Business Context and Reporting Period
This Form 8-K, dated February 14, 2020, reports the completion of a merger between Aytu BioScience, Inc. ("Aytu") and Innovus Pharmaceuticals, Inc. ("Innovus"). The transaction was approved by shareholders of both companies on February 13, 2020, and closed on February 14, 2020. Innovus continues to operate as a wholly-owned subsidiary of Aytu.
Key Financial Metrics and Transaction Details
The filing details the consideration paid to Innovus shareholders and warrant holders but does not provide Aytu's standalone revenue, profit, or cash flow metrics for the reporting period.
- Merger Consideration: Approximately 3.8 million shares of Aytu common stock and up to $16 million in value in Contingent Value Rights (CVRs).
- Warrant Exchange: 1,997,736 shares of Series H Convertible Preferred Stock were issued to exchange Innovus cash warrants.
- Financial Reporting Requirements: The acquisition is deemed a business under Regulation S-X, requiring the filing of historical audited financial statements for Innovus (fiscal year ended Dec 31, 2018, and nine months ended Sept 30, 2019) and pro forma financial statements within 71 days.
Material Changes
The primary material change is the consolidation of Innovus into Aytu. Key structural changes include:
- Issuance of approximately 3.8 million new shares of Aytu common stock.
- Creation of up to $16 million in CVRs contingent on future performance.
- Issuance of 1,997,736 shares of unlisted Series H Preferred Stock to former Innovus warrant holders.
- Retirement of Innovus warrants with cash-out rights in exchange for the Series H Preferred Stock.
Terms, Risks, and Contingencies
Series H Preferred Stock Terms:
- Conversion: Convertible to common stock under certain circumstances.
- Fundamental Transaction: Holders receive the same consideration as common stockholders in a merger or asset sale.
- Liquidation: Participates on an as-converted basis with common stockholders.
- Voting Rights: Generally no voting rights, except for specific protective provisions regarding amendments to the certificate of designation or adverse changes to rights.
- Dividends: No dividends payable unless common stock dividends are paid on an as-converted basis.
Risks and Contingencies:
- The $16 million CVR value is contingent and not guaranteed.
- Remaining Innovus warrants retain rights to merger consideration and CVRs upon exercise.
- The Series H Preferred Stock is not listed on any securities exchange.
Investor Verification Checklist
- Verify the specific performance milestones required to trigger the $16 million Contingent Value Rights (CVRs).
- Review the attached audited financial statements (Exhibit 99.1) and unaudited statements (Exhibit 99.2) for Innovus to assess the acquired entity's financial health.
- Examine the pro forma financial statements (Exhibit 99.3) to understand the combined entity's projected financial position.
- Confirm the dilution impact of the 3.8 million new common shares and the potential future conversion of Series H Preferred Stock.