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7. Stockholders' Equity

12 Months Ended

Jun. 30, 2020

Equity [Abstract]

Stockholders' Equity

7. Stockholders’ Equity

Stock Incentive Plans

We have stock incentive plans in effect under which non-qualified and incentive stock options to purchase shares of Lantronix common stock (“stock options”) have been granted to employees, non-employees and board members. In addition, we have previously granted restricted common stock awards (“non-vested shares”) to employees and board members under these plans. Our current stock incentive program is governed by our Amended and Restated 2010 Stock Incentive Plan (as amended, the “2010 SIP”). Shares reserved for issuance under the 2010 SIP include rollover shares, which are any shares subject to equity compensation awards granted under our previous stock plan that expire or otherwise terminate without having been exercised in full or that are forfeited or repurchased by us by virtue of their failure to vest. A maximum of 2,100,000 of such shares are eligible for rollover. The 2010 SIP authorizes awards of stock options (both non-qualified and incentive), stock appreciation rights, non-vested shares, RSUs and performance shares. New shares are issued to satisfy stock option exercises and share issuances. At June 30, 2020, approximately 1,200,000 shares remain available for issuance under the 2010 SIP. We have also granted stock options and RSUs under individual inducement award agreements.

The Compensation Committee of our board of directors determines eligibility, vesting schedules and exercise prices for stock options and shares granted under the plans. Stock options are generally granted with an exercise price equal to the market price of our common stock on the grant date. Stock options generally have a contractual term of seven to ten years. Share-based awards generally vest and become exercisable over a one to four-year service period. As of June 30, 2020, no stock appreciation rights or non-vested stock was outstanding. No income tax benefit was realized from activity in the share-based plans during the fiscal years ended June 30, 2020 and 2019.

Stock Option Awards

The fair value of each stock option grant is estimated on the grant date using the Black-Scholes-Merton option-pricing formula. Expected volatilities are based on the historical volatility of our stock price. The expected term of stock options granted is estimated using the simplified method, as permitted by guidance issued by the Securities and Exchange Commission. We use the simplified method because we believe we are unable to rely on our limited historical exercise data or alternative information as a reasonable basis upon which to estimate the expected term of such options. The risk-free interest rate assumption is based on the U.S. Treasury interest rates appropriate for the expected term of our stock options.

The following weighted-average assumptions were used to estimate the fair value of all of our stock option grants:

		Years Ended June 30,
		2020				2019
Expected term (in years)			4.3				4.8
Expected volatility			65%				67%
Risk-free interest rate			1.56%				2.23%
Dividend yield			0.00%				0.00%

The following table presents a summary of activity for all of our stock options:

						Weighted-Average
						Exercise				Remaining				Aggregate
		Number of				Price				Contractual				Intrinsic
		Shares				Per Share				Term				Value
			(In thousands)								(In years)				(In thousands)
Balance of options oustanding at June 30, 2019			3,147			$	2.29
Options granted			249				3.34
Options forfeited			(181	)			2.35
Options expired			(84	)			2.18
Options exercised			(1,076	)			1.71
Balance of options outstanding at June 30, 2020			2,055			$	2.72				4.3			$	2,209
Options exercisable at June 30, 2020			1,339			$	2.35				3.7			$	1,908

The following table presents a summary of grant date fair value and intrinsic value information for all of our stock options:

			Years Ended June 30,
			2020				2019
				(In thousands, except per share data)
Weighted-average grant date fair value per share			$	1.90			$	2.15
Intrinsic value of options exercised			$	1,850			$	2,400

Employee Stock Purchase Plan

Our 2013 Employee Stock Purchase Plan (“ESPP”) is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions at the end of a specified purchase period. Each of our employees (including officers) is eligible to participate in our ESPP, subject to certain limitations as set forth in our ESPP. In November 2018, our stockholders approved an amendment to the ESPP to increase the number of shares of common stock reserved for issuance under the ESPP by 500,000 shares.

