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Commitments and Contingencies

9 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

9.	Commitments and Contingencies

On February 23, 2024, a purported class action, brought on behalf of a putative class who purchased or otherwise acquired shares of Lantronix between May 11, 2023 and February 8, 2024, was filed in the United States District Court for the Central District of California against the Company, its former chief executive officer, and its chief financial officer. The action, styled Neilsen v. Lantronix, Inc., asserts securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with statements made in the Company’s annual report, quarterly reports and earnings releases during the period of May 11, 2023 through February 8, 2024. The court is in the process of appointing a Lead Plaintiff and Lead Counsel.

On April 11, 2024, a purported stockholder of Lantronix filed a derivative lawsuit styled Jernigan derivatively on behalf of Lantronix, Inc. v. Jason W. Cohenour et al., in the United States District Court for the Central District of California against the Company, as the nominal defendant, former and current directors of the Company, its former chief executive officer, and its chief financial officer, alleging breach of fiduciary duties, mismanagement, waste of corporate assets, unjust enrichment, aiding and abetting, insider trading and violations of Section 14(a) of the Exchange Act in connection with statements made in the Company’s annual and quarterly reports, earnings releases, and proxy statement beginning May 11, 2023. The plaintiff did not make a demand on the Board before instituting the lawsuit and alleged such demand would have been futile.

Because the outcomes of litigation and other legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control, our evaluation of legal matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of any unresolved matters and proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on our business, financial condition, operating results, or cash flows. In addition, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors.

We maintain insurance policies for settlements and judgments, as well as legal defense costs, for lawsuits such as those described above, although the amount of insurance coverage that we maintain may not be adequate to cover all claims or liabilities. In addition, provisions of the Company’s Certificate of Incorporation, Bylaws and indemnification agreements entered into with current and former directors and officers require us, among other things, to indemnify these directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers and to advance expenses to such directors or officers in connection therewith.