Rezolute, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Jun. 30, 2017

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

Note 11 Stock-Based Compensation

Options - AntriaBio adopted individual stock option plans in January 2013 for four officers and/or directors of the Company. The stock option plans granted 1,500,000 option shares with an exercise price of $4.50 and had fully vested as of June 30, 2016. In June 2013, AntriaBio adopted individual stock option plans for two consultants of the Company. The stock option plans granted 8,334 shares with an exercise price of $4.50 per share and had fully vested as of June 30, 2016. As of May 12, 2017, 1,166,667 of the options were cancelled in connection with the settlement as disclosed in Note 13.

On March 26, 2014, the Company adopted the AntriaBio, Inc. 2014 Stock and Incentive Plan which allows the Company to issue up to 3,750,000 of common stock in the form of stock options, incentive options or common stock. The Company had granted 3,295,000 of these shares to current employees and directors of the Company as of June 30, 2016. The options have an exercise price from $1.29 to $3.44 per share. The options vest monthly over four years, with some options subject to a one year cliff before options begin to vest monthly.

On February 23, 2015, the Company adopted the AntriaBio, Inc. 2015 Non Qualified Stock Option Plan which allows the Company to issue up to 6,850,000 of common stock in the form of stock options. The Company granted 4,397,000 of these shares to current employees and directors of the Company as of June 30, 2016 and granted an additional 90,000 of these shares to current employees as of June 30, 2017. The options have an exercise price of from $1.00 to $2.06 per share. The options vest monthly over 4 years with some options subject to a one year cliff before options begin to vest monthly.

On October 31, 2016, the Board adopted the AntriaBio, Inc. 2016 Non Qualified Stock Option Plan which allows the Company to issue up to 35,000,000 shares of common stock in the form of stock options. The 2016 Non Qualified Stock Option Plan was amended on August 21, 2017 to reduce the number of shares to be issued to 15,000,000 shares of common stock in the form of stock options. The Board had issued options to purchase 28,995,000 of these shares to current employees and directors as of June 30, 2017, of which 4,360,000 were cancelled before their terms were established and 11,090,000 were additionally cancelled by the Board in relation to the settlement discussed in Note 13 during the year ended June 30, 2017. The Company had 1,550,000 of the cancelled stock options that had begun vesting prior to the cancellation and with the cancellation the Company recorded $1,199,847 of unrecognized stock compensation expense. The options have an exercise price from $1.00 to $1.20 per share. The options expire no later than ten years from the date of the grant. The options vest on a monthly basis over 48 months, except for 100,000 of the options which do not begin to vest until specific events have occurred and then begin to vest over 48 months. Some options are subject to a one year cliff and all options have an exercise price based on the fair value of the common stock on the date of grant.

AntriaBio has computed the fair value of all options granted 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. AntriaBio estimated a volatility factor utilizing a comparable published volatility of several peer companies. Due to the small number of option holders and all options being to officers, directors, or high level employees AntriaBio has estimated a forfeiture rate of zero. AntriaBio 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.

AntriaBio has computed the fair value of all options granted during the year ended June 30, 2017 using the following assumptions:

Expected volatility	74 - 80	%
Risk free interest rate	1.46% - 2.43	%
Expected term (years)	7
Dividend yield	0	%

AntriaBio has computed the fair value of all options granted during the year ended June 30, 2016 using the following assumptions:

Expected volatility	97 - 100	%
Risk free interest rate	1.69% - 1.91	%
Expected term (years)	7
Dividend yield	0	%

Stock option activity is as follows:

			Weighted		Weighted Average
	Number of		Average		Remaining
	Options		Exercise Price		Contractual Life
Outstanding, June 30, 2015		8,702,418	$	2.78		7.1
Granted		285,000	$	1.07
Forfeited		(40,000)	$	1.66
Outstanding, June 30, 2016		8,947,418	$	2.73		6.2
Granted		24,725,000	$	1.19
Cancelled		(12,256,667)	$	1.51
Forfeited		(125,000)	$	1.12
Outstanding, June 30, 2017		21,290,751	$	1.65		7.7

Exercisable at June 30, 2017		6,657,568	$	2.30		6.3

Stock-based compensation expense related to the fair value of stock options was included in the statement of operations as research and development - compensation and benefits expense of $1,790,851 and $1,218,040 for the years ended June 30, 2017 and 2016, respectively and as general and administrative – compensation and benefits expense of $4,214,819 and $2,543,797 for the years ended June 30, 2017 and 2016, respectively. The unrecognized stock-based compensation expense at June 30, 2017 is $12,885,590. AntriaBio determined the fair value as of the date of grant using the Black-Scholes option pricing method and expenses the fair value ratably over the vesting period.

Warrants- AntriaBio issued warrants to agents in conjunction with the closing of various financings and issued warrants in note conversions and private placements as follows:

			Weighted		Weighted Average
	Number of		Average		Remaining
	Warrants		Exercise Price		Contractual Life
Outstanding, June 30, 2015		19,016,391	$	2.33		3.0
Warrants issued in stock conversion		5,897,677	$	1.65
Warrants issued in private placements		3,043,669	$	1.65
Warrants issued to placement agent		933,639	$	1.61
Warrants issued for investor relations		103,000	$	1.60
Warrants cancelled		(30,000)	$	3.44
Outstanding, June 30, 2016		28,964,376	$	2.11		3.1
Warrants issued in private placements		3,248,184	$	1.65
Warrants issued to placement agent		786,150	$	1.54
Warrants issued for consulting services		250,000	$	1.00
Warrants expired		(452,262)	$	2.39
Outstanding, June 30, 2017		32,796,448	$	1.71		3.71

Year ended June 30, 2016: The Company issued warrants to purchase 5,897,677 shares of common stock at a price of $1.65 per share, exercisable through March 2021 in connection with the issuance of units in a preferred stock conversion. The Company issued warrants to purchase 3,043,669 shares of common stock at a price of $1.65 per share, exercisable through June 2021 in connection with the issuance of units in private placements. The Company issued warrants to the placement agent to purchase 184,490 shares of common stock at a price of $2.34 per share. On June 24, 2016, the Company modified the warrants which in place of the warrant to purchase 184,490 shares of common stock, the Company issued warrants to purchase 327,046 shares of common stock at a price of $1.32 per share, exercisable through December 2023 in connection with the Series A Preferred Stock Offering. The Company issued warrants to the placement agent to purchase 87,500 shares of common stock at a price of $2.50 per share, exercisable through December 2022 in connection with the Series A Preferred Stock Offering. The Company issued warrants to the placement agents to purchase 519,093 shares of common stock at a price of $1.65 per share, exercisable through December 2023 in connection with the private placement. The Company issued warrants to purchase 9,000 shares of common stock at a price of $1.38 per share in connection with investor relations services. The Company issued warrants to purchase 24,000 shares of common stock at a price of $1.34 per share in connection with investor relations services. The Company issued warrants to purchase 60,000 shares of common stock at a price of $1.85 per share in connection with investor relations services. The Company issued warrants to purchase 10,000 shares of common stock at a price of $0.96 per share in connection with investor relations services.

Year Ended June 30, 2017: The Company issued warrants to purchase 3,248,184 shares of common stock at a price of $1.65 per share, exercisable through October 2021 in connection with the issuance of units in private placements. The Company issued warrants to the placement agent to purchase 536,150 shares of common stock at a price of $1.65 per share. The Company issued warrants to the placement agents to purchase 250,000 shares at a price of $1.13 per share. The Company issued warrants to purchase 250,000 shares of common stock at a price of $1.00 per share in connection with a consulting agreement. The warrants to purchase 250,000 shares of common stock vest monthly over four years which is the term of the consulting agreement.

During the year ended June 30, 2017, the Company offered to certain warrant holders the ability to amend their current warrants to set their exercise price at $1.65 for their warrants, extend the warrant exercise date until January 30, 2020 and add an acceleration clause to the warrant. All other warrant terms remained the same. If the investor chose not to amend their warrants, then the original warrant terms would remain in place. The offer to amend expired on January 31, 2017 and warrants to purchase 15,474,883 shares of common stock were amended. As this was a modification to the original warrants, the excess of the fair value of the warrants after the modification over the fair value of the warrants immediately prior to the modification was $3,366,070 and was recorded as the fair value of warrants and as a deemed dividend as additional paid-in capital at the time of the modification. The Company also had warrants to purchase 452,262 shares of common stock expire as of June 30, 2017. The Company also modified warrants to purchase 285,834 shares of common stock with a former placement agent to extend the terms of the warrants for an additional two years. As this was a modification to the original warrants, the excess of the fair value of the warrants after the modification over the fair value of the warrants immediately prior to the modification was $40,862 and was recorded as the fair value of warrants and as a deemed dividend as additional paid-in capital at the time of the modification.

The warrants exercisable for the 66,667 shares of common stock are accounted for under liability accounting for the shares that have vested and were recorded at their fair value on the date of issuance of $50,365 as a liability and as professional fees and investor relation expense. Warrants for 30,000 shares of common stock were cancelled as of December 31, 2015 as the vesting events had not occurred and an additional 20,000 shares had expired as of June 30, 2017. The fair value as of June 30, 2017 and 2016 were $588 and $11,955, respectively which is reflected as a liability with the fair value adjustment recorded as derivative gains or losses on the consolidated statements of operations.

The warrants exercisable for the 5,897,677 shares of common stock were accounted for under equity treatment and fair valued as of the date of issuance. The fair value of the warrants was valued at $3,497,914 and was recorded into additional paid-in capital. The warrants exercisable for the 3,043,558 shares of common stock were accounted for under equity treatment and were recorded at the allocated fair value as of the date of issuance. The estimated fair value of the warrants was $1,667,630 and the allocated fair value of $1,202,336 was recorded into additional paid-in capital.

The warrants exercisable for 184,490 shares of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $184,673 and recorded as additional paid-in-capital and Series A Convertible Preferred Stock as issuance costs. On June 24, 2016, the warrants were modified and in place of the warrants to purchase 184,490 shares were replaced by warrants to purchase 327,046 shares of common stock. The change in the intrinsic value between the old warrants and the new warrants was calculated as $113,521 and was recorded as additional paid-in-capital and as issuance costs. The warrants exercisable for 87,500 shares of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued as $65,490 as additional paid-in-capital and Series A Convertible Preferred Stock as issuance costs. The warrants exercisable for 519,093 shares of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $386,800 and recorded as additional paid-in-capital and as issuance costs.

The warrants exercisable for the 9,000 shares of common stock were accounted for under the equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $11,407 and recorded as additional paid-in-capital and investor relations. The additional warrants exercisable for the 24,000 shares of common stock were accounted for under the equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $20,943 and recorded as additional paid-in-capital and investor relations. The warrants exercisable for the 60,000 shares of common stock were accounted for under the equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $34,122 and recorded as additional paid-in-capital and investor relations. The warrants exercisable for the 10,000 shares of common stock were accounted for under the equity treatment and fair valued as of the date of issuance. The fair value of the warrants was valued as $6,500 and recorded as additional paid-in-capital and investor relations.

The warrants exercisable for the 3,248,184 shares of common stock were accounted for under equity treatment and were recorded at the allocated fair value as of the date of issuance. The estimated fair value of the warrants was $2,759,015 and the allocated fair value of $1,262,413 was recorded into additional paid-in capital. The warrants exercisable for 536,150 shares of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $516,550 and recorded as additional paid-in-capital and as issuance costs. The placement agent warrants exercisable for 250,000 shares were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $236,529 and recorded as additional paid-in-capital and as issuance costs. The warrants exercisable for the 250,000 shares of common stock are accounted for under the equity method of accounting and are fair valued monthly at the date that the warrants vest. As of June 30, 2017, warrants to purchase 15,624 shares of common stock had vested and $12,564 had been recorded into equity and investor relations expense.

These warrants were valued using the Black-Scholes option pricing model on the date of issuance. In order to calculate the fair value of the warrants in both models, 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 warrant term. Changes to the assumptions could cause significant adjustments to valuation. AntriaBio estimated a volatility factor utilizing a comparable published volatility of several 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 Black-Scholes valuation methodology was used because that model embodies all of the relevant assumptions that address the features underlying these instruments.

Significant assumptions for the warrants issued for the year ended June 30, 2017 were as follows:

Expected volatility	24% - 110	%
Risk free interest rate	0.45% - 2.35	%
Warrant term (years)	0 - 7
Dividend yield	0	%

Significant assumptions for the warrants issued for the year ended June 30, 2016 were as follows:

Expected volatility	87% - 151	%
Risk free interest rate	0.45% - 2.03	%
Warrant term (years)	1 - 7.5
Dividend yield	0	%