000			2,645,000
			5,137,000			5,130,000
Less accumulated depreciation			(4,976,000	)		(4,940,000	)
		$	161,000		$	190,000

NOTE 7 – COMMITMENTS AND CONTINGENCIES

| 10 |

| --- |

NOTE 8 – INCOME TAXES

Income tax (benefit) expense of the E&S Segment consists of the following:

	Three Months Ended March 31
	2021			2020
Current year income taxes (benefit):
Federal	$	(59,000	)	$	6,000
State		(2,000	)		–
		(61,000	)		6,000
Deferred income taxes:
Federal	$	(41,000	)	$	38,000
State		(1,000	)		1,000
		(42,000	)		39,000
Income tax (benefit) expense	$	(103,000	)	$	45,000

Net2Edge, Ltd., formally known as Transition Networks EMEA, Ltd., operates in the U.K. and is subject to U.K. rather than U.S. income taxes. Net2Edge, Ltd. had pretax income of $55,000 for the three months ended March 31, 2021. At March 31, 2021, Net2Edge, Ltd.’s net operating loss carry-forward was $9,645,000, of which a full valuation allowance is recorded.

The provision for income taxes varied from the federal statutory tax rate as follows:

	Three Months Ended March 31
	2021			2020
Tax at U.S. statutory rate		21.0%			21.0%
State income taxes, net of federal benefit		0.7			(1.1	)
Permanent differences		0.1			(5.3	)
Foreign income taxes, net		0.3			(4.8	)
Effect of change in uncertain tax positions		(0.1	)		(2.3	)
Change in valuation allowance		2.5			(45.6	)
Other		0.0			8.9
Effective tax rate		24.5%			(29.2%	)

| 11 |

| --- |

Deferred tax assets and liabilities related to the following:

	March 31			December 31
	2021			2020
Deferred tax assets:
Allowance for doubtful accounts	$	23,000		$	23,000
Inventory		806,000			782,000
Accrued and prepaid expenses		212,000			194,000
Stock compensation		319,000			319,000
Intangible assets		28,000			28,000
Foreign net operating loss carry-forwards and credits		1,834,000			1,844,000
Federal and state credits		149,000			149,000
Other		5,000			5,000
Gross deferred tax assets		3,376,000			3,344,000
Valuation allowance		(1,983,000	)		(1,993,000	)
Net deferred tax assets		1,393,000			1,351,000
Deferred tax liabilities
Depreciation		(153,000	)		(153,000	)
Net deferred tax liability		(153,000	)		(153,000	)
Total net deferred tax asset	$	1,240,000		$	1,198,000

During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014. The Company amended prior year tax returns to claim these credits and offset prior year taxes paid. Credits not used to reduce taxes are available to be carried forward. At March 31, 2021, the Company has an estimated state research and development credit carryforward related to the E&S Segment of approximately $210,000.

| 12 |

| --- |

Changes in the Company’s uncertain tax positions are summarized as follows:

	March 31		December 31
	2021		2020
Uncertain tax positions – Beginning Balance	$	100,000	$	86,000
Gross increases - current period tax positions		–		14,000
Uncertain tax positions – Ending Balance	$	100,000	$	100,000

Included in the balance of uncertain tax positions at March 31, 2021 are $100,000 of tax benefits that if recognized would affect the tax rate, respectively. The Company’s unrecognized tax benefits will be reduced by $0 in the next twelve months due to statute of limitations expirations. There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included no accruals for interest and penalties at March 31, 2021.

