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Equity Incentive Plan

9 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

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 March 31, 2020, we have 1,317,337 shares that are available for grant under the 2015 Plan.

On December 23, 2019, the Company filed Form S-4 related to the proposed Innovus merger, in which shareholders are asked to approve an increase to 5.0 million total shares of common stock in the 2015 Plan. As of the date of this report, Aytu shareholders approved the proposal to increase the total number of common shares in the 2015 Plan.

Stock Options

Employee Stock Options:

In November 2019, the Company granted 327,000 shares of stock options to 28 employees pursuant to the 2015 Plan, which vest over four years. Compensation expense related to these options will be fully recognized over the four-year vesting period.

In January 2020, the Company granted 12,500 shares of stock options to 5 employees pursuant to the 2015 Plan, which vest immediately upon grant. Compensation expense related to these options were fully recognized in the three months ended March 31, 2020.

The fair value of the options is 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 nine months ended March 31, 2019 using the following assumptions:

	As of March 31, 2020

Volatility		100.0	%
Equivalent term (years)		10.00
Risk-free interest rate		1.82	%
Dividend yield		0.00	%

Stock option activity is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
Outstanding June 30, 2019	$	1,607		$	325.73		6.13
Granted		339,500			0.98		10.00
Exercised		(2,500	)		0.97		–
Expired		(170	)		328.00		–
Outstanding March 31, 2020		338,437			2.36		9.62
Exercisable at March 31, 2020		11,437			41.74		9.30

As of March 31, 2020, there was $133,015 unrecognized option-based compensation expense related to non-vested stock options.

Restricted Stock

Restricted stock activity is as follows:

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

Unvested at June 30, 2019		2,346,214		$	1.83		9.1
Granted		1,067,912			0.73		1.7
Vested		–			–		–
Forfeited		(69,900	)		2.03		–
Unvested at March 31, 2020		3,344,226		$	1.47		7.2

During the quarter ended September 30, 2019, 5,150 shares of restricted stock were exchanged with common stock, and the Company recognized an increase in aggregate stock compensation expense of $2,600.

During the quarter ended December 31, 2019, 34,750 shares of restricted stock were exchanged with common stock, and the Company recognized an increase in aggregate stock compensation expense of $6,200.

During the quarter ended March 31, 2020, 30,000 shares of restricted stock were exchanged with common stock, and the Company recognized an increase in aggregate stock compensation expense of $12,000.

Under the 2015 Plan, there was $4,124,000 of total unrecognized stock-based compensation expense related to the non-vested restricted stock as of March 31, 2020. The Company expects to recognize this expense over a weighted-average period of 7.20 years.

In January 2020, the Company issued 285,000 shares of restricted stock to directors and employees pursuant to the 2015 Plan. Of the 285,000 shares, 200,000 shares vest in November 2021 and share-based compensation expense will be recognized over a two-year period. 85,000 shares vest in January 2030 and share-based compensation expense will be recognized over a ten-year period.

In February 2020, the Company issued 783,000 shares of restricted stock to employees pursuant to the 2015 Plan, which vest in February 2021. Expense will be recognized over the one-year vesting period.

The Company previously issued 1,540 shares of restricted stock outside the Company’s 2015 Plan, which vest in July 2026. The unrecognized expense related to these shares was $1,247,000 as of March 31, 2020 and is expected to be recognized over the weighted average period of 6.27 years.

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 March 31,				Nine Months Ended March 31,
Selling, general and administrative:	2020		2019		2020		2019
Stock options	$	7,000	$	15,000	$	14,000	$	122,000
Restricted stock		257,000		362,000		577,000		601,000
Total stock-based compensation expense	$	264,000	$	377,000	$	591,000	$	723,000