Notes to Condensed Consolidated Financial
Statements
(unaudited)
1.
Nature
of Business, Financial Condition, Basis of
Presentation
Nature of Business.
Aytu BioScience, Inc. (“Aytu”, the
“Company” or “we”) is a commercial-stage
specialty pharmaceutical company focused on commercializing novel
products that address significant healthcare needs in both
prescription and consumer health categories. The Company is
currently focused on its Aytu BioScience business, consisting of
the Primary Care Portfolio (the “Primary Care
Portfolio”) and Pediatric Care Portfolio (the
“Pediatric Portfolio”), and its Aytu Consumer Health
business (the “Consumer Health Portfolio”). The Aytu
BioScience business is focused on prescription pharmaceutical
products treating hypogonadism (low testosterone), cough and upper
respiratory symptoms, insomnia, male infertility, and various
pediatric conditions. The Aytu Consumer Health business is focused
on consumer healthcare products. The Company plans to expand into
other therapeutic areas as opportunities arise. The Company was
incorporated as Rosewind Corporation on August 9, 2002 in the State
of Colorado. Aytu was re-incorporated in the state of Delaware on
June 8, 2015.
The
Primary Care Portfolio consists of (i) Natesto®, the only
FDA-approved nasal formulation of testosterone for men with
hypogonadism (low testosterone, or "Low T"), (ii) ZolpiMist®,
the only FDA-approved oral spray prescription sleep aid, and (iii)
Tuzistra® XR, the only FDA-approved 12-hour codeine-based
antitussive syrup.
The
Pediatric Care Portfolio, acquired on November 1, 2019, (the
“Pediatric Portfolio”), includes (i) Poly-Vi-Flor and
Tri-Vi-Flor, two complementary prescription fluoride-based
supplement product lines containing combinations of fluoride and
vitamins in various for infants and children with fluoride
deficiency, (ii) Cefaclor, a second-generation cephalosporin
antibiotic suspension; and (iii) Karbinal ER, an extended-release
carbinoxamine (antihistamine) suspension indicated to treat
numerous allergic conditions.
On
February 14, 2020, the Company acquired Innovus Pharmaceuticals
Inc. (“Innovus”), a specialty pharmaceutical company
commercializing, licensing and developing safe and effective
consumer healthcare products designed to improve health and
vitality. Innovus commercializes twenty-two consumer health
products competing in large healthcare categories including
diabetes, men's health, sexual wellness and respiratory health. The
Consumer Health Portfolio is commercialized through direct-to-
consumer marketing channels utilizing Innovus’s proprietary
Beyond Human® marketing and sales platform and on eCommerce
platforms.
The
Company acquired U.S. distribution rights to a COVID-19 IgG/IgM
rapid test. The coronavirus test is a solid phase
immunochromatographic assay used in the rapid, qualitative and
differential detection of IgG and IgM antibodies to the 2019 Novel
Coronavirus in human whole blood, serum or plasma. The rapid test
has been validated in multi-center clinical trials. The Company
entered into a licensing agreement with Cedars-Sinai Medical Center
to secure worldwide rights to various potential uses of Healight,
an investigational medical device platform technology. Healight has
demonstrated safety and efficacy in pre-clinical studies, and we
plan to advance this technology and assess its safety and efficacy
in human studies, initially focused on Covid-19
patients.
The
Company’s strategy is to continue building its portfolio of
revenue-generating products, leveraging its commercial team’s
expertise to build leading brands within large therapeutic
markets.
Financial Condition.
As of September 30, 2020, the Company had approximately $38.2
million of cash, cash equivalents and restricted cash. The
Company’s operations have historically consumed cash and are
expected to continue to require cash, but at a declining
rate.
Revenues for the
three-months ended September 30, 2020 were $13.5 million and
increased approximately 839% compared to $1.4 million for the
three-months ended September 30, 2019. Revenues increased 277% and
100% for each of the years ended June 30, 2020 and 2019,
respectively. Revenue is expected to increase over time, which will
allow the Company to rely less on our existing cash balance and
proceeds from financing transactions. Cash used by operations
during the three-months ended September 30, 2020 was $8.0 million
compared to $3.0 million for the three-months ended September 30,
2019. The increase is due primarily to an increase in working
capital and pay down of other liabilities.
As of
the date of this Report, the Company expects costs for its current
operations to increase modestly as the Company integrates the
acquisition of the Pediatrics Portfolio and Innovus and continues
to focus on revenue growth through increasing product sales. The
Company’s total asset position totaling approximately $141.3
million plus the proceeds expected from ongoing product sales will
be used to fund existing operations. The Company may continue to
access the capital markets from time-to-time when market conditions
are favorable. The timing and amount of capital that may be raised
is dependent the terms and conditions upon which investors would
require to provide such capital. There is no guarantee that capital
will be available on terms favorable to the Company and its
stockholders, or at all. The Company raised approximately $6.6
million, net during its fourth quarter ended June 30, 2020 from the
sale of new common equity using the Company’s at-the-market
facility. There were zero funds raised during the quarter ended
September 30, 2020. Between September 30, 2020, and the filing date
of this quarterly report on Form 10-Q, the Company raised gross
proceeds of approximately $3.1
million upon the issuance of approximately 3.0 million shares of the Company’s common
stock under the Company’s at-the-market offering program. As
of the date of this report, the Company has adequate capital
resources to complete its near-term operating
objectives.
Since
the Company has sufficient cash on-hand as of September 30, 2020 to
cover potential net cash outflows for the twelve months following
the filing date of this Quarterly Report, the Company reports that
there exists no indication of substantial doubt about its ability
to continue as a going concern.
If the
Company is unable to raise adequate capital in the future when it
is required, Aytu management can adjust its operating plans to
reduce the magnitude of the capital need under its existing
operating plan. Some of the adjustments that could be made include
delays of and reductions to commercial programs, reductions in
headcount, narrowing the scope of the Company’s commercial
plans, or reductions to its research and development programs.
Without sufficient operating capital, the Company could be required
to relinquish rights to products or renegotiate to maintain such
rights on less favorable terms than it would otherwise choose. This
may lead to impairment or other charges, which could materially
affect the Company’s balance sheet and operating
results.
