Notes to Consolidated Financial
Statements
(unaudited)
1. Nature of Business, Financial Condition, Basis
of Presentation
Nature of Business. Aytu BioScience,
Inc. (“Aytu”, the “Company” or
“we”) 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. Aytu
is a specialty pharmaceutical company focused on global
commercialization of novel products addressing significant medical
needs such as hypogonadism (low testosterone), cough and upper
respiratory symptoms, insomnia, male infertility, various pediatric
conditions and the Company’s plans to expand
opportunistically into other therapeutic areas.
The Company
is a commercial-stage specialty pharmaceutical company focused on
commercializing novel products that address significant healthcare
needs in both prescription and consumer health categories. Through
the Company’s heritage prescription business, the Company
currently markets a portfolio of prescription products addressing
large primary care and pediatric markets. 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
Company’s recently acquired prescription pediatric portfolio
includes (i) AcipHex®
Sprinkle™, a granule
formulation of rabeprazole sodium, a commonly prescribed proton
pump inhibitor; (ii) Cefaclor, a second-generation cephalosporin
antibiotic suspension; (iii) Karbinal® ER, an
extended-release carbinoxamine (antihistamine) suspension indicated
to treat numerous allergic conditions; and (iv)
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.
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 over thirty-five
consumer health products competing in large healthcare categories
including diabetes, men's health, sexual wellness and respiratory
health (the “Consumer Health Portfolio”). The Consumer
Health Portfolio is commercialized through direct-to-consumer
marketing channels utilizing Innovus’s proprietary Beyond
Human® marketing and sales platform.
The
Company recently acquired exclusive U.S. distribution rights to two
COVID-19 IgG/IgM rapid tests. These coronavirus tests are solid
phase immunochromatographic assays 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. These
rapid tests have been validated in multi-center clinical trials.
Most recently, the Company signed a licensing agreement with
Cedars-Sinai Medical Center for 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 the Company plans to advance this
technology and assess its safety and efficacy in human
studies.
The
Company’s strategy is to continue building its portfolio of
revenue-generating products, leveraging its focused commercial team
and expertise to build leading brands within large therapeutic
markets.
Financial Condition. As of March 31,
2020, the Company had approximately $62.5 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 March 31, 2020 increased approximately 243%
compared to the three-months ended March 31, 2019, and revenues
increased 100% and 14% for each of the years ended June 30, 2019
and 2018, respectively. Revenue is expected to continue to increase
long-term, allowing the Company to rely less on our existing cash
and cash equivalents, and proceeds from financing transactions.
Cash used in operations during the nine-months ended March 31, 2020
was $20.6 million compared to $10.4 million for the nine-months
ended March 31, 2019. The increase is due primarily to the
Company’s acquisition and integration of the Pediatric
Portfolio and merger with Innovus, which consumed additional cash
resources, coupled with an increase in working
capital.
On
November 1, 2019, the Company closed an asset acquisition with
Cerecor, Inc. (“Cerecor”) whereby the Company acquired
certain of Cerecor’s portfolio of pediatric therapeutics (the
“Pediatric Portfolio”) for $4.5 million in cash,
approximately 9.8 million shares of Series G Convertible
Preferred Stock, the assumption of Cerecor’s financial and
royalty obligations, which includes not more than $3.5 million
of Medicaid rebates and products returns as they come due, and
other assumed liabilities associated with the Pediatric Portfolio
(see Note 2). As of March 31, 2020, the Company has paid down
approximately $3.2 million of those assumed
liabilities.
In
addition, the Company assumed obligations in connection with the
Pediatric Portfolio acquisition due to an investor including fixed
and variable payments. 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. 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.
On
February 14, 2020 the Company completed a merger with Innovus after
approval by the stockholders of both companies on February 13, 2020
(the “Merger”). Upon closing 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 Aytu and retired.
The remaining Innovus warrants outstanding 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 will continue as a wholly owned subsidiary of the
Company.
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 $1.8 million was converted
into approximately 1.5 million shares of the Company’s common
stock on April 27, 2020.
During
the three months ended March 31, 2020, the Company completed three
separate equity offerings, on March 10, 2020, March 12, 2020 and
March 19, 2020 (the “March Offerings”), in which the
Company issued a combination of common stock and warrants. The
following summarizes the March Offerings, including total capital
raised from both the issuance of common stock and subsequent
warrant exercises.
On
March 19, 2020, the Company entered into a securities purchase
agreement with certain institutional investors, pursuant to which
the Company agreed to sell and issue, in a registered direct
offering, an aggregate of (i) 12,539,197 shares of the
Company’s common stock (the “Common Stock”) at a
purchase price per share of $1.595 and (ii) warrants to purchase up
to 12,539,197 shares of Common Stock (the “March 19, 2020
Warrants”) at an exercise price of $1.47 per share, for
aggregate gross proceeds to the Company of $20.0 million, before
deducting placement agent fees and other offering expenses payable
by the Company. The March 19, 2020 Warrants are exercisable
immediately upon issuance and have a term of one year from the
issuance date. In addition, the Company issued warrants with an
exercise price of $1.9938 per share to purchase up to 815,047
shares of common stock (the “March 19, 2020 Placement Agent
Warrants”) as a portion of the fees paid to the placement
agent. The March 19, 2020 Placement Agent Warrants have a term of
five year from the issuance date.
A total
of 1.2 million March 19, 2020 Warrants have been exercised through
May 5, 2020, for total proceeds of $1.7 million, of which 0.7
million March 19, 2020 Warrants were exercised through March 31,
2020, for total proceeds of $1.1 million.
On
March 12, 2020, the Company entered into a securities purchase
agreement with certain institutional investors, pursuant to which
the Company agreed to sell and issue, in a registered direct
offering, an aggregate of (i) 16,000,000 shares of the
Company’s common stock at a purchase price per share of $1.25
and (ii) warrants to purchase up to 16,000,000 shares of Common
Stock (the “March 12, 2020 Warrants”) at an exercise
price of $1.25 per share, for aggregate gross proceeds to the
Company of $20.0 million, before deducting placement agent fees and
other offering expenses payable by the Company (the
“Registered Offering”). The March 12, 2020 Warrants are
exercisable immediately upon issuance and have a term of one year
from the issuance date. In addition, the Company issued warrants
with an exercise price of $1.5625 per share to purchase up to
1,040,000 shares of common stock (the “March 12, 2020
Placement Agent Warrants”) as a portion of the fees paid to
the placement agent. The March 12, 2020 Placement Agent Warrants
have a term of five year from the issuance date.
A total
of 13 million March 12, 2020 Warrants have been exercised through
May 5, 2020, for total proceeds of approximately $16.3 million, of
which approximately 10.5 million March 12, 2020 Warrants were
exercised through March 31, 2020, for total proceeds of $13.1
million.
On
March 10, 2020, Company entered into a securities purchase
agreement with an institutional investor, pursuant to which the
Company agreed to sell and issue, in a registered direct offering,
an aggregate of (i) 4,450,000 shares of the Company’s common
stock (the “Common Stock”) at a purchase price per
share of $1.15 and (ii) pre-funded warrants to purchase up to
3,376,087 shares of Common Stock (the “Pre-Funded
Warrants”) at an effective price of $1.15 per share ($1.1499
paid to the Company upon the closing of the offering and $0.0001 to
be paid upon exercise of such Pre-Funded Warrants), for aggregate
gross proceeds to the Company of approximately $9.0 million, before
deducting placement agent fees and other offering expenses payable
by the Company (the “Registered Offering”). The
Pre-Funded Warrants were immediately exercised upon close. In
addition, the Company issued warrants with an exercise price of
$1.4375 per share to purchase up to 508,696 shares of common stock
(the “March 10, 2020 Placement Agent Warrants”). The
March 10, 2020 Placement Agent Warrants have a term of five year
from the issuance date.
Since
March 10, 2020, a total of 6.0 million shares of the
Company’s October 2018 $1.50 Warrants (the “October 18
$1.50 Warrants”) were exercised, resulting in proceeds of
approximately $9.0 million.
In
total, the Company has raised net proceeds of approximately $71.5
million from the March Offerings and related warrant exercises, as
well as exercises of the October 2018 $1.50 Warrants. The net
proceeds received by the Company from the March Offerings and
related warrant exercise will be used for general corporate
purposes, including working capital.
On
October 11, 2019, the Company entered into Securities Purchase
Agreements (the “Purchase Agreement”) with two
institutional investors (the “Investors”) providing for
the issuance and sale by the Company (the “October 2019
Offering”) of $10.0 million of, (i) 10,000 shares of the
Company’s Series F Convertible Preferred Stock (the
“Preferred Stock”) which are convertible into
10,000,000 shares of common stock (the “Conversion
Shares”) for a stated value of $1,000 per unit and (ii)
10,000,000 warrants (the “October 2019 Warrants”) which
are exercisable for shares of common stock (the “Warrant
Shares”), which expire January 10, 2025,. The closing of the
October 2019 offering occurred on October 16, 2019. The Warrants
had an exercise price equal to $1.25 and contain a cashless
exercise provision. This provision was dependent on (i) performance
of the Company’s stock price between October 11, 2019 and the
date of exercise of all, or a portion of the Warrants, and (ii)
subject to shareholder approval of the October 2019 Offering, which
was approved January 24, 2020.
