Equity Instruments

6 Months Ended

12 Months Ended

Dec. 31, 2015

Jun. 30, 2015

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

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

Note 10 – Equity Instruments

Options

Prior to the Merger, Aytu had two approved stock option plans (Luoxis 2013 Stock Option Plan and Vyrix 2013 Stock Option Plan), pursuant to which Aytu had reserved a total of 1,718,828 million shares of common stock, both of which were terminated on April 16, 2015 upon the closing of the Merger.

The Luoxis options that were in the money and all outstanding Vyrix options issued under the respective 2013 Option Plans were accelerated and cancelled in connection with the Merger. Option holders received a cash payment per option share equal to the difference between the consideration payable per share of common stock pursuant to the Merger and the exercise price of the option; if the consideration paid to holders of common stock was less than the exercise price of such options, no amount was paid to the option holder in connection with the cancellation. The cash payment during the period ended June 30, 2015 was $27,000. The Company recognized compensation of $422,000 and $189,000 related to the Luoxis and Vyrix options that had accelerated vesting as of the Merger date during the period ended June 30, 2015.

The Luoxis options that were not paid out were terminated pursuant to the terms of the 2013 Luoxis Option Plan. The Company treated these options as pre-vesting forfeitures and $433,000 of previously recognized compensation was reversed.

On June 1, 2015, Aytu’s stockholders approved the 2015 Stock Option and Incentive Plan (the “2015 Plan”), which provides for the award of stock options, stock appreciation rights, restricted stock and other equity awards for up to an aggregate of 10,000,000 shares of common stock. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by Aytu prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2015 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. The fair value of the options are calculated using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. Aytu estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. Aytu has computed the fair value of all options granted during the six months ended December 31, 2015 using the following assumptions:

Expected volatility	75.00	%
Risk free interest rate	1.08% - 2.08	%
Expected term (years)	3.0 - 7.0
Dividend yield	0	%

Stock option activity is as follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
Outstanding June 30, 2015	-	$	-
Granted	3,695,000	$	1.55
Exercised	-	$	-
Forfeited/Cancelled	-	$	-
Outstanding December 31, 2015	3,695,000	$	1.55	9.80
Exercisable at December 31, 2015	1,120,000	$	1.51	9.87
Available for grant at December 31, 2015	6,305,000

Stock-based compensation expense related to the fair value of stock options was included in the statements of operations as research and development expenses and selling, general and administrative expenses as set forth in the table below. Aytu determined the fair value as of the date of grant using the Black-Scholes option pricing model and expenses the fair value ratably over the vesting period. The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2015 and for the stock-based compensation expense related to the Luoxis and Vyrix options for the three and six months ended December 31, 2014:

	Three Months Ended December 31,				Six Months Ended December 31,
	2015		2014		2015		2014
Research and development expenses
Stock options	$	20,000	$	117,000	$	25,000	$	207,000
Selling, general and administrative expenses
Stock options	$	163,000	$	159,000		226,000		271,000
	$	183,000	$	276,000	$	251,000	$	478,000

Unrecognized expense at December 31, 2015	$	1,890,000

Weighted average remaining years to vest		3.16

Of the options that Aytu issued during the six months ended December 31, 2015, 1,440,000 were to Ampio board members and employees. This was recorded as a return of capital to Ampio and Ampio will take a stock-based compensation expense equal to $1.3 million on their financial statements related to these option grants.

Warrants

Aytu issued warrants in conjunction with its 2013 private placement. A summary of these warrants is as follows:

	Number of Warrants	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years

Outstanding June 30, 2015	102,613	$	4.53	2.92
Outstanding December 31, 2015 (unaudited)	102,613	$	4.53	2.41

Warrant Obligation related to the Convertible Promissory Notes

Aytu has the obligation to issue warrants to the private placement agents for the 2015 convertible note financing as part of their fees for the financing. These warrants are classified as a derivative warrant liability due to the fact that the number of shares and exercise price have not been set as of December 31, 2015. The number of shares of Company stock that these warrants will convert into is equal to 8% of the gross number of shares of the Company stock issuable upon conversion of the Notes issued to investors introduced to the Company by the private placement agents pursuant to the private placement memorandum. The exercise price will be the lower of the lowest conversion price per share at which the Notes are converted into Company common stock or $4.63. The warrants have a term of five years from the date of issuance of the related notes in July and August 2015 (see Note 6).