NOTE 9 – MAJOR CUSTOMERS AND CONCENTRATION

The customers representing more than 10% of net sales of the E&S Segment is as follows:

	Three Months Ended March 31
	2021		2020
Customer A		30%		26%
Customer B		14%		19%
Customer C		10%		11%

The customer receivables representing more than 10% of accounts receivables of the E&S Segment were as follows:

	March 31		December 31
	2021		2020
Customer A		32%		17%
Customer B		18%		30%
Customer C		12%		14%
Customer D		4%		13%

NOTE 10 – RELATED PARTY TRANSACTIONS AND EXPENSE ALLOCATION

The E&S Segment has received certain management and administrative services from CSI (referred to as “shared services”) including, but not limited to, accounting and finance, information technology, human resources, and building space for office use and use in operations. The operating costs and expenses associated with these services have been allocated to the E&S Segment on the basis of direct usage when identifiable, with the remainder allocated pro rata based on employee headcount, facility space occupied, or revenue, as applicable. The E&S Segment recognized allocations for shared services for the three months ended March 31, 2021 and 2020 all of which are included in the unaudited condensed combined carve-out statements of operations as follows:

| 13 |

| --- | | | Three Months Ended March 31 | | | | | --- | --- | --- | --- | --- | | | 2021 | | 2020 | | | Cost of sales | $ | 96,000 | $ | 100,000 | | Selling, general and administrative expenses | | 752,000 | | 603,000 | | Total operating expenses | $ | 848,000 | $ | 703,000 |

Additionally, CSI primarily uses a centralized approach to cash management and financing of its operations with related activity between the E&S Segment and CSI reflected in “Net Investment in Electronics & Software” within the unaudited condensed combined carve-out balance sheets. These transactions include (a) cash deposits from customer payments and other cash receipts that are transferred to CSI on a regular basis, (b) cash contributions from CSI to the E&S Segment, and (c) allocation of CSI’s shared services. Cash and cash equivalents of $251,000 and $303,000 as of March 31, 2021 and December 31, 2020, respectively, reflects cash that remained outside of the centralized cash management program.

NOTE 11 – SUBSEQUENT EVENTS

| 14 |

| --- |

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIALINFORMATION

The following unaudited pro forma condensed combined financial information is based upon the historical financial statements of Lantronix, Inc. (“Lantronix”), after giving effect to the acquisition of (i) the Transition Networks and Net2Edge businesses of Communication Systems, Inc. (collectively, the “Electronics & Software Segment” or “E&S Segment”), which was closed on August 2, 2021, and (ii) Intrinsyc Technologies Corporation (“Intrinsyc”), which was closed on January 16, 2020. The unaudited pro forma condensed combined financial information also gives effect to the transactions undertaken to finance the acquisition of the E&S Segment.

The unaudited pro forma condensed combined balance sheet as of March 31, 2021, combines the historical balance sheets of Lantronix and the E&S Segment, giving effect to the acquisition of the E&S Segment as if it had been completed on March 31, 2021. Since the Intrinsyc acquisition occurred on January 16, 2020, Lantronix’s historical balance sheet includes the effects of that acquisition and no pro forma adjustment was necessary to present the unaudited pro forma condensed combined balance sheet.

The unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2021 gives effect to the acquisition of the E&S Segment and the related financing transactions, as if they had each occurred on July 1, 2020. This information includes Lantronix’s unaudited condensed consolidated statement of operations for the nine months ended March 31, 2021, combined with the E&S Segment’s unaudited combined statements of operations for the twelve months ended December 31, 2020 and three months ended March 31, 2021 and subtracting the unaudited combined statements of operations for the six months ended June 30, 2020. The Lantronix consolidated statement of operations for the nine months ended March 31, 2021 includes the full impact of the Intrinsyc operations as the acquisition of Intrinsyc closed on January 16, 2020.

The following unaudited pro forma condensed combined financial information and related notes present the historical financial information of Lantronix, the E&S Segment and Intrinsyc adjusted to give pro forma effect to events that are (1) directly attributable to the acquisitions, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by Lantronix with the Securities and Exchange Commission.

