Business Context and Reporting Period
Company: Rosewind Corporation (operating as Aytu Bioscience, Inc. following the merger)
Filing Type: Form 8-K (Current Report)
Date of Report: April 16, 2015
Event: Completion of a reverse merger and recapitalization. Rosewind Corporation merged with Vyrix Pharmaceuticals, Inc. and Luoxis Diagnostics, Inc. (collectively the "Combined Company"). The transaction is accounted for as a reverse merger, with Vyrix and Luoxis as the accounting acquirers. Rosewind's previous business plan (sailing school) was abandoned in favor of the healthcare operations of Vyrix and Luoxis.
Corporate Changes: The company plans to reincorporate in Delaware and change its name to Aytu Bioscience, Inc. A reverse stock split of approximately 12.174 to 1 is expected. Ampio Pharmaceuticals, Inc. holds approximately 81.5% of the outstanding common stock.
Key Financial Metrics
Revenue: The Combined Company (Vyrix and Luoxis) has not generated material revenue. Historical revenue for the years ended December 31, 2014 and 2013 was $90,000 and $50,000, respectively, primarily from license amortization.
Profitability: The company is not profitable and has incurred accumulated net losses of $10.1 million as of December 31, 2014. Net losses were $7.1 million for 2014 and $3.9 million for 2013.
Cash Flow and Liquidity:
- Cash on Hand: $160,905 as of December 31, 2014.
- Operating Cash Flow: Used $7.2 million in 2014 and $4.0 million in 2013.
- Financing: Received $6.3 million in cash from Ampio between January and April 2015. Ampio also issued a $10,000,000 promissory note to the Combined Company and cancelled $12,000,000 in indebtedness owed by Vyrix and Luoxis to Ampio.
Debt: Prior to the merger, Vyrix and Luoxis had loan agreements with Ampio totaling $12,000,000, which were cancelled as part of the merger consideration. The new $10,000,000 promissory note from Ampio matures on the first anniversary of the merger.
Material Changes vs. Prior Period
Business Transformation: The company shifted from a shell entity with a sailing school concept to a clinical-stage healthcare company focused on urological disorders and oxidative stress diagnostics.
Management Changes:
- Resignations: James Wiegand (former President, CEO, and Director) and other former directors resigned.
- Appointments: Joshua Disbrow appointed CEO; Jarrett Disbrow appointed COO; Gregory A. Gould appointed CFO; Michael Macaluso appointed Director.
Capital Structure: Issued 154,161,963 shares of common stock to former Vyrix and Luoxis stockholders. Total outstanding shares as of April 16, 2015, were 173,597,365.
Accounting Change: Fiscal year-end changed from August 31 to June 30. Historical financial statements now reflect the operations of Vyrix and Luoxis.
Guidance, Outlook, and Risks
Outlook: Management believes current capital (including the $10M note and recent cash infusions) is sufficient to fund operations into the second half of 2016. The company expects to incur substantial losses for the foreseeable future and will require additional capital to advance clinical trials and commercialization.
Product Pipeline:
- Zertane: Lead therapeutic for premature ejaculation (PE). Phase 3 trials planned for the U.S. utilizing a 505(b)(2) regulatory pathway.
- Zertane-ED: Combination product for PE and erectile dysfunction (ED).
- RedoxSYS: Diagnostic system for measuring oxidative stress, initially for research use and male infertility applications.
Risks and Contingencies:
- Going Concern: Substantial doubt exists regarding the ability to continue as a going concern without significant financing.
- Regulatory Approval: No products are currently approved for sale in the U.S. Success depends on FDA approval of Zertane and clearance of RedoxSYS.
- Market Liquidity: Common stock trades on OTCQB; an active trading market may not develop. The stock is subject to "penny stock" rules.
- Concentration of Ownership: Ampio controls 81.5% of voting stock, influencing corporate decisions.
Important Facts for Investor Verification
- Reverse Merger Status: Verify the accounting treatment where Vyrix/Luoxis are the acquirers, meaning historical financials reflect their operations, not Rosewind's.
- Cash Runway: Confirm the sufficiency of the $10M promissory note and existing cash to fund the planned Phase 3 trials for Zertane without immediate dilution.
- Regulatory Pathway: Review the FDA's acceptance of the 505(b)(2) pathway for Zertane and the specific endpoints required for Phase 3 trials.
- Related Party Transactions: Note the significant financial support and debt cancellations provided by Ampio, the majority shareholder.
- Lock-Up Agreements: Verify the terms of the lock-up agreements restricting the sale of shares by Ampio and key insiders for up to three years.