AYTU BIOSCIENCE, INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Quarterly Period Ended: September 30, 2020 or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from
to
Commission File No. 001-38247
AYTU BIOSCIENCE, INC.
(www.aytubio.com)
|
Delaware
|
47-0883144
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
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373 Inverness Parkway, Suite 206
Englewood, Colorado 80112
(Address of principal executive offices, including zip
code)
(720) 437-6580
(Registrant’s telephone number, including area
code)
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
☒
No
☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes
☒
No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer
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☐
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Accelerated
filer
|
☐
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Non-accelerated
filer
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☒
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Smaller
reporting company
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☒
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|
Emerging growth
company
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☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
☐
No
☒
|
Title of each class
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|
Trading
Symbol(s)
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Name of each exchange on which registered
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|
Common
Stock, par value $0.0001 per share
|
|
AYTU
|
|
The
NASDAQ Stock Market LLC
|
As of
November 1, 2020, there were 127,928,522 shares of Common Stock
outstanding.
AYTU
BIOSCIENCE, INC. AND SUBSIDIARIES FOR THE QUARTER ENDED SEPTEMBER
30, 2020
INDEX
PART
I—FINANCIAL INFORMATION
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Page
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4
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6
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7
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8
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10
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26
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30
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30
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PART
II—OTHER INFORMATION
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31
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32
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32
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32
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32
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32
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33
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SIGNATURES
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, or
the Exchange Act. All statements other than statements of
historical facts contained in this Quarterly Report, including
statements regarding our anticipated future clinical and regulatory
events, future financial position, business strategy and plans and
objectives of management for future operations, are forward-looking
statements. Forward looking statements are generally written in the
future tense and/or are preceded by words such as
“may,” “will,” “should,”
“forecast,” “could,” “expect,”
“suggest,” “believe,”
“estimate,” “continue,”
“anticipate,” “intend,” “plan,”
or similar words, or the negatives of such terms or other
variations on such terms or comparable terminology. Such
forward-looking statements include, without limitation: the planned
expanded commercialization of our products and the potential future
commercialization of our product candidates, our anticipated future
cash position; our plan to acquire additional assets; our
anticipated future growth rates; anticipated sales increases;
anticipated net revenue increases; amounts of certain future
expenses and costs of goods sold; anticipated increases to
operating expenses, research and development expenses, and selling,
general, and administrative expenses; and future events under our
current and potential future collaborations.
These
forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including without limitation the
risks described in “Risk Factors” in Part II Item 1A of
our most recent Annual Report on Form 10- K, and in the reports we
file with the Securities and Exchange Commission. These risks are
not exhaustive. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to
time and it is not possible for our management to predict all risk
factors, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Forward-looking
statements should not be relied upon as predictions of future
events. We can provide no assurance that the events and
circumstances reflected in the forward-looking statements will be
achieved or occur and actual results could differ materially from
those projected in the forward-looking statements. We assume no
obligation to update or supplement forward-looking statements,
except as may be required under applicable law.
This
Quarterly Report on Form 10-Q includes trademarks, such as Aytu,
Natesto®, Tuzistra®, ZolpiMist®, MiOXSYS®,
Karbinal®, and Poly-Vi-Flor®, and the recently acquired
consumer health products such as FlutiCare®, Diabasens®,
Urivarx®, Sensum®, and Vesele®, as well as Beyond
Human ®, a specialty marketing platform, which are protected
under applicable intellectual property laws and we own or have the
rights to. Solely for convenience, our trademarks and trade names
referred to in this Quarterly Report on Form 10-Q may appear
without the ® or TM symbols, but such references are not
intended to indicate in any way that we will not assert, to the
fullest extent under applicable law, our rights to these trademarks
and trade names.
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
C
ondensed Consolidated Balance Sheets
|
|
September
30,
|
June
30,
|
|
|
2020
|
2020
|
|
|
(Unaudited)
|
|
|
Assets
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||
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Current
assets
|
|
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Cash and cash
equivalents
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$
37,911,065
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$
48,081,715
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Restricted
cash
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251,778
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251,592
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Accounts
receivable, net
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6,111,911
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5,175,924
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Inventory,
net
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11,479,557
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9,999,441
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Prepaid
expenses and other
|
3,681,401
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5,715,089
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Other current
assets
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6,017,888
|
5,742,011
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Total current
assets
|
65,453,600
|
74,965,772
|
|
Fixed assets,
net
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106,153
|
258,516
|
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Right-of-use
asset
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334,289
|
634,093
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Licensed
assets, net
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16,018,064
|
16,586,847
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Patents and
tradenames, net
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10,639,080
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11,081,048
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Product
technology rights, net
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20,619,166
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21,186,666
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Deposits
|
9,900
|
32,981
|
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Goodwill
|
28,090,407
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28,090,407
|
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Total
long-term assets
|
75,817,059
|
77,870,558
|
|
Total
assets
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$
141,270,659
|
$
152,836,330
|
See the
accompanying Notes to the Consolidated Financial
Statements
4
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets, cont’d
|
|
September
30,
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June
30,
|
|
|
2020
|
2020
|
|
|
(Unaudited)
|
|
|
Liabilities
|
||
|
Current
liabilities
|
|
|
|
Accounts
payable and other
|
$
5,773,768
|
$
11,824,560
|
|
Accrued
liabilities
|
8,692,693
|
7,849,855
|
|
Accrued
compensation
|
1,967,035
|
3,117,177
|
|
Debt
|
930,416
|
982,076
|
|
Contract
liability
|
232,576
|
339,336
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Current lease
liability
|
97,458
|
300,426
|
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Current
portion of fixed payment arrangements
|
2,138,514
|
2,340,166
|
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Current
portion of CVR liabilities
|
954,800
|
839,734
|
|
Current
portion of contingent consideration
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718,647
|
713,251
|
|
Total current
liabilities
|
21,505,907
|
28,306,581
|
|
Long-term
contingent consideration, net of current portion
|
13,058,876
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12,874,351
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Long-term
lease liability, net of current portion
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237,497
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725,374
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Long-term
fixed payment arrangements, net of current portion
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10,679,903
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11,171,491
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Long-term CVR
liabilities, net of current portion
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4,714,359
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4,731,866
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Other
long-term liabilities
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11,371
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11,371
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Total
liabilities
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50,207,913
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57,821,034
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|
Commitments
and contingencies (Note 10)
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Stockholders'
equity
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Preferred
Stock, par value $.0001; 50,000,000 shares authorized; shares
issued and outstanding 0 and 0, respectively as of September 30,
2020 and June 30, 2020, respectively.
|
—
|
—
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|
Common Stock,
par value $.0001; 200,000,000 shares authorized; shares issued and
outstanding 125,837,357 and 125,837,357 respectively as of
September 30, 2020 and June 30, 2020.
|
12,584
|
12,584
|
|
Additional
paid-in capital
|
215,366,272
|
215,012,891
|
|
Accumulated
deficit
|
(124,316,110
)
|
(120,010,179
)
|
|
Total
stockholders' equity
|
91,062,746
|
95,015,296
|
|
Total
liabilities and stockholders' equity
|
$
141,270,659
|
$
152,836,330
|
See
accompanying Notes to the Consolidated Financial
Statements
5
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
C
onsolidated Statements of Operations
(unaudited)
|
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Three Months
Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
2019
|
|
Revenues
|
|
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|
Product
revenue, net
|
$
13,520,246
|
$
1,439,826
|
|
|
|
|
|
Operating
expenses
|
|
|
|
Cost of
sales
|
3,819,156
|
375,720
|
|
Research and
development
|
182,865
|
78,020
|
|
Selling,
general and administrative
|
11,490,370
|
5,146,443
|
|
Amortization
of intangible assets
|
1,584,581
|
575,117
|
|
Total operating
expenses
|
17,076,972
|
6,175,300
|
|
Loss from
operations
|
(3,556,726
)
|
(4,735,474
)
|
|
Other
(expense) income
|
|
|
|
Other
(expense), net
|
(751,541
)
|
(195,386
)
|
|
Gain from
change in fair value of contingent consideration
|
2,336
|
—
|
|
Gain from
warrant derivative liability
|
—
|
1,830
|
|
Total other
(expense) income
|
(749,205
)
|
(193,556
)
|
|
Net
loss
|
$
(4,305,931
)
|
$
(4,929,030
)
|
|
Weighted
average number of common shares outstanding
|
121,585,939
|
15,325,921
|
|
Basic and
diluted net loss per common share
|
$
(0.04
)
|
$
(0.32
)
|
See the
accompanying Notes to the Consolidated Financial
Statements.
6
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
C
ondensed Consolidated Statement of
Stockholders’ Equity
(unaudited
unless indicated otherwise)
|
|
Preferred
Stock
|
Common
Stock
|
Additional
|
|
Total
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
paid-in
capital
|
Accumulated
Deficit
|
Stockholders'
Equity
|
|
BALANCE - June
30, 2019 (audited)
|
3,594,981
|
$
359
|
17,538,071
|
$
1,754
|
$
113,475,205
|
$
(106,389,500
)
|
$
7,087,818
|
|
Stock-based
compensation
|
—
|
$
—
|
—
|
$
—
|
$
165,171
|
$
—
|
$
165,171
|
|
Preferred
stock converted in common stock
|
(443,833
)
|
(44
)
|
443,833
|
44
|
—
|
—
|
—
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(4,929,030
)
|
$
(4,929,030
)
|
|
BALANCE -
September 30, 2019
|
3,151,148
|
$
315
|
17,981,904
|
$
1,798
|
$
113,640,376
|
$
(111,318,530
)
|
$
2,323,959
|
|
|
Preferred
Stock
|
Common
Stock
|
Additional
|
|
Total
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
paid-in
capital
|
Accumulated
Deficit
|
Stockholders'
Equity
|
|
BALANCE - June
30, 2020 (audited)
|
—
|
$
—
|
125,837,357
|
$
12,584
|
$
215,012,891
|
$
(120,010,179
)
|
$
95,015,296
|
|
Stock-based
compensation
|
—
|
$
—
|
—
|
$
—
|
$
454,918
|
$
—
|
$
454,918
|
|
Issuance
costs
|
—
|
$
—
|
—
|
$
—
|
$
(101,537
)
|
$
—
|
$
(101,537
)
|
|
Net
loss
|
—
|
$
—
|
—
|
$
—
|
$
—
|
$
(4,305,931
)
|
$
(4,305,931
)
|
|
BALANCE -
September 30, 2020
|
—
|
$
—
|
125,837,357
|
$
12,584
|
$
215,366,272
|
$
(124,316,110
)
|
$
91,062,746
|
See the
accompanying Notes to the Consolidated Financial
Statements
7
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
C
ondensed Consolidated Statements of Cash
Flows
(unaudited)
|
|
Three Months
Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Operating
Activities
|
|
|
|
Net
loss
|
$
(4,305,931
)
|
$
(4,929,030
)
|
|
Adjustments to
reconcile net loss to cash used in operating
activities:
|
|
|
|
Depreciation,
amortization and accretion
|
2,092,618
|
869,312
|
|
Stock-based
compensation expense
|
454,918
|
165,171
|
|
Loss / (gain) from
change in fair value of contingent consideration
|
(99,895
)
|
—
|
|
Loss on sale of
equipment
|
112,110
|
—
|
|
Gain on termination
of lease
|
(343,185
)
|
—
|
|
Changes in
allowance for bad debt
|
408
|
—
|
|
Loss / (gain) from
change in fair value of CVR
|
97,559
|
—
|
|
Derivative
income
|
|
(1,830
)
|
|
Changes in
operating assets and liabilities:
|
|
|
|
(Increase) decrease
in accounts receivable
|
(928,895
)
|
35,359
|
|
(Increase) decrease
in inventory
|
(1,480,116
)
|
59,340
|
|
Decrease in prepaid
expenses and other
|
2,027,358
|
384,582
|
|
(Increase) in other
current assets
|
(237,720
)
|
-
|
|
(Decrease) increase
in accounts payable and other
|
(4,519,601
)
|
276,917
|
|
Increase in accrued
liabilities
|
412,328
|
3,441
|
|
(Decrease) increase
in accrued compensation
|
(1,150,142
)
|
152,911
|
|
(Decrease) in
contract liability
|
(106,760
)
|
—
|
|
(Decrease) in
deferred rent
|
—
|
(3,990
)
|
|
Net cash used in
operating activities
|
(7,974,946
)
|
(2,987,817
)
|
|
Investing
Activities
|
|
|
|
Deposit
|
2,200
|
—
|
|
Contingent
consideration payment
|
(19,140
)
|
(42,103
)
|
|
Note
Receivable
|
|
(1,000,000
)
|
|
Net cash used in
investing activities
|
(16,940
)
|
(1,042,103
)
|
|
Financing
Activities
|
|
|
|
Issuance cost
related to registered offering
|
(1,632,727
)
|
—
|
|
Payments made to
borrowings
|
(136,364
)
|
—
|
|
Payments made to
fixed payment arrangements
|
(409,487
)
|
—
|
|
Net cash used by
financing activities
|
(2,178,578
)
|
—
|
|
Net change in cash,
restricted cash and cash equivalents
|
(10,170,464
)
|
(4,029,920
)
|
|
Cash, restricted
cash and cash equivalents at beginning of period
|
48,333,307
|
11,294,227
|
|
Cash, restricted
cash and cash equivalents at end of period
|
$
38,162,843
|
$
7,264,307
|
See the
accompanying Notes to the Consolidated Financial
Statements.