The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisitions had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments represent Lantronix’s management’s best estimate and are based upon currently available information and certain assumptions that Lantronix believes are reasonable under the circumstances. The final valuation may materially change the allocation of the purchase consideration, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information. Refer to footnote 1 to the unaudited pro forma condensed combined financial information for more information on the basis of preparation.

| 1 |

| --- |

UNAUDITED PRO FORMA CONDENSED COMBINEDBALANCE SHEET

AS OF MARCH 31, 2021

(In thousands)

	Lantronix			E&S Segment			Pro Forma Debt						Pro Forma
	Historical			Historical			Financing			Adjustments			Combined
Assets
Current assets:
Cash and cash equivalents	$	8,277		$	251		$	29,500	(i)	$	(799	)(g)	$	8,669
								(4,050	)(j)		(24,510	)(f)
Accounts receivable, net		11,623			5,509			–			–			17,132
Inventories		15,079			8,090			–			431	(b)		23,600
Contract manufacturers' receivables		1,258			–			–			–			1,258
Prepaid expenses and other current assets		2,337			450			–			–			2,787
Total current assets		38,574			14,300			25,450			(24,878	)		53,446
Property and equipment, net		1,442			161			–			–			1,603
Goodwill		15,810			–			–			2,269	(e)		18,079
Purchased intangible assets, net		9,934			–			–			11,495	(c)		21,429
Lease right-of-use assets		2,266			109			–			–			2,375
Other assets		243			1,240			–			(1,240	)(d)		243
Total assets	$	68,269		$	15,810		$	25,450		$	(12,354	)	$	97,175
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,791		$	2,020		$	–		$	–		$	8,811
Accrued payroll and related expenses		2,427			970			–			–			3,397
Short-term debt, net		1,472			–			2,950	(i)		–			2,950
								(1,472	)(j)
Other current liabilities		8,033			2,637			–			(1,379	)(d)		9,291
Total current liabilities		18,723			5,627			1,478			(1,379	)		24,449
Long-term debt, net		2,578			–			26,550	(i)					26,550
								(2,578	)(j)
Other non-current liabilities		1,061			107			–			(100	)(d)		1,068
Total liabilities		22,362			5,734			25,450			(1,479	)		52,067
Commitments and contingencies
Stockholders' equity:
Common stock		3			–			–			–			3
Additional paid-in capital		248,600			–			–			–			248,600
Retained earnings (accumulated deficit)		(203,067	)		10,755			–			(10,755	)(h)		(203,866	)
											(799	)(g)
Accumulated other comprehensive income (loss)		371			(679	)		–			679	(h)		371
Total stockholders' equity		45,907			10,076			–			(10,875	)		45,108
Total liabilities and stockholders' equity	$	68,269		$	15,810		$	25,450		$	(12,354	)	$	97,175

See accompanying notes.

| 2 |

| --- |

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTOF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2020

(In thousands, except per share data)

	****		****	****		Intrinsyc		****	E&S		Pro Forma		****	E&S Segment		****	****
	Lantronix		****	Intrinsyc		Pro Forma		****	Segment		Debt		****	Pro Forma		****	Pro Forma
	Historical		****	Historical		Adjustments		****	Historical		Financing		****	Adjustments		****	Combined
Net revenue	$	59,878		$	11,652	$	–		$	44,603	$	–		$	–		$	116,133
Cost of revenue		32,978			7,847		–			24,475		–			–			65,300
Gross profit		26,900			3,805		–			20,128		–			–			50,833
Operating expenses:
Selling, general and administrative		19,582			3,015		–			11,293		–			–			33,890
Research and development		9,691			620		–			4,898		–			–			15,209
Restructuring, severance and related charges		3,844			–		–			–		–			–			3,844
Acquisition-related costs		2,284			–		–			–		–			–			2,284
Amortization of purchased intangible assets		2,037			–		1,618	(p)		–		–			4,801	(c)		8,456
Total operating expenses		37,438			3,635		1,618			16,191		–			4,801			63,683
Loss from operations		(10,538	)		170		(1,618	)		3,937		–			(4,801	)		(12,850	)
Interest income (expense), net		(133	)		210		–			–		(870	)(k)		–			(1,893	)
												(1,233	)(l)
												133	(m)
Other income, net		77			–		–			–		–			–			77
Loss before income taxes		(10,594	)		380		(1,618	)		3,937		(1,970	)		(4,801	)		(14,666	)
Provision for income taxes		144			34		–			–		–			–	(n)		178
Net (loss) income	$	(10,738	)	$	346	$	(1,618	)	$	3,937	$	(1,970	)	$	(4,801	)	$	(14,844	)
Net loss per share - basic and diluted	$	(0.42	)														$	(0.59	)
Weighted-average common shares - basic and diluted		25,281																25,281

