SECURITIES & EXCHANGE COMMISSION EDGAR FILING

[Pages:31]SECURITIES & EXCHANGE COMMISSION EDGAR FILING

AYTU BIOSCIENCE, INC

Form: 10-Q Date Filed: 2018-02-08

Corporate Issuer CIK: 1385818

? Copyright 2018, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: December 31, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File No. 001-38247

AYTU BIOSCIENCE, INC. (Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

47-0883144

(IRS Employer Identification No.)

373 Inverness Parkway, Suite 206 Englewood, Colorado 80112

(Address of principal executive offices, including zip code)

(720) 437-6580 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer Non-accelerated filer

(Do not check if a smaller reporting company)

Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of February 1, 2018, there were 4,969,638 shares of Common Stock outstanding.

AYTU BIOSCIENCE, INC. AND SUBSIDIARY FOR THE QUARTER ENDED DECEMBER 31, 2017

INDEX

PART I--FINANCIAL INFORMATION

Page

Item 1. Consolidated Financial Statements

1

Consolidated Balance Sheets as of December 31, 2017 (unaudited) and June 30, 2017

1

Consolidated Statements of Operations for the three and six months ended December 31, 2017 (unaudited) and the three and six months

ended December 31, 2016 (unaudited)

2

Consolidated Statement of Stockholders' Equity (unaudited)

3

Consolidated Statements of Cash Flows for the six months ended December 31, 2017 (unaudited) and the six months ended December 31,

2016 (unaudited)

4

Notes to Consolidated Financial Statements (unaudited)

5

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. Controls and Procedures

22

PART II--OTHER INFORMATION

Item 1. Legal Proceeding

23

Item 1A. Risk Factors

23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3. Defaults Upon Senior Securities

23

Item 4. Mine Safety Disclosures

23

Item 5. Other Information

23

Item 6. Exhibits

23

SIGNATURES

24

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our anticipated future clinical and regulatory events, future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. Forward looking statements are generally written in the future tense and/or are preceded by words such as "may," "will," "should," "forecast," "could," "expect," "suggest," "believe," "estimate," "continue," "anticipate," "intend," "plan," or similar words, or the negatives of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, without limitation: the planned expanded commercialization of our products and the potential future commercialization of our product candidates, our anticipated future cash position; the assimilation into our operations of acquired assets and entities; our plan to acquire additional assets; the anticipated start dates, durations and completion dates, as well as the potential future results, of our ongoing and future clinical trials; the anticipated designs of our future clinical trials; anticipated future regulatory submissions and events; and future events under our current and potential future collaborations. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including without limitation the risks described in "Risk Factors" in Part I, Item 1A of our most recent Annual Report on Form 10-K, and in the reports we filed with the Securities and Exchange Commission. These risks are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We assume no obligation to update or supplement forward-looking statements.

This Quarterly Report on Form 10-Q includes trademarks, such as Aytu, Natesto, ProstaScint, MiOXSYS, RedoxSYS, and Fiera, which are protected under applicable intellectual property laws and we own or have the rights to. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ? or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

PART I--FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

AYTU BIOSCIENCE, INC. AND SUBSIDIARY Consolidated Balance Sheets (unaudited)

Current assets Cash and cash equivalents Restricted cash Accounts receivable, net Inventory, net Prepaid expenses and other Total current assets

Fixed assets, net Developed technology, net Customer contracts, net Trade names, net Natesto asset, net Goodwill Patents, net Deposits

Total long-term assets

Total assets

Assets

December 31, 2017

June 30, 2017

$ 3,908,183 $

802,328

75,534

75,214

1,377,436

528,039

1,379,806

1,312,221

1,003,766

310,760

7,744,725

3,028,562

560,624 1,254,309

74,667 152,438 8,571,710 238,426 258,611

2,888

11,113,673

647,254 1,337,333

77,667 164,037 9,231,072 238,426 271,278

2,888

11,969,955

$ 18,858,398 $ 14,998,517

Current liabilities Accounts payable and other Accrued liabilities Accrued compensation Deferred rent Current contingent consideration

Total current liabilities

Liabilities and Stockholders' Equity

Long-term contingent consideration Long-term deferred rent Warrant derivative liability

Total liabilities

Commitments and contingencies (Note 6)

Stockholders' equity Preferred Stock, par value $.0001; 50,000,000 shares authorized; shares issued and outstanding 1,900 and 0, respectively as of December 31, 2017 and June 30, 2017 Common Stock, par value $.0001; 100,000,000 shares authorized; shares issued and outstanding 4,894,638 and 824,831, respectively as of December 31, 2017 and June 30, 2017 Additional paid-in capital Accumulated deficit Total stockholders' equity

Total liabilities and stockholders' equity

$ 3,414,854 $ 2,220,400

257,631

782,536

837,290

339,704

4,787

6,673

286,339

261,155

4,800,901

3,610,468

7,726,698 -

3,300,213

15,827,812

7,386,782 1,451

-

10,998,701

1

489 80,017,545 (76,987,449)

3,030,586

-

82 73,069,463 (69,069,729)

3,999,816

$ 18,858,398 $ 14,998,517

The accompanying notes are an integral part of these consolidated financial statements.