8
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows, cont’d
(unaudited)
|
|
Three Months
Ended
|
|
|
|
September
30,
|
|
|
Supplemental
disclosures of cash and non-cash investing and financing
transactions
|
2020
|
2019
|
|
Warrants issued to
underwriters
|
$
356,139
|
$
—
|
|
Cash paid for
interest
|
247,869
|
3,390
|
|
Fair value of
right-to-use asset and related lease liability
|
20,438
|
412,691
|
|
Contingent
consideration included in accounts payable
|
—
|
3,430
|
|
Fixed payment
arrangements included in accrued liabilities
|
430,510
|
—
|
|
Acquisition costs
included in accounts payable
|
—
|
59,014
|
|
Exchange of
convertible preferred stock into common stock
|
$
—
|
$
44
|
See the
accompanying Notes to the Consolidated Financial
Statements
9
AYTU BIOSCIENCE, INC. AND SUBSIDIARIES
N
otes to Condensed Consolidated Financial
Statements
(unaudited)
1.
Nature
of Business, Financial Condition, Basis of
Presentation
Nature of Business.
Aytu BioScience, Inc. (“Aytu”, the
“Company” or “we”) is a commercial-stage
specialty pharmaceutical company focused on commercializing novel
products that address significant healthcare needs in both
prescription and consumer health categories. The Company is
currently focused on its Aytu BioScience business, consisting of
the Primary Care Portfolio (the “Primary Care
Portfolio”) and Pediatric Care Portfolio (the
“Pediatric Portfolio”), and its Aytu Consumer Health
business (the “Consumer Health Portfolio”). The Aytu
BioScience business is focused on prescription pharmaceutical
products treating hypogonadism (low testosterone), cough and upper
respiratory symptoms, insomnia, male infertility, and various
pediatric conditions. The Aytu Consumer Health business is focused
on consumer healthcare products. The Company plans to expand into
other therapeutic areas as opportunities arise. The Company was
incorporated as Rosewind Corporation on August 9, 2002 in the State
of Colorado. Aytu was re-incorporated in the state of Delaware on
June 8, 2015.
The
Primary Care Portfolio consists of (i) Natesto®, the only
FDA-approved nasal formulation of testosterone for men with
hypogonadism (low testosterone, or "Low T"), (ii) ZolpiMist®,
the only FDA-approved oral spray prescription sleep aid, and (iii)
Tuzistra® XR, the only FDA-approved 12-hour codeine-based
antitussive syrup.
The
Pediatric Care Portfolio, acquired on November 1, 2019, (the
“Pediatric Portfolio”), includes (i) Poly-Vi-Flor and
Tri-Vi-Flor, two complementary prescription fluoride-based
supplement product lines containing combinations of fluoride and
vitamins in various for infants and children with fluoride
deficiency, (ii) Cefaclor, a second-generation cephalosporin
antibiotic suspension; and (iii) Karbinal ER, an extended-release
carbinoxamine (antihistamine) suspension indicated to treat
numerous allergic conditions.
On
February 14, 2020, the Company acquired Innovus Pharmaceuticals
Inc. (“Innovus”), a specialty pharmaceutical company
commercializing, licensing and developing safe and effective
consumer healthcare products designed to improve health and
vitality. Innovus commercializes twenty-two consumer health
products competing in large healthcare categories including
diabetes, men's health, sexual wellness and respiratory health. The
Consumer Health Portfolio is commercialized through direct-to-
consumer marketing channels utilizing Innovus’s proprietary
Beyond Human® marketing and sales platform and on eCommerce
platforms.
The
Company acquired U.S. distribution rights to a COVID-19 IgG/IgM
rapid test. The coronavirus test is a solid phase
immunochromatographic assay used in the rapid, qualitative and
differential detection of IgG and IgM antibodies to the 2019 Novel
Coronavirus in human whole blood, serum or plasma. The rapid test
has been validated in multi-center clinical trials. The Company
entered into a licensing agreement with Cedars-Sinai Medical Center
to secure worldwide rights to various potential uses of Healight,
an investigational medical device platform technology. Healight has
demonstrated safety and efficacy in pre-clinical studies, and we
plan to advance this technology and assess its safety and efficacy
in human studies, initially focused on Covid-19
patients.
The
Company’s strategy is to continue building its portfolio of
revenue-generating products, leveraging its commercial team’s
expertise to build leading brands within large therapeutic
markets.
Financial Condition.
As of September 30, 2020, the Company had approximately $38.2
million of cash, cash equivalents and restricted cash. The
Company’s operations have historically consumed cash and are
expected to continue to require cash, but at a declining
rate.
Revenues for the
three-months ended September 30, 2020 were $13.5 million and
increased approximately 839% compared to $1.4 million for the
three-months ended September 30, 2019. Revenues increased 277% and
100% for each of the years ended June 30, 2020 and 2019,
respectively. Revenue is expected to increase over time, which will
allow the Company to rely less on our existing cash balance and
proceeds from financing transactions. Cash used by operations
during the three-months ended September 30, 2020 was $8.0 million
compared to $3.0 million for the three-months ended September 30,
2019. The increase is due primarily to an increase in working
capital and pay down of other liabilities.
10
As of
the date of this Report, the Company expects costs for its current
operations to increase modestly as the Company integrates the
acquisition of the Pediatrics Portfolio and Innovus and continues
to focus on revenue growth through increasing product sales. The
Company’s total asset position totaling approximately $141.3
million plus the proceeds expected from ongoing product sales will
be used to fund existing operations. The Company may continue to
access the capital markets from time-to-time when market conditions
are favorable. The timing and amount of capital that may be raised
is dependent the terms and conditions upon which investors would
require to provide such capital. There is no guarantee that capital
will be available on terms favorable to the Company and its
stockholders, or at all. The Company raised approximately $6.6
million, net during its fourth quarter ended June 30, 2020 from the
sale of new common equity using the Company’s at-the-market
facility. There were zero funds raised during the quarter ended
September 30, 2020. Between September 30, 2020, and the filing date
of this quarterly report on Form 10-Q, the Company raised gross
proceeds of approximately $
3.1
million upon the issuance of approximately 3.0 million shares of the Company’s common
stock under the Company’s at-the-market offering program. As
of the date of this report, the Company has adequate capital
resources to complete its near-term operating
objectives.
Since
the Company has sufficient cash on-hand as of September 30, 2020 to
cover potential net cash outflows for the twelve months following
the filing date of this Quarterly Report, the Company reports that
there exists no indication of substantial doubt about its ability
to continue as a going concern.
If the
Company is unable to raise adequate capital in the future when it
is required, Aytu management can adjust its operating plans to
reduce the magnitude of the capital need under its existing
operating plan. Some of the adjustments that could be made include
delays of and reductions to commercial programs, reductions in
headcount, narrowing the scope of the Company’s commercial
plans, or reductions to its research and development programs.
Without sufficient operating capital, the Company could be required
to relinquish rights to products or renegotiate to maintain such
rights on less favorable terms than it would otherwise choose. This
may lead to impairment or other charges, which could materially
affect the Company’s balance sheet and operating
results.
Basis of
Presentation.
The unaudited consolidated financial
statements contained in this report represent the financial
statements of Aytu and its wholly-owned subsidiaries, Aytu
Women’s Health, LLC, Innovus Pharmaceuticals, Inc., and Aytu
Therapeutics, LLC. The unaudited consolidated financial statements
should be read in conjunction with Aytu’s Annual Report on
Form 10-K for the year ended June 30, 2020, which included all
disclosures required by generally accepted accounting principles in
the United States (“GAAP”). In the opinion of
management, these unaudited consolidated financial statements
contain all adjustments necessary to present fairly the financial
position of Aytu and the results of operations and cash flows for
the interim periods presented. The results of operations for the
period ended September 30, 2020 are not necessarily indicative of
expected operating results for the full year. The information
presented throughout this report, as of and for the three-month
periods ended September 30, 2020, and 2019, is
unaudited.
Interim Unaudited Condensed
Consolidated Financial Statements.
The accompanying
condensed consolidated balance sheet as of September 30,
2020, and the condensed consolidated statements of operations,
stockholders’ equity, for the three months ended, and
the interim condensed consolidated statements of cash flows for
the three months ended September 30, 2020 and 2019,
are unaudited. The condensed consolidated balance sheet as
of June 30, 2020 was derived from audited financial
statements but does not include all disclosures required by U.S.
GAAP. The interim unaudited condensed consolidated financial
statements have been prepared on a basis consistent with the annual
consolidated financial statements and, in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to state fairly the
Company’s financial condition, its operations and cash flows
for the periods presented. The historical results are not
necessarily indicative of future results, and the results of
operations for the three months ended September 30,
2020 are not necessarily indicative of the results to be
expected for the full year or any other period.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for the
reporting period. On an ongoing basis, the Company evaluates its
estimates, including, but not limited to, those related to the
determination of the fair value of equity awards, the fair value of
identified assets and liabilities acquired in business
combinations, the useful lives of property and equipment,
intangible assets, impairment of long-lived and intangible assets,
including goodwill, provisions for doubtful accounts receivable,
certain accrued expenses, and the discount rate used in measuring
lease liabilities. These estimates and assumptions are based on the
Company’s historical results and management’s future
expectations. Actual results could differ from those
estimates.
11
Significant
Accounting Policies
The
Company’s significant accounting policies are discussed in
Note 2—Summary of Significant Accounting Policies and Recent
Accounting Pronouncements in the Annual Report. There have been no
significant changes to these policies that have had a material
impact on the Company’s unaudited condensed consolidated
financial statements and related notes during the three months
ended September 30, 2020.
Adoption of New Accounting Pronouncements
Fair Value Measurements
(“ASU 2018-13”).
In August 2018, the FASB issued
ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value
Measurement.” The amendments in the standard apply to all
entities that are required, under existing GAAP, to make
disclosures about recurring or nonrecurring fair value
measurements. ASU 2018-13 removes, modifies, and adds certain
disclosure requirements in ASC 820, Fair Value Measurement. The
standard is effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2019.
The
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The Company adopted this as of July 1, 2020, the beginning of the
Company’s fiscal year-ended June 30, 2021. The most relevant
component of ASU 2018-13 to the Company’s financial
statements relates to the need to disclose the range and
weighted-average of significant unobservable inputs used in Level 3
fair value measurements. However, the Company discloses on a
discrete basis all significant inputs for all Level 3 Fair Value
measurements.
Recent
Accounting Pronouncements
Financial Instruments
– Credit Losses (“ASU 2016-13”).
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments
– Credit Losses” to require the measurement of expected
credit losses for financial instruments held at the reporting date
based on historical experience, current conditions and reasonable
forecasts. The main objective of this ASU is to provide financial
statement users with more decision-useful information about the
expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each
reporting date. The standard was effective for interim and annual
reporting periods beginning after December 15, 2019. However, in
October 2019, the FASB approved deferral of the adoption date for
smaller reporting companies for fiscal periods beginning after
December 15, 2022. Accordingly, the Company’s fiscal year of
adoption will be the fiscal year ended June 30, 2024. Early
adoption is permitted for interim and annual reporting periods
beginning after December 15, 2018, but the Company did not elect to
early adopt. The Company is currently assessing the impact that ASU
2016-13 will have on its consolidated financial statements, but no
conclusion has been reached.