Basis of
Presentation. The unaudited consolidated financial
statements contained in this report represent the financial
statements of Aytu and its wholly-owned subsidiaries, Aytu
Women’s Health, LLC, Innovus Pharmaceuticals, Inc., and Aytu
Therapeutics, LLC. The unaudited consolidated financial statements
should be read in conjunction with Aytu’s Annual Report on
Form 10-K for the year ended June 30, 2020, which included all
disclosures required by generally accepted accounting principles in
the United States (“GAAP”). In the opinion of
management, these unaudited consolidated financial statements
contain all adjustments necessary to present fairly the financial
position of Aytu and the results of operations and cash flows for
the interim periods presented. The results of operations for the
period ended September 30, 2020 are not necessarily indicative of
expected operating results for the full year. The information
presented throughout this report, as of and for the three-month
periods ended September 30, 2020, and 2019, is
unaudited.
Interim Unaudited Condensed
Consolidated Financial Statements. The accompanying
condensed consolidated balance sheet as of September 30,
2020, and the condensed consolidated statements of operations,
stockholders’ equity, for the three months ended, and
the interim condensed consolidated statements of cash flows for
the three months ended September 30, 2020 and 2019,
are unaudited. The condensed consolidated balance sheet as
of June 30, 2020 was derived from audited financial
statements but does not include all disclosures required by U.S.
GAAP. The interim unaudited condensed consolidated financial
statements have been prepared on a basis consistent with the annual
consolidated financial statements and, in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to state fairly the
Company’s financial condition, its operations and cash flows
for the periods presented. The historical results are not
necessarily indicative of future results, and the results of
operations for the three months ended September 30,
2020 are not necessarily indicative of the results to be
expected for the full year or any other period.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for the
reporting period. On an ongoing basis, the Company evaluates its
estimates, including, but not limited to, those related to the
determination of the fair value of equity awards, the fair value of
identified assets and liabilities acquired in business
combinations, the useful lives of property and equipment,
intangible assets, impairment of long-lived and intangible assets,
including goodwill, provisions for doubtful accounts receivable,
certain accrued expenses, and the discount rate used in measuring
lease liabilities. These estimates and assumptions are based on the
Company’s historical results and management’s future
expectations. Actual results could differ from those
estimates.
Significant
Accounting Policies
The
Company’s significant accounting policies are discussed in
Note 2—Summary of Significant Accounting Policies and Recent
Accounting Pronouncements in the Annual Report. There have been no
significant changes to these policies that have had a material
impact on the Company’s unaudited condensed consolidated
financial statements and related notes during the three months
ended September 30, 2020.
Adoption of New Accounting Pronouncements
Fair Value Measurements
(“ASU 2018-13”). In August 2018, the FASB issued
ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value
Measurement.” The amendments in the standard apply to all
entities that are required, under existing GAAP, to make
disclosures about recurring or nonrecurring fair value
measurements. ASU 2018-13 removes, modifies, and adds certain
disclosure requirements in ASC 820, Fair Value Measurement. The
standard is effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2019.
The
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The Company adopted this as of July 1, 2020, the beginning of the
Company’s fiscal year-ended June 30, 2021. The most relevant
component of ASU 2018-13 to the Company’s financial
statements relates to the need to disclose the range and
weighted-average of significant unobservable inputs used in Level 3
fair value measurements. However, the Company discloses on a
discrete basis all significant inputs for all Level 3 Fair Value
measurements.
Recent
Accounting Pronouncements
Financial Instruments
– Credit Losses (“ASU 2016-13”). In June
2016, the FASB issued ASU 2016-13, “Financial Instruments
– Credit Losses” to require the measurement of expected
credit losses for financial instruments held at the reporting date
based on historical experience, current conditions and reasonable
forecasts. The main objective of this ASU is to provide financial
statement users with more decision-useful information about the
expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each
reporting date. The standard was effective for interim and annual
reporting periods beginning after December 15, 2019. However, in
October 2019, the FASB approved deferral of the adoption date for
smaller reporting companies for fiscal periods beginning after
December 15, 2022. Accordingly, the Company’s fiscal year of
adoption will be the fiscal year ended June 30, 2024. Early
adoption is permitted for interim and annual reporting periods
beginning after December 15, 2018, but the Company did not elect to
early adopt. The Company is currently assessing the impact that ASU
2016-13 will have on its consolidated financial statements, but no
conclusion has been reached.
This
Quarterly Report on Form 10-Q does not discuss recent
pronouncements that are not anticipated to have an impact on or are
unrelated to the Company’s financial condition, results of
operations, cash flows or disclosures.
The Pediatric Portfolio
On
October 10, 2019, the Company entered into the Purchase Agreement
with Cerecor, Inc. (“Cerecor”) to acquire the Pediatric
Portfolio, which closed on November 1, 2019. The Pediatric
Portfolio consists of four main prescription products (i)
Poly-Vi-Flor® and Tri-Vi-Flor™, (ii) Cefaclor for Oral
Suspension, (iii) and Karbinal® ER. Total consideration
transferred to Cerecor consisted of $4.5 million cash and
approximately 9.8 million shares of Series G Convertible Preferred
Stock. The Company also assumed certain of Cerecor’s
financial and royalty obligations, and not more than $3.5 million
of Medicaid rebates and up to $0.8 million of product returns, of
which $3.5 million has been incurred. The Company also retained the
majority of Cerecor’s workforce focused on sales, commercial
contracts and customer relationships.
In
addition, the Company assumed Cerecor obligations due to an
investor that include fixed and variable payments aggregating to
$25.6 million. The Company assumed fixed monthly payments equal to
$0.1 million from November 2019 through January 2021 plus $15
million due in January 2021. Monthly variable payments due to the
same investor are equal to 15% of net revenue generated from a
subset of the Product Portfolio, subject to an aggregate monthly
minimum of $0.1 million, except for January 2020, when a one-time
payment of $0.2 million was paid to the investor. The variable
payment obligation continues until the earlier of: (i) aggregate
variable payments of approximately $9.5 million have been made, or
(ii) February 12, 2026. In June 2020, the Company paid down a $15
million balloon payment originally owed on January 2021 to reduce
the fixed liability.
Further, certain of
the products in the Product Portfolio require royalty payments
ranging from 12% to 15% of net revenue. One of the products in the
Product Portfolio requires the Company to generate minimum annual
sales sufficient to represent annual royalties of approximately
$1.8 million, in the event the minimum sales volume is not
satisfied.
