Orange County Business Journal

CEO, CFO of Lantronix Step Down

Michael Lyster Monday, June 27, 2011

The chief executive and chief financial officer of Irvine networking gear maker Lantronix Inc. have stepped down over protracted tensions stemming from a board battle last year.

Chief Executive Jerry Chase and financial chief Reagan Sakai stepped down over issues raised by the company’s largest shareholder.

Both are staying on for a short time as consultants to help with a transition.

Larry Sanders, Lantronix’s former chairman, is serving as interim chief executive.

Lantronix makes small electronic devices that allow vending machines, thermostats, retail terminals, ATMs and other machines to be accessed via the Internet or other computers.

For the nine months through March, Lantronix had sales of $37.3 million, up 8% from a year earlier. The company lost $1.7 million, versus a loss of $1 million a year earlier.

Lantronix has a market value of about $30 million.

The management shift comes after a board battle last year waged by Bernhard Bruscha, a Lantronix director, cofounder and the company’s largest shareholder.

Bruscha’s TL Investment GMBH, based in Germany, owns 38% of Lantronix.

Last fall, Bruscha pushed for the ouster of Chase and the company's former chairman Lewis Solomon, arguing the company’s management and directors had presided over “lackluster” results and had a “lack of vision.”

In November, Bruscha dropped his challenge in exchange for the company’s backing of him and another candidate for seats on its board.

The settlement avoided a proxy battle but didn’t resolve tensions between Bruscha, Chase and others.

In February, Bruscha alleged improper approval of travel expenses for a former board member by Chase and Sakai.

He also charged that stock options grants made to Chase and Sakai conflicted with company rules.

The company’s audit committee oversaw a look into the charges and found conflicts with company policy.

Chase, in a resignation letter, said he disagreed with the findings and called the probe “flawed and unfair.”

Costs related to the probe could cause the company to be out of compliance with the terms of a finance deal with Silicon Valley Bank, according to Lantronix.

Without a waiver from Silicon Valley Bank, Lantronix could be forced to immediately pay back $1.5 million owed on a loan, the company said.

The management shift is the latest episode in Lantronix’s sometimes rocky history.

A decade ago, Lantronix restated revenue for 18 months covering 2000 and 2001, eliminating about $7.4 million in sales.

A 2001 accounting error stemmed from recorded shipments to German distributor Transtec AG.

The products later were returned to Lantronix after the company completed a stock sale.

Bruscha was a director at the time and also controls Transtec, where he’s chairman.

He was part of a Securities and Exchange Commission investigation into the transaction.

Bruscha wasn’t found to have committed wrongdoing.