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Preliminary Proxy Statement
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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LANTRONIX, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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§
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A very challenging financial situation. During the period of 2003 through 2007, the Company experienced continuous GAAP and non-GAAP losses, aggregating $75 million and $35 million during that period, respectively. The Company was consistently operating on a negative cash flow basis with limited liquidity reserves and options.
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§
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An entire generation of Company products developed after 2003 and under Mr. Nussbaum’s tenure as CEO were not well received in the marketplace and essentially failed. Consequently, very limited revenue has been and is being derived from products that were developed during Mr. Nussbaum’s four year period as CEO.
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A management team in disarray and lacking a unified strategic vision.
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An adverse macro economic climate. The US market and worldwide economy experienced a significant downturn and recession soon after Mr. Chase began his tenure.
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Stabilized financial operations. The Company has significantly reduced operating expenses and increased gross margins to reduce the breakeven threshold of quarterly revenues for non-GAAP purposes from approximately $14 million to approximately $10 million. This resulted in significantly improved cash flow and liquidity for the Company which were critical measures to perform successfully during very challenging economic times.
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§
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Significantly upgraded the Company’s product offerings. Beginning in mid-2008, the Company began a very aggressive next generation product development effort which resulted in the recent introduction of exciting new products including XPort Pro, Spider Duo, EDS-1100/2100 and ManageLinx as a feature. These products were introduced beginning in 2009 and, based upon very positive customer feedback to date, the Company believes strongly that these products will result in the critically important successful regeneration of the Company’s aging product line.
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§
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Strengthened management team and refined Company strategic focus. Led by Mr. Chase, the Company has significantly upgraded the expertise and strength of the management team and critical core functions within the Company. By way of example, the Company has upgraded and replaced its entire marketing department and 70% of its sales force during Mr. Chase’s tenure. In March 2010, led by management and unanimously supported by the Board, the Company began implementing a very promising strategic focus directed at the medical market and medical device connectivity.
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·
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Lantronix revenues declined by 20% from $57.6 million in FY 2008 to $46.4 million in FY 2010 and are currently at below fiscal 2001 levels (FY 2001 revenues were $49.0 million), whereas most of Lantronix competitors, including Digi, Moxa, Advantech, Ruggedcom and Westermo, have returned to pre-recession levels or higher.
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The company has yet to achieve profitability. In the last fiscal year alone, GAAP net loss in FY 2010 was $(1.5) million, an increase by 95% over the past year when the GAAP net loss was ($780,000).
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When adjusted for splits, the trading price is at below FY 2003 levels (6/30/2003 adjusted closing price $4.44) and in the last year alone, the trading price has declined by 8% from $3.90 to $3.60 (9/10/2009 adjusted closing price vs. 9/2/2010 adjusted closing price; 9/10/2009 represents the FY 2009 earnings call and 9/2/2010 the FY 2010 earnings call). Since the announcement of Mr. Chase’s appointment as CEO, the stock valuation has declined more than 25% from $4.98 (2/19/2008 adjusted closing price) to $3.60 (9/2/2010 closing price).
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Mr. Chase’s base compensation has increased by more than 25% (FY 2008 adjusted for full year $279,139 vs. FY 2009 reported compensation of $348,410).
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Replace Mr. Chase with a qualified leader with the vision to develop and execute a growth strategy that will deliver value and liquidity to shareholders. What we need is a general who can envision and implement a battle plan to succeed in the market and create value -- not a transport plane pilot working through checklists.
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Not provide Mr. Chase severance with any additional benefits in connection with his termination beyond those set forth in his employment agreement. We do not believe a CEO should benefit for not delivering results.
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Suspend any further increases in C-level executive compensation (in the form of base pay, bonuses and stock and stock option awards, etc.) until the company and its leadership begin to create positive value for shareholders.
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