While
no equity was acquired by the Company, the transaction was
accounted for as a business combination under the acquisition
method of accounting pursuant to Topic 805. Accordingly, the
tangible and identifiable intangible assets acquired and
liabilities assumed were recorded at fair value as of the date of
acquisition, with the remainder of the aggregate purchase price
recorded as goodwill. The goodwill recognized is attributable
primarily to strategic opportunities related to an expanded
commercial footprint and diversified product portfolio that is
expected to provide revenue and cost synergies.
The
following table summarized the preliminary fair value of assets
acquired and liabilities assumed at the date of acquisition. These
estimates are preliminary, pending final evaluation of certain
assets and liabilities, and therefore, are subject to revisions
that may result in adjustments to the values presented
below:
|
|
|
|
Consideration
|
|
Cash
and cash equivalents
|
$4,500,000
|
Fair
value of Series G Convertible Preferred Stock
|
|
Total
shares issued
|
9,805,845
|
Estimated
fair value per share of Aytu common stock
|
$0.567
|
Estimated
fair value of equity consideration transferred
|
5,559,914
|
Total
consideration transaferred
|
$10,059,914
|
Recognized
amounts of identifiable assets acquired and liabilities
assumed
|
|
Inventory,
net
|
$459,123
|
Prepaid
assets
|
1,743,555
|
Other
current assets
|
2,525,886
|
Intangible
assets - product marketing rights
|
22,700,000
|
Accrued
liabilities
|
(300,000)
|
Accrued
product program liabilities
|
(6,683,932)
|
Assumed
fixed payment obligations
|
$(29,837,853)
|
Total
identifiable net assets
|
(9,393,221)
|
Goodwill
|
$19,453,135
|
The
fair values of intangible assets, including product technology
rights were determined using variations of the income approach.
Varying discount rates were also applied to the projected net cash
flows. The Company believes the assumptions are representative of
those a market participant would use in estimating fair value (see
Note 9).
The
fair value of the net identifiable asset acquired was determined to
be $22.7 million, which is being amortized over ten
years.
Innovus Merger (Consumer Health Portfolio)
On
February 14, 2020, the Company completed the Merger with Innovus
Pharmaceuticals after approval by the stockholders of both
companies on February 13, 2020. Upon the effectiveness of the
Merger, the Company merged with and into Innovus, and all
outstanding Innovus common stock was exchanged for approximately
3.8 million shares of the Company’s common stock and up to
$16 million of Contingent Value Rights (“CVRs”). The
outstanding Innovus warrants with cash out rights were exchanged
for approximately 2.0 million shares of Series H Convertible
Preferred stock of the Company and retired. The remaining Innovus
warrants outstanding, those without ‘cash- out’ rights,
at the time of the Merger, continue to be outstanding, and upon
exercise, retain the right to the merger consideration offered to
Innovus stockholders, including any remaining claims represented by
CVRs at the time of exercise. Innovus is now a 100% wholly-owned
subsidiary of the Company, (“Aytu Consumer
Health”).
On
March 31, 2020, the Company paid out the first CVR Milestone in the
form of approximately 1.2 million shares of the Company’s
common stock to satisfy the $2.0 million obligation as a result of
Innovus achieving the $24 million revenue milestone for the
calendar year ended December 31, 2019. As a result of this, the
Company recognized a gain of approximately $0.3
million.
In
addition, as part of the Merger, the Company assumed approximately
$3.1 million of notes payable, $0.8 million in lease liabilities,
and other assumed liabilities associated with Innovus. Of the $3.1
million of notes payable, approximately $2.2 million was converted
into approximately 1.8 million shares of the Company’s common
stock since February 14, 2020. Approximately $0.3 million remained
outstanding as of September 30, 2020.
The following table
summarized the preliminary fair value of assets acquired and
liabilities assumed at the date of acquisition. These estimates are
preliminary, pending final evaluation of certain assets and
liabilities, and therefore, are subject to revisions that may
result in adjustments to the values presented
below:
|
|
|
|
Consideration
|
|
Fair
Value of Aytu Common Stock
|
|
Total
shares issued at close
|
3,810,393
|
Estimated
fair value per share of Aytu common stock
|
$0.756
|
Estimated
fair value of equity consideration transferred
|
$2,880,581
|
Fair
value of Seris H Convertile Preferred Stock
|
|
Total
shares issued
|
1,997,736
|
Estimated
fair value per share of Aytu common stock
|
$0.756
|
Estimated
fair value of equity consideration transferred
|
$1,510,288
|
Fair
value of former Innovus warrants
|
$15,315
|
Fair
value of Contingent Value Rights
|
$7,049,079
|
Forgiveness
of Note Payable owed to the Company
|
$1,350,000
|
Total
consideration transferred
|
$12,805,263
|
|
|
|
|
Total
consideration transferred
|
$12,805,263
|
Recongnized
amounts of identifiage assets acquired and liabilities
assumed
|
|
Cash
and cash equivalents
|
$390,916
|
Accounts
receivable, net
|
278,826
|
Inventory,
net
|
1,149,625
|
Prepaid
expenses and other current assets
|
1,692,133
|
Other
long-term assets
|
36,781
|
Right-to-use
assets
|
328,410
|
Property,
plant and equipment
|
190,393
|
Trademarks
and patents
|
11,744,000
|
Accounts
payable and accrued other expenses
|
(7,202,309)
|
Other
current liabilities
|
(629,601)
|
Notes
payable
|
(3,056,361)
|
Lease
liability
|
(754,822)
|
Total
identifiable assets
|
$4,167,991
|
Goodwill
|
$8,637,272
|
The
fair values of intangible assets, including product distribution
rights were determined using variations of the income approach,
specifically the relief-from-royalties method. It also includes
customer lists using an income approach utilizing a discounted cash
flow model. Varying discount rates were also applied to the
projected net cash flows. The Company believes the assumptions are
representative of those a market participant would use in
estimating fair value (see Note 10).
The
fair value of the net identifiable assets acquired was determined
to be $11.7 million, which is being amortized over a range between
1.5 to 10 years.
Unaudited Pro Forma Information
The
following supplemental unaudited proforma financial information
presents the Company’s results as if the following
acquisitions had occurred on July 1, 2019:
●
Acquisition of the
Pediatric Portfolio, effective November 1, 2019;
●
Merger with Innovus
effective February 14, 2020.
