Business Context and Reporting Period
This Form 8-K Current Report was filed by Aytu BioScience, Inc. on November 29, 2018. The filing discloses the entry into a material definitive agreement and the appointment of new directors to the Board of Directors.
Key Financial Metrics and Agreements
- Debt Financing: The Company issued a secured, non-convertible $5.0 million promissory note (the "Armistice Note") to Armistice Capital.
- Note Terms: The note carries an 8% annual interest rate with a three-year term. Principal and interest are payable at maturity, though the Company may repay without penalty after December 29, 2018.
- Collateral: The note is secured by future revenue streams from products licensed under an agreement with TRIS Pharma, Inc.
- Related Party Transactions: Armistice Capital has previously invested approximately $9.615 million in the Company through various transactions between January 2017 and October 2018.
- Licensing Costs: Under a separate agreement with TRIS Pharma, the Company paid $500,000 in cash and issued 400,000 shares of Series D Convertible Preferred Stock for exclusive licenses to Tuzistra XR and CCP-08. Total expected payments over the life of this agreement exceed $40.0 million, contingent on FDA approval and sales targets.
Material Changes and Corporate Governance
The Board of Directors expanded its size by two seats on November 30, 2018.
- Ketan B. Mehta: Elected as a director. He is the President, CEO, and founder of TRIS Pharma (the Company's licensing partner) and beneficially owns 100% of TRIS Pharma. He will receive standard independent director compensation.
- Steven J. Boyd: Anticipated to be elected to fill the remaining vacancy in Q1 2019. He is the Chief Investment Officer and founder of Armistice Capital (the Company's new lender). He has elected to receive no compensation for his board service.
Outlook, Risks, and Contingencies
The Company's financial outlook regarding the TRIS Pharma agreement is highly contingent on several factors:
- Receipt of FDA approval for the product CCP-08.
- Market acceptance of the licensed products.
- Achievement of expected sales targets and objectives.
- The filing explicitly states that no assurance can be given that these items will occur.
Forward-looking statements in the report are subject to substantial risks and uncertainties detailed in the Company's Annual Report on Form 10-K for the year ended June 30, 2018.
Investor Verification Checklist
- Verify the specific terms of the $5.0 million Armistice Note in Exhibit 10.1, particularly regarding the definition of the revenue stream used as collateral.
- Confirm the status of the FDA New Drug Application for CCP-08, as future payments to TRIS Pharma depend on its approval.
- Review the potential conflict of interest implications of appointing the CEO of TRIS Pharma and the founder of Armistice Capital to the Board simultaneously.
- Assess the Company's current liquidity position to determine its ability to service the new debt and meet future milestone payments to TRIS Pharma.