See accompanying notes.

| 3 |

| --- |

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTOF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 2021

(In thousands, except per share data)

	Lantronix			E&S Segment			Pro Forma Debt			Pro Forma			Pro Forma
	Historical			Historical			Financing			Acquisition			Combined
Net revenue	$	50,839		$	26,037		$	–		$	–		$	76,876
Cost of revenue		27,886			14,389			–			–			42,275
Gross profit		22,953			11,648			–			–			34,601
Operating expenses:
Selling, general and administrative		14,747			6,575			–			–			21,322
Research and development		7,540			3,372			–			–			10,912
Restructuring, severance and related charges		349			–			–			–			349
Acquisition-related costs		178			–			–			(178	)(o)		–
Amortization of purchased intangible assets		2,515			–			–			2,123	(c)		4,638
Total operating expenses		25,329			9,947			–			1,945			37,221
Loss from operations		(2,376	)		1,701			–			(1,945	)		(2,620	)
Interest expense, net		(244	)		–			(601	)(k)		–			(1,447	)
								(846	)(l)
								244	(m)
Other expense, net		(224	)		(10	)		–			–			(234	)
(Loss) income before income taxes		(2,844	)		1,691			(1,203	)		(1,945	)		(4,301	)
Provision for income taxes		145			–			–			–	(n)		145
Net (loss) income	$	(2,989	)	$	1,691		$	(1,203	)	$	(1,945	)	$	(4,446	)
Net loss per share - basic and diluted	$	(0.10	)										$	(0.16	)
Weighted-average common shares - basic and diluted		28,617												28,617

See accompanying notes.

| 4 |

| --- |

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINEDFINANCIAL INFORMATION

1.	Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with Lantronix (the “Company”) being the accounting acquirer, and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and was based on the historical consolidated financial statements of Lantronix, the E&S Segment and Intrinsyc.

Under ASC Topic 805, all the assets acquired and liabilities assumed in a business combination are recognized at their assumed acquisition-date fair value, while acquisition-related costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

The allocation of the purchase consideration depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information. Fair value of the E&S Segment’s identifiable intangible assets and the estimated amortization periods are based primarily on preliminary information and assumptions likely will change, as Lantronix completes a valuation of the E&S Segment’s identifiable assets.

A final determination of fair values of assets acquired and liabilities assumed could differ materially from the preliminary allocation of purchase consideration. This final valuation will be based on the actual net tangible and intangible assets of the business acquired existing as of the assumed closing date. The final valuation may materially change the allocation of purchase consideration, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information.

The pro forma adjustments represent Lantronix management’s best estimate and are based upon currently available information and certain assumptions that Lantronix believes are reasonable under the circumstances. Lantronix is not aware of any material transactions between Lantronix and the E&S Segment during the periods presented; hence adjustments have not been reflected in the unaudited pro forma condensed combined financial information for any such transaction.

After consummation of the combination with the E&S Segment, Lantronix is performing a comprehensive review of the E&S Segment’s accounting policies. As a result of the review, Lantronix may identify differences between the accounting policies of the two companies which, when conformed, could have a material impact on the combined financial statements. Based on its initial analysis, Lantronix is not aware of any differences that would have a material impact on the combined financial statements.

2.	Financing Transactions<br><br> <br>****

In connection with the acquisition of the E&S Segment, on August 2, 2021 (the “Close Date”), Lantronix entered into (a) a Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”), pursuant to which SVB shall fund up to $20,000,000 in senior secured credit facilities (the “Senior Credit Facilities”), consisting of a term loan facility of $17,500,000 that was funded on the Close Date and a revolving credit facility of up to $2,500,000, and (b) the Mezzanine Loan and Security Agreement with SVB Innovation Credit Fund VIII, L.P. (“Lender”), pursuant to which Lender funded a $12,000,000 term loan facility (the “Mezzanine Credit Facility”). The proceeds of the Senior Credit Facilities were used to refinance the Company’s outstanding obligations owing to SVB under its existing Second Amended and Restated Loan and Security Agreement dated November 12, 2019, and the remaining proceeds of the Senior Credit Facilities and the proceeds from the Mezzanine Credit Facility were used to fund the purchase price of the E&S Segment, to pay related fees and expenses, and are available for working capital and general corporate purposes.