This
Quarterly Report on Form 10-Q does not discuss recent
pronouncements that are not anticipated to have an impact on or are
unrelated to the Company’s financial condition, results of
operations, cash flows or disclosures.
2.
Acquisitions
The Pediatric Portfolio
On
October 10, 2019, the Company entered into the Purchase Agreement
with Cerecor, Inc. (“Cerecor”) to acquire the Pediatric
Portfolio, which closed on November 1, 2019. The Pediatric
Portfolio consists of four main prescription products (i)
Poly-Vi-Flor® and Tri-Vi-Flor™, (ii) Cefaclor for Oral
Suspension, (iii) and Karbinal® ER. Total consideration
transferred to Cerecor consisted of $4.5 million cash and
approximately 9.8 million shares of Series G Convertible Preferred
Stock. The Company also assumed certain of Cerecor’s
financial and royalty obligations, and not more than $3.5 million
of Medicaid rebates and up to $0.8 million of product returns, of
which $3.5 million has been incurred. The Company also retained the
majority of Cerecor’s workforce focused on sales, commercial
contracts and customer relationships.
In
addition, the Company assumed Cerecor obligations due to an
investor that include fixed and variable payments aggregating to
$25.6 million. The Company assumed fixed monthly payments equal to
$0.1 million from November 2019 through January 2021 plus $15
million due in January 2021. Monthly variable payments due to the
same investor are equal to 15% of net revenue generated from a
subset of the Product Portfolio, subject to an aggregate monthly
minimum of $0.1 million, except for January 2020, when a one-time
payment of $0.2 million was paid to the investor. The variable
payment obligation continues until the earlier of: (i) aggregate
variable payments of approximately $9.5 million have been made, or
(ii) February 12, 2026. In June 2020, the Company paid down a $15
million balloon payment originally owed on January 2021 to reduce
the fixed liability.
Further, certain of
the products in the Product Portfolio require royalty payments
ranging from 12% to 15% of net revenue. One of the products in the
Product Portfolio requires the Company to generate minimum annual
sales sufficient to represent annual royalties of approximately
$1.8 million, in the event the minimum sales volume is not
satisfied.
12
While
no equity was acquired by the Company, the transaction was
accounted for as a business combination under the acquisition
method of accounting pursuant to Topic 805. Accordingly, the
tangible and identifiable intangible assets acquired and
liabilities assumed were recorded at fair value as of the date of
acquisition, with the remainder of the aggregate purchase price
recorded as goodwill. The goodwill recognized is attributable
primarily to strategic opportunities related to an expanded
commercial footprint and diversified product portfolio that is
expected to provide revenue and cost synergies.
The
following table summarized the preliminary fair value of assets
acquired and liabilities assumed at the date of acquisition. These
estimates are preliminary, pending final evaluation of certain
assets and liabilities, and therefore, are subject to revisions
that may result in adjustments to the values presented
below:
|
|
As
of
|
|
|
November
1, 2019
|
|
Consideration
|
|
|
Cash
and cash equivalents
|
$
4,500,000
|
|
Fair
value of Series G Convertible Preferred Stock
|
|
|
Total
shares issued
|
9,805,845
|
|
Estimated
fair value per share of Aytu common stock
|
$
0.567
|
|
Estimated
fair value of equity consideration transferred
|
5,559,914
|
|
Total
consideration transaferred
|
$
10,059,914
|
|
Recognized
amounts of identifiable assets acquired and liabilities
assumed
|
|
|
Inventory,
net
|
$
459,123
|
|
Prepaid
assets
|
1,743,555
|
|
Other
current assets
|
2,525,886
|
|
Intangible
assets - product marketing rights
|
22,700,000
|
|
Accrued
liabilities
|
(300,000
)
|
|
Accrued
product program liabilities
|
(6,683,932
)
|
|
Assumed
fixed payment obligations
|
$
(29,837,853
)
|
|
Total
identifiable net assets
|
(9,393,221
)
|
|
Goodwill
|
$
19,453,135
|
The
fair values of intangible assets, including product technology
rights were determined using variations of the income approach.
Varying discount rates were also applied to the projected net cash
flows. The Company believes the assumptions are representative of
those a market participant would use in estimating fair value (see
Note 9).
The
fair value of the net identifiable asset acquired was determined to
be $22.7 million, which is being amortized over ten
years.
Innovus Merger (Consumer Health Portfolio)
On
February 14, 2020, the Company completed the Merger with Innovus
Pharmaceuticals after approval by the stockholders of both
companies on February 13, 2020. Upon the effectiveness of the
Merger, the Company merged with and into Innovus, and all
outstanding Innovus common stock was exchanged for approximately
3.8 million shares of the Company’s common stock and up to
$16 million of Contingent Value Rights (“CVRs”). The
outstanding Innovus warrants with cash out rights were exchanged
for approximately 2.0 million shares of Series H Convertible
Preferred stock of the Company and retired. The remaining Innovus
warrants outstanding, those without ‘cash- out’ rights,
at the time of the Merger, continue to be outstanding, and upon
exercise, retain the right to the merger consideration offered to
Innovus stockholders, including any remaining claims represented by
CVRs at the time of exercise. Innovus is now a 100% wholly-owned
subsidiary of the Company, (“Aytu Consumer
Health”).
On
March 31, 2020, the Company paid out the first CVR Milestone in the
form of approximately 1.2 million shares of the Company’s
common stock to satisfy the $2.0 million obligation as a result of
Innovus achieving the $24 million revenue milestone for the
calendar year ended December 31, 2019. As a result of this, the
Company recognized a gain of approximately $0.3
million.
In
addition, as part of the Merger, the Company assumed approximately
$3.1 million of notes payable, $0.8 million in lease liabilities,
and other assumed liabilities associated with Innovus. Of the $3.1
million of notes payable, approximately $2.2 million was converted
into approximately 1.8 million shares of the Company’s common
stock since February 14, 2020. Approximately $0.3 million remained
outstanding as of September 30, 2020.
13
The following table
summarized the preliminary fair value of assets acquired and
liabilities assumed at the date of acquisition. These estimates are
preliminary, pending final evaluation of certain assets and
liabilities, and therefore, are subject to revisions that may
result in adjustments to the values presented
below:
|
|
As
of
|
|
|
February
14, 2020
|
|
Consideration
|
|
|
Fair
Value of Aytu Common Stock
|
|
|
Total
shares issued at close
|
3,810,393
|
|
Estimated
fair value per share of Aytu common stock
|
$
0.756
|
|
Estimated
fair value of equity consideration transferred
|
$
2,880,581
|
|
Fair
value of Seris H Convertile Preferred Stock
|
|
|
Total
shares issued
|
1,997,736
|
|
Estimated
fair value per share of Aytu common stock
|
$
0.756
|
|
Estimated
fair value of equity consideration transferred
|
$
1,510,288
|
|
Fair
value of former Innovus warrants
|
$
15,315
|
|
Fair
value of Contingent Value Rights
|
$
7,049,079
|
|
Forgiveness
of Note Payable owed to the Company
|
$
1,350,000
|
|
Total
consideration transferred
|
$
12,805,263
|
|
|
As
of
|
|
|
February
14, 2020
|
|
Total
consideration transferred
|
$
12,805,263
|
|
Recongnized
amounts of identifiage assets acquired and liabilities
assumed
|
|
|
Cash
and cash equivalents
|
$
390,916
|
|
Accounts
receivable, net
|
278,826
|
|
Inventory,
net
|
1,149,625
|
|
Prepaid
expenses and other current assets
|
1,692,133
|
|
Other
long-term assets
|
36,781
|
|
Right-to-use
assets
|
328,410
|
|
Property,
plant and equipment
|
190,393
|
|
Trademarks
and patents
|
11,744,000
|
|
Accounts
payable and accrued other expenses
|
(7,202,309
)
|
|
Other
current liabilities
|
(629,601
)
|
|
Notes
payable
|
(3,056,361
)
|
|
Lease
liability
|
(754,822
)
|
|
Total
identifiable assets
|
$
4,167,991
|
|
Goodwill
|
$
8,637,272
|
The
fair values of intangible assets, including product distribution
rights were determined using variations of the income approach,
specifically the relief-from-royalties method. It also includes
customer lists using an income approach utilizing a discounted cash
flow model. Varying discount rates were also applied to the
projected net cash flows. The Company believes the assumptions are
representative of those a market participant would use in
estimating fair value (see Note 10).
The
fair value of the net identifiable assets acquired was determined
to be $11.7 million, which is being amortized over a range between
1.5 to 10 years.
14
Unaudited Pro Forma Information
The
following supplemental unaudited proforma financial information
presents the Company’s results as if the following
acquisitions had occurred on July 1, 2019:
●
Acquisition of the
Pediatric Portfolio, effective November 1, 2019;
●
Merger with Innovus
effective February 14, 2020.
The
unaudited pro forma results have been prepared based on estimates
and assumptions, which management believes are reasonable, however,
the results are not necessarily indicative of the consolidated
results of operations had the acquisition occurred on July 1, 2019,
or of future results of operations:
|
|
Three Months
Ended
|
Three Months
Ended
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
Actual
|
Pro
Forma
|
|
|
(Unaudited)
|
(Unaudited)
|
|
Total revenues,
net
|
$
13,520,246
|
$
10,606,870
|
|
Net
(loss)
|
(4,305,931
)
|
(8,256,982
)
|
|
Net (loss) per
share (aa)
|
$
(0.04
)
|
$
(0.29
)
|
(aa)
Pro forma net loss per share calculations excluded the impact of
the issuance of the (i) Series G Convertible Preferred Stock and
the, (ii) Series H Convertible Preferred Stock under the assumption
those shares would continue to remain non-participatory during the
periods reported above.
3.
Revenue
Recognition
Revenues by Geographic
location
.
The following
table reflects our product revenues by geographic location as
determined by the billing address of our customers:
|
|
Three Months
Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
|
U.S.
|
$
12,144,000
|
$
1,262,000
|
|
International
|
1,376,000
|
178,000
|
|
Total net
revenue
|
$
13,520,000
|
$
1,440,000
|
Revenues by Product Portfolio.
Net
revenue disaggregated by significant product portfolio for the
three months ended September 30, 2020 and September 30, 2019 were
as follows:
|
|
Three Months Ended
September 30
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Primary care
and devices portfolio
|
$
3,033,000
|
$
1,440,000
|
|
Pediatric
portfolio
|
2,719,000
|
-
|
|
Consumer
Health portfolio
|
7,768,000
|
-
|
|
Consolidated
revenue
|
$
13,520,000
|
$
1,440,000
|
15
4.
Inventories
Inventories consist
of raw materials and finished goods and are recorded at the lower
of cost or net realizable value, with cost determined on a
first-in, first-out basis. Aytu periodically reviews the
composition of its inventories to identify obsolete, slow-moving or
otherwise unsaleable items. If unsaleable items are observed and
there are no alternate uses for the inventory, Aytu will record a
write-down to net realizable value in the period that the
impairment is first recognized. The Company wrote down $0.1 million
and $0 inventory during the three months ended September 30, 2020
or 2019, respectively.
Inventory balances
consist of the following:
|
|
As
of
|
As
of
|
|
|
September
30,
|
June
30,
|
|
|
2020
|
2020
|
|
Raw
materials
|
$
542,000
|
$
397,000
|
|
Finished
goods, net
|
10,938,000
|
9,603,000
|
|
|
$
11,480,000
|
$
10,000,000
|
5.
Fixed
Assets
Fixed
assets are recorded at cost and, once placed in service, are
depreciated on a straight-line basis over the estimated useful
lives. Leasehold improvements are amortized over the shorter of the
estimated economic life or related lease term. Fixed assets consist
of the following:
|
|
Estimated
|
September
30,
|
June
30,
|
|
|
Useful Lives in
years
|
2020
|
2020
|
|
Manufacturing
equipment
|
2 - 5
|
$
112,000
|
$
112,000
|
|
Leasehold
improvements
|
3
|
111,000
|
229,000
|
|
Office equipment,
furniture and other
|
2 - 5
|
281,000
|
312,000
|
|
Lab
equipment
|
3 - 5
|
90,000
|
90,000
|
|
Less accumulated
depreciation and amortization
|
|
(488,000
)
|
(484,000
)
|
|
Fixed
assets, net
|
|
$
106,000
|
$
259,000
|
During
the quarter ended September 30, 2020, we recognized a loss of
$112,000 on sale of equipment due to termination of
leases.