As
of March 31, 2020, all of the Series F Convertible Preferred Stock
were converted into 10 million shares of the Company’s common
stock, and 5.0 million of the October 2019 Warrants were exercised
using the cashless exercise provision to acquire 5.0 million shares
of the Company’s common stock. In April of 2020, the
remaining 5 million October 2019 Warrants were exercised using the
cashless exercise provision into 5.0 million shares of the
Company’s common stock.
The net proceeds that the Company received from
the October 2019 Offering were approximately $9.3 million.
The net proceeds received by the Company from the October 2019
Offerings have been used for general corporate purposes, including
working capital.
As of
the date of this Report, the Company expects its commercial costs
for its current operation 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 $168.5 million plus the proceeds expected from
ongoing product sales will be used to fund operations. The Company
may continue to access the capital markets to fund operations when
needed, and to the extent it is required. The timing and amount of
capital that may be raised is dependent on market conditions and
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. However, the Company has been successful in accessing
the capital markets in the past and is confident in its ability to
access the capital markets again, if needed. Since the Company has
sufficient cash and cash equivalents on-hand as of March 31, 2020
to cover potential net cash outflows for the twelve months
following the filing date of this Quarterly Report, ASU 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic
205-40) the Company reports that there does not exist indication of
substantial doubt about its ability to continue as a going
concern.
As
of the date of this report, while the Company has adequate capital
resources to complete its near-term operating and transaction
objectives, there is no guarantee that such capital resources will
be sufficient until such time the Company reaches profitability.
However, the Company has been successful in accessing the capital
markets in the past, and the Company is confident in its ability to
access the capital markets again, if needed.
If the
Company is unable to raise adequate capital in the future when it
is required, the Company 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.
Nasdaq Listing Compliance. The
Company’s common stock is listed on The Nasdaq Capital Market
(the “Nasdaq”). In order to maintain compliance with
Nasdaq listing standards,
the Company must, amongst other requirements, maintain a
stockholders’ equity balance of at least $2.5 million
pursuant to Nasdaq Listing Rule 5550(b). In that regard, on
September 30, 2019, the Company’s stockholders’ equity
totaled approximately $2.3 million, thereby potentially resulting
in a stockholders’ equity deficiency upon the filing of the
September 30, 2019 Form 10-Q. However, subsequent to September 30,
2019, the Company completed (i) the Offering with the Investors,
raising approximately $9.3 million, net in equity financing (see
Note 1), and (ii) the “Asset Purchase Agreement” in
which the Company issued approximately 9.8 million shares of Series
G Convertible Preferred Stock worth approximately $5.6 million,
resulting in an increase in stockholders’ equity of
approximately $14.8 million in the aggregate. Accordingly, as of
the filing of this Form 10-Q for the three and nine months ended
March 31, 2020, the Company’s stockholders’ equity
balance exceeds the minimum $2.5 million threshold and, therefore,
the Company believes it is currently in compliance with all
applicable Nasdaq Listing Requirements.
On
March 24, 2020, the Company received a letter from the Nasdaq
notifying the Company that the Nasdaq has determined that the
Company’s stock price has traded above at least $1.00 for at
least 10 consecutive business days since the previously announced
February 19, 2020 notice, and therefore, the Company has regained
compliance with Nasdaq Listing Rule 5550(a)(2), commonly referred
to as the Bid Price Rule.
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 its wholly-owned subsidiaries 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, 2019, 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 March 31, 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- and
nine- month periods ended March 31, 2020, and 2019, is
unaudited.
Adoption of New Accounting Pronouncements
Leases
(“ASU 2016-02”). In February 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2016-02
– Topic 842 Leases.
ASU 2016-02 requires that most leases
be recognized on the financial statements, specifically the
recognition of right-to-use assets and related lease liabilities,
and enhanced disclosures about leasing arrangements. The objective
is to provide improved transparency and comparability among
organizations. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those
fiscal years. The standard requires using the modified
retrospective transition method and apply ASU 2016-02 either at (i)
latter of the earliest comparative period presented in the
financial statements or commencement date of the lease, or (ii) the
beginning of the period of adoption. The Company has elected to
apply the standard at the beginning period of adoption, July 1,
2019 which resulted in no cumulative adjustment to retained
earnings.
The
Company has elected to apply the short-term scope exception for
leases with terms of 12 months or less at the inception of the
lease and will continue to recognize rent expense on a
straight-line basis. As a result of the adoption, on July 1, 2019,
the Company recognized a lease liability of approximately $0.4
million, which represented the present value of the remaining
minimum lease payments using an estimated incremental borrowing
rate of 8%. As of July 1, 2019, the Company recognized a
right-to-use asset of approximately $0.4 million. Lease expense did
not change materially as a result of the adoption of ASU
2016-02.
In
addition, in conjunction with the Innovus Merger, the Company
recognized a lease liability of approximately $0.8 million relating
to Innovus’ corporate offices and related warehouse as part
of the purchase price allocation (see Note 2).
Earnings
Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480), Derivatives and Hedging (Topic 815) (“ASU
2017-11”). In July 2017, the FASB issued ASU No. 2017-11
— Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815). Part I to ASU 2017-11 eliminates the requirement
to consider “down round” features when determining
whether certain equity-linked financial instruments or embedded
features are indexed to an entity’s own stock. In addition,
entities will have to make new disclosures for financial
instruments with down round features and other terms that change
conversion or exercise prices. Part I to ASU 2017-11 is effective
for fiscal years beginning after December 31, 2018. The Company
adopted this standard update as a result of the issuance of the
Series F Preferred stock as a result of the October 2019 Offering.
There were no “down-round” features present in the
financial instruments issued in conjunction with the March 2020
Offerings.
Recently Accounting Pronouncements
Fair Value Measurements (“ASU 2018-03”).
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.
Early adoption is permitted upon issuance of ASU 2018-13. An entity
is permitted to early adopt any removed or modified disclosures
upon issuance of ASU 2018-13 and delay adoption of the additional
disclosures until their effective date. The Company is currently
assessing the impact that ASU 2018-13 will have on its financial
statements, with the impact
mostly related to certain assets acquired or liabilities assumed
that comprise Level 3 inputs.
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 its 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 purchase and acquire
Cerecor’s Pediatric Portfolio, which closed on November 1,
2019. The Pediatric Portfolio consists of six 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 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 products returns, of which $3.2 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.
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.
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 remaining 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. Transaction costs of $0.0 and $0.7
million were included as general and administrative expense in the
consolidated statements of operations for the three and nine months
ended March 31, 2020.
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 therefore, are subject to revisions that may result in
adjustments to the values presented below:
|
|
|
|
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 transferred
|
$10,059,914
|
|
|
Recognized amounts of identifiable assets acquired and liabilities
assumed
|
|
Inventory,
net
|
$459,123
|
Prepaid
assets
|
1,743,555
|
Other
current assets
|
2,548,187
|
Intangible
assets – product technology rights
|
22,700,000
|
Accrued
product program liabilities
|
(6,320,853)
|
Assumed
fixed payment obligations
|
(26,457,162)
|
Total identifiable net assets
|
$(5,327,150)
|
|
|
Goodwill
|
$15,387,064
|
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 10).
|
|
|
|
Acquired
product technology rights
|
$22,700,000
|
The
fair value of the net identifiable asset acquired was determined to
be $22.7 million, which is being amortized over ten years. The
aggregate amortization expense was $0.6 million and $0, for the
three months ended March 31, 2020 and 2019 respectively. The
aggregate amortization expense was $0.9 million and $0, for the
nine months ended March 31, 2020 and 2019
respectively.
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 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 will continue as a subsidiary of the Company.
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.
The
following table summarized the preliminary fair value of assets
acquired and liabilities assumed at the date of acquisition.
Goodwill recorded in connection with the acquisition represents,
among other things, future economic benefits expect to be
recognized from the Company's expansion of products and customer
base.As this was a tax-exempt transaction, goodwill is not tax
deductible in future periods. These estimates are preliminary,
pending final evaluation of certain assets acquired and liabilities
assumed, and therefore, are subject to revisions that may result in
adjustments to the values presented below. The estimates of the
fair value of the assets acquired assumed at the date of the
Acquisition are subject to adjustment during the measurement period
(up to one year from the Acquisition date). While the Company
believes that such preliminary estimates provide a reasonable basis
for estimating the fair value of assets acquired, it evaluates any
necessary information prior to finalization of the fair value.
During the measurement period, the Company will adjust assets if
new information is obtained about facts and circumstances that
existed as of the Acquisition date that, if known, would have
resulted in the revised estimated values of those assets as of that
date. The impact of all changes that do not qualify as measurement
period adjustments are included in current period
earnings.
|
|
|
|
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 Series H Convertible 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
|
|
|
Recognized amounts of identifiable assets acquired and liabilities
assumed
|
|
Cash
and cash equivalents
|
390,916
|
Accounts
receivables, net
|
$278,826
|
Inventory,
net
|
1,149,625
|
Prepaid expenses
and other current assets
|
1,736,796
|
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
|
(6,983,969)
|
Other
current liabilities
|
(446,995)
|
Notes
payable
|
(3,056,361)
|
Lease
liability
|
(754,822)
|
Preacquisition
contingent consideration
|
(182,606)
|
Total identifiable net assets
|
4,430,994
|
|
|
Goodwill
|
$8,374,269
|
|
|
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).
|
|
|
|
Acquired
product distribution rights
|
$11,354,000
|
Acquired
customer lists
|
390,000
|
Total
intangible assets
|
$11,744,000
|
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. The aggregate amortization expense was $0.2
million and $0, for the three and nine months ended March 31, 2020
and 2019 respectively.