Note 7 – Equity Instruments

Options

The Luoxis options that were in the money and all outstanding Vyrix options issued under the 2013 Option Plans were accelerated and cancelled in connection with the Merger. Option holders received a cash payment per option share equal to the difference between the consideration payable per share of common stock pursuant to the Merger and the exercise price of the option, if the consideration paid to holders of common stock was less than the exercise price of such options, no amount was paid to the option holder in connection with the cancellation. The cash payment during the period ended June 30, 2015 was $27,000. The company recognized compensation of $422,000 and $189,000 related to the Luoxis and Vyrix options that had accelerated vesting as of the Merger date.

Pursuant to the Luoxis 2013 Stock Option Plan, 1,102,761 shares of its common stock were reserved for issuance. The fair value of the options was calculated using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. Aytu estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The assumptions are as follows:

	Years Ended June 30,
	2015	2014

Expected volatility	79% - 108%	79% - 82%
Risk free interest rate	1.62% - 2.09%	0.75% - 1.53%
Expected term (years)	5.5 - 7.0	5.0 - 6.5
Dividend yield	0%	0%

Stock option activity is as follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding June 30, 2013	396,994	$	4.53		9.96	$	1,272,000
Granted	33,083	$	4.53
Exercised	—	$	—
Forfeited/Cancelled	—	$	—
Outstanding June 30, 2014	430,077	$	4.53		9.01	$	1,374,000
Granted	195,189	$	7.25
Exercised	—	$	—
Forfeited/Cancelled	(625,266)	$	5.40
Outstanding June 30, 2015	—	$	—
Exercisable at June 30, 2015	—	$	—
Available for grant at June 30, 2015	—

Pursuant to the Vyrix 2013 Stock Option Plan, 616,067 shares of its common stock were reserved for issuance. The fair value of the options was calculated using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. Aytu estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. In accordance with the Vyrix 2013 Stock Option Plan, no additional options were granted during the year-ended June 30, 2015. The assumptions are as follows:

		Year Ended June 30,
		2014

Expected volatility		63% - 76%
Risk free interest rate		0.90% - 2.02%
Expected term (years)		5.0 - 6.5
Dividend yield		0%

Stock option activity is as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding June 30, 2013		—	$	—		—	$	—
Granted		117,053	$	5.68
Exercised		—	$	—
Forfeited/Cancelled		—	$	—
Outstanding June 30, 2014		117,053	$	5.68		9.54	$	417,000
Granted		—	$	—
Exercised		—	$	—
Forfeited/Cancelled		(117,053)	$	5.68
Outstanding June 30, 2015		—	$	—
Exercisable at June 30, 2015		—	$	—
Available for grant at June 30, 2015		—

Stock-based compensation expense related to the fair value of stock options was included in the statements of operations as research and development expenses and general and administrative expenses as set forth in the table below. Aytu determined the fair value as of the date of grant using the Black-Scholes option pricing model and expenses the fair value ratably over the vesting period. The following table summarizes stock-based compensation expense for the years ended June 30 2015 and 2014:

	Years Ended June 30,
	2015		2014
Research and development expenses
Stock options
Luoxis	$	427,000	$	206,000
Vyrix		92,000		38,000
General and administrative expenses
Stock options
Luoxis		316,000		152,000
Vyrix		183,000		104,000
	$	1,018,000	$	500,000

Unrecognized expense at June 30, 2015
Luoxis	$	—
Vyrix	$	—
Weighted average remaining years to vest
Luoxis		—
Vyrix		—

Warrants

Aytu issued warrants in conjunction with its 2013 private placement. A summary of all warrants is as follows:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life

Outstanding June 30, 2013		102,613	$	4.53		4.41
Outstanding June 30, 2014		102,613	$	4.53		3.92
Outstanding June 30, 2015		102,613	$	4.53		2.92

These warrants were valued using the Black-Scholes option pricing model. In order to calculate the fair value of the warrants, certain assumptions were made regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility, expected dividend yield, and expected life. Changes to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing a weighted average of comparable published volatilities of peer companies. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The offering costs and the additional paid-in capital for the warrants associated with the common stock offering were valued at $313,000 using the Black-Scholes valuation methodology.