Depreciation and
amortization expense totaled $33,000 and $16,000 for the
three-months ended September 30, 2020 and 2019,
respectively.
6.
Leases,
Right-to-Use Assets and Related Liabilities
The
Company previously adopted the FASB issued ASU 2016-02,
“Leases (Topic 842)” as of July 1, 2019. With the
adoption of ASU 2016-02, the Company recorded an operating
right-of-use asset and an operating lease liability on its balance
sheet associated with the lease of its corporate headquarters. The
right-of-use asset represents the Company’s right to use the
underlying asset for the lease term, and the lease obligation
represents the Company’s commitment to make the lease
payments arising from the lease. Right-of-use lease assets and
obligations were recognized at the later of the commencement date
or July 1, 2019; the date of adoption of Topic 842; based on the
present value of remaining lease payments over the lease term. As
the Company’s lease does not provide an implicit rate, the
Company used an estimated incremental borrowing rate based on the
information available at the commencement date in determining the
present value of the lease payments. Rent expense is recognized on
a straight-line basis over the lease term, subject to any changes
in the lease or expectations regarding the terms. The lease
liability is classified as current or long-term on the balance
sheet.
16
As of
September 30, 2020, the maturities of the Company’s operating
lease liabilities were as follows:
|
|
Year
Ending
June
30,
|
|
2021 (remaining 9
months)
|
$
90,412
|
|
2022
|
123,883
|
|
2023
|
126,883
|
|
2024
|
35,883
|
|
2025
|
2,942
|
|
Total lease
payments
|
380,003
|
|
Less: Imputed
interest
|
(45,048
)
|
|
Lease
liabilities
|
$
334,955
|
Cash
paid for amounts included in the measurement of operating lease
liabilities for the three months ended September 30, 2020 and 2019
was $66,000 and $0, respectively, and was included in net cash used
in operating activities in the consolidated statements of cash
flows.
As of
September 30, 2020, the weighted average remaining lease term is
2.42 years, and the weighted average discount rate used to
determine operating lease liabilities was 8.0%. Rent expense for
the three months ended September 30, 2020 and 2019 totaled $70,000
and $32,000, respectively.
On
August 28, 2020, the Company’s Innovus subsidiary signed a
lease termination agreement with its lessor to terminate its lease
effective September 30, 2020. The original lease termination date
was April 30, 2023. As part of the agreement, Innovus agreed to
make a cash payment to the landlord the equivalent of two
additional months’ rent aggregating to $44,306 plus $125,000
less the security deposit of $20,881. The fair value of the lease
liability related to this facility lease was approximately $0.7
million as of June 30, 2020. The Company recognized a gain of
approximately $343,000 during the three months ended September 30,
2020.
7.
Intangible
Assets – Amortizable
The
Company currently holds the following intangible asset portfolios
as of September 30, 2020: (i) Licensed assets, which consist of
pharmaceutical product assets that were acquired prior to July 1,
2020; (ii) Product technology rights, acquired from the November 1,
2019 acquisition of the Pediatric Portfolio from Cerecor; and, as a
result of the Merger with Innovus on February 14, 2020, both, (iii)
the Acquired product distribution rights; consisting of patents and
trade names) acquired February 14, 2020.
If
acquired in an asset acquisition, the Company capitalized the
acquisition cost of each licensed patent or tradename, which can
include a combination of both upfront consideration, as well as the
estimated future contingent consideration estimated at the
acquisition date. If acquired in a business combination, the
Company capitalizes the estimated fair value of the intangible
asset or assets acquired, based primarily on a discounted cash flow
model approach or relief-from-royalties model.
The
following table provides the summary of the Company’s
intangible assets as of September 30, 2020 and June 30, 2020,
respectively.
|
|
September 30,
2020
|
||||
|
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Impairment
|
Net Carrying
Amount
|
Weighted-Average
Remaining Life
(in
years)
|
|
Licensed
assets
|
$
23,649,000
|
$
(7,631,000
)
|
$
-
|
$
16,018,000
|
11.80
|
|
Acquired
product technology right
|
22,700,000
|
(2,081,000
)
|
-
|
20,619,000
|
9.09
|
|
Acquired
product distribution rights
|
11,354,000
|
(943,000
)
|
-
|
10,411,000
|
4.37
|
|
Acquired
customer lists
|
390,000
|
(162,000
)
|
-
|
228,000
|
0.87
|
|
|
$
58,093,000
|
$
(10,817,000
)
|
$
-
|
$
47,276,000
|
8.93
|
|
|
June 30,
2020
|
||||
|
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Impairment
|
Net Carrying
Amount
|
Weighted-Average
Remaining Life
(in
years)
|
|
Licensed
assets
|
$
23,649,000
|
$
(7,062,000
)
|
$
-
|
$
16,587,000
|
11.88
|
|
MiOXSYS
Patent
|
380,000
|
(185,000
)
|
(195,000
)
|
-
|
-
|
|
Acquired
product technology right
|
22,700,000
|
(1,513,000
)
|
-
|
21,187,000
|
9.34
|
|
Acquired
product distribution rights
|
11,354,000
|
(565,000
)
|
-
|
10,789,000
|
4.62
|
|
Acquired
customer lists
|
390,000
|
(98,000
)
|
-
|
292,000
|
1.12
|
|
|
$
58,473,000
|
$
(9,423,000
)
|
$
(195,000
)
|
$
48,855,000
|
9.11
|
17
The
following table summarizes the estimated future amortization
expense to be recognized over the next five years and periods
thereafter:
|
|
Amortization
|
|
2021
|
$
4,735,000
|
|
2022
|
6,086,000
|
|
2023
|
6,046,000
|
|
2024
|
6,033,000
|
|
2025
|
4,479,000
|
|
Thereafter
|
19,897,000
|
|
|
$
47,276,000
|
Certain
of the Company’s amortizable intangible assets include
renewal options, extending the expected life of the asset. The
renewal periods range between approximately 1 to 20 years depending
on the license, patent, or other agreement. Renewals are accounted
for when they are reasonably assured. Intangible assets are
amortized using the straight-line method over the estimated useful
lives. Amortization expense of intangible assets was $1.6 million
and $0.6 million for the three months ended September 30, 2020 and
2019, respectively.
8.
Accrued
liabilities
Accrued
liabilities consist of the following:
|
|
As
of
|
As
of
|
|
|
September
30,
|
June
30,
|
|
|
2020
|
2020
|
|
Accrued
settlement expense
|
$
150,000
|
$
315,000
|
|
Accrued
program liabilities
|
679,000
|
959,000
|
|
Accrued
product-related fees
|
3,054,000
|
2,471,000
|
|
Credit
card liabilities
|
652,000
|
510,000
|
|
Medicaid
liabilities
|
1,997,000
|
1,842,000
|
|
Return
reserve
|
1,537,000
|
1,329,000
|
|
Sales
taxes payable
|
180,000
|
175,000
|
|
Other
accrued liabilities*
|
444,000
|
249,000
|
|
Total
accrued liabilities
|
$
8,693,000
|
$
7,850,000
|
* Other
accrued liabilities consist of franchise tax, accounting fee,
interest payable, merchant services charges, none of which
individually represent greater than five percent of total current
liabilities.
9.
Fair
Value Considerations
The
Company’s financial instruments include cash and cash
equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities, warrant derivative liability, and
contingent consideration. The carrying amounts of financial
instruments, including cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, and accrued liabilities
approximate their fair value due to their short maturities,
including those acquired or assumed on November 1, 2019 as a result
of the acquisition of the Pediatric Portfolio. The fair value of
the warrant derivative liability was valued using the lattice
valuation methodology. The fair value of acquisition-related
contingent consideration is based on a Monte-Carlo methodology
using estimated discounted future cash flows and periodic
assessments of the probability of occurrence of potential future
events. The valuation policies are determined by management, and
the Company’s Board of Directors is informed of any policy
change.
18
Authoritative
guidance defines fair value as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the measurement
date. The guidance establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the
most observable inputs be used when available. Observable inputs
are inputs that market participants would use in pricing the asset
or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions of what market participants
would use in pricing the asset or liability developed based on the
best information available in the circumstances. The hierarchy is
broken down into three levels based on reliability of the inputs as
follows:
Level
1: Inputs that reflect unadjusted quoted prices in active markets
that are accessible to Aytu for identical assets or
liabilities;
Level
2: Inputs that include quoted prices for similar assets and
liabilities in active or inactive markets or that are observable
for the asset or liability either directly or indirectly;
and
Level
3: Unobservable inputs that are supported by little or no market
activity.
The
Company’s assets and liabilities which are measured at fair
value are classified in their entirety based on the lowest level of
input that is significant to their fair value measurement. The
Company’s policy is to recognize transfers in and/or out of
fair value hierarchy as of the date in which the event or change in
circumstances caused the transfer. Aytu has consistently applied
the valuation techniques discussed below in all periods
presented.
Recurring Fair Value Measurements
The
following table presents the Company’s financial liabilities
that were accounted for at fair value on a recurring basis as of
September 30, 2020 and June 30, 2020, by level within the fair
value hierarchy.
|
|
|
Fair Value
Measurements at September 30, 2020
|
||
|
|
Fair Value at
September 30, 2020
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs (Level 3)
|
|
Recurring:
|
|
|
|
|
|
Contingent
consideration
|
13,778,000
|
–
|
–
|
13,778,000
|
|
CVR
liability
|
5,669,000
|
–
|
–
|
5,669,000
|
|
|
$
19,447,000
|
–
|
–
|
$
19,447,000
|
|
|
|
Fair Value
Measurements at June 30, 2020
|
||
|
|
Fair Value at
June 30, 2020
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs (Level 2)
|
Significant
Unobservable Inputs (Level 3)
|
|
Recurring:
|
|
|
|
|
|
Contingent
consideration
|
13,588,000
|
–
|
–
|
13,588,000
|
|
CVR
liability
|
$
5,572,000
|
–
|
–
|
$
5,572,000
|
|
|
$
19,160,000
|
–
|
–
|
$
19,160,000
|
Contingent
Consideration.
The Company classifies its contingent
consideration liability in connection with the acquisition of
Natesto, Tuzistra XR, ZolpiMist and Innovus, within Level 3 as
factors used to develop the estimated fair value are unobservable
inputs that are not supported by market activity. The Company
estimates the fair value of our contingent consideration liability
based on projected payment dates, discount rates, probabilities of
payment, and projected revenues. Projected contingent payment
amounts are discounted back to the current period using a
discounted cash flow methodology.
As of
November 2, 2018, the contingent consideration, related to this
Tuzistra XR, was valued at $8.8 million using a Monte Carlo
simulation. As of June 30, 2020, the contingent consideration was
revalued at $13.2 million using the same Monte Carlo simulation
methodology, and based on current interest rates, expected sales
potential, and Aytu stock trading variables. The Company
reevaluates the contingent consideration on a quarterly basis for
changes in the fair value recognized after the acquisition date,
such as measurement period adjustments. The contingent
consideration accretion expense for the three months ended
September 30, 2020 and 2019 was $158,000, and $96,000,
respectively. As of September 30, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
19
The
contingent consideration related to the ZolpiMist royalty payments
was valued at $2.6 million using a Monte Carlo simulation, as of
June 11, 2018. As of June 30, 2020, the contingent consideration
was revalued at $0.2 million using the same Monte Carlo simulation
methodology, and based on current interest rates, expected sales
potential, and Aytu stock trading variables. The Company
reevaluates the contingent consideration on a quarterly basis for
changes in the fair value recognized after the acquisition date,
such as measurement period adjustments. The contingent
consideration accretion expense for the three months ended
September 30, 2020 and 2019 was $0.1 million and $0.1 million,
respectively. As of September 30, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
The
Company recognized approximately $0.2 million in contingent
consideration as a result of the February 14, 2020 Innovus Merger.
The fair value was based on a discounted value of the future
contingent payment using a 30% discount rate based on the estimates
risk that the milestones are achieved. The contingent consideration
accretion expense for the three months ended September 30, 2020 and
2019 was $13,000, and $0, respectively. There was no material
change in this valuation as of September 30, 2020.