Pro Forma Impact due to Business Combinations
The
following supplemental unaudited proforma financial information
presents the Company’s results as if the following
acquisitions had occurred on July 1, 2018:
●
Acquisition of the
Pediatric Portfolio, effective November 1, 2019;
●
Merger with Innovus
effective February 14, 2020.
|
Three
Months Ended March 31,
|
Nine
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues, net
|
$10,331,629
|
$10,575,866
|
$34,276,368
|
$36,916,501
|
Net
income (loss)
|
(5,850,703)
|
(8,740,850)
|
(18,197,902)
|
(17,205,490)
|
Net
income / (loss) per share (dd)
|
$(0.17)
|
$(0.39)
|
$(0.80)
|
$(0.76)
|
(aa)
|
For the
three months ended March 31, 2020, Pediatric Portfolio acquisition
occurred prior to the three months ended March 31, 2020, and
accordingly, the results of the Pediatric Portfolio are fully
consolidated into the Company’s results for the three months
ended March 31, 2020.
|
|
|
(bb)
|
Due to
the absence of discrete financial information for Innovus, covering
the period from February 1, 2020 through February 13, 2020, the
Company did not include the impact of that stub-period for the pro
forma results for the three and nine months ended March 31,
2020.
|
|
|
(cc)
|
Due to
a lack of financial information covering the period from October 1,
2019 through November 1, 2019, the Company was not able to provide
pro forma adjusted financial statements for the nine months ended
March 31, 2020 without making estimated extrapolations that the
Company did not believe would be material or useful to users of the
above pro forma information.
|
|
|
(dd)
|
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
The Company sells its prescription products related products from
both the (i) Pediatric Portfolio and its (ii) Lifestyle Portfolio
(Natesto, Tuzistra and ZolpiMist) principally to a limited number
of wholesale distributors and pharmacies in the United States,
which account for the largest portion of our total prescription
products revenue. International sales are made primarily to
specialty distributors, as well as to hospitals, laboratories, and
clinics, some of which are government owned or supported
(collectively, its “Customers”). The Company’s
Customers in the United States subsequently resell the products to
pharmacies and patients. Revenue from product sales is recorded at
the established net sales price, or “transaction
price,” which includes estimates of variable consideration
that result from coupons, discounts, chargebacks and distributor
fees, processing fees, as well as allowances for returns and
government rebates. In accordance with ASC 606, the Company
recognizes net revenues from product sales when the Customer
obtains control of the Company’s product, which typically
occurs upon delivery to the Customer. The Company’s payment
terms are between 30 to 60 days in the United States and consistent
with prevailing practice in international
markets.
The Company generates revenues from its Consumer
Health Portfolio rom
product sales and the licensing of the rights to market and
commercialize our products. The
Company recognizes revenue when it satisfies a performance
obligation in a contract by transferring control over a product to
a customer when product is shipped. Taxes assessed by a
governmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction, that are collected by us
from a customer, are excluded from revenue. Shipping and handling
costs associated with outbound freight after control over a product
has transferred to a customer are accounted for as a fulfillment
cost and are included in cost of product sales.
In
addition, the Company’s Consumer Health Portfolio enters into
exclusive distributor and license agreements that are within the
scope of ASC Topic 606. The license agreements normally generate
three separate components of revenue: (1) an initial nonrefundable
payment due on signing or when certain specific conditions are met;
(2) royalties that are earned on an ongoing basis as sales are made
or a pre-agreed transfer price; and (3) sales-based milestone
payments that are earned when cumulative sales reach certain
levels. Revenue from the initial nonrefundable payments or
licensing fees are recognized when all required conditions are met.
If the consideration for the initial license fee is for the right
to sell the licensed product in the respective territory with no
other required conditions to be met, such type of nonrefundable
license fee arrangement for the right to sell the licensed product
in the territory is recognized ratably over the term of the license
agreement. For arrangements with licenses that include sales-based
royalties, including sales-based milestone payments based on the
level of sales, and the license is deemed to be the predominant
item to which the royalties relate, we recognize royalty revenue
and sales-based milestones at the later of (i) when the related
sales occur, or (ii) when the performance obligation to which the
royalty has been allocated has been satisfied. The achievement of
the sales-based milestone underlying the payment to be received
predominantly relates to the licensee’s performance of future
commercial activities.
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
March 31,
|
Nine Months Ended
March 31,
|
|
|
|
|
|
U.S.
|
$7,273,000
|
$2,024,000
|
$11,582,000
|
$5,025,000
|
International
|
883,000
|
348,000
|
1,189,000
|
574,000
|
Total net
revenue
|
$8,156,000
|
$2,372,000
|
$12,771,000
|
$5,599,000
|
As of
March 31, 2020, approximately 40% of outstanding trade accounts
receivables, net were comprised of a single counter-party, for
which the Company and the counter-party have an arrangement in
which initially, the counterparty was collecting the
Company’s customer payments on its behalf for certain
products acquired as part of the Pediatric Portfolio acquisition,
and upon a final transition, the Company is now collecting all
amounts relating to the Pediatric Portfolio, including on behalf of
the counter-party, for products still retained by the
counter-party.
4. Product Licenses and Acquisitions
The
Company licensed three of its existing product offerings from third
parties: (i) Natesto, (ii) ZolpiMist, and (iii) Tuzistra XR. Each
of these license agreements are subject to terms and conditions
specific to each agreement. The Company acquired an additional six
pharmaceutical products upon the closing of the Asset Purchase
Agreement with Cerecor. The Company recognized an intangible asset
of approximately $22.7 million relating the Product technology
rights acquired from the Pediatric Portfolio and
an intangible asset of approximately $11.7 million relating the
patent rights and trademarks acquired from the Innovus
Merger.
License and Supply Agreement—Natesto
In
April 2016, Aytu entered into a license and supply agreement to
acquire the exclusive U.S. rights to commercialize Natesto®
(testosterone) nasal gel from Acerus Pharmaceuticals Corporation,
or Acerus. We acquired the rights effective upon the expiration of
the former licensee’s rights, which occurred on June 30,
2016. The term of the license runs for the greater of eight years
or until the expiry of the latest to expire patent, including
claims covering Natesto or until the entry on the market of at
least one AB-rated generic product.
On July 29, 2019,
the Company and Acerus agreed-to an Amended and Restated License
and Supply Agreement (the “Acerus Amendment”), subject
to certain conditions being satisfied prior to the Acerus Amendment
becoming effective and enforceable. The Acerus Amendment
eliminated the previously disclosed revenue-based milestone
payments expected to be made to Acerus.The maximum aggregate
milestones payable under the original agreement were $37.5 million.
Upon the effectiveness of the Acerus Amendment on December 1, 2019,
all royalty and milestone liabilities were eliminated. Upon the
effectiveness of the Acerus Amendment, Acerus was granted the right
to earn commissions on certain filled Natesto prescriptions.
Additionally, Acerus assumed certain ongoing sales, marketing and
regulatory obligations from the Company. This Acerus Amendment
became effective December 1, 2019, resulting in a $5.2 million
unrealized gain during the nine months ended March 31, 2020, due to
the elimination of the revenue-based product milestones.
Accordingly, there is no remaining value attributable to the
contingent consideration relating to the Natesto License and Supply
Agreement.
The
fair value of the net identifiable Natesto asset acquired was
determined to be $10.5 million, which is being amortized over eight
years. The aggregate amortization expense for each of the
three-month periods ended March 31, 2020 and 2019 was $0.3 million.
The aggregate amortization expense for
each of the nine-month periods ended March 31, 2020 and 2019 was
$1.0 million.
License Agreement—ZolpiMist
In June
2018, Aytu signed an exclusive license agreement for
ZolpiMist™ (zolpidem tartrate oral spray) from Magna
Pharmaceuticals, Inc., (“Magna”). This agreement allows
for Aytu’s exclusive commercialization of ZolpiMist in the
U.S. and Canada.
Aytu
made an upfront payment of $0.4 million to Magna upon execution of
the agreement.
The
ZolpiMist license agreement was valued at $3.2 million and is
amortized over the life of the license agreement up to seven years.
The amortization expense for each of the three months ended March
31, 2020 and 2019 was $116,000. The
aggregate amortization expense for each of the nine-month periods
ended March 31, 2020 and 2019 was $348,000.
We also
agreed to make certain royalty payments to Magna which will be
calculated as a percentage of ZolpiMist net sales and are payable
within 45 days of the end of the quarter during which the
applicable net sales occur.
The
contingent consideration related to these royalty payments was
valued at $2.6 million using a Monte Carlo simulation, as of June
11, 2018. As of June 30, 2019, the contingent consideration was
revalued at $2.3 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 March 31, 2020 and 2019 was $59,000 and $64,000,
respectively. The contingent
consideration accretion expense for each of the nine-month periods
ended March 31, 2020 and 2019 was $169,000, and $184,000,
respectively. As of March 31, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
License, Development, Manufacturing and Supply
Agreement—Tuzistra XR
On
November 2, 2018, the Company entered into a License, Development,
Manufacturing and Supply Agreement (the “Tris License
Agreement”) with TRIS Pharma, Inc. (“TRIS”).