The Senior Credit Facilities mature on August 2, 2025 and the Mezzanine Credit Facility matures on February 2, 2026. Advances under the Senior Credit Facilities bear interest at LIBOR or the Prime Rate, at the option of the Company, plus a margin that ranges from 3.00% to 4.00% in the case of LIBOR and 1.50% to 2.50% in the case of the Prime Rate, depending on the total leverage of the Company with a LIBOR floor of 0.50% and a Prime Rate floor of 3.25%. Advances under the Mezzanine Credit Facility bear interest at LIBOR or the Prime Rate, at the option of the Company, plus a margin of 9.00% with a floor of 1.00% in the case of LIBOR and a margin of 7.50% with a floor of 3.50% in the case of the Prime Rate.

| 5 |

---
---	---

The total estimated consideration as shown in the table below is allocated to the E&S Segment’s tangible and intangible assets and liabilities based on their preliminary estimated fair values as of the acquisition date (amounts in thousands):

Consideration:
Cash consideration paid at close of transaction	$	24,160
Estimated fair value of earnout consideration		350	(a)
Total purchase consideration	$	24,510
Preliminary allocation of consideration:
Book value of TN Companies net assets as of the pro<br> forma acquisition date	$	10,076
Adjustments to historical net book value:
Inventories		431	(b)
Identifiable intangible assets		11,495	(c)
Deferred income taxes and income taxes payable		239	(d)
Adjusted book value of TN Companies net assets as of the pro forma acquisition date	$	22,241
Adjustment to goodwill	$	2,269	(e)
(a)	Amount represents the estimated fair value of cash earnout consideration payable following two successive 180-day intervals after the Close Date based on certain revenue targets of the E&S Segment.
---	---
(b)	Amount represents the adjustment to state inventories acquired as of the pro forma acquisition date to estimated fair value, less cost to sell. After the acquisition, the step-up in inventory fair value will increase cost of sales as the inventory is sold. This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact.
---	---
(c)	The preliminary fair value and allocation of identifiable intangible assets and their estimated useful lives are as follows (dollar amounts in thousands):
---	---

					Amortization Expense Based on the Preliminary Allocation of Identifiable Intangible Assets
	Preliminary Estimated Asset Fair Value		Weighted Average Useful Life (Years)		Nine Months Ended March 31, 2021		Year Ended June 30, 2020		Annual Effect of a 10% Increase to the Preliminary Allocation		Annual Effect of a 10% Decrease to the Weighted Average Useful Life
Customer relationship	$	7,727		4.0	$	1,449	$	1,932	$	193	$	214
Developed technology		947		2.0		355		474		47		52
Order backlog		1,969		1.0		–		1,969		197		–
Trademarks and trade names		852		2.0		320		426		43		47
	$	11,495			$	2,123	$	4,801	$	480	$	313

Amortization related to the fair value of the finite-lived identifiable intangible assets has been reflected as pro forma adjustments to the unaudited pro forma condensed combined statements of operations. Lantronix made preliminary assumptions with respect to the fair value of the E&S Segment’s finite-lived identifiable intangible assets and the estimated amortization periods. These assumptions likely will change as Lantronix completes, with the assistance of a third-party appraiser, a valuation of the E&S Segment’s identifiable intangible assets.

| 6 |

| --- |

The amortization period for each finite-lived intangible asset is estimated based on analyses of the expected cash flows generated by each respective intangible asset. Complete analyses may take additional time to complete after the closing of the acquisition. Lantronix does not, on the date hereof, have sufficient information as to the amount, timing and risk of cash flows of all these intangible assets. Some of the more significant assumptions inherent in the development of intangible asset values and the amortization period estimates, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, sales and marketing expenses, and working capital/contributory asset charges), effect from the E&S Segment’s existing royalty and other arrangements, the discount rate selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s life cycle and the competitive trends impacting the asset, as well as other factors.

