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Equity Instruments

6 Months Ended

Dec. 31, 2018

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

Equity Instruments

Share-based Compensation Plans

On June 1, 2015, Aytu’s stockholders approved the Aytu BioScience 2015 Stock Option and Incentive Plan (the “2015 Plan”), which, as amended in July 2017, provides for the award of stock options, stock appreciation rights, restricted stock and other equity awards for up to an aggregate of 3.0 million 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. As of December 31, 2018, we have 179,841 shares that are available for grant under the 2015 Plan.

Pursuant to the 2015 Stock Plan, 3.0 million shares of the Company’s common stock, are reserved for issuance. The fair value of options granted has been 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, the risk-free interest rate, volatility, expected dividend yield and the expected option life. Changes to the assumptions could cause significant adjustments to valuation. Aytu estimates the expected term of granted options 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. There were no issuances during the three months ended December 31, 2018, therefore, no assumptions are used for this quarter.

Stock option activity is as follows:

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years
Outstanding June 30, 2018			1,798			$	325.97				6.95
Granted			-			$	-
Exercised			-			$	-
Forfeited/Cancelled			(11	)		$	328.00
Outstanding December 31, 2018			1,787			$	325.96				6.49
Exercisable at December 31, 2018			1,615			$	325.74				6.39

As of December 31, 2018, there was $54,000 of total unrecognized option-based compensation expense related to non-vested stock options. The Company expects to recognize this expense over a weighted-average period of 0.65 years.

During the quarter ended December 31, 2018, Aytu issued 75,000 performance-based stock options out of the 2015 Plan to a consultant. These options vest based on meeting certain market criteria with exercise price of $1.00. Options that require specific events before they begin to vest are valued at grant date. During the quarter, we did not recognize any expense for these options as the specific events are not probable of occurring.

Restricted stock issued out of the 2015 Stock Plan is as follows:

		Number of Shares				Weighted Average Grant Date Fair Value				Weighted Average Remaining Contractual Life in Years

Unvested at June 30, 2018			37,200			$	39.80				9.4
Vested			(850	)		$	40.40
Granted			2,707,022			$	1.30
Cancelled			-			$	-
Unvested at December 31, 2018			2,743,372			$	1.81				9.6

In October 2018, Aytu issued 2,707,022 shares of restricted stock to executives, directors, employees pursuant to the 2015 Plan, which vest in October 2028. Expense will be recognized over the 10-year vesting period.

Under the 2015 Plan, there was $4,729,000 of total unrecognized share-based compensation expense related to the non-vested restricted stock as of December 31, 2018. The Company expects to recognize this expense over a weighted-average period of 9.56 years. During the three months ended December 31, 2018, the expense related to these awards was $103,000. During the six months ended December 31, 2018, the expense related to these awards was $139,000.

Aytu previously issued 1,540 shares of restricted stock outside the Aytu 2015 Plan, which vest in July 2026. The unrecognized expense related to these shares was $1,496,000 as of December 31, 2018 and will be recognized over the 10-year vesting period, of which 7.52 years remain. During the three months ended December 31, 2018, the expense related to these awards was $50,000. During the six months ended December 31, 2018, the expense related to these awards was $100,000.

Stock-based compensation expense related to the fair value of stock options and restricted stock was included in the statements of operations as selling, general and administrative expenses as set forth in the table below:

		Three Months Ended December 31,								Six Months Ended December 31,
Selling, general and administrative:		2018				2017				2018				2017

Stock options		$	41,000			$	81,000			$	107,000			$	276,000

Restricted stock			153,000				32,000				239,000				104,000
Total share-based compensation expense		$	194,000			$	113,000			$	346,000			$	380,000

Warrants

A summary of all warrants is as follows:

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years
Outstanding June 30, 2018			1,882,661			$	25.94				4.61

Warrants issued in connection with the October 2018 offering			10,120,000			$	1.50
Warrants issued to underwriters in connection with the October 2018 offering			303,600			$	1.50
Outstanding December 31, 2018			12,306,261			$	5.24				4.67

The warrants related to the August Financing issued in fiscal 2018 were valued using the lattice option pricing model. These warrants were accounted for as liability warrants (see assumptions used in Note 6).

In connection with our October 2018 public offering, we issued warrants to the investors and underwriters to purchase an aggregate of 10,423,600 shares of the Company’s common stock at an exercise price of $1.50 and a term of five years. These warrants are accounted for under equity treatment. These warrants issued had a relative fair value of $1.8 million and a fair value of $2.0 million.