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Compensatory Equity Incentive Plan and Other Equity Incentives

6 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Compensatory Equity Incentive Plan and Other Equity Incentives

9. Compensatory Equity Incentive Plan and Other Equity Incentives

Share-Based Compensation Arrangements. The Omnibus Plan provides several available forms of stock compensation, including incentive stock options and restricted stock unit (“RSU”) awards. Stock-based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model. Most options granted under the Omnibus Plan vest ratably over two to four years and generally have ten-year contract lives. The volatility rate is based on four-year historical trends in common stock closing prices and the expected term was determined based primarily on historical experience of previously outstanding options. The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting targets for option grants that are performance based are evaluated each quarter. If it is determined that meeting the targets is probable, then the compensation expense will be amortized over the remaining vesting period.

The LightPath Technologies, Inc. Employee Stock Purchase Plan (“2014 ESPP”) was adopted by our Board of Directors on October 30, 2014 and approved by our stockholders on January 29, 2015. The 2014 ESPP permits employees to purchase shares of our Class A common stock through payroll deductions, which may not exceed 15% of an employee’s compensation, at a price not less than 85% of the market value of our Class A common stock on specified dates (June 30 and December 31). In no event can any participant purchase more than $25,000 worth of shares of Class A common stock in any calendar year and an employee cannot purchase more than 8,000 shares on any purchase date within an offering period of 12 months and 4,000 shares on any purchase date within an offering period of six months. A discount of $1,915 and $943 for the six months ended December 31, 2017 and 2016, respectively, is included in the selling, general and administrative expense in the accompanying consolidated statements of comprehensive income, which represents the value of the 10% discount given to the employees purchasing stock under the 2014 ESPP.

These plans are summarized below:

		Award Shares				Award Shares Outstanding at December 31,				Available for Issuance at December 31,
Equity Compensation Arrangement		Authorized				2017				2017
Omnibus Plan			5,115,625				2,724,388				1,664,870
2014 ESPP			400,000				—				370,895
			5,515,625				2,724,388				2,035,765

Grant Date Fair Values and Underlying Assumptions; Contractual Terms. We estimate the fair value of each stock option as of the date of grant. We use the Black-Scholes-Merton pricing model. The 2014 ESPP fair value is the amount of the discount the employee obtains at the date of the purchase transaction.

For stock options granted under the Omnibus Plan in the six month periods ended December 31, 2017 and 2016, we estimated the fair value of each stock option as of the date of grant using the following assumptions:

	Six months ended December 31,
	2017	2016
Weighted average expected volatility	63% - 75%	80% - 82%
Dividend yields	0%	0%
Weighted average risk-free interest rate	1.28% - 1.80%	1.185% - 1.19%
Weighted average expected term, in years	7.25	7.49

Most options granted under the Omnibus Plan vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in calculating the fair value of RSU grants was 0%, and the assumed forfeiture rates used in calculating the fair value of options for performance and service conditions were 20% for each of the six months ended December 31, 2017 and 2016. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures. The interest rate used is the U.S. Treasury interest rate for constant maturities.

Information Regarding Current Share-Based Compensation Awards. A summary of the activity for share-based compensation awards under the Omnibus Plan in the six months ended December 31, 2017 is presented below:

			Stock Options												Restricted Stock Units (RSUs)
			Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contract				Shares				Weighted- Average Remaining Contract
June 30, 2017			1,096,186			$	1.68				6.3				1,508,782				0.9

Granted			48,849			$	4.24				—				140,571				—
Exercised			(46,250	)		$	2.24				—				—				—
Cancelled/Forfeited			(23,750	)		$	3.10				—				—				—
December 31, 2017			1,075,035			$	1.74				6.4				1,649,353				0.9

Awards exercisable/vested as of
December 31, 2017			860,491			$	1.62				5.8				1,287,370				—

Awards unexercisable/unvested as of
December 31, 2017			214,544			$	2.22				8.7				361,983				0.9
			1,075,035												1,649,353

The total intrinsic value of options outstanding and exercisable at December 31, 2017 and 2016 was approximately $574,000 and $95,000, respectively.

No RSUs were exercised during the six months ended December 31, 2017 and 2016.

The total intrinsic value of RSUs outstanding and exercisable at December 31, 2017 and 2016 was approximately $2.9 million and $1.7 million, respectively.

The total fair value of RSUs vested during the six months ended December 31, 2017 and 2016 was approximately $320,000 and $333,000, respectively.

The total fair value of option shares vested during the six months ended December 31, 2017 and 2016 was approximately $89,000 and $306,000 respectively.

As of December 31, 2017, there was approximately $749,296 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share options and RSUs) granted under the Omnibus Plan. We expect to recognize the compensation cost as follows:

		Stock
		Options				RSUs				Total
Six months ending June 30, 2018			29,982				249,946				279,928

Year ending June 30, 2019			18,083				264,982				283,065

Year ending June 30, 2020			4,276				149,944				154,220

Year ending June 30, 2021			2,105				29,978				32,083
		$	54,446			$	694,850			$	749,296

RSU awards vest immediately or from two to four years from the date of grant.

We issue new shares of Class A common stock upon the exercise of stock options. The following table is a summary of the number and weighted average grant date fair values regarding our unexercisable/unvested awards as of December 31, 2017 and changes during the six months then ended:

Unexercisable/unvested awards		Stock Options Shares				RSU Shares				Total Shares				Weighted-Average Grant Date Fair Values (per share)
June 30, 2017			244,511				438,912				683,423			$	1.39
Granted			48,849				140,571				189,420			$	3.69
Vested			(75,066	)			(217,500	)			(292,566	)		$	1.40
Cancelled/Forfeited			(3,750	)			—				(3,750	)		$	1.39
December 31, 2017			214,544				361,983				576,527			$	1.52

Financial Statement Effects and Presentation. The following table shows total stock-based compensation expense for the six months ended December 31, 2017 and 2016 included in the consolidated statements of comprehensive income:

		Six Months Ended December 31,
		2017				2016

Stock options		$	164,929			$	22,804
RSUs			21,280				188,197
Total		$	186,209			$	211,001

The amounts above were included in:
Selling, general & administrative		$	182,277			$	209,609
Cost of sales			3,206				796
New product development			726				596
		$	186,209			$	211,001