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Note 9 - Equity Compensation | 12 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | NOTE 9 — EQUITY COMPENSATION The Company’s equity compensation plan is the 2012 Stock Incentive Plan (“the Plan”), was approved by shareholders in November 2012, and amended in November 2016. The Plan covers all of the Company’s full-time employees, independent directors and certain advisors. The Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and other stock-based awards. All stock-based awards are granted at fair market value at the date of grant. The number of shares reserved for issuance under the Plan is 1,967,217 shares all of which are available for future grant or award as of June 30, 2019. The Plan contains a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The Company has made time-based and performance-based stock option awards. Options generally have a three or four year ratable vesting period beginning one year after the date of grant. The maximum exercise period of service-based and performance-based stock options granted under the Plan is ten years. Inducement stock option agreements are granted by the Company to attract and retain key executives. Inducement stock options are separately registered securities and are not part of the Plan. Some options granted have a three -year ratable vesting period whereas other options vest upon specific performance of the Company’s stock. All Inducement stock options have a term of ten years only if the employee is employed for three years from the date of grant. In fiscal 2019, 550,000 Inducement stock options were granted. The Company has also granted Restricted Stock Units (RSUs) under the Plan. RSUs ratably vest over a three or four year period beginning one year after the date of award. The Company has also granted Performance Stock Units (PSUs) that vest if the Company meets certain financial metrics over a three year period. Stock Warrants The Company has outstanding 200,000 fully exercisable stock warrants with an exercise price of $9.95 as of June 30, 2019. As of June 30, 2019, the warrants had a remaining contractual life of 2.7 years. The fair value of the warrants on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for the warrants. The stock warrants have a fair value of $2.87.
|  | February 21, |
|  | 2017 |
Dividend yield |  |  | 2.01 | %
Expected volatility |  |  | 39 | %
Risk-free interest rate |  |  | 1.80 | %
Expected life (in years) |  |  | 4.5 |
Stock Options The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for grants in the periods indicated.
|  | 2019 |  |  | 2018 |
Dividend yield |  |  | 4.6 | % |  |  | 3.3 | %
Expected volatility |  |  | 42 | % |  |  | 41 | %
Risk-free interest rate |  |  | 2.8 | % |  |  | 1.8 | %
Expected life (in years) |  |  | 4.9 |  |  |  | 6.0 |
At June 30, 2019, the 972,900 service-based and Inducement stock options granted during fiscal 2019 to employees had exercise prices ranging from $3.18 to $4.94 per share, fair values ranging from $0.72 to $2.10 per share, and remaining contractual lives of between 9 years and 10 years. At June 30, 2018, the 794,537 options granted during fiscal 2018 to employees had exercise prices ranging from $5.92 to $6.54 per share, fair values ranging from $1.71 to $1.96 per share, and remaining contractual lives of between 9 years and 10 years. The performance metric for the 345,560 performance-based stock options granted in fiscal 2018 was not achieved; therefore, these stock options were forfeited in fiscal 2018. The Company calculates stock option expense using the Black-Scholes model. Stock option expense is recorded on a straight-line basis, or sooner if the grantee is retirement eligible as defined in the Plan, with an estimated 14.86% forfeiture rate effective April 1, 2019. Previous estimated forfeiture rates were between 2.00% and 8.79% between the periods January 1, 2013 through March 31, 2019. The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a five year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued. The Company recorded $876,333 and $2,147,423 of expense related to stock options in fiscal years 2019 and 2018, respectively. Information related to all stock options for the years ended June 30, 2019 and June 30, 2018 is shown in the following tables:
|  | June 30, 201 9 |
|  |  |  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  | Weighted |  | Average |  |  |  |
|  |  |  |  |  | Average |  | Remaining |  | Aggregate |
|  |  |  |  |  | Exercise |  | Contractual Term |  | Intrinsic |
|  | Shares |  |  | Price |  | (in years) |  | Value |
Outstanding at 6/30/18 |  |  | 3,298,677 |  |  | $ | 8.06 |  | 7.0 |  | $ | 8,037 |
Granted |  |  | 972,900 |  |  | $ | 4.57 |  |  |  |  |  |
Exercised |  |  | -- |  |  | $ | -- |  |  |  |  |  |
Forfeited |  |  | (1,406,548 | ) |  | $ | 7.21 |  |  |  |  |  |
Expired |  |  | (115,403 | ) |  | $ | 9.12 |  |  |  |  |  |
Outstanding at 6/30/19 |  |  | 2,749,626 |  |  | $ | 7.23 |  | 6.8 |  | $ | 23,500 |
Exercisable at 6/30/19 |  |  | 1,733,471 |  |  | $ | 8.33 |  | 5.6 |  | $ | -- |
|  | Ended June 30, 2018 |
|  |  |  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  | Weighted |  | Average |  |  |  |
|  |  |  |  |  | Average |  | Remaining |  | Aggregate |
|  |  |  |  |  | Exercise |  | Contractual Term |  | Intrinsic |
|  | Shares |  |  | Price |  | (in years) |  | Value |
Outstanding at 6/30/17 |  |  | 3,119,688 |  |  | $ | 9.12 |  | 7.4 |  | $ | 2,332,324 |
Granted |  |  | 794,537 |  |  | $ | 5.98 |  |  |  |  |  |
Exercised |  |  | (42,939 | ) |  | $ | 6.66 |  |  |  |  |  |
Forfeited |  |  | (467,609 | ) |  | $ | 9.11 |  |  |  |  |  |
Expired |  |  | (105,000 | ) |  | $ | 19.62 |  |  |  |  |  |
Outstanding at 6/30/18 |  |  | 3,298,677 |  |  | $ | 8.06 |  | 7.0 |  | $ | 8,037 |
Exercisable at 6/30/18 |  |  | 1,824,552 |  |  | $ | 8.22 |  | 5.8 |  | $ | 39,011 |
The following table presents information related to unvested stock options:
|  |  |  |  |  | Weighted-Average |
|  |  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Unvested at June 30, 2018 |  |  | 1,474,125 |  |  | $ | 2.65 |