Contingent value
rights.
Contingent value rights (“CVRs”)
represent contingent additional consideration of up to $16 million
payable to satisfy future performance milestones related to the
Innovus Merger. Consideration can be satisfied in up to 4.7 million
shares of the Company’s common stock, or cash either upon the
option of the Company or in the event there are insufficient shares
available to satisfy such obligations. The fair value of the
contingent value rights was based on a model in which each
individual payout was deemed either (a) more likely than not to be
paid out or (b) less likely than not to be paid out. From there,
each obligation was then discounted at a 30% discount rate to
reflect the overall risk to the contingent future payouts pursuant
to the CVRs. This value is then remeasured both for future expected
payout at well as the increase fair value due to the time value of
money. As of September 30, 2020, the Company has paid out 1.2
million shares of the Company’s common stock to satisfy the
first $2 million milestone, which relates to the Innovus
achievement of $24 million in revenues during the 2019 calendar
year. The unrealized loss for the three months ended September 30,
2020 and 2019 was $97,000, and $0, respectively.
Summary of Level 3 Input Changes
The
following table sets forth a summary of changes to those fair value
measures using Level 3 inputs for the three months ended September
30, 2020:
|
|
CVR
Liability
|
Contingent
Consideration
|
|
Balance as of
June 30, 2020
|
$
5,572,000
|
$
13,588,000
|
|
Transfers
into Level 3
|
–
|
–
|
|
Transfer out
of Level 3
|
–
|
–
|
|
Total gains,
losses, amortization or accretion in period
|
–
|
–
|
|
Included in
earnings
|
$
97,000
|
$
209,000
|
|
Included in
other comprehensive income
|
–
|
–
|
|
Purchases,
issues, sales and settlements
|
–
|
–
|
|
Purchases
|
–
|
–
|
|
Issues
|
–
|
–
|
|
Sales
|
–
|
–
|
|
Settlements
|
–
|
$
(19,000
)
|
|
Balance as of
September 30, 2020
|
$
5,669,000
|
$
13,778,000
|
20
10.
Commitments
and Contingencies
Commitments and
contingencies are described below and summarized by the following
as of September 30, 2020:
|
|
Total
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
|
Prescription
database
|
$
1,411,000
|
$
678,000
|
$
733,000
|
-
|
-
|
-
|
-
|
|
Pediatric
portfolio fixed payments and product minimums
|
16,911,000
|
2,736,000
|
3,300,000
|
3,300,000
|
3,300,000
|
3,300,000
|
975,000
|
|
Inventory
purchase commitment
|
1,962,000
|
1,226,000
|
736,000
|
-
|
-
|
-
|
-
|
|
CVR
liability
|
14,000,000
|
2,000,000
|
2,000,000
|
5,000,000
|
5,000,000
|
-
|
-
|
|
Product
contingent liability
|
202,000
|
-
|
-
|
-
|
-
|
-
|
202,000
|
|
Product
milestone payments
|
3,000,000
|
-
|
3,000,000
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
37,486,000
|
$
6,640,000
|
$
9,769,000
|
$
8,300,000
|
$
8,300,000
|
$
3,300,000
|
$
1,177,000
|
Prescription Database
In May
2016, the Company entered into an agreement with a vendor that will
provide it with prescription database information. The Company
agreed to pay approximately $1.6 million over three years for
access to the database of prescriptions written for Natesto. In
January 2020, the Company amended the agreement and agreed to pay
additional $0.6 million to add access to the database of
prescriptions written for the Pediatric Portfolio. The payments
have been broken down into quarterly payments.
Pediatric Portfolio Fixed Payments and Product
Milestone
The
Company assumed two fixed, periodic payment obligations to an
investor (the “Fixed Obligation”). Beginning November
1, 2019 through January 2021, the Company will pay monthly payments
of $86,840, with a balloon payment of $15,000,000 due in January
2021. A second fixed obligation requires the Company pay a minimum
of $100,000 monthly through February 2026, except for $210,767 paid
in January 2020.
In
addition, the Company acquired a Supply and Distribution Agreement
with Tris Pharma, Inc. ("TRIS"), (the “Karbinal
Agreement”), under which the Company is granted the exclusive
right to distribute and sell the product in the United States. The
initial term of the Karbinal Agreement was 20 years. The Company
will pay TRIS a royalty equal to 23.5% of net sales. A third party
agreed to offset the 23.5% royalty payable by 8.5%, for a net
royalty equal to 15%, in fiscal year 2018 and 2019 for net sales of
Karbinal.
The
Karbinal Agreement make-whole payment is capped at $1,750,000 each
year. The Karbinal Agreement also contains minimum unit sales
commitments, which is based on a commercial year that spans from
August 1 through July 31, of 70,000 units through 2023. The Company
is required to pay TRIS a royalty make whole payment of $30 for
each unit under the 70,000-unit annual minimum sales commitment
through 2033. The annual payment is due in August of each year. The
Karbinal Agreement also has multiple commercial milestone
obligations that aggregate up to $3.0 million based on cumulative
net sales, the first of which is triggered at $40.0 million of net
revenues.
CVR Liability
On
February 14, 2020 the Company closed on the Merger with Innovus
Pharmaceuticals after approval by the stockholders of both
companies on February 13, 2020. Upon closing the Merger, the
Company merged with and into Innovus and entered into a Contingent
Value Rights Agreement (the “CVR Agreement”). Each CVR
entitles its holder to receive its pro rata share, payable in cash
or stock, at the option of Aytu, of certain payment amounts if the
targets are met. If any of the payment amounts is earned, they are
to be paid by the end of the first quarter of the calendar year
following the year in which they are earned. Multiple revenue
milestones can be earned in one year.
On
March 31, 2020, the Company paid out the first CVR Milestone in the
form of approximately 1.2 million shares of the Company’s
common stock to satisfy the $2.0 million obligation as a result of
Innovus achieving the $24.0 million revenue milestone for calendar
year ended December 31, 2019. As a result of this, the Company
recognized a gain of approximately $0.3 million during the fiscal
year ended June 30, 2020. No additional milestone payments have
been paid as of September 30, 2020.
21
Product Contingent Liability
In
February 2015, Innovus acquired Novalere, which included the rights
associated with distributing FlutiCare. As part of the Merger,
Innovus is obligated to make 5 additional payments of $0.5 million
when certain levels of FlutiCare sales are achieved.
Inventory Purchase Commitment
In May
1, 2020, the Company entered into a Settlement Agreement and
Release (the “Settlement Agreement”) with Hikma
Pharmaceuticals USA, Inc. (“Hikma”). Pursuant to the
settlement agreement, Innovus has agreed to purchase and Hikma has
agreed to manufacture a minimum amount of our branded fluticasone
propionate nasal spray USP, 50 mcg per spray (FlutiCare®),
under Hikma’s FDA approved ANDA No. 207957 in the U.S. The
commitment requires Innovus to purchase three batches of product
through fiscal year 2022 each of which amount to $1.0
million.
Milestone Payments
In
connection with the Company’s intangible assets, Aytu has
certain milestone payments, totaling $3.0 million, payable at a
future date, are not directly tied to future sales, but upon other
events certain to happen. These obligations are included in the
valuation of the Company’s contingent consideration (see Note
9).
11.
Capital
Structure
The
Company has 200 million shares of common stock authorized with a
par value of $0.0001 per share and 50 million shares of preferred
stock authorized with a par value of $0.0001 per share. At
September 30, 2020 and June 30, 2020, Aytu had 125,837,357 and
125,837,357 common shares outstanding, respectively, and zero
preferred shares outstanding, respectively.
Included in the
common stock outstanding are 4,230,766 shares of restricted stock
issued to executives, directors, employees and
consultants.
In June
2020, the Company completed an at-the-market offering program,
which allows us to sell and issue shares of our common stock from
time-to- time. The company issued 4,302,271 shares of common stock,
with total gross proceeds of $6.8 million before deducting
underwriting discounts, commissions and other offering expenses
payable by the Company of $0.2 million through September 30, 2020.
The Company did not issue any shares of common stock under the
at-the-market offering program during the three months ended
September 30, 2020. After September 30, 2020, the Company issued
approximately 3.0 million shares of common stock, with total gross
proceeds of
approximately $3.1
million
between October 8, 2020 and the filing of this form
10-Q.
In July 2020, the
Company paid $1.5 million issuance cost in cash related to the
March 10, 12, and 19 offerings (the “March Offerings”),
and issued 845,000 shares of warrants with an exercise price of
$1.5625 and 78,000 shares of warrants with an exercise price of
$1.9938 to a third party in conjunction with the March 2020
offerings. The warrants have a term of one year from the issuance
date. These warrants had at issuance a fair value of approximately
$356,000 and were valued using a Black-Scholes
model.
12.
Equity
Incentive Plan
Share-based Compensation Plans
On June
1, 2015, the Company’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 September 30, 2020, we have
4,837 shares that are available for grant under the 2015 Plan. On
February 13, 2020, the Company’s stockholders approved an
increase to 5.0 million total shares of common stock in the 2015
Plan.
22
Stock Options
Employee Stock Options:
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. There were no grants of stock
options to employees during the quarters ended September 30, 2020
and 2019, respectively, therefore, no assumptions are used for
fiscal 2021.
Stock
option activity is as follows:
|
|
Number of
Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Aggregate
Intrinsic Value
|
|
Outstanding June
30, 2020
|
765,937
|
$
1.85
|
9.67
|
|
|
Granted
|
-
|
-
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Forfeited/Cancelled
|
-
|
-
|
|
|
|
Expired
|
-
|
-
|
|
|
|
Outstanding
September 30, 2020
|
765,937
|
1.85
|
9.44
|
70,320
|
|
Exercisable at
September 30, 2020
|
8,926
|
$
52.81
|
8.68
|
$
1,650
|
As of
September 30, 2020, there was $601,000 unrecognized option-based
compensation expense related to non-vested stock options. The
Company expects to recognize this expense over a weighted-average
period of 2.73 years.
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, 2020
|
4,184,516
|
$
1.47
|
6.4
|
|
Granted
|
|
|
|
|
Vested
|
(369,198
)
|
|
|
|
Forfeited
|
|
|
|
|
Unvested at
September 30, 2020
|
3,815,318
|
$
1.53
|
6.3
|
Under
the 2015 Plan, there was $4.7 million of total unrecognized
stock-based compensation expense related to the non-vested
restricted stock as of September 30, 2020. The Company expects to
recognize this expense over a weighted-average period of 6.3 years.
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 $1.1 million as of
September 30, 2020 and is expected to be recognized over the
weighted average period of 5.8 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 September 30,
|
|
|
Selling,
general and administrative:
|
2020
|
2019
|
|
Stock
options
|
$
72,000
|
$
5,000
|
|
Restricted
stock
|
383,000
|
160,000
|
|
Total
stock-based compensation expense
|
$
455,000
|
$
165,000
|
23
13.
Warrants
In July 2020, the
Company issued 845,000 shares of warrants with an exercise price of
$1.5625 and 78,000 shares of warrants with an exercise price of
$1.9938 in connect with the March Offerings. The warrants have a
term of one year from the issuance date. These warrants have a fair
value of $356,000.
Significant
assumptions in valuing the warrants issued during the quarter are
as follows:
|
|
Warrants Issued Three Months Ended September 30,
2020
|
|
Expected
volatility
|
100
%
|
|
Equivalent term
(years)
|
1
|
|
Risk-free
rate
|
-
|
|
Dividend
yield
|
0.00
%
|
A
summary of equity-based warrants is as follows:
|
|
Number of
Warrants
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
|
Outstanding
June 30, 2020
|
22,884,538
|
$
3.06
|
2.00
|
|
Warrants
issued
|
923,000
|
|
|
|
Warrants
expired
|
(8,361
)
|
|
|
|
Warrants
exercised
|
-
|
|
|
|
Outstanding
September 30, 2020
|
23,799,177
|
$
2.98
|
1.47
|
14.
Net
Loss per Common Share
Basic
income (loss) per common share is calculated by dividing the net
income (loss) available to the common shareholders by the weighted
average number of common shares outstanding during that period.
Diluted net loss per share reflects the potential of securities
that could share in the net loss of the Company. For each
three-month period presented, the basic and diluted loss per share
were the same for 2020 and 2019, as they were not included in the
calculation of the diluted net loss per share because they would
have been anti-dilutive.