Pursuant to the Tris License Agreement, TRIS granted the Company an
exclusive license in the United States to commercialize Tuzistra
XR. In addition, TRIS granted the Company an exclusive license in
the United States to commercialize a complementary antitussive
referred to as “CCP-08” (together with Tuzistra XR, the
“Products”) for which marketing approval has been
sought by TRIS under a New Drug Application filed with the Food and
Drug Administration (“FDA”). As consideration for the
Products license, the Company: (i) made an upfront cash payment to
TRIS; (ii) issued shares of Series D Convertible preferred stock to
TRIS; and (iii) will pay certain royalties to TRIS and another
predecessor product owner throughout the license term in accordance
with the Tris License Agreement, including certain minimum
royalties to TRIS..
The
Tris License Agreement was valued at $9.9 million and will be
amortized over the life of the Tris License Agreement up to twenty
years. The amortization expense for each of the three-month periods
ended March 31, 2020 and 2019 was $123,000, respectively.
The aggregate amortization expense for
each of the nine-month periods ended March 31, 2020 and 2019 was
$369,000 and $205,000.
We also
agreed to make certain quarterly royalty payments to TRIS which
will be calculated as a percentage of our Tuzistra XR net sales,
payable within 45 days of the end of the applicable
quarter.
As of
November 2, 2018, the contingent consideration, related to this
asset, was valued at $8.8 million using a Monte Carlo simulation.
As of June 30, 2019, the contingent consideration was revalued at
$16.0 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 March 31, 2020 and 2019 was $125,000, and $73,000,
respectively. The contingent
consideration accretion expense for each of the nine-month periods
ended March 31, 2020 and 2019 was $322,000, and $119,000,
respectively. As of March 31, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
Asset Purchase
Agreement—the Pediatric Portfolio
In November 2019, Aytu Therapeutics, LLC., a
wholly-owned subsidiary of Aytu, acquired the portfolio of
pediatric therapeutic commercial products from Cerecor, Inc (the
“Pediatric Portfolio”). This transaction expanded our
product portfolio with the addition of six prescription
products, (i) AcipHex® Sprinkle™, (ii) Cefaclor for Oral
Suspension, (iii) Karbinal® ER, (iv) Flexichamber™, (v)
Poly-Vi-Flor® and Tri-Vi-Flor™.
Aytu paid $4.5 million in cash, issued
approximately 9.8 million shares of Series G Convertible Preferred
Stock and assumed certain of Seller’s financial and royalty
obligations, and not more than $3.5 million of Medicaid rebates and
products returns.
In
addition, the Company has assumed obligations due to an investor
including fixed and variable payments. 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. 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.
Supply and Distribution Agreement, As Amended –
Karbinal® ER
The
Company acquired and assumed all rights and obligations pursuant to
the Supply and Distribution Agreement, as Amended, with TRIS for
the exclusive rights to commercialize Karbinal® ER in the
United States (the “TRIS Karbinal Agreement”). The TRIS
Karbinal Agreement’s initial term terminates in August of
2033, with an optional initial 20-year extension.
The
Company owes royalties on sales of Karbinal of 23.5% of net
revenues on a quarterly basis. As part of the agreement, the
Company has agreed to pay TRIS a product make-whole payment of
approximately $1.8 million per year through July 2023, totaling a
minimum of $6.6 million (see Note 12).
Supply and License Agreement – Poly-Vi-Flor &
Tri-Vi-Flor
The
Company acquired and assumed all rights and obligations pursuant to
a Supply and License Agreement and various assignment and release
agreements, including a previously agreed to Settlement and License
Agreements (the “Poly-Tri Agreements”) for the
exclusive rights to commercialize Poly-Vi-Flor and Tri-Vi-Flor in
the United States.
The
Company owes royalties to multiple parties totaling approximately
29.0% of net revenues on a quarterly basis. There are no
milestones, make-whole payments other otherwise any contingencies
related to these agreements.
License and Assignment Agreement – AcipHex
Sprinkle
The
Company acquired and assumed all rights and obligations pursuant to
the License and Assignment Agreement with Eisai, Inc. for exclusive
rights to commercialized AcipHex Sprinkle in the United States (the
“Eisai AcipHex Agreement”).
The
Eisai AcipHex Agreement includes quarterly royalties totaling 15%
of net revenues, but offset by amounts paid for certain regulatory
costs otherwise the responsibility of Eisai Co., Ltd. In addition,
there are certain milestone provisions triggering potential
payments of between $3.0 - $5.0 million, for which the Company has
preliminarily estimated to have a value of $0.00.
License, Supply and Distribution Agreement –
Cefaclor
The
Company acquired and assumed all rights and obligations pursuant to
the License, Supply and Distribution Agreement involving multiple
counterparties to commercialize Cefaclor in the United States. (the
“Cefaclor Agreement”).
The
Cefaclor Agreement includes quarterly royalties totaling
approximately 15% of net products sales. In addition, there are
certain milestone provisions triggering potential payments of
between $0.5 - $2.5 million, for which the Company has
preliminarily estimated to have a value of $0.00.
Innovus Merger
On
February 14, 2020, the Company and Innovus Pharmaceuticals, Inc.
(“Innovus”) completed the Merger after successful
approval of the Merger by the shareholders of the Company and
Innovus at separate special meetings held on February 13, 2020.
Upon completion of the Merger, the Company obtained a combination
of 18 registered trademarks and/or patent rights including, but not
limited to the following:
Patented Products
●
Recalmax –A dietary supplement
specially formulated to increase the benefits of Nitric Oxide and
act as a vasodilator. Supports improved cognitive
function.
●
Sensum – a male moisturizer cream to
increase gland sensitivity.
●
Vessele – A dietary supplement
formulated for healthy blood flow.
●
Zestra - Patented blend of botanical
oils and extracts, scientifically formulated to support women's
sexual satisfaction.
Trademarks
●
Diabasens – Topical cream
forumulated to relieve cutaneous pain associated with conditions
such as Postherpetic Neuralgia and Diabetic
Neuropathy.
●
Fluticare – 24-hour nasal allergy
relief that helps fight indoor and outdoor allergens causing
congestion, sneezing and a runny nose.
●
Urivarx – a dietary supplement to
support bladder tone and function.
●
Beyond Human Testosterone Booster - A
daily dietary supplement that naturally increases testosterone
Levels, supporting natural stamina, endurance and
strength.
5. 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. There was no inventory write-down
during the three and nine months ended March 31, 2020 or 2019,
respectively.
Inventory
balances consist of the following:
|
|
|
|
|
|
|
|
|
Raw
materials
|
$363,000
|
$117,000
|
Finished
goods
|
3,491,000
|
1,323,000
|
|
$3,854,000
|
$1,440,000
|
6. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
equipment
|
2 - 5
|
$389,000
|
$83,000
|
Leasehold
improvements
|
3
|
297,000
|
112,000
|
Office equipment,
furniture and other
|
2 - 5
|
392,000
|
315,000
|
Lab
equipment
|
3 - 5
|
90,000
|
90,000
|
Software
|
3 - 5
|
339,000
|
-
|
Less accumulated
depreciation and amortization
|
|
(1,219,000)
|
(396,000)
|
|
|
|
|
Fixed
assets, net
|
|
$288,000
|
$204,000
|
Depreciation and
amortization expense totaled $24,000 for each of the three-months
ended March 31, 2020 and 2019, respectively, and $56,000 and
$59,000 for the nine months ended March 31, 2020 and
2019.
7. Leases, Right-to-Use Assets and Related Liabilities
In September 2015, the Company entered into a 37-month operating
lease in Englewood, Colorado. In October 2017, the Company signed
an amendment to extend the lease for an additional 24 months
beginning October 1, 2018. In April 2019, the Company extended the
lease for an additional 36 months beginning October 1, 2020. This
lease has base rent of approximately $10 thousand a month, with
total rent over the term of the lease of approximately $355
thousand.
In
June 2018, the Company entered into a 12-month operating lease,
beginning on August 1, 2018, for office space in Raleigh, North
Carolina. This lease has base rent of approximately $1 thousand a
month, with total rent over the term of the lease of approximately
$13 thousand.
In October 2017, the Company’s subsidiary,
Innovus, entered into a commercial lease agreement for 16,705
square feet of office and warehouse space in San Diego, California
that commenced on December 1, 2017 and continues until April 30,
2023. The initial monthly base rent was $21,000 with an approximate
3% increase in the base rent amount on an annual basis, as well as,
rent abatement for rent due from January 2018 through May 2018. The
Company holds an option to extend the lease an additional 5 years
at the end of the initial term. On November 18, 2019
(“decision date”), Innovus determined it would no
longer utilize the warehouse portion of the lease space,
representing approximately 9,729 square feet, and as of December
31, 2019 (“cease use date”) ceased using any such
space. In accordance with ASC 842, Leases, the Company assessed the asset value of the
separate lease component and amortized such asset from the decision
date through the cease use date.
As discussed within Note 1, the Company 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 its 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 are 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.
|
|
|
|
|
|
|
|
Remaining
Office leases
|
$1,268,000
|
$93,000
|
$383,000
|
$396,000
|
$356,000
|
$40,000
|
−
|
Less:
Discount Adjustment
|
(175,000)
|
|
|
|
|
|
|
Total
lease liability
|
1,093,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liability - current portion
|
289,000
|
|
|
|
|
|
|
Long-term
lease liability
|
$804,000
|
|
|
|
|
|
|
Rent
expense for the three months ended March 31, 2020 and 2019 totaled
$61 thousand and $31 thousand, respectively. Rent expense for the
nine months ended March 31, 2020 and 2019 totaled $126 thousand and
$94 thousand, respectively.