Granted |  |  | 972,900 |  |  | $ | 1.48 |
Vested |  |  | (786,536 | ) |  | $ | 2.91 |
Forfeited |  |  | (644,334 | ) |  | $ | 1.93 |
Unvested at June 30, 2019 |  |  | 1,016,155 |  |  | $ | 1.79 |
The weighted average grant date fair value of options granted during fiscal years 2019 and 2018 was $1.48 per share and $1.73 per share, respectively. The aggregate intrinsic value of options exercised during the years ended June 30, 2019 and June 30, 2018 $0 and $39,011, respectively. The aggregate grant date fair value of options that vested during fiscal 2019 and 2018 was $2,287,386 and $3,192,672, respectively. There were no exercises of stock options in fiscal 2019. The Company received $285,875 of cash from employees who exercised options in fiscal year 2018. For fiscal year 2019, the Company recognized a current income tax benefit of $116,785 for tax deductions related to equity compensation. A discrete tax expense of $282,785 was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions. For fiscal year 2018, exercised options resulted in an income tax benefit of $116,602. Pursuant to the implementation of ASU 2016 - 09, the Company recognized a discrete tax expense of $292,000 to reduce deferred tax assets for cancelled awards and for detriments compared to the current year tax deduction. A discrete tax benefit of $10,767 was recognized for disqualifying dispositions of incentive stock options. Restricted Stock Units There were no Restricted Stock Options (RSUs) awarded to employees during fiscal 2019. A total of 91,490 RSUs with a weighted average fair value of $5.92 per share were awarded to employees during the twelve months ended June 30, 2018. The service-based RSUs awarded during fiscal 2017 and in prior fiscal years have a four year ratable vesting period beginning one year after the date of award. RSUs awarded during fiscal 2018 have a three year ratable vesting period. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSUs were awarded. The RSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of $16,848 and $50,621 were accrued as of June 30, 2019 and 2018, respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares. The following table presents information related to RSUs:
|  |  |  |  |  | Weighted-Average |
|  |  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Unvested at June 30, 2018 |  |  | 169,397 |  |  | $ | 8.03 |
Granted |  |  | -- |  |  | $ | -- |
Vested |  |  | (113,523 | ) |  | $ | 8.14 |
Forfeited |  |  | (22,832 | ) |  | $ | 7.91 |
Unvested at June 30, 2019 |  |  | 33,042 |  |  | $ | 7.72 |
The Company recorded $40,893 of expense related to RSUs during fiscal year 2019. As of June 30, 2019, the 33,042 RSUs outstanding have a weighted average remaining contractual life of 3.5 years. Of the 33,042 RSUs outstanding as of June 30, 2019, 32,429 RSUs are vested or expected to vest in the future. The approximate unvested stock compensation expense that will be recorded as expense in future periods for RSU’s is $45,683. The weighted average time over which this expense will be recorded is approximately 13 months. An estimated forfeiture rate of 8.3% was used in the calculation of expense related to the RSUs. Performance Stock Units A total of 134,350 Performance Stock Units (PSUs) with a weighted average fair value of $4.94 per share were awarded to employees during fiscal 2019 and no PSUs were awarded to employees during the twelve months ended June 30, 2018. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs were awarded. The PSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on PSUs in the amount of $11,310 and $0 were accrued as of June 30, 2019 and 2018, respectively. Accrued dividends are paid to the holder upon vesting of the PSUs and issuance of shares. The following table presents information related to PSUs:
|  |  |  |  |  | Weighted-Average |
|  |  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Unvested at June 30, 2018 |  |  | -- |  |  | $ | -- |
Granted |  |  | 134,350 |  |  | $ | 4.94 |
Vested |  |  | -- |  |  | $ | -- |
Forfeited |  |  | (77,800 | ) |  | $ | 4.94 |
Unvested at June 30, 2019 |  |  | 56,550 |  |  | $ | 4.94 |
The Company recorded $62,474 of expense related to PSUs during fiscal year 2019. As of June 30, 2019, the 56,550 PSUs outstanding have a weighted average remaining contractual life of 2.1 years. Of the 56,550 PSUs outstanding as of June 30, 2019, 43,451 PSUs are vested or expected to vest in the future. The approximate unvested stock compensation expense that will be recorded as expense in future periods for PSU’s is $152,172. The weighted average time over which this expense will be recorded is approximately 25 months. An estimated forfeiture rate of 11.7% was used in the calculation of expense related to the PSUs. Director and Employee Stock Compensation Awards The Company awarded a total of 104,020 and 41,388 common shares as stock compensation awards in fiscal years 2019 and 2018, respectively. These common shares were valued at their approximate $374,000 and $312,000 fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company. Deferred Compensation Plan The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of June 30, 2019, there were 32 participants, all with fully vested account balances. A total of 208,965 common shares with a cost of $1,468,161, and 241,996 common shares with a cost of $2,110,248 were held in the plan as of June 30, 2019 and 2018, respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this plan is the net result of purchases of shares on the open stock market or newly issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued 74,721 and 67,138 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2019 and during fiscal 2018, respectively. The Company used $106,537 to purchase 15,225 common shares of the Company in the open stock market during fiscal year 2018. The Company’s non-qualified deferred compensation is no longer funded by purchases in the open market of LSI stock as of September 30, 2017. This plan is now solely funded by newly issued shares that are authorized from the Plan.

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