The
following table sets-forth securities that could be potentially
dilutive, but as of the quarters ended September 30, 2020 and 2019
are anti-dilutive, and therefore excluded from the calculation of
diluted earnings per share.
|
|
|
Three Months
Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2020
|
2019
|
|
Warrants to
purchase common stock - liability classified
|
|
240,755
|
240,755
|
|
Warrant to purchase
common stock - equity classified
|
(Note
13)
|
23,799,177
|
16,218,908
|
|
Employee stock
options
|
(Note
12)
|
765,937
|
1,556
|
|
Employee unvested
restricted stock
|
(Note
12)
|
3,816,858
|
2,342,604
|
|
Convertible
preferred stock
|
(Note
11)
|
-
|
3,151,148
|
|
|
28,622,727
|
21,954,971
|
|
24
15.
Notes
Payable
The Aytu BioScience
Note.
On February 27, 2020, the Company issued a $0.8
million promissory note (the “Note”) and received
consideration of approximately $0.6 million. The Note had an
eight-month term with principal and interest payable on November 1,
2020 and the recognition of approximately $0.2 million of debt
discount related to the issuance of promissory notes. The discount
is amortized over the life of the promissory notes through the
fourth quarter of calendar 2020. During the three months ended
September 30, 2020 and 2019, the Company recorded approximately
$42,000 and $0, respectively, of related amortization.
The Innovus Notes.
On January 9, 2020, prior to the completion of the merger, Innovus
Pharmaceuticals, Inc. entered into a note agreement upon which it
received gross proceeds of $0.4 million with a principal amount of
$0.5 million. The note requires twelve equal monthly payments of
approximately $45,000. As of September 30, 2020, the net balance of
the note was $135,000.
16.
Segment
reporting
The
Company’s chief operating decision maker (the
“CODM”), who is the Company’s Chief Executive
Officer, allocates resources and assesses performance based on
financial information of the Company. The CODM reviews financial
information presented for each reportable segment for purposes of
making operating decisions and assessing financial
performance.
Aytu
manages our Company and aggregates our operational and financial
information in accordance with two reportable segments: Aytu
BioScience and Aytu Consumer Health. The Aytu BioScience segment
consists of the Company’s prescription products. The Aytu
Consumer Health segment contains the Company’s consumers
healthcare products line, which was the result of the Innovus
Merger. Select financial information for these segments is as
follows:
|
|
Three months
Ended September 30,
|
|
|
|
2020
|
2019
|
|
Consolidated
revenue:
|
|
|
|
Aytu
BioScience
|
$
5,752,000
|
$
1,440,000
|
|
Aytu Consumer
Health
|
7,768,000
|
-
|
|
Consolidated
revenue
|
13,520,000
|
1,440,000
|
|
|
|
|
|
Consolidated
net loss:
|
|
|
|
Aytu
BioScience
|
(2,950,000
)
|
(4,929,000
)
|
|
Aytu Consumer
Health
|
(1,356,000
)
|
-
|
|
Consolidated
net loss
|
(4,306,000
)
|
(4,929,000
)
|
|
|
As
of
|
As
of
|
|
|
September
30,
|
June
30,
|
|
|
2020
|
2020
|
|
Total
assets:
|
|
|
|
Aytu
BioScience
|
$
116,499,000
|
$
126,267,000
|
|
Aytu Consumer
Health
|
24,772,000
|
26,569,000
|
|
Total
assets
|
$
141,271,000
|
$
152,836,000
|
17.
Related Party Transactions
Tris Pharma, Inc.
On
November 2, 2018, the Company entered into a License, Development,
Manufacturing and Supply Agreement (the “Tris License
Agreement”). On November 1, 2019, the Company acquired the
rights to Karbinal as a result of the acquisition of the Pediatric
Portfolio from Cerecor, Inc. (See Notes 2 and 10). Mr. Ketan Mehta
serves as a Director on the Board of Directors of the Company and
is also the Chief Executive Officer of TRIS. The Company paid TRIS
approximately $257,000 and $7,000 during the three months ended
September 30, 2020 and 2019, respectively for a combination of
royalty payments, inventory purchases and other payments as
contractually required. The Company’s liabilities, including
accrued royalties, contingent consideration and fixed payment
obligations were $22.7 million and $16.0 million as of September
30, 2020 and 2019, respectively. In October 2020, the Company paid
Tris approximately $1.6 million related to its Karbinal fixed
payment obligation.
18.
Subsequent
Events
See Footnotes
1 and 17 for information relating to certain
events occurring between September 30, 2020, and the filing of this
report Form 10-Q, impacting information disclosed
above.
25
This discussion should be read in conjunction with Aytu BioScience,
Inc.’s Annual Report on Form 10-K for the year ended June 30,
2020, filed on October 6, 2020. The following discussion and
analysis contain forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those
projected in the forward-looking statements. For additional
information regarding these risks and uncertainties, please see the
risk factors included in Aytu’s Form 10-K filed with the
Securities and Exchange Commission on October 6, 2020.
Overview
We are
a commercial-stage specialty pharmaceutical company focused on
commercializing novel products that address significant healthcare
needs in both prescription and consumer health categories. We are
currently focused on our Aytu BioScience business, consisting of
the Primary Care Portfolio (the “Primary Care
Portfolio”) and Pediatric Care Portfolio (the
“Pediatric Portfolio”), and our Aytu Consumer Health
business (the “Consumer Health Portfolio”). Our Aytu
BioScience business is focused on prescription pharmaceutical
products treating hypogonadism (low testosterone), cough and upper
respiratory symptoms, insomnia, male infertility, and various
pediatric conditions. We plan to expand into other therapeutic
areas as opportunities arise. Aytu was incorporated as Rosewind
Corporation on August 9, 2002 in the State of Colorado. Aytu was
re-incorporated in the state of Delaware on June 8,
2015.
The
Primary Care Portfolio includes (i) Natesto, the only FDA-approved
nasal formulation of testosterone for men with hypogonadism (low
testosterone, or "Low T"), (ii) ZolpiMist, the only FDA-approved
oral spray prescription sleep aid, and (iii) Tuzistra XR, the only
FDA- approved 12-hour codeine-based antitussive syrup.
The
Pediatric Care Portfolio, acquired on November 1, 2019, (the
“Pediatric Portfolio”), includes (i) Poly-Vi-Flor and
Tri-Vi-Flor, two complementary prescription fluoride-based
supplement product lines containing combinations of fluoride and
vitamins in various for infants and children with fluoride
deficiency, (ii) Cefaclor, a second-generation cephalosporin
antibiotic suspension; and (iii) Karbinal ER, an extended-release
carbinoxamine (antihistamine) suspension indicated to treat
numerous allergic conditions.
On
February 14, 2020 we acquired Innovus Pharmaceuticals
(“Innovus”), a specialty pharmaceutical company
licensing, commercializing, and developing safe and effective
consumer healthcare products designed to improve health and
vitality. Innovus commercializes over twenty-two consumer health
products competing in large healthcare categories including
diabetes, men's health, sexual wellness and respiratory health. The
Innovus product portfolio is commercialized through
direct-to-consumer marketing channels utilizing the Innovus’s
proprietary Beyond Human® marketing and sales platform and on
eCommerce platforms.
We
recently acquired exclusive U.S. distribution rights to a COVID-19
IgG/IgM rapid test. The coronavirus test is solid phase
immunochromatographic assay used in the rapid, qualitative and
differential detection of IgG and IgM antibodies to the 2019 Novel
Coronavirus in human whole blood, serum or plasma. The rapid test
has been validated in multi-center clinical trials. Most recently
we entered into a licensing agreement with Cedars-Sinai Medical
Center to secure worldwide rights to various potential uses of
Healight, an investigational medical device platform technology.
Healight has demonstrated safety and efficacy in pre-clinical
studies, and we plan to advance this technology and assess its
safety and efficacy in human studies, initially focused on COVID-19
patients.
Our
strategy is to continue building our portfolio of
revenue-generating products, leveraging our focused commercial team
and expertise to build leading brands within large therapeutic
markets.
Strategic
Growth Initiatives
Pursuant to our
strategy of identifying and acquiring complimentary assets, we have
entered into two transactions that we expect to substantially
increase our revenue generating capacity and provide opportunities
to reduce our combined operating losses. The dual impact of the
transactions on revenue and operating expenses is expected to
position us to achieve positive cash flow earlier than previously
expected.
Acquisition of Pediatric
Portfolio.
On October 10, 2019, we entered into the Purchase
Agreement with Cerecor, Inc. (“Cerecor”) to purchase
and acquire Cerecor’s portfolio of prescription pediatric
therapeutics (the “Pediatric Portfolio”), which closed
on November 1, 2019. The Pediatric Portfolio consists of six
pharmaceutical and other prescription products consisting of (i)
AcipHex Sprinkle, (ii) Cefaclor for Oral Suspension, (iii) Karbinal
ER, (iv) Flexichamber, (v) Poly- Vi-Flor and Tri-Vi-Flor. Total
consideration transferred consisted of $4.5 million cash and
approximately 9.8 million shares of Series G Convertible Preferred
Stock, plus the assumption not more than $3.5 million of Medicaid
rebates and products returns. In addition, we absorbed the majority
of the Cerecor’s workforce focused on commercial sales,
commercial contracts and customer relationships.
26
We have
assumed obligations due to an investor including fixed and variable
payments. We assumed fixed monthly payments equal to $0.1 million
from November 2019 through January 2021 plus $15 million due in
January 2021. Monthly variable payments due to the same investor
are equal to 15% of net revenue generated from a subset of the
Product Portfolio, subject to an aggregate monthly minimum of $0.1
million, except for January 2020, when a one-time payment of $0.2
million is due. The variable payment obligation continues until the
earlier of: (i) aggregate variable payments of approximately $9.5
million have been made, or (ii) February 12, 2026. The Company
subsequently paid down the $15 million balloon payment early in
June 2020, removing this obligation from our balance
sheet.
Further, certain of
the products in the Pediatric Portfolio require royalty payments
ranging from 15% to 38.0% of net revenue. One of the products in
the Pediatric Portfolio requires us to generate minimum annual
sales sufficient to represent annual royalties of approximately
$1.75 million.
Acquisition of Innovus
Pharmaceuticals.
On February 14, 2020 we closed on the
merger with Innovus Pharmaceuticals after approval by the
stockholders of both companies on February 13, 2020
.
The acquisition of
Innovus has enabled the company to expand into the consumer
healthcare market with Innovus’ over-the-counter medicines
and other healthcare products. We expect Innovus to continue to
develop additional consumer healthcare products and expand its
portfolio. This, we expect, will drive additional revenue for the
consumer health subsidiary and contribute meaningfully to the
company's overall revenue growth.
Additionally, we
expect to participate in the U.S. COVID-19 serology testing market.
We have purchased 1,600,000 COVID-19 IgG/gM rapid tests from
Zhejiang Orient Gene Biotech Limited via our distribution agreement
with L.B. Resources, Ltd. We also signed an exclusive license with
Cedars-Sinai Medical Center to a medical device technology platform
that is a pre-clinical prospective treatment for coronavirus for
seriously ill patients in the ICU. We expect to advance this
technology through development and, if proven clinically effective
and able to be manufactured at scale, expect to commercialize this
product in the future.
In the
near-term, we expect to create value for shareholders by
implementing a focused strategy of increasing sales of our
prescription therapeutics while leveraging our commercial
infrastructure. Further, we expect to increase sales of our newly
acquired consumer healthcare product portfolio following the
closing of our acquisition of Innovus Pharmaceuticals.
Additionally, we expect to expand both our Rx and consumer health
product portfolios through continuous business and product
development. Finally, we expect to identify operational
efficiencies identified through our recent transactions and
implement expense reductions accordingly.
ACCOUNTING
POLICIES
Significant
Accounting Policies and Estimates
Our
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of America. The preparation of the consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements, and the reported
amounts of expenses during the reporting period. On an ongoing
basis, management evaluates its estimates and judgments, including
those related to recoverability and useful lives of long-lived
assets, stock compensation, valuation of derivative instruments,
allowances, contingencies and going concern. Management bases its
estimates and judgments on historical experience and on various
other factors, including COVID-19, that the Company believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions. The methods, estimates, and judgments
used by us in applying these critical accounting policies have a
significant impact on the results we report in our consolidated
financial statements. Our significant accounting policies and
estimates are included in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2020, filed with the SEC on October 6,
2020.