The ESPP currently operates with six month offering periods commencing on the first trading day on or after May 16 and November 16 of each year (an “Offering Period”). Common stock may be purchased under the ESPP at the end of each six-month Offering Period unless the participant withdraws or terminates employment earlier. Shares of the Company’s common stock may be purchased under the ESPP at a price not less than 85% of the lesser of the fair market value of our common stock on the first or last trading day of each Offering Period.

For purposes of measuring share-based compensation expense and calculating net income (loss) per share, we account for common stock purchase rights granted under the ESPP in the same manner as our other shared-based awards.

The per share fair value of stock purchase rights granted under the ESPP was estimated using the following weighted-average assumptions:

		Years Ended June 30,
		2020				2019
Expected term (in years)			0.5				0.5
Expected volatility			61%				79%
Risk-free interest rate			1.00%				2.45%
Dividend yield			0.00%				0.00%

The following table presents a summary of activity under our ESPP during the fiscal year ended June 30, 2020:

		Year Ended
		June 30, 2020
			(In thousands, except per share data)
Shares available for issuance at June 30, 2019			517
Shares issued			(113	)
Shares available for issuance at June 30, 2020			404
Weighted-average purchase price per share		$	2.75
Intrinsic value of ESPP shares on purchase date		$	57

Restricted Stock Units

The fair value of our RSUs is based on the closing market price of our common stock on the grant date.

The following table presents a summary of activity with respect to our RSUs during the fiscal year ended June 30, 2020:

		Number of Shares				Weighted-Average Grant Date Fair Value per Share
			(In thousands)
Balance of RSUs outstanding at June 30, 2019			866			$	4.24
Granted			517				3.36
Forfeited			(111	)			3.67
Vested			(345	)			3.94
Balance of RSUs outstanding at June 30, 2020			927			$	3.93

Performance Stock Units

In October 2019, we granted 975,000 RSUs with performance-based vesting requirements (“performance stock units” or “PSUs”) to certain executive employees. In February 2020, we granted an additional 70,000 PSUs with performance-based vesting requirements and vesting schedule identical to those granted in October 2019. One third of the PSUs will be eligible to vest in each of the three years beginning in fiscal 2020 if certain earnings per share, revenue targets and market conditions are met. The estimate of the grant date fair value and related share-based compensation expense of these awards included the use of a Monte Carlo simulation. The Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition of these awards, which is based on the relative total shareholder return of the Company as compared to that of the Russell Microcap Index.

The following table presents a summary of activity with respect to our PSUs during the fiscal year ended June 30, 2020:

			Number of Shares
				(In thousands)
Balance of PSUs outstanding at June 30, 2019				–
Granted				1,045
Forfeited				(60	)
Vested				–
Balance of PSUs outstanding at June 30, 2020				985

Share-Based Compensation Expense

The following table presents a summary of share-based compensation expense included in each applicable functional line item on our consolidated statements of operations:

		Years Ended June 30,
		2020				2019
			(In thousands)
Cost of revenues		$	227			$	85
Selling, general and administrative			2,959				1,441
Research and development			453				345
Total share-based compensation expense		$	3,639			$	1,871

The following table presents a summary of the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of June 30, 2020:

		Remaining Unrecognized Compensation Expense				Remaining Weighted-Average Years to Recognize
			(In thousands)
Stock options		$	1,309				2.3
RSUs			3,135				3.0
PSUs			574				2.0
Common stock purchase rights under ESPP			71				0.4

If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation expense will increase to the extent that we grant additional share-based awards.

Public Offering

On September 18, 2018, we entered into an underwriting agreement with Needham & Company, LLC and Lake Street Capital Markets, LLC (the “Underwriters”) relating to the offer and sale of 2,500,000 shares of our common stock, par value $0.0001 per share, to the public at a price of $4.00 per share. We also granted the Underwriters a 30-day option to purchase up to 375,000 additional shares of our common stock to cover over-allotments, if any (the “Option Shares”). Pursuant to the underwriting agreement, we sold an aggregate of 2,700,000 shares, including 200,000 Option Shares, to the Underwriters and received proceeds net of underwriting discounts and expenses of approximately $9,774,000.