An increase or decrease of 10% of the preliminary estimated fair value of finite-lived identifiable intangible assets, or approximately $1.15 million, is reasonably possible. A fair value increase or decrease of this magnitude would also result in corresponding increase or decrease to goodwill.

(d)	Amount represents the removal of the E&S Segment’s deferred tax assets and income taxes payable recorded for stand-alone purposes, as these items are not assumed by Lantronix as part of the acquisition.
(e)	Goodwill is calculated as the difference between the assumed acquisition date fair value of the consideration to be paid and the estimated values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized and instead will be tested for impairment at least annually and whenever events or circumstances occur that may indicate a possible impairment. The factors that contributed to a purchase consideration resulting in the recognition of goodwill include Lantronix’s belief the acquisition will create a more diverse company with additional technologies that will enable the combined company to expand its product offerings and Lantronix’s belief that the combined company is committed to improving cost structures and combined efforts after the acquisition should result in a realization of cost savings and an improvement in overall efficiencies.
(f)	Amount reflects total consideration paid for the E&S Segment, including cash consideration as well as the estimated fair value of cash earnout consideration.
(g)	Amount represents payments of the estimated transaction costs for the acquisition of the E&S Segment.
(h)	Amount represents the elimination of the historical equity of the E&S Segment.
(i)	Amount represents the increase in cash and related debt obligations resulting from the execution of the Senior Credit Facilities and the Mezzanine Credit Facility
(j)	Amount represents the elimination of Lantronix’ historical term loan balance that was refinanced with the issuance of the Senior Credit Facilities.
(k)	Amount represents the net increase to interest expense resulting from interest on the Senior Credit Facilities, used to finance the acquisition of the E&S Segment and the amortization of related debt issuance costs.
(l)	Amount represents the net increase to interest expense resulting from interest on the Mezzanine Credit Facility, used to finance the acquisition of the E&S Segment and the amortization of related debt issuance costs.
(m)	Amount represents the net interest expense savings resulting from Lantronix’ historical term loan being refinanced with the issuance of the Senior Credit Facilities.
(n)	Due to valuation allowances on Lantronix’s net deferred tax assets, the unaudited pro forma condensed combined statement of operations does not reflect a statutory rate income tax adjustment for pro forma purposes.

| 7 |

| --- | | (o) | Amounts on the unaudited pro forma condensed combined statement of operations represent pro forma adjustments to reverse acquisition-related costs included in the historical financial statements of Lantronix, which are not expected to have a continuing impact on the combined results. Acquisition-related costs consist primarily of consulting, due diligence, and legal fees paid in connection with the acquisitions of the E&S Segment. | | --- | --- | | (p) | The preliminary fair value and allocation of identifiable intangible assets of Intrinsyc and their estimated useful lives are as follows (dollar amounts in thousands): | | --- | --- | | | | | | | Amortization Expense Based on the Preliminary Allocation of Identifiable Intangible Assets | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Preliminary Estimated Asset Fair Value | | Weighted Average Useful Life (Years) | | Six Months Ended December 31, 2019 | | Annual Effect of a 10% Increase to the Preliminary Allocation | | Annual Effect of a 10% Decrease to the Weighted Average Useful Life | | | Developed technology | $ | 2,367 | | 5.0 | $ | 237 | $ | 47 | $ | 53 | | Customer relationship | | 9,140 | | 6.0 | | 762 | | 152 | | 170 | | Order backlog | | 750 | | 1.2 | | 310 | | 62 | | 69 | | Non-compete agreements | | 380 | | 1.0 | | 190 | | 38 | | – | | Trademarks and trade names | | 240 | | 1.0 | | 120 | | 24 | | – | | | $ | 12,877 | | | $ | 1,618 | $ | 323 | $ | 292 |

| 8 |

| --- |