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Equity Incentive Plan

12 Months Ended

Jun. 30, 2021

13. Equity Incentive Plan

Aytu 2015 Plan. On June 1, 2015, the Company’s stockholders approved the 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 Aytu 2015 Plan. On February 13, 2020, the Company’s shareholders approved an increase to 5.0 million total shares of common stock in the Aytu 2015 Plan. Stock options granted under this plan have contractual terms of 10 years from the grant date and a vesting period ranging from 3 to 4 years. The restricted stock awards have a vesting period ranging from 4 to 10 years, whereas the restricted stock units have a vesting period 4 years. As of June 30, 2021, the Company had 2,937,710 shares that are available for grant under the Aytu 2015 Plan.

Neos 2015 Plan. Pursuant to the Neos Merger, the Company assumed 69,721 stock options and 35,728 restricted stock units (RSUs) previously granted under Neos plan. Accordingly, on April 19, 2021, the Company registered 105,449 shares of its common stock under the Neos Therapeutics, Inc. 2015 Stock Options and Incentive Plan (the "Neos 2015 Plan") with the SEC. The terms and conditions of the assumed equity securities will stay the same as they were under the previous Neos plan. In addition to the 105,449 registered shares to cover the assumed awards, the remaining 1,255,310 shares available under the legacy Neos plan was added back to the new Neos 2015 Plan. The Company allocated costs of the replacement awards attributable to pre- and post-combination service periods. The pre-combination service costs were included in the considerations transferred. The remaining costs attributable to the post-combination service period are being recognized as stock-based compensation expense over the remaining terms of the replacement awards. Stock options granted under this plan have contractual terms of 10 years from the grant date and a vesting period ranging from 1 to 4 years. The restricted stock units have a vesting period ranging from 2 to 4 years. As of June 30, 2021, the Company had 1,271,657 shares that are available for grant under the Neos 2015 Plan.

Stock Options

During the year ended June 30, 2021, there was no stock options granted under the Aytu 2015 Plan. The Company assumed 69,721 stock options previously granted under the Neos 2015 Plan.

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. The Company 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 fair value of all options granted during the year ended June 30, 2021 utilized the following range of assumptions:


	June 30, 2021
Expected volatility	100.0	%
Expected term (years)	5.00
Risk-free interest rate	0.90	%
Dividend yield	0.00	%

Stock option activity is as follows:


				Weighted
				Average
		Weighted		Remaining
	Number of	Average		Contractual
	Options	Exercise Price		Life in Years
Outstanding June 30, 2019	188	$	3,259.57	6.95
Granted	76,950		12.42
Exercised	(500)		9.70
Expired	(24)		3,280.00
Outstanding June 30, 2020	76,614	$	19.39	9.67
Granted	69,721		6.35
Forfeited/Cancelled	(33,380)		8.61
Expired	(3,367)		14.77
Outstanding at June 30, 2021	109,588	$	14.52	8.07

Exercisable at June 30, 2021	54,539	$	20.92	7.64

The following table details the options outstanding at June 30, 2021 by range of exercise prices:


					Weighted
					Average
					Remaining
			Weighted		Contractual
Range of		Number of	Average		Life of	Number of	Weighted
Exercise		Options	Exercise		Options	Options	Average
Prices		Outstanding	Price		Outstanding	Exercisable	Exercise Price
$	6.2 - 9.70	58,316	$	6.41	8.33	16,970	$	6.51
$	9.80 - 14.70	51,114	$	13.75	8.08	37,411	$	13.79
$	2,800.00 - 4,200.00	158	$	3,255.70	4.80	158	$	3,255.70
		109,588	$	14.52	8.21	54,539	$	20.92

The weighted-average grant date fair value of options granted during the years ended years ended June 30, 2021 and June 30, 2020 was $3.81 and $9.68, respectively. As of June 30, 2021, there was $0.4 million of total unrecognized compensation costs adjusted for any estimated forfeitures, related to non-vested stock options granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 4.9 years.