8. Patents
The
cost of the oxidation-reduction potential (“ORP”)
technology related patents for the MiOXSYS Systems was $380,000
when they were acquired and are being amortized over the remaining
U.S. patent life of approximately 15 years as of the date, which
expires in March 2028.
Patents
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Patents -
MiOXSYS
|
$380,000
|
$380,000
|
Less
accumulated amortization
|
(178,000)
|
(159,000)
|
Patents,
net
|
$202,000
|
$221,000
|
The
amortization expense was $6 thousand for the three months ended
March 31, 2020 and 2019, respectively, and $19 thousand for the
nine months ended March 31, 2020 and 2019
respectively.
On
February 14, 2020, upon completion of the Merger with Innovus,
the Company recognized the fair value
of the rental of the customer lists for $390,000 and will amortize
the asset over a useful life of 1.5 years.
The Company recognized the fair value of
trademarks, patents or a combination of both for 18 distinct
products that the Company markets, distributes and sells for
$11,354,000 and will amortize the asset over a useful life of 5
years.
|
|
|
|
|
|
|
|
|
|
|
|
Patents &
tradenames
|
$11,354,000
|
$-
|
Customers
contracts
|
390,000
|
-
|
Less
accumulated amortization
|
(221,000)
|
-
|
Patents
& tradenames, net
|
$11,523,000
|
$-
|
9. Accrued liabilities
Accrued
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
Accrued
legal settlement
|
$205,000
|
$−
|
Accrued
program liabilities
|
1,299,000
|
736,000
|
Accrued
product-related fees
|
1,644,000
|
295,000
|
Credit
card liabilities
|
941,000
|
−
|
Contract
liability
|
180,000
|
4,000
|
Medicaid
liabilities
|
3,255,000
|
61,000
|
Return
reserve
|
1,671,000
|
98,000
|
Sales
taxes payable
|
172,000
|
−
|
Other
accrued liabilities*
|
463,000
|
117,000
|
Total
accrued liabilities
|
$9,830,000
|
$1,311,000
|
* 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.
10. 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.
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
March 31, 2020 and June 30, 2019, by level within the fair value
hierarchy.
|
|
Fair Value
Measurements at March 31, 2020
|
|
Fair Value
at
March 31,
2020
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Recurring:
|
|
|
|
|
Warrant
derivative liability
|
$11,000
|
–
|
–
|
$11,000
|
Contingent
consideration
|
18,754,000
|
–
|
–
|
18,754,000
|
CVR
liability
|
5,219,000
|
–
|
–
|
5,219,000
|
|
|
|
|
|
|
$23,984,000
|
–
|
–
|
$23,984,000
|
|
|
Fair Value
Measurements at June 30, 2019
|
|
Fair Value
at
June 30,
2019
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Recurring:
|
|
|
|
|
Warrant
derivative liability
|
$13,000
|
–
|
–
|
$13,000
|
Contingent
consideration
|
23,326,000
|
–
|
–
|
23,326,000
|
CVR
liability
|
–
|
–
|
–
|
–
|
|
|
|
|
|
|
$23,339,000
|
–
|
–
|
$23,339,000
|
Warrant Derivative
Liability. The warrant
derivative liability was historically valued using the lattice
valuation methodology because that model embodies the relevant
assumptions that address the features underlying these instruments.
The warrants related to the warrant derivative liability are not
actively traded and are, therefore, classified as Level 3
liabilities. As a result of the immaterial value of the balance as
of both June 30, 2019 and March 31, 2020, coupled with continued
further declines in the Company’s stock price, the Company
elected to waive on adjusting the current fair value of the
derivative warrant liability as any adjustment was deemed de
minimus.
|
|
|
Warrant
Derivative Liability
|
|
|
Volatility
|
163.2%
|
163.2%
|
Equivalent
term (years)
|
2.88
|
3.13
|
Risk-free
interest rate
|
1.71%
|
1.71%
|
Dividend
yield
|
0.00%
|
0.00%
|
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.
The
Company derecognized the contingent consideration liability related
to Natesto as a result of the December 1, 2019 effectiveness of the
Acerus Amendment, which eliminated product milestone payments
underlying the contingent consideration liability. Due to the
derecognition of the Natesto contingent consideration, the Company
recognized a, non-operating gain of approximately $5.2 million
during the three and nine months ended March 31, 2020.
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. There was no material change
in this valuation as of March 31, 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. On of March 31, 2020, the Company
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.
Non-Recurring Fair Value Measurements
The
following table represents those asset and liabilities measured on
a non-recurring basis for the nine months ended March 31, 2020 as a
result of the (i) November 1, 2019 acquisition of the Pediatrics
Portfolio and (ii) the February 14, 2020 Innovus
Merger.
|
Fair Value at
Measurement Date
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Non-recurring
|
|
|
|
|
Pediatric Portfolio (November 1, 2019)
|
|
|
|
|
Product
technology rights
|
$22,700,000
|
–
|
–
|
22,700,000
|
Goodwill
|
15,687,064
|
–
|
–
|
15,687,064
|
Fixed payment
arrangements
|
26,457,162
|
–
|
–
|
26,457,162
|
|
|
|
|
|
Innovus Merger (February 14, 2020)
|
|
|
|
|
Customer
lists
|
390,000
|
–
|
–
|
390,000
|
Product
distribution rights (trademarks and patents)
|
11,354,000
|
–
|
–
|
11,354,000
|
Right-to-use
asset
|
675,980
|
|
|
675,980
|
Goodwill
|
8,374,269
|
–
|
–
|
8,374,269
|
Notes
payable
|
3,056,361
|
–
|
–
|
3,056,361
|
|
|
|
|
|
|
$88,694,836
|
–
|
–
|
$88,694,836
|
Acquisition
of the Pediatric Portfolio
Product technology
rights. The Company recognized
the product technology right intangible asset acquired as part of
the November 1, 2019 acquisition of the Pediatric Portfolio. This
intangible asset consists of the acquired product technology rights
consisting of (i) AcipHex Sprinkle, (ii) Karbinal ER, (iii)
Cefaclor, and (iv) Poly-vi-Flor and Tri-vi-Flor. The Company
utilized a Multiple-Period Excess Earnings Method
model.
|
As
of
November
1,
2019 (*)
|
Product
technology rights
|
|
Re-levered
Beta
|
1.60
|
Market risk
premium
|
6.00%
|
Small stock
risk premium
|
5.20%
|
Risk-free
interest rate
|
2.00%
|
Company
specific discount
|
25.00%
|
(*)
Valuation performed as of November 1, 2019. As a non-recurring fair
value measurement, there is no remeasurement at each reporting
period unless indications exist that the fair value of the asset
has been impaired. There were no indicators as of March 31, 2020
that the fair value of the Product technology rights was
impaired.
Goodwill. Goodwill represents the fair
value of consideration transferred and liabilities assumed in
excess of the fair value of assets acquired. Remeasurement of the
fair value of goodwill only arises upon either (i) indicators that
the fair value of goodwill has been impaired, or (ii) during the
annual impairment test performed at June 30 of each fiscal year.
There were no indicators observed or identified during and as of
the period from November 1, 2019 through March 31,
2020.
Fixed payment arrangements. The Company
assumed obligations due to an investor including fixed and variable
payments. 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 is due. The variable payment obligation continues
until the earlier of: (i) aggregate variable payments of
approximately $9.3 million have been made, or (ii) February 12,
2026. In addition, the Company assumed fixed, product minimums
royalties of approximately $1.75 million per annum through February
2023.
|
|
As of November
1,
2019 (≠)
|
|
Fixed payment
obligations
|
|
|
Discount
rate
|
|
1.8%
to 12.4%
|
|
(≠)
Valuation performed as of November 1,
2019. As a non-recurring fair value measurement, there is no
remeasurement at each reporting period unless indicates that the
circumstances that existed as of the November 1, 2019 measurement
date indicate that the carrying value is no longer indicative of
fair value.
Innovus Merger
Customer lists.
The Company recognized the fair value
of the rental of the customer lists that existed as of the
Valuation Date to be $364,232. The Company utilized an income
method approach through a discounted cash flow model. Through an
iterative process, the Company added the value to the tax
amortization benefits associated with the customer lists to arrive
at an overall fair value for the customer lists of
$390,000.
Trademarks and patents.
The Company recognized the fair value
of trademarks, patents or a combination of both for 18 distinct
products that the Company markets, distributes and sells. An Income
Approach known as the Relief-From-Royalty Method was utilized to
value the product distribution rights associated with each of the
18 products associated with trademarks and patents. A royalty rate
of 15% was used based on upon a range of observable royalties
between the range of 7.5% and 34.5%.
|
|
Trademarks
and patents
|
|
Re-levered
Beta
|
0.84%
|
Market risk
premium
|
6.17%
|
Small stock
risk premium
|
4.99%
|
Risk-free
interest rate
|
1.89%
|
Company
specific discount
|
20.00%
|
Goodwill. Goodwill represents the fair value of
consideration transferred and liabilities assumed in excess of the
fair value of assets acquired. Remeasurement of the fair value of
goodwill only arises upon either (i) indicators that the fair value
of goodwill has been impaired, or (ii) during the annual impairment
test performed at June 30 of each fiscal year. There were no
indicators observed or identified during and as of the period from
February 14, 2020 through March 31, 2020.