Information
regarding our accounting policies and estimates can be found in the
Notes to the consolidated Financial Statements.
Newly
Issued Accounting Pronouncements
Information
regarding the recently issued accounting standards (adopted and
pending adoption as of September 30, 2020) are presented in Note 1
to the condensed consolidated financial statements.
27
RESULTS
OF OPERATIONS
Results
of Operations – Three months ended September 30, 2020
compared to September 30, 2019
|
|
Three months
Ended September 30,
|
|
|
|
|
|
2020
|
2019
|
Change
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Product and
service revenue, net
|
$
13,520,246
|
$
1,439,826
|
$
12,080,420
|
839
%
|
|
Operating
expenses
|
|
|
|
|
|
Cost
of sales
|
3,819,156
|
375,720
|
3,443,436
|
916
%
|
|
Research and
development
|
182,865
|
78,020
|
104,845
|
134
%
|
|
Selling,
general and administrative
|
11,490,370
|
5,146,443
|
6,343,927
|
123
%
|
|
Amortization
of intangible assets
|
1,584,581
|
575,117
|
1,009,464
|
176
%
|
|
Total
operating expenses
|
17,076,972
|
6,175,300
|
10,901,672
|
177
%
|
|
Loss from
operations
|
(3,556,726
)
|
(4,735,474
)
|
1,178,748
|
-25
%
|
|
Other
(expense) income
|
|
|
|
|
|
Other
(expense), net
|
(751,541
)
|
(195,386
)
|
(556,155
)
|
285
%
|
|
Gain from
change in fair value of contingent consideration
|
2,336
|
-
|
2,336
|
−
|
|
Gain from
warrant derivative liability
|
-
|
1,830
|
(1,830
)
|
-100
%
|
|
Total other
(expense) income
|
(749,205
)
|
(193,556
)
|
(555,649
)
|
287
%
|
|
Net
loss
|
$
(4,305,931
)
|
$
(4,929,030
)
|
$
623,099
|
-13
%
|
Product revenue.
We
recognized net revenue from product sales of $13.5 million and $1.4
million for the three months ended September 30, 2020 and 2019 ,
respectively. This increase was primarily driven by the acquisition
of the Pediatric Care Portfolio on November 1, 2019 and the Merger
with Innovus on February 14, 2020, contributing approximately $2.7
million and $7.8 million for the three months ended September 30,
2020, respectively.
Cost of sales
. The
cost of sales of $3.8 million and $0.4 million recognized for the
three months ended September 30, 2020 and 2019, respectively, are
related to Natesto, Tuzistra XR, ZolpiMist, Cefaclor, Karbinal,
Poly-Vi-Flor, Tri-Vi-Flor, the MiOXSYS System and consumer health
products. We expect cost of sales to increase in the future due to
and in line with growth in revenue from product sales.
Research and
Development.
Research and development expenses increased
$0.1 million, or 134%, for the three months ended September 30,
2020 compared to the three months ended September 30, 2019. The
increase was due primarily to costs associated with the
Company’s Healight Platform license and initial development
and clinical costs.
Selling, General and
Administrative.
Selling, general and administrative costs
increased $6.3 million, or 123%, for the three months ended
September 30, 2020 compared the three months ended September 30,
2019. The increase was primarily due to the Pediatric Portfolio and
Consumer Health acquisitions during the year-ended June 30,
2020.
The
increase was primarily driven by the cost of personnel and the
commercial support associated with generating additional revenues
from the (i) acquisition of the Pediatric Portfolio on November 1,
2019 and (ii) the Merger with Innovus on February 14, 2020.
Additionally, we incurred significant expenses associated with the
execution of the Merger and Pediatric Portfolio
transactions.
28
Amortization of Intangible
Assets.
Amortization expense for the remaining intangible
assets was approximately $1.6 million and $0.6 million for the for
the three months ended September 30, 2020 and 2019, respectively.
This expense is related to corresponding amortization of our
finite-lived intangible assets. The increase of this expense is due
to the Pediatric Portfolio acquisition from Cerecor and Innovus
Merger that occurred in the 2020 fiscal year ended June 30,
2020.
Other (expense) income,
net.
Other (expense) income, net for the three months ended
September 30, 2020 was income of approximately $0.8 million,
compared to expenses of $0.2 million for the three months ended
September 30, 2019. The increase was primarily due to the accretion
and interest expense resulting from the assumed fixed payment
obligations and other long-term liabilities that arose from the (i)
November 1, 2019 acquisition of the Pediatric Portfolio from
Cerecor, Inc. and (ii) the February 14, 2020 Merger with
Innovus.
Liquidity
and Capital Resources
As of
September 30, 2020, we had approximately $38.2 million of cash,
cash equivalents and restricted cash. Our operations have
historically consumed cash and are expected to continue to require
cash, but at a declining rate.
Revenues for the
three-months ended September 30, 2020 were $13.5 million and
increased approximately 839% compared to $1.4 million for the
three-months ended September 30, 2019. Revenues increased 277% and
100% for each of the years ended June 30, 2020 and 2019,
respectively. Revenue is expected to increase over time, which will
allow us to rely less on our existing cash balance and proceeds
from financing transactions. Cash used by operations during the
three-months ended September 30, 2020 was $8.0 million compared
to
$3.0 million for
the three-months ended September 30, 2019. The increase is due
primarily to our acquisition and integration of the Pediatric
Portfolio and merger with Innovus, which consumed additional cash
resources, coupled with an increase in working capital and paydown
of other liabilities
As of
the date of this Report, we expect costs for our current operations
to increase modestly as we integrate the acquisition of the
Pediatrics Portfolio and Innovus and continue to focus on revenue
growth through increasing product sales. Our total current asset
position totaling approximately $141.3 million plus the proceeds
expected from ongoing product sales will be used to fund existing
operations. We may continue to access the capital markets from
time-to-time when market conditions are favorable. The timing and
amount of capital that may be raised is dependent on the terms and
conditions upon which investors would require to provide such
capital. There is no guarantee that capital will be available on
terms favorable to us, or at all. We did not raise any additional
capital during the three-months ended September 30, 2020. Between
September 30, 2020, and the filing date of this quarterly report on
Form 10-Q, we raised gross proceeds of approximately $3.1 million
upon the issuance of 3.0 million shares of the Company’s
common stock under the Company’s at-the-market offering
program. As of the date of this report, the Company has adequate
capital resources to complete its near-term operating and
transaction objectives.
Since
we have sufficient cash on-hand as of September 30, 2020 to cover
potential net cash outflows for the twelve months following the
filing date of this Quarterly Report, the Company reports that
there does not exist no indication of substantial doubt about its
ability to continue as a going concern.
If we
are unable to raise adequate capital in the future when it is
required, we can adjust our operating plans to reduce the magnitude
of the capital needs under our existing operating plan. Some of the
adjustments that could be made include delays of and reductions to
commercial programs, reductions in headcount, narrowing the scope
of the Company’s commercial plans, or reductions to its
research and development programs. Without sufficient operating
capital, the Company could be required to relinquish rights to
products or renegotiate to maintain such rights on less favorable
terms than it would otherwise choose. This may lead to impairment
or other charges, which could materially affect the Company’s
balance sheet and operating results.
The
following table shows cash flows for the three months ended
September 30, 2020 and 2019:
|
|
Three Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
Net
cash used in operating activities
|
$
(7,974,946
)
|
$
(2,987,817
)
|
|
Net
cash used in investing activities
|
$
(16,940
)
|
$
(1,042,103
)
|
|
Net
cash provided by financing activities
|
$
(2,178,578
)
|
$
-
|
29
Net Cash Used in Operating Activities
During
the three months ended September 30, 2020, our operating activities
used $8.0 million in cash, which was greater than the net loss of
$4.3 million, primarily due to increases in working capital
including increases in accounts receivable, inventory, prepaid and
other assets. These charges were offset by depreciation,
amortization and accretion and an increase in accrued liabilities
and accrued compensation.
During
the three months ended September 30, 2019, our operating activities
used $3.0 million in cash, which was less than the net loss of $4.9
million, primarily as a result of the non-cash depreciation,
amortization and accretion, stock-based compensation, a decrease in
prepaid expenses and an increase in accrued
compensation.
Net Cash Used in Investing Activities
During
the three months ended September 30, 2020, we made a payment of
$0.02 million in contingent consideration.
During
the three months ended September 30, 2019, we issued a $1.0 million
note receivable to Innovus prior to the Innovus Merger, and we paid
$42,000 in contingent consideration.
Net Cash from Financing Activities
Net
cash used by financing activities in the three months ended
September 30, 2020 was $2.2 million. This was primarily related to
the offering cost of $1.6 million which was paid in cash; (ii) we
made payments of $0.6 million in note payables and fixed payment
arrangements.
Net
cash provided by financing activities in the three months ended
September 30, 2019 was zero.
Off Balance Sheet Arrangements
We do
not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also
known as “variable interest entities.”
Contractual Obligations and Commitments
Information
regarding our Contractual Obligations and Commitments is contained
in Note 10 to the Financial Statements.
I
tem 3. Quantitative and Qualitative Disclosures About
Market Risk.
We are
not currently exposed to material market risk arising from
financial instruments, changes in interest rates or commodity
prices, or fluctuations in foreign currencies. We have not
identified a need to hedge against any of the foregoing risks and
therefore currently engage in no hedging activities.
I
tem 4. Controls and Procedures.
As of
the end of the period covered by this Quarterly Report on Form
10-Q, an evaluation was carried out by our management, with the
participation of the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and
procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act.
Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and are
operating in an effective manner.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal controls over financial reporting,
except as described below, known to the Chief Executive Officer or
the Chief Financial Officer that occurred during the period covered
by this Report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
The
Company’s assessment over changes in our internal controls
over financial reporting excluded those processes or controls that
exist at our Aytu Consumer Health reporting unit which we acquired
from the February 14, 2020 Innovus Merger. Aytu Consumer Health
comprises approximately 57.4% of net revenues, 31.5% of net losses,
and 17.5% of the total assets.
30
P
ART II. OTHER INFORMATION
I
tem 1. Legal Proceedings.
Presmar
. In connection with our
acquisition from Cerecor of the Poly-Vi-Flor product rights, the
Company agreed to reimburse Cerecor for change of control payments
Cerecor may owe to Presmar Associates, Inc. (“Presmar”)
pursuant to an Agreement to Redeem Membership Interest among TRx
Pharmaceuticals, LLC, Presmar, Fremantle Corporation, and LRS
International, LLC, dated May 31, 2011 (the “Presmar
Agreement”). Cerecor had inherited the Presmar Agreement as
part of a prior transaction. The Company did not assume the Presmar
Agreement, but agreed to reimburse Cerecor for any payment it was
required to make in connection with the Presmar Agreement change of
control provisions. Upon closing of the Cerecor transaction,
Presmar disputed the agreed upon calculation by Company and Cerecor
of the amount payable under the Presmar Agreement. The Company,
Cerecor, and Presmar have had ongoing discussions regarding the
appropriate amount owed to Presmar under the Presmar Agreement.
Recently, the parties tentatively agreed on an approach under
which: (i) Cerecor will make an initial payment to Presmar in the
amount of $150,000, which will be reimbursed by the Company in six
(6) equal monthly installments; (ii) the Company will issue to
Presmar $150,000 worth of the Company’s common stock in a
private placement pursuant to applicable exemptions under the
Securities Act; and (iii) each party will provide a mutual release
of liability in connection with the Poly-Vi-Flor product transfer
(the “Settlement”). The Settlement remains contingent
on approval from the parties’ respective board of
directors.
Hikma
. On May 8, 2017, Innovus entered
into a Supply Agreement with Hikma (formerly West-Ward
Pharmaceuticals Corp.) for the supply of FlutiCare®, a branded
fluticasone propionate nasal spray. During the second year of the
Supply Agreement, Innovus received multiple shipments of
FlutiCare® products containing non-compliant labelling due to
defective label adhesive. Since that time Hikma and Innovus have
been in negotiations regarding responsibility for the defective
products and the status of the Supply Agreement. On May 1, 2020,
Hikma and Innovus (now a Company subsidiary) entered into the
Settlement Agreement requiring Innovus to purchase three batches of
FlutiCare® through the fiscal year 2022 at a price of $1
million per batch.