Restricted Stock

On April 16, 2021, the Company granted 1,551,216 shares of restricted stock, with certain accelerated vesting conditions, to its directors pursuant to the Aytu 2015 Plan, of which 1/3 vest on April 16, 2022 and 1/12 on the first day of each quarter thereafter, subject to continuing employment with the Company through each vesting date until April 16, 2024. These restricted stocks grants have a grant date fair value of $6.49 per-share. Furthermore, on April 12, 2021, the Company granted 146,200 shares of restricted stock, with a grant date fair value of $6.84 per-share, to its employees pursuant to the Aytu 2015

Plan, of which 1/4 vested on the grant date and 1/16 each quarter thereafter on the three-month anniversary of the grant date thereafter, subject to continuing employment with the Company through each vesting date until April 12, 2024.

Restricted stock activity is as follows:


		Weighted
		Average Grant
	Number of	Date Fair
	Shares	Value
Unvested at June 30, 2019	234,623	$	18.30
Granted	195,292		10.60
Vested	—		—
Forfeited	(11,461)		17.90
Unvested at June 30, 2020	418,454	$	14.69
Granted	1,697,416		6.52
Vested	(160,602)		11.75
Unvested at June 30, 2021	1,955,268	$	7.83

As of June 30, 2021, there was $13.4 million of total unrecognized compensation costs adjusted for any estimated forfeitures, related to non-vested restricted stock granted under the Company’s equity incentive plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 3.6 years. The total fair value of the 160,602 restricted stocks vested during the year ended June 30, 2021 was $1.1 million.

The Company previously issued 158 shares of restricted stock outside of the Aytu 2015 Plan, which vest in July 2026. The unrecognized expense related to these shares was $1.0 million as of June 30, 2021 and is expected to be recognized over the weighted average period of 5.02 years.

Restricted Stock Units

In addition to the 35,728 RSUs that the Company assumed from the Neos 2015 Plan during the year ended June 30, 2021, on March 31, 2021, the Company granted 55,000 RSUs to a member of its management, of which 1/3 vest on April 1, 2022 and 1/12 on the first day of each quarter thereafter, subject to continuing employment with the Company through each vesting date until March 31, 2024. The grant date fair value of the RSUs was $7.60 per share. On April 8, 2021, the Company granted 13,000 RSUs, with certain accelerated vesting conditions, to its directors. The RSUs have a grant date fair value of $7.17 per-share and fully vest one year from the grant date, subject to continuing employment with the Company through April 8, 2022. The 13,000 RSUs issued to the directors, all of which were unvested, were forfeited upon the resignations of the directors.

Restricted stock units activity is as follows:


		Weighted
		Average Grant
	Number of	Date Fair
	Shares	Value
Unvested at June 30, 2020	—	$	—
Granted	103,728		6.96
Vested	(9,962)		4.99
Forfeited	(15,448)		7.00
Unvested at June 30, 2021	78,318	$	7.20

As of June 30, 2021, there was $0.5 million of total unrecognized compensation costs adjusted for any estimated forfeitures, related to non-vested RSUs granted under the Company’s equity incentive plans. The

unrecognized compensation cost is expected to be recognized over a weighted average period of 2.3 years. The total fair value of the 9,962 RSUs vested during the year ended June 30, 2021 was $0.1 million.

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


	Year Ended June 30,
	2021		2020

	(In thousands)
Cost of sales	$	16	$	—
Research and development		68		—
Selling and marketing		27		—
General and Administrative		3,463		1,079
Total stock-based compensation expense	$	3,574	$	1,079

The stock-based compensation expense included in the table above is attributable to stock options and restricted stock of $0.4 million and $3.2 million, respectively, for the year ended June 30, 2021. The stock-based compensation expense included in the table above is attributable to stock options and restricted stock of $0.1 million and $1.0 million, respectively, for the year ended June 30, 2020. Total recognized tax benefit from stock-based compensation was $1.2 million and $0.4 million during the year ended June 30, 2021 and June 30, 2020.