1

AYTU BIOSCIENCE, INC. AND SUBSIDIARY Consolidated Statements of Operations (unaudited)

Three Months Ended

December 31,

2017

2016

Six Months Ended

December 31,

2017

2016

Product revenue Total revenue

Operating expenses Cost of sales Research and development Research and development - related party (Note 9) Sales, general and administrative Sales, general and administrative - related party (Note 9) Amortization and impairment of intangible assets Total operating expenses

Loss from operations

Other income (expense) Interest expense Derivative income Unrealized (loss) gain on investment Total other income (expense)

Net loss Weighted average number of Aytu common shares outstanding

$ 1,051,154 $ 1,051,154

794,172 $ 794,172

2,127,522 $ 2,127,522

1,492,152 1,492,152

385,411 (277,486)

4,553,366

383,811 5,045,102

(3,993,948)

551,293 263,457 47,998 3,642,332 50,772 437,014 4,992,866

(4,198,694)

672,612 (136,532)

9,171,769

769,652 10,477,501

(8,349,979)

743,217 495,479 95,996 9,347,082 101,544 874,029 11,657,347

(10,165,195)

(196,781) 518,051

-

321,270

(388,085) 266,757 (497,164) (618,492)

(385,526) 817,785

-

432,259

(803,465) 196,148

230,936 (376,381)

$ (3,672,678) $ (4,817,186) $ (7,917,720) $ (10,541,576)

4,113,256

392,540

2,481,110

295,546

Basic and diluted Aytu net loss per common share

$

(0.89) $

(12.27) $

(3.19) $

(35.67)

The accompanying notes are an integral part of these consolidated financial statements.

2

Balance - June 30, 2017

Stock-based compensation (unaudited) Issuance of restricted stock (unaudited) Earn-out payment to Nuelle shareholders

(unaudited) Issuance of preferred and common stock, net

of $1,402,831 in cash issuance costs (unaudited) Preferred stocks converted in common stock (unaudited) Adjustment for rounding of shares due to stock split (unaudited) Net loss (unaudited)

Balance - December 31, 2017 (unaudited)

AYTU BIOSCIENCE, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Equity

(unaudited)

Preferred Stock

Shares

Amount

Common Stock

Shares

Amount

Additional paid-in

capital

Accumulated Deficit

Total Stockholders'

Equity

- $

-

824,831 $

82 $ 73,069,463 $ (69,069,729) $ 3,999,816

-

-

-

-

275,688

-

275,688

-

-

692,000

69

103,566

-

103,635

-

-

64,150

6

249,994

-

250,000

2,250 (350)

-

1,900 $

1

3,196,665

116,666

-

326

-

-

1

4,894,638 $

320

6,318,846

-

6,319,167

12

(12)

-

-

-

-

-

-

-

-

(7,917,720) (7,917,720)

489 $ 80,017,545 $ (76,987,449) $ 3,030,586

The accompanying notes are an integral part of these consolidated financial statements.

3

AYTU BIOSCIENCE, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (unaudited)

Cash flows from operating activities Net loss

Adjustments to reconcile net loss to cash provided by (used in) operating activities Stock-based compensation expense Issuance of restricted stock Depreciation, amortization and accretion Derivative (income) Amortization of prepaid research and development - related party (Note 9) Unrealized (gain) on investment Compensation through issuance of stock Issuance of warrants to initial investors Adjustments to reconcile net loss to net cash used in operating activities: (Increase) in accounts receivable (Increase) decrease in inventory (Increase) in prepaid expenses and other Increase (decrease) in accounts payable and other (Decrease) in accrued liabilities Increase (decrease) in accrued compensation (Decrease) in deferred rent

Net cash used in operating activities

Cash flows used in investing activities Purchases of property and equipment Installment payment for Natesto asset Installment payment for Primsol asset

Net cash used in investing activities

Cash flows from financing activities Issuance of preferred, common stock and warrants Issuance costs related to preferred, common stock and warrants Issuance of common stock to Lincoln Park Capital Costs related to sale of common stock Registered offering of common stock and warrants Registered offering costs Over-allotment warrants purchased by placement agents

Net cash provided by financing activities

Net change in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period Cash, cash equivalents and restricted cash at end of period

Six Months Ended

December 31,

2017

2016

$ (7,917,720) $ (10,541,576)

275,688 103,635 1,315,063 (817,785)

-

1,425,133 156,814

1,722,965 (196,148)

60,992 (230,936) 509,996 596,434

(849,397) (67,585)

(454,595) 1,124,558 (524,905)

497,586 (3,337)

(7,318,794)

(419,966) 85,741

(221,015) (195,836) (238,395) (681,432)

(1,350) (8,168,579)

(12,195) -

(12,195)

(44,876) (2,000,000)

(750,000) (2,794,876)

11,839,995 (1,402,831)

-

-

10,437,164

631,481 (24,247) 8,602,500 (997,865)

2,852

8,214,721

3,106,175

(2,748,734)

877,542

8,054,190

$ 3,983,717 $ 5,305,456

Non-cash transactions:

Warrants issued to investors and underwriters (see Note 5)

$

Revenue share payment to Jazz

$

Earn-out payment to Nuelle Shareholders

$

Fixed assets included in accounts payable

$

Warrants issued in connection with the equity financing to the placement agents

$

The accompanying notes are an internal part of these consolidated financial statements.

4,117,997 $ 7,385 $

250,000 $ 62,512 $ - $

61,241 292,630

4

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