The
unaudited pro forma results have been prepared based on estimates
and assumptions, which management believes are reasonable, however,
the results are not necessarily indicative of the consolidated
results of operations had the acquisition occurred on July 1, 2019,
or of future results of operations:
|
Three Months
Ended
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
Total revenues,
net
|
$13,520,246
|
$10,606,870
|
Net
(loss)
|
(4,305,931)
|
(8,256,982)
|
Net (loss) per
share (aa)
|
$(0.04)
|
$(0.29)
|
(aa)
Pro forma net loss per share calculations excluded the impact of
the issuance of the (i) Series G Convertible Preferred Stock and
the, (ii) Series H Convertible Preferred Stock under the assumption
those shares would continue to remain non-participatory during the
periods reported above.
Revenues by Geographic
location. The following
table reflects our product revenues by geographic location as
determined by the billing address of our customers:
|
|
|
|
|
|
|
|
|
|
U.S.
|
$12,144,000
|
$1,262,000
|
International
|
1,376,000
|
178,000
|
Total net
revenue
|
$13,520,000
|
$1,440,000
|
Revenues by Product Portfolio. Net
revenue disaggregated by significant product portfolio for the
three months ended September 30, 2020 and September 30, 2019 were
as follows:
|
Three Months Ended
September 30
|
|
|
|
|
|
|
Primary care
and devices portfolio
|
$3,033,000
|
$1,440,000
|
Pediatric
portfolio
|
2,719,000
|
-
|
Consumer
Health portfolio
|
7,768,000
|
-
|
Consolidated
revenue
|
$13,520,000
|
$1,440,000
|
Inventories consist
of raw materials and finished goods and are recorded at the lower
of cost or net realizable value, with cost determined on a
first-in, first-out basis. Aytu periodically reviews the
composition of its inventories to identify obsolete, slow-moving or
otherwise unsaleable items. If unsaleable items are observed and
there are no alternate uses for the inventory, Aytu will record a
write-down to net realizable value in the period that the
impairment is first recognized. The Company wrote down $0.1 million
and $0 inventory during the three months ended September 30, 2020
or 2019, respectively.
Inventory balances
consist of the following:
|
|
|
|
|
|
|
|
|
Raw
materials
|
$542,000
|
$397,000
|
Finished
goods, net
|
10,938,000
|
9,603,000
|
|
$11,480,000
|
$10,000,000
|
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:
|
|
|
|
|
|
|
|
|
2 - 5
|
$112,000
|
$112,000
|
|
3
|
111,000
|
229,000
|
Office equipment,
furniture and other
|
2 - 5
|
281,000
|
312,000
|
|
3 - 5
|
90,000
|
90,000
|
Less accumulated
depreciation and amortization
|
|
(488,000)
|
(484,000)
|
|
|
$106,000
|
$259,000
|
During
the quarter ended September 30, 2020, we recognized a loss of
$112,000 on sale of equipment due to termination of
leases.
Depreciation and
amortization expense totaled $33,000 and $16,000 for the
three-months ended September 30, 2020 and 2019,
respectively.
6.
Leases,
Right-to-Use Assets and Related Liabilities
The
Company previously adopted the FASB issued ASU 2016-02,
“Leases (Topic 842)” as of July 1, 2019. With the
adoption of ASU 2016-02, the Company recorded an operating
right-of-use asset and an operating lease liability on its balance
sheet associated with the lease of its corporate headquarters. The
right-of-use asset represents the Company’s right to use the
underlying asset for the lease term, and the lease obligation
represents the Company’s commitment to make the lease
payments arising from the lease. Right-of-use lease assets and
obligations were recognized at the later of the commencement date
or July 1, 2019; the date of adoption of Topic 842; based on the
present value of remaining lease payments over the lease term. As
the Company’s lease does not provide an implicit rate, the
Company used an estimated incremental borrowing rate based on the
information available at the commencement date in determining the
present value of the lease payments. Rent expense is recognized on
a straight-line basis over the lease term, subject to any changes
in the lease or expectations regarding the terms. The lease
liability is classified as current or long-term on the balance
sheet.
As of
September 30, 2020, the maturities of the Company’s operating
lease liabilities were as follows:
|
|
2021 (remaining 9
months)
|
$90,412
|
2022
|
123,883
|
2023
|
126,883
|
2024
|
35,883
|
2025
|
2,942
|
Total lease
payments
|
380,003
|
Less: Imputed
interest
|
(45,048)
|
Lease
liabilities
|
$334,955
|
Cash
paid for amounts included in the measurement of operating lease
liabilities for the three months ended September 30, 2020 and 2019
was $66,000 and $0, respectively, and was included in net cash used
in operating activities in the consolidated statements of cash
flows.
As of
September 30, 2020, the weighted average remaining lease term is
2.42 years, and the weighted average discount rate used to
determine operating lease liabilities was 8.0%. Rent expense for
the three months ended September 30, 2020 and 2019 totaled $70,000
and $32,000, respectively.
On
August 28, 2020, the Company’s Innovus subsidiary signed a
lease termination agreement with its lessor to terminate its lease
effective September 30, 2020. The original lease termination date
was April 30, 2023. As part of the agreement, Innovus agreed to
make a cash payment to the landlord the equivalent of two
additional months’ rent aggregating to $44,306 plus $125,000
less the security deposit of $20,881. The fair value of the lease
liability related to this facility lease was approximately $0.7
million as of June 30, 2020. The Company recognized a gain of
approximately $343,000 during the three months ended September 30,
2020.
7.
Intangible
Assets – Amortizable
The
Company currently holds the following intangible asset portfolios
as of September 30, 2020: (i) Licensed assets, which consist of
pharmaceutical product assets that were acquired prior to July 1,
2020; (ii) Product technology rights, acquired from the November 1,
2019 acquisition of the Pediatric Portfolio from Cerecor; and, as a
result of the Merger with Innovus on February 14, 2020, both, (iii)
the Acquired product distribution rights; consisting of patents and
trade names) acquired February 14, 2020.
If
acquired in an asset acquisition, the Company capitalized the
acquisition cost of each licensed patent or tradename, which can
include a combination of both upfront consideration, as well as the
estimated future contingent consideration estimated at the
acquisition date. If acquired in a business combination, the
Company capitalizes the estimated fair value of the intangible
asset or assets acquired, based primarily on a discounted cash flow
model approach or relief-from-royalties model.
The
following table provides the summary of the Company’s
intangible assets as of September 30, 2020 and June 30, 2020,
respectively.
|
|
|
|
|
|
|
Weighted-Average
Remaining Life
(in
years)
|
Licensed
assets
|
$23,649,000
|
$(7,631,000)
|
$-
|
$16,018,000
|
11.80
|
Acquired
product technology right
|
22,700,000
|
(2,081,000)
|
-
|
20,619,000
|
9.09
|
Acquired
product distribution rights
|
11,354,000
|
(943,000)
|
-
|
10,411,000
|
4.37
|
Acquired
customer lists
|
390,000
|
(162,000)
|
-
|
228,000
|
0.87
|
|
$58,093,000
|
$(10,817,000)
|
$-
|
$47,276,000
|
8.93
|
|
|
|
|
|
|
|
Weighted-Average
Remaining Life
(in
years)
|
Licensed
assets
|
$23,649,000
|
$(7,062,000)
|
$-
|
$16,587,000
|
11.88
|
MiOXSYS
Patent
|
380,000
|
(185,000)
|
(195,000)
|
-
|
-
|
Acquired
product technology right
|
22,700,000
|
(1,513,000)
|
-
|
21,187,000
|
9.34
|
Acquired
product distribution rights
|
11,354,000
|
(565,000)
|
-
|
10,789,000
|
4.62
|
Acquired
customer lists
|
390,000
|
(98,000)
|
-
|
292,000
|
1.12
|
|
$58,473,000
|
$(9,423,000)
|
$(195,000)
|
$48,855,000
|
9.11
|
The
following table summarizes the estimated future amortization
expense to be recognized over the next five years and periods
thereafter:
|
|
2021
|
$4,735,000
|
2022
|
6,086,000
|
2023
|
6,046,000
|
2024
|
6,033,000
|
2025
|
4,479,000
|
Thereafter
|
19,897,000
|
|
$47,276,000
|
Certain
of the Company’s amortizable intangible assets include
renewal options, extending the expected life of the asset. The
renewal periods range between approximately 1 to 20 years depending
on the license, patent, or other agreement. Renewals are accounted
for when they are reasonably assured. Intangible assets are
amortized using the straight-line method over the estimated useful
lives. Amortization expense of intangible assets was $1.6 million
and $0.6 million for the three months ended September 30, 2020 and
2019, respectively.
Accrued
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
Accrued
settlement expense
|
$150,000
|
$315,000
|
Accrued
program liabilities
|
679,000
|
959,000
|
Accrued
product-related fees
|
3,054,000
|
2,471,000
|
Credit
card liabilities
|
652,000
|
510,000
|
Medicaid
liabilities
|
1,997,000
|
1,842,000
|
Return
reserve
|
1,537,000
|
1,329,000
|
Sales
taxes payable
|
180,000
|
175,000
|
Other
accrued liabilities*
|
444,000
|
249,000
|
Total
accrued liabilities
|
$8,693,000
|
$7,850,000
|
* Other
accrued liabilities consist of franchise tax, accounting fee,
interest payable, merchant services charges, none of which
individually represent greater than five percent of total current
liabilities.
9.
Fair
Value Considerations
The
Company’s financial instruments include cash and cash
equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities, warrant derivative liability, and
contingent consideration. The carrying amounts of financial
instruments, including cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, and accrued liabilities
approximate their fair value due to their short maturities,
including those acquired or assumed on November 1, 2019 as a result
of the acquisition of the Pediatric Portfolio. The fair value of
the warrant derivative liability was valued using the lattice
valuation methodology. The fair value of acquisition-related
contingent consideration is based on a Monte-Carlo methodology
using estimated discounted future cash flows and periodic
assessments of the probability of occurrence of potential future
events. The valuation policies are determined by management, and
the Company’s Board of Directors is informed of any policy
change.
Authoritative
guidance defines fair value as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the measurement
date. The guidance establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the
most observable inputs be used when available. Observable inputs
are inputs that market participants would use in pricing the asset
or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions of what market participants
would use in pricing the asset or liability developed based on the
best information available in the circumstances. The hierarchy is
broken down into three levels based on reliability of the inputs as
follows:
Level
1: Inputs that reflect unadjusted quoted prices in active markets
that are accessible to Aytu for identical assets or
liabilities;
Level
2: Inputs that include quoted prices for similar assets and
liabilities in active or inactive markets or that are observable
for the asset or liability either directly or indirectly;
and
Level
3: Unobservable inputs that are supported by little or no market
activity.
The
Company’s assets and liabilities which are measured at fair
value are classified in their entirety based on the lowest level of
input that is significant to their fair value measurement. The
Company’s policy is to recognize transfers in and/or out of
fair value hierarchy as of the date in which the event or change in
circumstances caused the transfer. Aytu has consistently applied
the valuation techniques discussed below in all periods
presented.
Recurring Fair Value Measurements
The
following table presents the Company’s financial liabilities
that were accounted for at fair value on a recurring basis as of
September 30, 2020 and June 30, 2020, by level within the fair
value hierarchy.
|
|
Fair Value
Measurements at September 30, 2020
|
|
Fair Value at
September 30, 2020
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs (Level 3)
|
Recurring:
|
|
|
|
|
Contingent
consideration
|
13,778,000
|
–
|
–
|
13,778,000
|
CVR
liability
|
5,669,000
|
–
|
–
|
5,669,000
|
|
$19,447,000
|
–
|
–
|
$19,447,000
|
|
|
Fair Value
Measurements at June 30, 2020
|
|
Fair Value at
June 30, 2020
|
Quoted Priced
in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs (Level 2)
|
Significant
Unobservable Inputs (Level 3)
|
Recurring:
|
|
|
|
|
Contingent
consideration
|
13,588,000
|
–
|
–
|
13,588,000
|
CVR
liability
|
$5,572,000
|
–
|
–
|
$5,572,000
|
|
$19,160,000
|
–
|
–
|
$19,160,000
|
Contingent
Consideration. The Company classifies its contingent
consideration liability in connection with the acquisition of
Natesto, Tuzistra XR, ZolpiMist and Innovus, within Level 3 as
factors used to develop the estimated fair value are unobservable
inputs that are not supported by market activity. The Company
estimates the fair value of our contingent consideration liability
based on projected payment dates, discount rates, probabilities of
payment, and projected revenues. Projected contingent payment
amounts are discounted back to the current period using a
discounted cash flow methodology.
As of
November 2, 2018, the contingent consideration, related to this
Tuzistra XR, was valued at $8.8 million using a Monte Carlo
simulation. As of June 30, 2020, the contingent consideration was
revalued at $13.2 million using the same Monte Carlo simulation
methodology, and based on current interest rates, expected sales
potential, and Aytu stock trading variables. The Company
reevaluates the contingent consideration on a quarterly basis for
changes in the fair value recognized after the acquisition date,
such as measurement period adjustments. The contingent
consideration accretion expense for the three months ended
September 30, 2020 and 2019 was $158,000, and $96,000,
respectively. As of September 30, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
The
contingent consideration related to the ZolpiMist royalty payments
was valued at $2.6 million using a Monte Carlo simulation, as of
June 11, 2018. As of June 30, 2020, the contingent consideration
was revalued at $0.2 million using the same Monte Carlo simulation
methodology, and based on current interest rates, expected sales
potential, and Aytu stock trading variables. The Company
reevaluates the contingent consideration on a quarterly basis for
changes in the fair value recognized after the acquisition date,
such as measurement period adjustments. The contingent
consideration accretion expense for the three months ended
September 30, 2020 and 2019 was $0.1 million and $0.1 million,
respectively. As of September 30, 2020, none of the milestones had
been achieved, and therefore, no milestone payment was
made.
The
Company recognized approximately $0.2 million in contingent
consideration as a result of the February 14, 2020 Innovus Merger.
The fair value was based on a discounted value of the future
contingent payment using a 30% discount rate based on the estimates
risk that the milestones are achieved. The contingent consideration
accretion expense for the three months ended September 30, 2020 and
2019 was $13,000, and $0, respectively. There was no material
change in this valuation as of September 30, 2020.
Contingent value
rights. Contingent value rights (“CVRs”)
represent contingent additional consideration of up to $16 million
payable to satisfy future performance milestones related to the
Innovus Merger. Consideration can be satisfied in up to 4.7 million
shares of the Company’s common stock, or cash either upon the
option of the Company or in the event there are insufficient shares
available to satisfy such obligations. The fair value of the
contingent value rights was based on a model in which each
individual payout was deemed either (a) more likely than not to be
paid out or (b) less likely than not to be paid out. From there,
each obligation was then discounted at a 30% discount rate to
reflect the overall risk to the contingent future payouts pursuant
to the CVRs. This value is then remeasured both for future expected
payout at well as the increase fair value due to the time value of
money. As of September 30, 2020, the Company has paid out 1.2
million shares of the Company’s common stock to satisfy the
first $2 million milestone, which relates to the Innovus
achievement of $24 million in revenues during the 2019 calendar
year. The unrealized loss for the three months ended September 30,
2020 and 2019 was $97,000, and $0, respectively.
Summary of Level 3 Input Changes
The
following table sets forth a summary of changes to those fair value
measures using Level 3 inputs for the three months ended September
30, 2020:
|
|
|
Balance as of
June 30, 2020
|
$5,572,000
|
$13,588,000
|
Transfers
into Level 3
|
–
|
–
|
Transfer out
of Level 3
|
–
|
–
|
Total gains,
losses, amortization or accretion in period
|
–
|
–
|
Included in
earnings
|
$97,000
|
$209,000
|
Included in
other comprehensive income
|
–
|
–
|
Purchases,
issues, sales and settlements
|
–
|
–
|
Purchases
|
–
|
–
|
Issues
|
–
|
–
|
Sales
|
–
|
–
|
Settlements
|
–
|
$(19,000)
|
Balance as of
September 30, 2020
|
$5,669,000
|
$13,778,000
|
10.
Commitments
and Contingencies
Commitments and
contingencies are described below and summarized by the following
as of September 30, 2020:
|
|
|
|
|
|
|
|
Prescription
database
|
$1,411,000
|
$678,000
|
$733,000
|
-
|
-
|
-
|
-
|
Pediatric
portfolio fixed payments and product minimums
|
16,911,000
|
2,736,000
|
3,300,000
|
3,300,000
|
3,300,000
|
3,300,000
|
975,000
|
Inventory
purchase commitment
|
1,962,000
|
1,226,000
|
736,000
|
-
|
-
|
-
|
-
|
CVR
liability
|
14,000,000
|
2,000,000
|
2,000,000
|
5,000,000
|
5,000,000
|
-
|
-
|
Product
contingent liability
|
202,000
|
-
|
-
|
-
|
-
|
-
|
202,000
|
Product
milestone payments
|
3,000,000
|
-
|
3,000,000
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
$37,486,000
|
$6,640,000
|
$9,769,000
|
$8,300,000
|
$8,300,000
|
$3,300,000
|
$1,177,000
|
Prescription Database
In May
2016, the Company entered into an agreement with a vendor that will
provide it with prescription database information. The Company
agreed to pay approximately $1.6 million over three years for
access to the database of prescriptions written for Natesto. In
January 2020, the Company amended the agreement and agreed to pay
additional $0.6 million to add access to the database of
prescriptions written for the Pediatric Portfolio. The payments
have been broken down into quarterly payments.
Pediatric Portfolio Fixed Payments and Product
Milestone
The
Company assumed two fixed, periodic payment obligations to an
investor (the “Fixed Obligation”). Beginning November
1, 2019 through January 2021, the Company will pay monthly payments
of $86,840, with a balloon payment of $15,000,000 due in January
2021. A second fixed obligation requires the Company pay a minimum
of $100,000 monthly through February 2026, except for $210,767 paid
in January 2020.
In
addition, the Company acquired a Supply and Distribution Agreement
with Tris Pharma, Inc. ("TRIS"), (the “Karbinal
Agreement”), under which the Company is granted the exclusive
right to distribute and sell the product in the United States. The
initial term of the Karbinal Agreement was 20 years. The Company
will pay TRIS a royalty equal to 23.5% of net sales. A third party
agreed to offset the 23.5% royalty payable by 8.5%, for a net
royalty equal to 15%, in fiscal year 2018 and 2019 for net sales of
Karbinal.
The
Karbinal Agreement make-whole payment is capped at $1,750,000 each
year. The Karbinal Agreement also contains minimum unit sales
commitments, which is based on a commercial year that spans from
August 1 through July 31, of 70,000 units through 2023. The Company
is required to pay TRIS a royalty make whole payment of $30 for
each unit under the 70,000-unit annual minimum sales commitment
through 2033. The annual payment is due in August of each year. The
Karbinal Agreement also has multiple commercial milestone
obligations that aggregate up to $3.0 million based on cumulative
net sales, the first of which is triggered at $40.0 million of net
revenues.
CVR Liability
On
February 14, 2020 the Company closed on the Merger with Innovus
Pharmaceuticals after approval by the stockholders of both
companies on February 13, 2020. Upon closing the Merger, the
Company merged with and into Innovus and entered into a Contingent
Value Rights Agreement (the “CVR Agreement”). Each CVR
entitles its holder to receive its pro rata share, payable in cash
or stock, at the option of Aytu, of certain payment amounts if the
targets are met. If any of the payment amounts is earned, they are
to be paid by the end of the first quarter of the calendar year
following the year in which they are earned. Multiple revenue
milestones can be earned in one year.
On
March 31, 2020, the Company paid out the first CVR Milestone in the
form of approximately 1.2 million shares of the Company’s
common stock to satisfy the $2.0 million obligation as a result of
Innovus achieving the $24.0 million revenue milestone for calendar
year ended December 31, 2019. As a result of this, the Company
recognized a gain of approximately $0.3 million during the fiscal
year ended June 30, 2020. No additional milestone payments have
been paid as of September 30, 2020.
Product Contingent Liability
In
February 2015, Innovus acquired Novalere, which included the rights
associated with distributing FlutiCare. As part of the Merger,
Innovus is obligated to make 5 additional payments of $0.5 million
when certain levels of FlutiCare sales are achieved.
Inventory Purchase Commitment
In May
1, 2020, the Company entered into a Settlement Agreement and
Release (the “Settlement Agreement”) with Hikma
Pharmaceuticals USA, Inc. (“Hikma”). Pursuant to the
settlement agreement, Innovus has agreed to purchase and Hikma has
agreed to manufacture a minimum amount of our branded fluticasone
propionate nasal spray USP, 50 mcg per spray (FlutiCare®),
under Hikma’s FDA approved ANDA No. 207957 in the U.S. The
commitment requires Innovus to purchase three batches of product
through fiscal year 2022 each of which amount to $1.0
million.
Milestone Payments
In
connection with the Company’s intangible assets, Aytu has
certain milestone payments, totaling $3.0 million, payable at a
future date, are not directly tied to future sales, but upon other
events certain to happen. These obligations are included in the
valuation of the Company’s contingent consideration (see Note
9).
The
Company has 200 million shares of common stock authorized with a
par value of $0.0001 per share and 50 million shares of preferred
stock authorized with a par value of $0.0001 per share. At
September 30, 2020 and June 30, 2020, Aytu had 125,837,357 and
125,837,357 common shares outstanding, respectively, and zero
preferred shares outstanding, respectively.
Included in the
common stock outstanding are 4,230,766 shares of restricted stock
issued to executives, directors, employees and
consultants.
In June
2020, the Company completed an at-the-market offering program,
which allows us to sell and issue shares of our common stock from
time-to- time. The company issued 4,302,271 shares of common stock,
with total gross proceeds of $6.8 million before deducting
underwriting discounts, commissions and other offering expenses
payable by the Company of $0.2 million through September 30, 2020.
The Company did not issue any shares of common stock under the
at-the-market offering program during the three months ended
September 30, 2020. After September 30, 2020, the Company issued
approximately 3.0 million shares of common stock, with total gross
proceeds of approximately $3.1
million between October 8, 2020 and the filing of this form
10-Q.
In July 2020, the
Company paid $1.5 million issuance cost in cash related to the
March 10, 12, and 19 offerings (the “March Offerings”),
and issued 845,000 shares of warrants with an exercise price of
$1.5625 and 78,000 shares of warrants with an exercise price of
$1.9938 to a third party in conjunction with the March 2020
offerings. The warrants have a term of one year from the issuance
date. These warrants had at issuance a fair value of approximately
$356,000 and were valued using a Black-Scholes
model.
12.
Equity
Incentive Plan
Share-based Compensation Plans
On June
1, 2015, the Company’s stockholders approved the Aytu
BioScience 2015 Stock Option and Incentive Plan (the “2015
Plan”), which, as amended in July 2017, provides for the
award of stock options, stock appreciation rights, restricted stock
and other equity awards for up to an aggregate of 3.0 million
shares of common stock. The shares of common stock underlying any
awards that are forfeited, canceled, reacquired by Aytu prior to
vesting, satisfied without any issuance of stock, expire or are
otherwise terminated (other than by exercise) under the 2015 Plan
will be added back to the shares of common stock available for
issuance under the 2015 Plan. As of September 30, 2020, we have
4,837 shares that are available for grant under the 2015 Plan. On
February 13, 2020, the Company’s stockholders approved an
increase to 5.0 million total shares of common stock in the 2015
Plan.
Stock Options
Employee Stock Options:
The
fair value of the options is calculated using the Black-Scholes
option pricing model. In order to calculate the fair value of the
options, certain assumptions are made regarding components of the
model, including the estimated fair value of the underlying common
stock, risk-free interest rate, volatility, expected dividend yield
and expected option life. Changes to the assumptions could cause
significant adjustments to valuation. Aytu estimates the expected
term based on the average of the vesting term and the contractual
term of the options. The risk-free interest rate is based on the
U.S. Treasury yield in effect at the time of the grant for treasury
securities of similar maturity. There were no grants of stock
options to employees during the quarters ended September 30, 2020
and 2019, respectively, therefore, no assumptions are used for
fiscal 2021.
Stock
option activity is as follows:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Aggregate
Intrinsic Value
|
Outstanding June
30, 2020
|
765,937
|
$1.85
|
9.67
|
|
Granted
|
-
|
-
|
|
|
Exercised
|
-
|
-
|
|
|
Forfeited/Cancelled
|
-
|
-
|
|
|
Expired
|
-
|
-
|
|
|
Outstanding
September 30, 2020
|
765,937
|
1.85
|
9.44
|
70,320
|
Exercisable at
September 30, 2020
|
8,926
|
$52.81
|
8.68
|
$1,650
|
As of
September 30, 2020, there was $601,000 unrecognized option-based
compensation expense related to non-vested stock options. The
Company expects to recognize this expense over a weighted-average
period of 2.73 years.
Restricted Stock
Restricted stock
activity is as follows:
|
|
Weighted
Average Grant Date Fair Value
|
Weighted
Average Remaining Contractual Life in Years
|
Unvested at
June 30, 2020
|
4,184,516
|
$1.47
|
6.4
|
Granted
|
|
|
|
Vested
|
(369,198)
|
|
|
Forfeited
|
|
|
|
Unvested at
September 30, 2020
|
3,815,318
|
$1.53
|
6.3
|
Under
the 2015 Plan, there was $4.7 million of total unrecognized
stock-based compensation expense related to the non-vested
restricted stock as of September 30, 2020. The Company expects to
recognize this expense over a weighted-average period of 6.3 years.
The Company previously issued 1,540 shares of restricted stock
outside the Company’s 2015 Plan, which vest in July 2026. The
unrecognized expense related to these shares was $1.1 million as of
September 30, 2020 and is expected to be recognized over the
weighted average period of 5.8 years.
Stock-based
compensation expense related to the fair value of stock options and
restricted stock was included in the statements of operations as
selling, general and administrative expenses as set forth in the
table below:
|
Three Months
Ended September 30,
|
Selling,
general and administrative:
|
|
|
Stock
options
|
$72,000
|
$5,000
|
Restricted
stock
|
383,000
|
160,000
|
Total
stock-based compensation expense
|
$455,000
|
$165,000
|
In July 2020, the
Company issued 845,000 shares of warrants with an exercise price of
$1.5625 and 78,000 shares of warrants with an exercise price of
$1.9938 in connect with the March Offerings. The warrants have a
term of one year from the issuance date. These warrants have a fair
value of $356,000.
Significant
assumptions in valuing the warrants issued during the quarter are
as follows:
|
Warrants Issued Three Months Ended September 30,
2020
|
Expected
volatility
|
100%
|
Equivalent term
(years)
|
1
|
Risk-free
rate
|
-
|
Dividend
yield
|
0.00%
|
A
summary of equity-based warrants is as follows:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life in Years
|
Outstanding
June 30, 2020
|
22,884,538
|
$3.06
|
2.00
|
Warrants
issued
|
923,000
|
|
|
Warrants
expired
|
(8,361)
|
|
|
Warrants
exercised
|
-
|
|
|
Outstanding
September 30, 2020
|
23,799,177
|
$2.98
|
1.47
|
14.
Net
Loss per Common Share
Basic
income (loss) per common share is calculated by dividing the net
income (loss) available to the common shareholders by the weighted
average number of common shares outstanding during that period.
Diluted net loss per share reflects the potential of securities
that could share in the net loss of the Company. For each
three-month period presented, the basic and diluted loss per share
were the same for 2020 and 2019, as they were not included in the
calculation of the diluted net loss per share because they would
have been anti-dilutive.
The
following table sets-forth securities that could be potentially
dilutive, but as of the quarters ended September 30, 2020 and 2019
are anti-dilutive, and therefore excluded from the calculation of
diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
Warrants to
purchase common stock - liability classified
|
|
240,755
|
240,755
|
Warrant to purchase
common stock - equity classified
|
(Note
13)
|
23,799,177
|
16,218,908
|
Employee stock
options
|
(Note
12)
|
765,937
|
1,556
|
Employee unvested
restricted stock
|
(Note
12)
|
3,816,858
|
2,342,604
|
Convertible
preferred stock
|
(Note
11)
|
-
|
3,151,148
|
|
28,622,727
|
21,954,971
|
The Aytu BioScience
Note. On February 27, 2020, the Company issued a $0.8
million promissory note (the “Note”) and received
consideration of approximately $0.6 million. The Note had an
eight-month term with principal and interest payable on November 1,
2020 and the recognition of approximately $0.2 million of debt
discount related to the issuance of promissory notes. The discount
is amortized over the life of the promissory notes through the
fourth quarter of calendar 2020. During the three months ended
September 30, 2020 and 2019, the Company recorded approximately
$42,000 and $0, respectively, of related amortization.
The Innovus Notes.
On January 9, 2020, prior to the completion of the merger, Innovus
Pharmaceuticals, Inc. entered into a note agreement upon which it
received gross proceeds of $0.4 million with a principal amount of
$0.5 million. The note requires twelve equal monthly payments of
approximately $45,000. As of September 30, 2020, the net balance of
the note was $135,000.
The
Company’s chief operating decision maker (the
“CODM”), who is the Company’s Chief Executive
Officer, allocates resources and assesses performance based on
financial information of the Company. The CODM reviews financial
information presented for each reportable segment for purposes of
making operating decisions and assessing financial
performance.
Aytu
manages our Company and aggregates our operational and financial
information in accordance with two reportable segments: Aytu
BioScience and Aytu Consumer Health. The Aytu BioScience segment
consists of the Company’s prescription products. The Aytu
Consumer Health segment contains the Company’s consumers
healthcare products line, which was the result of the Innovus
Merger. Select financial information for these segments is as
follows:
|
Three months
Ended September 30,
|
|
|
|
Consolidated
revenue:
|
|
|
Aytu
BioScience
|
$5,752,000
|
$1,440,000
|
Aytu Consumer
Health
|
7,768,000
|
-
|
Consolidated
revenue
|
13,520,000
|
1,440,000
|
|
|
|
Consolidated
net loss:
|
|
|
Aytu
BioScience
|
(2,950,000)
|
(4,929,000)
|
Aytu Consumer
Health
|
(1,356,000)
|
-
|
Consolidated
net loss
|
(4,306,000)
|
(4,929,000)
|
|
|
|
|
|
|
|
|
|
Total
assets:
|
|
|
Aytu
BioScience
|
$116,499,000
|
$126,267,000
|
Aytu Consumer
Health
|
24,772,000
|
26,569,000
|
Total
assets
|
$141,271,000
|
$152,836,000
|
17.
Related Party Transactions
Tris Pharma, Inc.
On
November 2, 2018, the Company entered into a License, Development,
Manufacturing and Supply Agreement (the “Tris License
Agreement”). On November 1, 2019, the Company acquired the
rights to Karbinal as a result of the acquisition of the Pediatric
Portfolio from Cerecor, Inc. (See Notes 2 and 10). Mr. Ketan Mehta
serves as a Director on the Board of Directors of the Company and
is also the Chief Executive Officer of TRIS. The Company paid TRIS
approximately $257,000 and $7,000 during the three months ended
September 30, 2020 and 2019, respectively for a combination of
royalty payments, inventory purchases and other payments as
contractually required. The Company’s liabilities, including
accrued royalties, contingent consideration and fixed payment
obligations were $22.7 million and $16.0 million as of September
30, 2020 and 2019, respectively. In October 2020, the Company paid
Tris approximately $1.6 million related to its Karbinal fixed
payment obligation.
See Footnotes 1 and 17 for information relating to certain
events occurring between September 30, 2020, and the filing of this
report Form 10-Q, impacting information disclosed
above.