Innovus Notes Payable.
The Innovus Notes Payable represent
twelve financial obligations assumed as part of the Innovus Merger.
These notes are comprised of ten uncollateralized obligations with
a face value of approximately $3.6 million and two notes secured by
inventory held fulfillment centers with Amazon, Inc. and a face
value of approximately $0.4 million (the “Innovus
Notes”). The Innovus Notes were revalued using the estimated
cost of capital at the valuation date for a total estimated fair
value of approximately $3.1 million.
The
ten unsecured Innovus Notes consist of ten separate loans with
implied effective interest rates ranging between 14.1% and 73.4%.
The weighted average interest rate for these notes was 39.5%, while
the weighted average interest rate for the most recent loan
(January 9, 2020) was 41.4%. All ten of the notes are unsecured,
and as of the valuation date there was significant risk associated
with their repayment. Accordingly, the Company has revalued the
notes using an effective rate of 40% and concluded that the fair
value at the February 14, 2020 Innovus Merger date was
approximately $2.7 million.
The
secured Innovus Notes due to Amazon had had maturities of less than
one year and stated rates of 17.2% and 14.7% respectively. Due to
the fact that the most recent loan had a stated rate of 14.7% and
that the weighted average rate for these two loans was 15.6%, the
Company has estimated the current value of the loans using an
effective rate of 15% and concluded that the fair value of the
secured Innovus Notes totaled approximately $0.4
million.
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 nine months ended March 31,
2020:
|
Product
Technology Rights
|
|
|
Liability
Classified Warrants
|
|
|
Fixed Payment
Arrangements
|
Balance as of
June 30, 2019
|
–
|
–
|
–
|
$13,000
|
–
|
$23,326,000
|
–
|
Transfers
into Level 3
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
Transfer out
of Level 3
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
Total gains,
losses, amortization or accretion in period
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
Included in
earnings
|
(946,000)
|
(221,000)
|
–
|
(2,000)
|
170,000
|
(4,576,000)
|
647,000
|
Included in
other comprehensive income
|
–
|
–
|
–
|
–
|
|
–
|
|
Purchases,
issues, sales and settlements
|
|
–
|
|
|
|
|
|
Purchases
|
22,700,000
|
11,744,000
|
24,061,000
|
–
|
7,049,000
|
183,000
|
–
|
Issues
|
–
|
–
|
–
|
–
|
–
|
–
|
26,457,000
|
Sales
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
Settlements
|
–
|
–
|
–
|
–
|
(2,000,000)
|
(179,000)
|
(1,547,000)
|
Balance as of
March 31, 2020
|
$21,754,000
|
$11,523,000
|
$24,061,000
|
$11,000
|
$5,219,000
|
$18,754,000
|
$25,557,000
|
11. Note Receivable
On
September 12, 2019, the Company announced it had entered into a
definitive merger agreement with Innovus (see Note 1) to acquire
Innovus which specializes in commercializing, licensing and
developing safe and effective supplements and over-the-counter
consumer health products. As part of the negotiations with Innovus,
the Company agreed to provide a short-term, loan in the form of a
$1.0 promissory note on August 8, 2019 (the “Innovus
Note”). In addition, on October 11, 2019, the Company amended
the original promissory note, providing an additional approximately
$0.4 million of bridge financing under the same terms and
conditions as the Innovus Note. Upon the closing of the Merger,
this note receivable was used to offset a portion of the $8 million
initial closing purchase price and was deducted from the
consideration value used when determining the number of shares of
Aytu common stock to be issued upon closing of the
acquisition.
12. Commitments and Contingencies
Commitments and contingencies are described below and summarized by
the following as of March 31, 2020:
|
|
|
|
|
|
|
|
Prescription
database
|
$1,762,000
|
$262,000
|
$767,000$
|
$733,000$
|
$–
|
$–
|
–
|
Pediatric
portfolio fixed payments and product minimums
|
28,715,000
|
998,000
|
18,471,000
|
2,950,000
|
2,950,000
|
1,346,000
|
2,000,000
|
CVR
liability
|
5,219,000
|
787,000
|
1,210,000
|
2,327,000
|
895,000
|
–
|
–
|
Inventory
purchase commitment
|
2,943,000
|
1,226,250
|
1,716,750
|
|
|
|
|
Product
contingent liability
|
183,000
|
–
|
–
|
–
|
–
|
–
|
183,000
|
Product
milestone payments
|
3,000,000
|
–
|
–
|
3,000,000
|
–
|
–
|
–
|
|
$41,822,000
|
$3,273,250
|
$22,164,750
|
$9,010,000
|
$3,845,000
|
$1,346,000
|
$2,183,000
|
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. There is the potential for the second fixed
obligation to increase an additional $1.8 million depending on
product sales, which could trigger additional amounts to be
paid.
In
addition, the Company acquired a Supply and Distribution Agreement
with TRIS Pharma (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 will entitle 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.
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
10).
13. 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
March 31, 2020 and June 30, 2019, Aytu had 100,610,380 and
17,538,071 common shares outstanding, respectively, and 9,805,845
and 3,594,981 preferred shares outstanding,
respectively.
The
Company has 50 million shares of non-voting, non-cumulative
preferred stock authorized with a par value of $0.0001 per share,
of which, 9,805,845 are designated as Series G Convertible
preferred stock as of March 31, 2020. Liquidation rights for all
series of preferred stock are on an as-converted to common stock
basis.
Included
in the common stock outstanding are 3,345,766 shares of restricted
stock issued to executives, directors, employees and
consultants.
During the three months ended September 30, 2019,
investors holding shares of Series C preferred stock exercised
their right to convert 443,833 shares of Series C preferred stock
into 443,833 shares of common stock. There are no remaining Series
C preferred stock outstanding.
In October 2019, Armistice Capital converted
2,751,148 shares of Series E convertible preferred stock into
2,751,148 shares of common stock. There are no remaining Series E
preferred stock outstanding.
In October 2019, the Company issued 10,000 shares of Series F
Convertible preferred stock, with a face value of $1,000 per share,
and convertible at a conversion price of $1.00 (the “Current
Conversion Price”). The terms of the Series F Convertible
Preferred include a conversion price reset provision in the event a
future financing transaction is priced below the Current Conversion
Price. The Company has determined that concurrent with the adoption
of ASU 2017-11, this down-round provision feature reflects a
beneficial conversion feature contingent on a future financing
transaction at a price lower than the Current Conversion Price. As
the Series F Convertible Preferred stock is an equity classified
instrument, any accounting arising from a future event giving rise
to the beneficial conversion feature would have no net impact on
the Company’s financial statements, as all activity would be
recognized within Additional Paid-in-Capital and
offset.
In addition and concurrent with the Series F
Convertible preferred stock issuance, the Company issued 10,000,000
warrants, with an exercise price of $1.25 and a term of five
years. These warrants feature a contingent cashless exercise
provision. During the three months ended December 31, 2019, the
cashless exercise contingency was satisfied, reducing the strike
price of the October 2019 Warrants to $0. During the three months
ended March 31, 2020, an investor exercised 5,000,000 of the
warrants using the cashless exercise provision. In April 2020,
another investor exercised the remaining 5,000,000 of the October
2019 warrants using the cashless exercise provision, resulting in
no remaining October 2019 warrants.
In
November 2019, in connection with the Pediatric Portfolio
acquisition, the Company issued 9,805,845 shares of Series G
Convertible Preferred stock, of which, Pediatric Portfolio
converted 9,805,845 shares of the Series G Convertible Preferred
stock into 9,805,845 shares of common stock in April of
2020.
During
the three months ended March 31, 2020, the Company entered into
three separate offerings, on March 10, 2020, March 12, 2020 and
March 19, 2020 (the “March Offerings”) in which the
Company issued a combination of common stock and warrants. The
following summarizes the March Offerings, including total capital
raised from both the issuance of common stock and subsequent
warrant exercises.
On
March 19, 2020, the Company entered into a securities purchase
agreement with certain institutional investors (the “the
March 19, 2020 Purchasers”), pursuant to which the Company
agreed to sell and issue, in a registered direct offering, an
aggregate of (i) 12,539,197 shares of the Company’s common
stock (the “Common Stock”) at a purchase price per
share of $1.595 and (ii) warrants to purchase up to 12,539,197
shares of Common Stock (the “March 19, 2020 Warrants”)
at an exercise price of $1.47 per share, for aggregate gross
proceeds to the Company of $20.0 million, before deducting
placement agent fees and other offering expenses payable by the
Company. The March 19, 2020 Warrants are exercisable immediately
upon issuance and have a term of one year from the issuance date.
In addition, the Company issued warrants with an exercise price of
$1.9938 per share to purchase up to 815,047 shares of common stock
(the “March 19, 2020 Placement Agent Warrants”). The
March 19, 2020 Placement Agent Warrants have a term of five years
from the issuance date.
A
total of 1.2 million March 19, 2020 Warrants have been exercised
through May 5, 2020, for total proceeds of $1.7 million, of which
0.7 million March 19, 2020 Warrants were exercised through March
31, 2020, for total proceeds of $1.1 million.
On
March 12, 2020, the Company entered into a securities purchase
agreement with certain institutional investors, pursuant to which
the Company agreed to sell and issue, in a registered direct
offering, an aggregate of (i) 16,000,000 shares of the
Company’s common stock at a purchase price per share of $1.25
and (ii) warrants to purchase up to 16,000,000 shares of Common
Stock (the “March 12, 2020 Warrants”) at an exercise
price of $1.25 per share, for aggregate gross proceeds to the
Company of $20.0 million, before deducting placement agent fees and
other offering expenses payable by the Company (the
“Registered Offering”). The March 12, 2020 Warrants are
exercisable immediately upon issuance and have a term of one year
from the issuance date. In addition, the Company issued warrants
with an exercise price of $1.5625 per share to purchase up to
1,040,000 shares of common stock (the “March 12, 2020
Placement Agent Warrants”). The March 12, 2020 Placement
Agent Warrants have a term of five years from the issuance
date.
A
total of 13 million March 12, 2020 Warrants have been exercised
through May 5, 2020, for total proceeds of approximately $16.3
million, of which approximately 10.5 million March 12, 2020
Warrants were exercised through March 31, 2020, for total proceeds
of $13.1 million.
On
March 10, 2020, Company entered into a securities purchase
agreement with an institutional investor, pursuant to which the
Company agreed to sell and issue, in a registered direct offering,
an aggregate of (i) 4,450,000 shares of the Company’s common
stock (the “Common Stock”) at a purchase price per
share of $1.15 and (ii) pre-funded warrants to purchase up to
3,376,087 shares of Common Stock (the “Pre-Funded
Warrants”) at an effective price of $1.15 per share ($1.1499
paid to the Company upon the closing of the offering and $0.0001 to
be paid upon exercise of such Pre-Funded Warrants), for aggregate
gross proceeds to the Company of approximately $9.0 million, before
deducting placement agent fees and other offering expenses payable
by the Company (the “Registered Offering”). The
Pre-Funded Warrants were immediately exercised upon close. In
addition, the Company issued warrants with an exercise price of
$1.4375 per share to purchase up to 508,696 shares of common stock
(the “March 10, 2020 Placement Agent Warrants”). The
March 10, 2020 Placement Agent Warrants have a term of five years
from the issuance date.
Between
March 10, 2020 and March 31, 2020, a total of 6.0 million shares of
the Company’s October 2018 $1.50 Warrants (the “October
18 $1.50 Warrants”) were exercised, resulting in proceeds of
approximately $9.0 million.
In
total, the Company has raised net proceeds of approximately $71.5
million from the March Offerings and related warrant exercises, as
well as exercises of the October 2018 Warrants. The net proceeds
received by the Company from the March Offerings and related
warrant exercise will be used for general corporate purposes,
including working capital.
During
the three months ended March 31, 2020, the following Convertible
Preferred Stock issuances were converted into the Company’s
common stock:
●
400,000 shares of
the Series D Convertible Preferred Stock were converted into
400,000 shares of the Company’s common stock. There are no
remaining shares of the Series D Convertible Preferred Stock
outstanding at March 31, 2020;
●
10,000 shares of
the Series F Convertible Preferred Stock issuances were converted
into 10,000,000 shares of the Company’s common stock. There
are no remaining shares of the Series F Convertible Preferred stock
outstanding at March 31, 2020;
●
1,997,902 shares of
the Company’s Series H Convertible Preferred Stock were
converted into 1,997,902 shares of the Company’s common
stock. There are no remaining shares of the Series H Convertible
Preferred stock outstanding at March 31, 2020.
14. Equity Incentive Plan
Share-based Compensation Plans
On
June 1, 2015, Aytu’s stockholders approved the Aytu
BioScience 2015 Stock Option and Incentive Plan (the “2015
Plan”), which, as amended in July 2017, provides for the
award of stock options, stock appreciation rights, restricted stock
and other equity awards for up to an aggregate of 3.0 million
shares of common stock. The shares of common stock underlying any
awards that are forfeited, canceled, reacquired by Aytu prior to
vesting, satisfied without any issuance of stock, expire or are
otherwise terminated (other than by exercise) under the 2015 Plan
will be added back to the shares of common stock available for
issuance under the 2015 Plan. As of March 31, 2020, we have
1,317,337 shares that are available for grant under the 2015
Plan.
On
December 23, 2019, the Company filed Form S-4 related to the
proposed Innovus merger, in which shareholders are asked to approve
an increase to 5.0 million total shares of common stock in the 2015
Plan. As of the date of this report, Aytu shareholders approved the
proposal to increase the total number of common shares in the 2015
Plan.
Stock Options
Employee Stock Options:
In
November 2019, the Company granted 327,000 shares of stock options
to 28 employees pursuant to the 2015 Plan, which vest over four
years. Compensation expense related to these options will be fully
recognized over the four-year vesting period.
In
January 2020, the Company granted 12,500 shares of stock options to
5 employees pursuant to the 2015 Plan, which vest immediately upon
grant. Compensation expense related to these options were fully
recognized in the three months ended March 31, 2020.
The
fair value of the options is calculated using the Black-Scholes
option pricing model. In order to calculate the fair value of the
options, certain assumptions are made regarding components of the
model, including the estimated fair value of the underlying common
stock, risk-free interest rate, volatility, expected dividend yield
and expected option life. Changes to the assumptions could cause
significant adjustments to valuation. Aytu estimates the expected
term based on the average of the vesting term and the contractual
term of the options. The risk-free interest rate is based on the
U.S. Treasury yield in effect at the time of the grant for treasury
securities of similar maturity. Aytu has computed the fair
value of all options granted during the nine months ended March 31,
2019 using the following assumptions:
|
|
|
|
Volatility
|
100.0%
|
Equivalent
term (years)
|
10.00
|
Risk-free
interest rate
|
1.82%
|
Dividend
yield
|
0.00%
|
Stock
option activity is as follows:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Outstanding June
30, 2019
|
$1,607
|
$325.73
|
6.13
|
Granted
|
339,500
|
0.98
|
10.00
|
Exercised
|
(2,500)
|
0.97
|
–
|
Expired
|
(170)
|
328.00
|
–
|
Outstanding March
31, 2020
|
338,437
|
2.36
|
9.62
|
Exercisable at
March 31, 2020
|
11,437
|
41.74
|
9.30
|
As
of March 31, 2020, there was $133,015 unrecognized
option-based compensation expense related to non-vested stock
options.
Restricted Stock
Restricted
stock activity is as follows:
|
|
Weighted
Average Grant Date Fair Value
|
Weighted
Average Remaining Contractual Life in Years
|
|
|
|
|
Unvested at
June 30, 2019
|
2,346,214
|
$1.83
|
9.1
|
Granted
|
1,067,912
|
0.73
|
1.7
|
Vested
|
–
|
–
|
–
|
Forfeited
|
(69,900)
|
2.03
|
–
|
Unvested at
March 31, 2020
|
3,344,226
|
$1.47
|
7.2
|
During
the quarter ended September 30, 2019, 5,150 shares of restricted
stock were exchanged with common stock, and the Company recognized
an increase in aggregate stock compensation expense of
$2,600.
During
the quarter ended December 31, 2019, 34,750 shares of restricted
stock were exchanged with common stock, and the Company recognized
an increase in aggregate stock compensation expense of
$6,200.
During
the quarter ended March 31, 2020, 30,000 shares of restricted stock
were exchanged with common stock, and the Company recognized an
increase in aggregate stock compensation expense of
$12,000.
Under
the 2015 Plan, there was $4,124,000 of total unrecognized
stock-based compensation expense related to the non-vested
restricted stock as of March 31, 2020. The Company expects to
recognize this expense over a weighted-average period of 7.20
years.
In
January 2020, the Company issued 285,000 shares of restricted stock
to directors and employees pursuant to the 2015 Plan. Of the
285,000 shares, 200,000 shares vest in November 2021 and
share-based compensation expense will be recognized over a two-year
period. 85,000 shares vest in January 2030 and share-based
compensation expense will be recognized over a ten-year
period.
In
February 2020, the Company issued 783,000 shares of restricted
stock to employees pursuant to the 2015 Plan, which vest in
February 2021. Expense will be recognized over the one-year vesting
period.
The
Company previously issued 1,540 shares of restricted stock outside
the Company’s 2015 Plan, which vest in July 2026. The
unrecognized expense related to these shares was $1,247,000 as of
March 31, 2020 and is expected to be recognized over the weighted
average period of 6.27 years.
Stock-based
compensation expense related to the fair value of stock options and
restricted stock was included in the statements of operations as
selling, general and administrative expenses as set forth in the
table below:
|
Three
Months Ended March 31,
|
Nine
Months Ended March 31,
|
Selling,
general and administrative:
|
|
|
|
|
Stock
options
|
$7,000
|
$15,000
|
$14,000
|
$122,000
|
Restricted
stock
|
257,000
|
362,000
|
577,000
|
601,000
|
Total
stock-based compensation expense
|
$264,000
|
$377,000
|
$591,000
|
$723,000
|
15. Warrants
In
connection with the October 2019 private placement financing, the
Company issued warrants (the October 2019 Warrants) to the
investors to purchase an aggregate of 10,000,000 shares of the
Company’s common stock at an exercise price of $1.25 and a
term of five years. These warrants feature a contingent cashless
exercise provision. During the three months ended December 31,
2019, the cashless exercise contingency was satisfied, reducing the
strike price of the October 2019 Warrants to $0. During the three
months ended March 31, 2020, an investor exercised 5,000,000 of the
warrants using the cashless exercise provision. In April 2020,
another investor exercised the remaining 5,000,000 of the October
2019 warrants using the cashless exercise provision, resulting in
no remaining October 2019 warrants as of April 30,
2020.
In
connection with the March Offerings, the following warrants were
granted, and potentially subsequently exercised:
●
|
|
On
March 10, 2020, the Company granted 3,376,087 Pre-Funded Warrants
for total proceeds of $3.9 million, which were fully exercised as
of March 31, 2020. In addition, the Company issued 508,696 of
Placement Agent Warrants with an exercise price of $1.4375 to
purchase 508,696 shares of the Company's common stock, which expire
five years after the grant date. None of the Placement Agent
Warrants have been exercised as of March 31, 2020.
|
|
|
|
●
|
|
On
March 12, 2020, the Company granted 16,000,000 March 12, 2020 $1.25
Warrants to purchase 16,000,000 shares of the Company’s
common stock for an exercise price of $1.25 per share of common
stock, and expire one-year after the grant date, of which
10,450,000 were exercised as of March 31, 2020 for total proceeds
of approximately $13.1 million. In addition, the Company granted
1,040,000 of the March 12, 2020 Placement Agent Warrants with an
exercise price of $1.5625 per share of common stock to purchase
1,040,000 shares of the Company’s common stock, which expire
five years after the grant date. As of March 31, 2020, there were
no exercises of the March 19, 2020 Placement Agent
Warrants.
|
|
|
|
●
|
|
On
March 19, 2020, the Company granted 12,539,197 March 19, 2020 $1.47
Warrants to purchase 12,539,197 shares of the Company’s
common stock for an exercise price of $1.47 per share of common
stock, and expire one-year after the grant date, of which 700,000
were exercised as of March 31, 2020 for total proceeds of
approximately $1.0 million. In addition, the Company granted
815,047 of the March 12, 2020 Placement Agent Warrants with an
exercise price of $1.9938 per share of common stock to purchase
815,047 shares of the Company’s common stock, which expire
five years after the grant date. As of March 31, 2020, there were
no exercises of the March 19, 2020 Placement Agent
Warrants.
|
While
these warrants are classified as a component of equity, in order to
allocate the fair value of the March offerings between the investor
warrants and the placement agent warrants, the Company was required
to calculate the fair value of the warrants issued in March. These
warrants issued had a relative fair value of $11.2 million. All
warrants issued in March 2020 were valued using a Black-Scholes
model. In order to calculate the fair value of the warrants,
certain assumptions were made, including the selling price or fair
market value of the underlying common stock, risk-free interest
rate, volatility, expected dividend yield, and contractual life.
Changes to the assumptions could cause significant adjustments to
valuation. The Company estimated a volatility factor utilizing a
weighted average of comparable published betas of peer companies.
The risk-free interest rate is based on the U.S. Treasury yield in
effect at the time of the grant for treasury securities of similar
maturity.
Significant
assumptions in valuing the warrants issued during the quarter are
as follows:
|
Warrants
Issued Three Months Ended March 31, 2020
|
Expected
volatility
|
100%
|
Equivalent term
(years)
|
1 - 5
|
Risk-free
rate
|
0.20% -
0.66%
|
Dividend
yield
|
0.00%
|
A
summary of equity-based warrants is as follows:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Outstanding June
30, 2019
|
16,218,908
|
$3.15
|
4.36
|
Warrants
issued
|
44,627,120
|
1.21
|
1.88
|
Warrants
expired
|
–
|
–
|
–
|
Warrants exercised
(*)
|
(29,859,990)
|
–
|
–
|
Outstanding March
31, 2020
|
30,986,038
|
$2.39
|
2.31
|
(*)
During the quarter ended March 31, 2020, investor exercised 5.0 million of the October
2019 private placement warrants under the cashless exercise
provision. In
April 2020, another investor exercised all remaining 5.0 million
October 2019 private placement warrants. There are no more October
2019 private placement warrants outstanding as of April 30,
2020.
During
the quarter ended March 31, 2020, warrants issued from the October
2018 registered offering and March 2020 offerings to purchase an
aggregate of 17,082,994 shares of common stock were exercised for
aggregate gross proceeds to our Company of approximately $23.0
million.
A
summary of liability warrants is as follows:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Outstanding June
30, 2019
|
240,755
|
$72.00
|
3.16
|
Warrants
expired
|
–
|
–
|
–
|
Warrants
exercised
|
–
|
–
|
–
|
Outstanding March
31, 2020
|
240,755
|
$72.00
|
2.37
|
16. 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 Aytu. For each three- and nine-month period presented,
the basic and diluted loss per share were the same for 2019 and
2018, 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 March 31, 2020 and 2019 are
anti-dilutive, and therefore excluded from the calculation of
diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
Warrants to
purchase common stock - liability classified
|
(Note
15)
|
240,755
|
240,755
|
Warrant to purchase
common stock - equity classified
|
(Note
15)
|
30,986,038
|
11,893,175
|
Employee stock
options
|
(Note
14)
|
338,437
|
1,666
|
Employee unvested
restricted stock
|
(Note
14)
|
3,344,226
|
2,719,312
|
Performance-based
options (*)
|
(Note
14)
|
–
|
75,000
|
Convertible
preferred stock
|
(Note
13)
|
9,805,845
|
2,335,665
|
|
44,715,301
|
17,265,573
|
(*) During the year ended June 30, 2019, the Company issued 75,000
performance-based stock options out of the 2015 Plan to a
consultant. These options vest based on meeting certain market
criteria with an exercise price of $1.00. At June 30, 2019, the
first of three market targets were not achieved, and all 75,000
performance stock options were forfeited.
During the quarter
ended March 31, 2020, 5.0 million equity classified warrants were
cashless exercised pursuant to the terms of the October 2019
warrants. In April 2020, the final 5.0 million of the
October 2019 warrants were exercised using the cashless exercise
provision. There are no more October 2019 warrants
remaining.
17. 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 $0.6 million. The
Note had an eight-month term with principal and interest payable at
maturity 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
March 31, 2020, and March 31, 2019, the Company recorded
approximately $34,000 and $0, respectively, of related
amortization.
The Innovus Notes.
Upon completion of the Merger, the
Company assumed approximately $3.1 million of the twelve Innovus
Notes (see Note 1, 2 and 10). During the three months ended
March 31, 2020, and March 31, 2019, the Company recorded
approximately $0.2 million and $0, respectively, of related
amortization. All notes are due within twelve months from
March 31, 2020, with a weighted average interest rate of
approximately 42% for the ten unsecured notes and approximately 15%
for the two secured notes.
On
April 27, 2020, approximately $1.8 million of outstanding notes
were exchanged for approximately 1.5 million shares of the
Company’s common stock, leaving a remaining obligation of
approximately $2.1 million after the exchange, with a remaining
carrying value of approximately $1.4 million.
18. 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 aggregated 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 March 31,
|
Nine
months Ended March 31,
|
|
|
|
|
|
Consolidated
revenue:
|
|
|
|
|
Aytu
BioScience
|
$4,703,000
|
$2,378,000
|
$9,318,000
|
$5,605,000
|
Aytu Consumer
Health
|
3,453,000
|
|
3,453,000
|
|
Consolidated
revenue
|
8,156,000
|
2,378,000
|
12,771,000
|
5,605,000
|
|
|
|
|
|
|
|
|
|
|
Consolidated net
loss:
|
|
|
|
|
Aytu
BioScience
|
(4,421,000)
|
(4,496,000)
|
(9,565,000)
|
(12,600,000)
|
Aytu Consumer
Health
|
(911,000)
|
|
(911,000)
|
|
Consolidated
net loss
|
(5,332,000)
|
(4,496,000)
|
(10,476,000)
|
(12,600,000)
|
|
March 31,
|
|
|
|
|
|
|
|
|
Total
assets:
|
|
|
|
|
Aytu
BioScience
|
$137,825,000
|
$34,721,000
|
|
|
Aytu Consumer
Health
|
21,129,000
|
|
|
|
Total
assets
|
$158,954,000
|
$34,721,000
|
|
|
19. Subsequent Events
See
Footnotes 1, 14, 15 and 16, 17, for information relating to certain
events occurring subsequent to March 31, 2020 impacting information
disclosed above. In addition, the following subsequent events were
considered:
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
million.
On April 24, 2020,
the Company received notification it had received approximately
$2.5 million in the form of the Small Business Administration
(“SBA”) Payroll Protection Program loan. Under the
terms of the loan, the loan is due in April 2022, and bears
interest of 1% per annum.
On
April 23, 2020, the Company announced the signing of a definitive
agreement with Singapore-based Biolidics, Ltd to exclusively
distribute Biolidics’ COVID-19 IgG/IgM Rapid Test in the
United States.
On
April 20, 2020, the Company announced that it has signed an
exclusive worldwide license from Cedars-Sinai to develop and
commercialize the Healight Platform Technology
(“Healight”). This medical device technology platform,
discovered and developed by scientists at Cedars-Sinai, is being
studied as a potential first-in-class treatment for coronavirus and
other respiratory infections.