Marin County DA
. On August 24, 2018,
Innovus received a letter from the Marin County District
Attorney’s Office (the “Marin DA”) demanding
substantiation for certain advertising claims made by Innovus
related to DiabaSens®, and Apeaz®, which were sold and
marketed in Marin County, California. The Marin DA is part of a
larger Northern California task force comprising of district
attorney offices from ten counties that agree to handle customer
protection matters. Innovus responded to the Marin DA through its
regulatory counsel in November 2018 and continued to exchange
correspondence with the Marin DA through April 2019. In June 2019
Innovus met with the Northern California task force. In March 2020,
Innovus (now a Company subsidiary) entered into a Stipulation for
Entry of Final Judgement (the “Stipulation”), pursuant
to which Innovus agreed to the following: (i) certain injunctive
relief relating the advertising and sale of DiabaSens®, and
Apeaz®; (ii) to pay a civil penalty of $150,000; (iii) to
reimburse investigative costs of $11,500; and (iv) to pay
restitution of $43,000. In May 2020, the Marin DA filed the
judgement with the Superior Court for the County of Monterrey and
the parties are waiting for the judge to approve the
stipulation.
31
Pliscott.
Between November 20, 2019 and
December 17, 2019, four putative class action lawsuits were filed
in Delaware state and federal courts in connection with: (i)
Aytu’s proposal to approve, in accordance with Nasdaq
Marketplace Rule 5635(d), the convertibility of the Company’s
Series F convertible preferred stock and the exercisability of
certain warrants, in each case, issued in a private placement
offering that closed on October 16, 2019 (the “Nasdaq Rule
5635(d) Proposal”); (ii) Aytu’s proposal to approve an
amendment to its Certificate of Incorporation to increase the
number of its authorized shares of common stock from 100,000,000 to
120,000,000 shares of common stock (the “Authorized Share
Increase Proposal”); and (iii) Aytu’s proposal to
approve the adjournment of the special meeting, if necessary, to
continue to solicit votes for the Nasdaq Rule 5635(d) Proposal
and/or the Authorized Share Increase Proposal (“Adjournment
Proposal” and, together with the Nasdaq Rule 5635(d) Proposal
and the Authorized Share Increase Proposal, the
“Proposal”). Three lawsuits were filed in the Court of
Chancery of the State of Delaware:
Carl Pliscott v. Joshua R. Disbrow, et
al.
, Case No. 2019-0933, filed on November 20, 2019 (the
“Pliscott Action”);
Adam Kirschenbaum v. Aytu Bioscience, Inc., et
al.
, Case No. 2019-0984, filed on December 10, 2019 (the
“Kirschenbaum lawsuit”); and
Michael Sebree v. Josh Disbrow, et al.
, Case No. 2019-1011, filed on December 17, 2019 (the “Sebree
Action”). The Kirschenbaum Action and Sebree Action were both
assigned to Chancellor Andre G. Bouchard. The Pliscott Action was
removed to the United States District Court for the District of
Delaware on December 5, 2019, captioned as
Carl Pliscott v. Joshua R. Disbrow, et
al.
, Case No. 19-cv-02228-UNA, but was remanded to the Court
of Chancery and assigned to Chancellor Andre G. Bouchard on January
14, 2020. One lawsuit was filed in the United States District Court
for the District of Delaware and assigned to Chief Judge Leonard P.
Stark:
Adam Franchi v. Aytu
Bioscience, Inc., et al.
, Case No. 19-cv-02204- LPS, filed
on November 26, 2019 (the “Franchi Action”). The
Pliscott Action, Kirschenbaum Action, and Sebree Action alleged
that the members of the Aytu board breached their fiduciary duties
to Aytu stockholders by failing to disclose all information
material to the Proposals. The Franchi Action alleged that Aytu and
the individual members of the Aytu board violated Sections 14(a)
and 20(a) of the Securities Exchange Act of 1934 (and Rule 14a-9,
promulgated thereunder) by virtue of allegedly false and misleading
statements contained in the proxy statement filed by Aytu on
November 21, 2019. All four lawsuits sought, among other things,
declaratory relief allowing the action to be maintained as a class
action, injunctive relief prohibiting any stockholder vote on the
Proposals or other consummation of the Proposals, damages,
attorneys’ fees and costs, and other and further relief. The
Sebree Action further sought injunctive relief prohibiting
consummation of the Asset Purchase Agreement, dated October 10,
2019. Aytu and the board have asserted that all claims asserted are
meritless and vigorously defended against the four lawsuits. On
January 30, 2020, the parties in the Pliscott Action, Kirschenbaum
Action, and Sebree Action filed a stipulation voluntarily
dismissing the cases as moot, with plaintiffs reserving the right
to seek mootness fees. On February 5, 2020, the Chancery Court
dismissed the cases while retaining jurisdiction to adjudicate
anticipated mootness fee motions. No mootness fee motion has been
filed to date. At this stage, it is not otherwise possible to
predict the effect of lawsuits on Aytu.
I
tem 1A. Risk Factors.
In
addition to other information set forth in this report, you should
carefully consider the risk factors discussed in Part I, Item 1A.
“Risk Factors” in our Annual Report, which could
materially affect our business, financial condition, cash flows,
and/or future results. The risk factors in our Annual Report are
not the only risks facing our Company. Additional risks and
uncertainties not currently known to us or that we currently deem
to be immaterial also may materially adversely affect our business,
financial condition, and/or future results. There are no additional
risk factors other than those contained in our Annual
Report.
I
tem 2. Unregistered Sales of Securities and Use of
Proceeds.
None.
I
tem 3. Defaults Upon Senior
Securities.
None.
I
tem 4. Mine Safety Disclosures.
Not
Applicable.
I
tem 5. Other Information.
32
I
tem 6. Exhibits.
|
Exhibit No.
|
Description
|
Registrant’s
Form
|
Date
Filed
|
Exhibit
Number
|
Filed Herewith
|
|
|
|
|
|
|
|
|
2.1
|
Agreement and Plan of Merger, dated as
of September 12, 2019, by and among Aytu BioScience, Inc., Aytu
Acquisition Sub, Inc. and Innovus Pharmaceuticals,
Inc.
|
8-K
|
9/18/19
|
2.1
|
|
|
|
|||||
|
2.2
|
Asset Purchase Agreement, dated
October 10, 2019
|
8-K
|
10/15/19
|
2.1
|
|
|
|
|||||
|
3.1
|
Certificate of Incorporation effective
June 3, 2015
|
8-K
|
6/09/15
|
3.1
|
|
|
|
|||||
|
3.2
|
Certificate of Amendment of
Certificate of Incorporation effective June 1,
2016
|
8-K
|
6/02/16
|
3.1
|
|
|
|
|||||
|
3.3
|
Certificate of Amendment of
Certificate of Incorporation, effective June 30,
2016
|
8-K
|
7/01/16
|
3.1
|
|
|
|
|||||
|
3.4
|
Certificate of Designation of
Preferences, Rights and Limitations of Series A Convertible
Preferred Stock, filed on August 11, 2017
|
8-K
|
8/16/17
|
3.1
|
|
|
|
|||||
|
3.5
|
Certificate of Amendment of
Certificate of Incorporation, effective August 25,
2017
|
8-K
|
8/29/17
|
3.1
|
|
|
|
|||||
|
3.6
|
Certificate of Designation of
Preferences, Rights and Limitations of Series B Convertible
Preferred Stock filed on March 2, 2018
|
S-1/A
|
2/27/18
|
3.6
|
|
|
|
|||||
|
3.7
|
Certificate of Amendment to the
Restated of Certificate of Incorporation, effective August 10,
2018
|
8-K
|
8/10/18
|
3.1
|
|
|
|
|||||
|
3.8
|
Amended and Restated
Bylaws
|
8-K
|
6/09/15
|
3.2
|
|
|
|
|||||
|
3.9
|
Certificate of Designation of
Preferences, Rights and Limitations of Series E Convertible
Preferred Stock
|
10-Q
|
2/7/19
|
10.4
|
|
|
|
|||||
|
3.10
|
Certificate of Designation of
Preferences, Rights and Limitations of Series F Convertible
Preferred Stock
|
8-K
|
10/15/19
|
3.1
|
|
|
|
|||||
|
3.11
|
Certificate of Designation of
Preferences, Rights and Limitations of Series G Convertible
Preferred Stock
|
8-K
|
11/4/19
|
3.1
|
|
|
|
|||||
|
4.1
|
Form of Placement Agent Warrant issued
in 2015 Convertible Note Financing
|
8-K
|
7/24/15
|
4.2
|
|
|
|
|||||
|
4.2
|
Warrant Agent Agreement, dated May 6,
2016 by and between Aytu BioScience, Inc. and VStock Transfer,
LLC
|
8-K
|
5/6/16
|
4.1
|
|
|
|
|||||
|
4.3
|
First Amendment to May 6, 2016 Warrant
Agent Agreement between Aytu BioScience, Inc. and VStock Transfer
LLC
|
S-1
|
9/21/16
|
4.5
|
|
|
|
|||||
|
4.4
|
Warrant Agent Agreement, dated
November 2, 2016 by and between Aytu BioScience, Inc. and VStock
Transfer, LLC
|
8-K
|
11/2/16
|
4.1
|
|
|
|
|||||
|
4.5
|
Form of Amended and Restated
Underwriters Warrant (May 2016 Financing)
|
8-K
|
3/1/17
|
4.1
|
|
|
|
|
|
|
|
|
|
4.6
|
Form of Amended and Restated
Underwriters Warrant (October 2016
Financing)
|
8-K
|
3/1/17
|
4.2
|
|
|
|
|
|
|
|
|
|
4.7
|
Form of Common Stock Purchase Warrant
issued on August 15, 2017
|
8-K
|
8/16/17
|
4.1
|
|
|
|
|
|
|
|
|
|
4.8
|
Form of Common Stock Purchase Warrant
for March 2018 Offering
|
S-1
|
2/27/18
|
4.8
|
|
|
|
|
|
|
|
|
|
4.9
|
Form of Pre-Funded Purchase
Warrant
|
8-K
|
3/13/20
|
4.1
|
|
|
|
|
|
|
|
|
|
4.10
|
Form of Placement Agents
Warrant
|
8-K
|
3/13/20
|
4.2
|
|
|
|
|
|
|
|
|
|
4.11
|
Form of
Warrant
|
8-K
|
3/13/20
|
4.1
|
|
|
|
|
|
|
|
|
|
4.12
|
Form of Placement Agents
Warrant
|
8-K
|
3/13/20
|
4.2
|
|
|
|
|
|
|
|
|
|
4.13
|
Form of
Warrant
|
8-K
|
3/20/20
|
4.1
|
|
|
|
|
|
|
|
|
|
4.14
|
Form of Placement Agents
Warrants
|
8-K
|
3/20/20
|
4.2
|
|
|
|
|
|
|
|
|
|
4.15
|
Form of Wainwright
Warrant
|
8-K
|
7/2/20
|
4.1
|
|
|
|
|
|
|
|
|
|
10.1
|
10-K
|
10/6/20
|
10.62
|
|
|
|
|
|
|
|
|
|
|
10.2
|
Amended
Employment Agreement with David A. Green dated July 1,
2020
|
10-K
|
10/6/20
|
10.63
|
|
|
|
|
|
|
|
|
|
31.1
|
Certificate of the
Chief Executive Officer of Aytu BioScience, Inc. pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
X
|
|
|
|
|
|
|
|
|
31.2
|
Certificate of the
Chief Executive Officer and the Chief Financial Officer of Aytu
BioScience, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
X
|
|
|
|
|
|
|
|
|
101
|
XBRL (extensible
Business Reporting Language). The following materials from Aytu
BioScience, Inc.’s Annual Report on Form 10-K for the year
ended June 30, 2020 formatted in XBRL: (i) the Balance Sheets, (ii)
the Statements of Operations, (iii) the Statements of
Stockholders’ Equity (Deficit), (iv) the Statements of Cash
Flows, and (v) the Notes to the Financial
Statements
|
|
|
|
X
|
† Indicates is a
management contract or compensatory plan or
arrangement.
# The Company has received
confidential treatment of certain portions of this agreement. These
portions have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a confidential treatment
request.
33
TABLE OF CONTENTS
Part I Financial InformationItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits