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EX-10.63 - AMENDED EMPLOYMENT AGREEMENT WITH DAVID A. GREEN DATED JULY 1, 2020 - AYTU BIOSCIENCE, INCaytu_ex1063.htm
EX-10.62 - AMENDED EMPLOYMENT AGREEMENT WITH JOSHUA R. DISBROW DATED JULY 1, 2020 - AYTU BIOSCIENCE, INCaytu_ex1062.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - AYTU BIOSCIENCE, INCaytu_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - AYTU BIOSCIENCE, INCaytu_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - AYTU BIOSCIENCE, INCaytu_ex311.htm
EX-23.1 - CONSENTS OF EXPERTS AND COUNSEL - AYTU BIOSCIENCE, INCaytu_ex231.htm
EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - AYTU BIOSCIENCE, INCaytu_ex211.htm
 

  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2020
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 333-146542
 
AYTU BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
47-0883144
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
373 Inverness Parkway
Suite 206
Englewood, Colorado
 
80112
(Address of principal executive offices)
 
(Zip Code)
 
(720) 437-6580
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act
 
Common Stock, par value $.0001 per share
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
 
Indicate by a 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K 
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
 
Large accelerated filer
Accelerated filer
Non-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 13a) 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
 
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share
AYTU
Nasdaq Capital Market
 
The aggregate market value of common stock held by non-affiliates of the Registrant as of December 31, 2019 was $10.1 million based on the closing price of $0.97 as of that date. 
 
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:
 
As of September 15, 2020, there were 125,837,357 shares of common stock issued and outstanding.

 
 
 
TABLE OF CONTENTS
 
 
 
 
PAGE
PART I
 
 
 
 
 
 
Item 1
4
 
Item 1A
18
 
Item 1B
56
 
Item 2
56
 
Item 3
56
 
Item 4
56
 
 
 
 
PART II
 
 
 
 
 
 
Item 5
56
 
Item 6
57
 
Item 7
57
 
Item 7A
62
 
Item 8
62
 
Item 9
62
 
Item 9A
63
 
Item 9B
63
 
 
 
 
PART III
 
 
 
 
 
 
Item 10
64
 
Item 11
68
 
Item 12
72
 
Item 13
73
 
Item 14
74
 
 
 
 
PART IV
 
 
 
 
 
 
Item 15
75
 
 
 
 
79
Exhibit 10.62
 
Exhibit 10.63
 
Exhibit 21.1
 
Exhibit 23.1
 
Exhibit 31.1
 
Exhibit 31.2
 
Exhibit 32.1
 
 
 
2
 
 
Forward-Looking Statements
 
This Annual Report on Form 10-K, or Annual Report, 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 Annual 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, statements regarding the markets for our approved products and our plans for our approved products, 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, the potential future commercialization of our product candidates, our anticipated future cash position 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 this Annual Report. These risks are not exhaustive. Other sections of this Annual Report include additional factors that could adversely impact our business and financial performance. 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.

Unless otherwise indicated or unless the context otherwise requires, references in this Form 10-K to the “Company,” “Aytu,” “we,” “us,” or “our” are to Aytu BioScience, Inc.
 
This Annual Report on Form 10-K refers to trademarks, such as Apeaz, Aytu, Diabasens, FlutiCare, Innovus Pharma, MiOXSYS, Natesto, Poly-Vi-Flor, Regoxidine, Tri-Vi-Flor, Tuzistra, Urivarx, Zestra, and ZolpiMist which are protected under applicable intellectual property laws and are our property or the property of our subsidiaries. This Form 10-K also contains trademarks, service marks, copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this Form 10-K may appear without the ® or ™ 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 tradenames.
 
We obtained statistical data, market and product data, and forecasts used throughout this Form 10-K from market research, publicly available information and industry publications. While we believe that the statistical data, industry data and forecasts and market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information.
 
 
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AYTU BIOSCIENCE, INC.
 
PART I
 
Item 1. Business
 
Company Overview
 
We are a commercial-stage specialty pharmaceutical company focused on commercializing novel products that address significant healthcare needs in both prescription and consumer health categories. Through our heritage prescription business, we currently market a portfolio of prescription products addressing large primary care and pediatric markets. The Company’s Primary Care Portfolio (the “Primary Care Portfolio”) includes (i) Natesto®, the only FDA-approved nasal formulation of testosterone for men with hypogonadism (low testosterone, or “Low T”), (ii) ZolpiMist(R), the only FDA-approved oral spray prescription sleep aid, and (iii) Tuzistra® XR, the only FDA-approved 12-hour codeine-based antitussive syrup.
  
We acquired on November 1, 2020, the prescription pediatric portfolio (the “Pediatric Portfolio”) which includes (i) Cefaclor, a second- generation cephalosporin antibiotic suspension; (ii) Karbinal® ER, an extended-release carbinoxamine (antihistamine) suspension indicated to treat numerous allergic conditions; and (iii) Poly-Vi-Flor® and Tri-Vi-Flor®, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiency.
  
In February 2020, we acquired Innovus Pharmaceuticals, Inc. (“Innovus”), a specialty pharmaceutical company commercializing, licensing and developing safe and effective consumer healthcare products designed to improve people’s health and vitality. Innovus commercializes over twenty-two consumer health products competing in large healthcare categories including diabetes, men’s health, sexual wellness, and respiratory health. The Innovus product portfolio is commercialized through direct-to-consumer marketing channels utilizing the Company’s proprietary Beyond Human® marketing and sales platform.
  
On March 10, 2020, we announced the licensing of a COVID-19 IgG/IgM Rapid Test from L.B. Resources, Ltd. The test is intended for professional use and delivers clinical results between 2 and 10 minutes at the point-of-care. This agreement grants Aytu the right to distribute the product in the United States, Canada and Mexico for a period of three years, with additional three-year autorenewals thereafter. The COVID-19 IgG/IgM Rapid 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. We have made an additional investment to further our interest in fighting the COVID-19 pandemic by signing an exclusive worldwide licensing agreement with Cedars-Sinai Medical Center for a medical device platform technology called Healight™. This technology, which has been studied in the laboratory setting, is being investigated as a potential treatment for COVID-19 in hospitalized, intubated patients. In collaboration with researchers from the Medically Associated Science and Technology Program (MAST) at Cedars- Sinai Medical Center, we expect to advance the development of Healight in the near term.
 
 
 
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Corporate History
 
We were initially incorporated as Rosewind Corporation on August 9, 2002 in the State of Colorado.
 
Vyrix Pharmaceuticals, Inc., or Vyrix, was incorporated under the laws of the State of Delaware on November 18, 2013 and was wholly-owned by Ampio Pharmaceuticals, Inc. (NYSE American: AMPE), or Ampio, immediately prior to the completion of the Merger (defined below). Vyrix was previously a carve-out of the sexual dysfunction therapeutics business, including the late-stage men’s health product candidates, Zertane and Zertane-ED, from Ampio, that was announced in December 2013. Luoxis Diagnostics, Inc., or Luoxis, was incorporated under the laws of the State of Delaware on January 24, 2013 and was majority-owned by Ampio immediately prior to the completion of the Merger. Luoxis was initially focused on developing and advancing the RedoxSYS System. The MiOXSYS System was developed following the completed development of the RedoxSYS System.
 
On March 20, 2015, Rosewind formed Rosewind Merger Sub V, Inc. and Rosewind Merger Sub L, Inc., each a wholly-owned subsidiary formed for the purpose of the Merger. On April 16, 2015, Rosewind Merger Sub V, Inc. merged with and into Vyrix and Rosewind Merger Sub L, Inc. merged with and into Luoxis, and Vyrix and Luoxis became subsidiaries of Rosewind. Immediately thereafter, Vyrix and Luoxis merged with and into Rosewind with Rosewind as the surviving corporation (herein referred to as the Merger). Concurrent with the closing of the Merger, Rosewind abandoned its pre-merger business plans, solely to pursue the specialty pharmaceuticals, devices, and diagnostics markets, focusing on large areas of medical need, including the business of Vyrix and Luoxis. When we discuss our business in this Report, we include the pre-Merger business of Luoxis and Vyrix.
 
On June 8, 2015, we (i) reincorporated as a domestic Delaware corporation under Delaware General Corporate Law and changed our name from Rosewind Corporation to Aytu BioScience, Inc.
 
At our special meeting of shareholders held on January 24, 2020, our shareholders approved the proposal to amend our Certificate of Incorporation to increase the number of our authorized shares of common stock, par value $0.0001 per share, from 100,000,000 to 200,000,000 shares of common stock. 
 
Our Products and Markets
 
Our products are sold and distributed through multiple channels, including sales to pharmaceutical wholesalers, on a sell-through basis using third-party logistics enterprises and direct to consumers.
 
 
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 Primary Care Portfolio
 
Prior to November 1, 2019, we were primarily focused on the commercial development of the Primary Care Portfolio:
 
Natesto® – In 2016, we acquired exclusive U.S. rights to Natesto® (testosterone) nasal gel, a novel formulation of testosterone delivered via a discreet, easy-to-use nasal gel, including a license to four Orange Book-listed patents. The recorded chain of title from the inventor to the assignee of these four patents is incomplete, but the licensor Acerus is obligated to complete it. Natesto is approved by the U.S. Food and Drug Administration, or FDA, for the treatment of hypogonadism (low testosterone) in men and is the only testosterone replacement therapy, or TRT, delivered via a nasal gel. Natesto offers multiple advantages over currently available TRTs and competes in a $1.7 billion market accounting for nearly 7 million prescriptions annually. Importantly, as Natesto is delivered via the nasal mucosa and not the skin, there is no risk of testosterone transference to others, a known potential side effect and black box warning associated with topically applied TRTs. 
 
On July 29, 2019, we agreed to amend and restate the License and Supply Agreement with Acerus. The effectiveness of the amended Agreement was conditioned upon Acerus obtaining new financing within six months of signing of the amended Agreement, which was achieved on December 1, 2019. Aytu continues to serve as the exclusive U.S. supplier to purchasers of Natesto, and Acerus receives performance-based commissions on prescriptions generated by urology and endocrinology specialties. Acerus assumed regulatory and clinical responsibilities and associated expenses and serves a primary role in the development of key opinion leaders in urology and endocrinology. Aytu continues to focus on commercial channel management, sales to wholesalers and other purchasing customers, and directs sales efforts in all other physician specialties. 
 
On December 1, 2019, we officially launched the co-promotion program and transferred five of our dedicated sales employees to Acerus until such time they could establish their own dedicated sales force. In July 2020, Acerus launched its dedicated sales team to promote Natesto to urologists and endocrinologists across the United States.
 
ZolpiMist ® – In June 2018, we acquired an exclusive U.S. license to ZolpiMist®. ZolpiMist is an FDA-approved prescription product that is indicated for the short-term treatment of insomnia, and is the only oral spray formulation of zolpidem tartrate, the most widely prescribed prescription sleep aid in the U.S. ZolpiMist® is not covered by any U.S. patents, is commercially available and competes in the non-benzodiazepine prescription sleep aid category, a $1.8 billion prescription drug category with over 43 million prescriptions written annually. Thirty million prescriptions of zolpidem tartrate (Ambien®, Ambien® CR, Intermezzo®, Edluar®, ZolpiMist®, and generic forms of immediate-release, controlled release, and orally dissolving tablet formulations) are written each year in the U.S., representing almost 70% of the non-benzodiazepine sleep aid category. Approximately 2.5 million prescriptions are written for novel formulations of zolpidem tartrate products (controlled release and sublingual tablets). We have integrated ZolpiMist® into our sales force’s promotional efforts as an adjunct product to Natesto as there is substantial overlap of physician prescribers of both testosterone and prescription sleep aids.
 
Tuzistra® XRIn November 2018 we acquired U.S. rights to distribute and market Tuzistra® XR from Tris Pharma, Inc. (“TRIS”), the only FDA-approved 12-hour codeine-based antitussive. Tuzistra® XR is a prescription antitussive consisting of codeine polistirex and chlorpheniramine polistirex in an extended-release oral suspension. Tuzistra® XR is a patented combination of codeine, an opiate agonist antitussive, and chlorpheniramine, a histamine-1 receptor antagonist, indicated for relief of cough and symptoms associated with upper respiratory allergies or a common cold in adults aged 18 years and older. Tuzistra® XR is protected by two Orange Book-listed patents extending to 2027 and 2029 owned by TRIS, subject to a security interest to Deerfield Management, and has multiple pending patents. Aytu benefits from the patent portfolio through its supply and marketing relationship with TRIS and not by license or ownership of the patents. According to MediMedia, the US cough cold prescription market is worth in excess of $3 billion at current brand pricing, with 30-35 million annual prescriptions. This market is dominated by short-acting treatments, which require dosing 4-6 times a day. Tuzistra® XR was developed using TRIS’s liquid sustained release technology, LiquiXR®, which allows for extended drug delivery throughout a 12-hour dosing period.
 
 
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The Pediatric Portfolio
 
In November 2019, we acquired the Pediatric Portfolio in order to expand our portfolio of commercial-stage products and further leverage our commercial infrastructure. Through this acquisition we now commercialize seven core prescription products and market directly to pediatric and primary care physicians and sell to wholesalers and pharmacies throughout the U.S.
 
The combined Primary Care Portfolio and the Pediatric Portfolio (together, the “Commercial Portfolio”) contains established prescription products competing in markets exceeding $8 billion in annual U.S. sales. Our products have unique clinical features and patient-friendly benefits and are indicated to treat common pediatric and primary care conditions. The Pediatric Portfolio consists of the following:
 
Poly-Vi-Flor® and Tri-Vi-Flor® – Poly-Vi-Flor and Tri-Vi-Flor are two complementary prescription fluoride-based supplement product lines containing combinations of vitamins and fluoride in various oral formulations. These prescription supplements are prescribed for infants and children to treat or prevent fluoride deficiency due to poor diet or low levels of fluoride in drinking water and other sources. While Aytu does not own or license any patents covering these products, we have an exclusive supply relationship for the use of Metafolin® in pediatric products. Metafolin® is a patented and trademarked ingredient in Poly-Vi-Flor and Tri-Vi-Flor.
 
Karbinal® ER (carbinoxamine maleate extended-release oral suspension) – Karbinal ER is an H1 receptor antagonist (antihistamine) indicated to treat various allergic conditions including seasonal and perennial allergic rhinitis, vasomotor rhinitis, and other common allergic conditions. Aytu does not own or license any patents covering this product.
 
Cefaclor (cefaclor oral suspension) – Cefaclor for oral suspension is a second-generation cephalosporin antibiotic suspension and is indicated for the treatment of numerous common infections caused by Streptococcus pneumoniae, Haemophilus influenzae, staphylococci, Streptococcus pyogenes, and others. Aytu does not own or license any patents covering this product.
 
 
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Aytu Consumer Health Portfolio
 
Our consumer health subsidiary, Innovus Pharmaceuticals, markets over 22 products in the U.S. and Canada and more than 7 products outside the U.S. through five international commercial partners. The following represents the core Innovus products:
 
Diabasens® / NeuriteRx®
 
UriVarx®
 
FlutiCare®
 
Apeaz®
 
Vesele®
 
Prostagorx®
 
Sensum+®
 
Trexar®
 
In addition, we currently expect to launch the following products in 2021 in the US, subject to the applicable regulatory approvals, if required:
 
KetoGorx® Glucometer and Test Strips is a blood ketone monitoring device to help monitor blood ketone levels for self-testing/in-vitro diagnostic use only (first half 2021) and
 
OmepraCare DR™ is an acid reducer which treats frequent heartburn. The OmepraCare DR™ delayed-release capsules are taken over a 14-day treatment period. OmepraCare DR™ is an over-the-counter proton pump inhibitor indicated to treat heartburn (first half 2021).


Aytu owns 50 tradenames for products in its consumer health portfolio and owns or licenses patents covering 14 of these products.
 
The COVID-19 IgG/IgM Rapid Test
 
In March 2020, the Company signed an agreement to distribute a COVID-19 IgG/IgM rapid test with L.B. Resources Limited (a Hong Kong Corporation). This test is a serology-based rapid test detecting IgG and IgM antibodies specific to the COVID-19 virus. Aytu does not own or license any patents covering the COVID-19 IgG/IgM rapid test.
 
This test is intended for professional use and delivers clinical results between 2 and 10 minutes.
 
The COVID-19 IgG/IgM rapid test is a solid phase immunochromatographic assay used in the rapid, qualitative and differential detection of IgG and IgM antibodies to the COVID-19 virus in human whole blood, serum or plasma. The test has been clinically validated and can be distributed in the United States, Canada and Mexico.
  
 
8
 
 
Features of the COVID-19 IgG/IgM Rapid Test:
 
Results reported rapidly
 
Facilitates patient treatment decisions quickly
 
Simple, time-saving procedure
 
Small specimens, only 5 µL of serum/plasma or 10 µL of whole blood specimens required
 
All necessary reagents provided & no equipment needed
 
High sensitivity and specificity
 
We have extensive experience across a wide range of business development activities and have in-licensed or acquired products from enterprises in the United States and abroad. Through an assertive product and business development approach, we expect that we will continue to build a substantial portfolio of complementary products.
 
Healight Medical Device Platform Technology
 
 
In April 2020 the Company signed an exclusive worldwide license with Cedars-Sinai (“Cedars-Sinai”) in Los Angeles, CA, to develop and commercialize the Healight platform technology ("Healight" or the “Healight Platform”), a novel endotracheal catheter. This medical device technology platform, discovered and developed by scientists at Cedars-Sinai, is being studied as a potential first-in-class treatment for coronavirus and other respiratory infections. The Healight Platform has been in development since 2016 by the Medically Associated Science and Technology (MAST) team at Cedars-Sinai. We are engaging with the MAST team and the FDA to determine an expedited regulatory process to potentially enable near-term use of the technology initially as a coronavirus intervention for critically ill intubated patients. We also entered into an agreement with Sterling Medical Devices ("Sterling") to finalize the development of Healight and produce prototypes.
 
Our Strategy
 
In the near-term, we expect to create value for shareholders by implementing a focused strategy of increasing sales of our prescription therapeutics while leveraging our commercial infrastructure. Further, we expect to increase sales of our recently acquired consumer healthcare product portfolio. Additionally, we expect to expand both our Aytu BioScience and Aytu Consumer Health product portfolios through continuous business and product development. Finally, we expect to identify operational efficiencies identified through our recent transactions and implement expense reductions accordingly.
 
 Impact of COVID-19 on our Business and Strategy
 
The Company’s overall strategy of commercializing and increasing sales of our prescription therapeutics has been impacted by the COVID-19 global pandemic (the “Pandemic”), due in large part to a combination of “shelter-in-place” orders, restricted or reduced access of our sales force to physician offices and pharmacies, as well as a reduction in consumer spending as the United States economy has experienced a severe economic downturn as a result of the Pandemic. However, as the United States has begun to re-open, the Company’s commercial sales force has begun to return to near pre-Pandemic levels of sales activity, in order to continue the Company’s strategy to increase sales. The Pandemic also impacted the Company’s MiOXSYS device business, as demand declined internationally and domestically for our MiOXSYS devices as overall demand for infertility treatments and/or research using such devices declined.
 
 
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However, the Company was able to successfully pivot and enter into licensing agreements for both (i) COVID-19 Test Kits and (ii) the Healight Platform to provide current testing solutions and a potential future treatment for COVID-19 and other respiratory diseases. Sales of our COVID-19 Test Kits helped bolster revenues from our Primary Care Portfolio, Pediatric Portfolio, and MiOXSYS product offerings.
 
The Pandemic also had an impact on our Aytu Consumer Health segment’s operations as access to raw materials for manufacturing products became limited and its manufacturers reduced their workforce, thus delaying the production processes. As a result, our Aytu Consumer Health segment has accelerated the timing of future purchase orders to ensure sufficient inventory levels in the near term. Additionally, Aytu Consumer Health is reliant on certain services, especially the US postal service, for its direct-to-consumer campaigns. During the Pandemic, Innovus experienced delays reaching prospective customers due to United States Postal Service operational challenges.
 
Government Regulation
 
While we do not have any pharmaceutical product candidates that we are actively developing as of the date of this Report, we may in the future acquire product candidates if such efforts are necessary to achieve our strategic goals. Currently, we are developing one medical device candidate for approval by the FDA, the Healight Platform, for which regulatory approval or Emergency Use Authorization (EUA) must be received before we can market this within the U.S.
 
Approval Process for Pharmaceutical Products 
 
In the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
 
Approval Process for Medical Devices 
 
In the U.S., the FDCA, FDA regulations and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA regulates the design, manufacturing, servicing, sale and distribution of medical devices, including diagnostic test kits and instrumentation systems. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
 
Regulation after FDA Clearance or Approval 
 
Any devices we manufacture or distribute pursuant to clearance or approval by the FDA are subject to pervasive and continuing regulation by the FDA and certain state agencies. We are required to adhere to applicable regulations setting forth detailed cGMP requirements, as set forth in the QSR, which include, among other things, testing, control and documentation requirements. Noncompliance with these standards can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to grant 510k de novo clearance or PMA approval of devices, withdrawal of marketing approvals and criminal prosecutions, fines and imprisonment. Our contract manufacturers’ facilities operate under the FDA’s cGMP requirements.
 
 
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Foreign Regulatory Approval 
 
Outside of the U.S., our ability to market our product candidates will be contingent upon our receiving marketing authorizations from the appropriate foreign regulatory authorities, whether or not FDA approval has been obtained. The foreign regulatory approval process in most industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval process. The requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary widely from country to country and differ from those required for FDA approval.
 
Other Regulatory Matters 
 
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the U.S., sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Health Care Reform Law, as amended by the Health Care and Education Reconciliation Act of 2010 or the Affordable Care Act of 2010, or ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.
 
Drug Quality and Security Act

In 2013, the United States Congress passed the Drug Quality and Security Act (“DQSA”), amending the Federal Food, Drug and Cosmetic Act to grant the FDA more authority to regulate and monitor the manufacturing of compounding drugs. Title I of the DQSA increased regulation of compounding drugs. Title II of the DQSA Drug Supply Chain Security, established requirements to facilitate improved tracking of prescription drug products through the supply chain with increased product identification requirements. Currently, we are required to provide product identification information, or serialization, at the manufacturing batch, or lot level. However, going forward the law requires such tracking to be done farther down the distribution chain including, (i) wholesalers' verification and tracking in November 2019, (ii) pharmacy verification and tracking in the Fall of 2020, and at the unit level throughout the entire supply chain near the end of 2023.
 
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example:
(i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or
(iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
 
Reimbursement for our Products in the U.S.
 
Some of the products in our Commercial Portfolio are covered by commercial insurance providers and pharmacy benefit management companies and are dependent upon reimbursement for continued sales in the U.S. market. Additionally, some of our products are also covered by Medicaid, Medicare Part D and other government plans.
 
In the event we are able to successfully develop and commercialize the Healight Platform, we anticipate that sales of Healight, if approved for sale in the U.S., will be dependent upon reimbursement by government and commercial third-party payors in the U.S. Traditionally, sales of pharmaceuticals, medical diagnostics, and medical devices depend, in part, on the extent to which products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations.
 
 
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Lack of third-party reimbursement for our products or a decision by a third-party payor to not cover our products could reduce physician usage of the products and have a material adverse effect on our sales, results of operations and financial condition.
  
DEA Regulation 
 
Our Primary Care Portfolio products, which are already approved by the FDA, are each a “controlled substance” as defined in the Controlled Substances Act of 1970, or CSA, because Natesto contains testosterone, ZolpiMist contains zolpidem tartrate, and Tuzistra XR contains codeine. As a result, the U.S. Drug Enforcement Administration, or DEA, have Natesto and Tuzistra XR listed and regulated as Schedule III controlled substances, while ZolpiMist is listed and regulated as a Schedule IV controlled substance. None of our Pediatric Portfolio Rx products are considered “controlled substances.”
 
Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized. Similarly, separate registrations are also required for separate facilities.
 
The DEA typically inspects a facility to review its security measures prior to issuing a registration and on a periodic basis. Reports must also be made for theft or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special permits and notification requirements apply to imports and exports of narcotic drugs.
 
The DEA establishes annually an aggregate quota for how much of a controlled substance may be produced in and/or imported into the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year. Our manufacturers’ quotas of an active ingredient may not be sufficient to meet commercial demand or complete clinical trials. Any delay, limitation or refusal by the DEA in establishing our manufacturers’ quota for controlled substances could delay or stop our clinical trials or product launches, which could have a material adverse effect on our business, financial position and results of operations.
 
To enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in administrative, civil or criminal enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In some circumstances, violations could result in criminal proceedings.
 
Individual states also independently regulate controlled substances. We and our manufacturers will be subject to state regulation on distribution of these products, including, for example, state requirements for licensures or registration. Additionally, the Company uses third-party logistics (“3PL”) firms to store inventory and fill sales orders for the Commercial Portfolio. As a result, the Company does not handle any controlled substances at its facilities.
 
 
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Intellectual Property  
 
Our success depends in part on our ability to obtain and maintain proprietary protection for the technology and know-how upon which our products are based, in order to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights.
 
Aytu BioScience Segment
 
Our Aytu BioScience Segment includes our Primary Care Portfolio, Pediatric Portfolio and Medical Device product offerings. We hold ownership, trademark rights and/or exclusivity to develop and commercialize our products and product candidates covered by patents and patent applications. Our portfolio of patents includes patents or patent applications with claims directed to compositions of matter, including compounds, pharmaceutical formulations, methods of use, methods of manufacturing the compounds, or a combination of these claims. Depending upon the timing, duration and specifics of FDA approval of the use of a compound for a specific indication, some of our U.S. patents may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. Similar extensions to patent term may be available in other countries for particular patents in our portfolio.
 
License Rights – Primary Care Portfolio and Pediatric Portfolio
 
We have exclusively licensed the issued and pending patents protecting Natesto. There are four FDA Orange Book-listed patents surrounding methods of use of a nasally-administered testosterone gel and formulations thereof. The standard 20-year expiration for patents across these four patents is 2024.
 
There are two FDA Orange Book-listed patents protecting Tuzistra XR. Through our exclusive commercialization agreement with TRIS, we are the FDA-recognized New Drug Application holder and thus the designated holder of these patents. The first patent describes a coated ion-exchange resin complex delivering an extended release formulation and methods therein. The standard 20-year exclusivity for this patent is in 2029. The second patent covers an aqueous liquid suspension containing a drug-ion exchange resin complex and methods therein. The standard 20-year exclusivity for this patent is in 2027.
 
We also maintain trade secrets and proprietary know-how that we seek to protect through confidentiality and nondisclosure agreements. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information. If we do not adequately protect our trade secrets and proprietary know-how, our competitive position and business prospects could be materially harmed.
 
We expect to seek patent protection for drug and device products we discover, as well as therapeutic and device products and processes. We expect also to seek patent protection or rely upon trade secret rights to protect certain other technologies which may be used to discover and characterize drugs and device products and processes, and which may be used to develop novel therapeutic and diagnostic products and processes.
 
We have exclusive license rights with third parties to develop, commercialize and promote our Primary Care Portfolio and Pediatric Portfolio products within the United States of America, including but not limited to, (i) Natesto, (ii) Poly-Vi-Flor and Tri-Vi-Flor, (iii) Karbinal ER, (iv) ZolpiMist and (v) Tuzistra XR. Each of these agreements come with royalties ranging from 0% to 23.5% based on net product revenue or gross profit (as defined by each agreement). In addition, certain licensing agreements include forms of contingent consideration, make-whole payments or both.
 
License Rights – COVID-19 Test Kits
 
During March 2020, we signed an exclusive distribution agreement for the right to commercialize a clinically validated coronavirus 2019 (COVID-19) IgG/IgM Rapid Test. The test has been licensed from L.B. Resources, Limited (a Hong Kong Corporation), which licensed North American rights from product developer Zhejiang Orient Gene Biotech Co., Ltd. The test is intended for professional use and delivers results between 2 and 10 minutes. This agreement grants Aytu the exclusive right to distribute the product in the United States, Canada and Mexico for a period of three years, with additional three-year autorenewals thereafter. The COVID-19 IgG/IgM Rapid 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.
 
License Rights – Healight
 
In April 2020, we signed an exclusive worldwide license with Cedars-Sinai to develop and commercialize the Healight Platform. This medical device technology platform, discovered and developed by scientists at Cedars-Sinai, is being studied as a potential first-in-class treatment for coronavirus and other respiratory infections. The Healight Platform employs proprietary methods of administering intermittent ultraviolet (UV) A light via a novel endotracheal medical device. Pre-clinical findings indicate the technology's significant impact on eradicating a wide range of viruses and bacteria, inclusive of coronavirus. The data have been the basis of discussions with the FDA for a near-term path to enable human use for the potential treatment of coronavirus in intubated patients in the intensive care unit (ICU). Beyond the initial pursuit of a coronavirus ICU indication, additional data suggest broader clinical applications for the technology across a range of viral and bacterial pathogens. This includes bacteria implicated in ventilator associated pneumonia (VAP).
 
The Company believes the Healight Platform has the potential to positively impact outcomes for critically ill patients infected with coronavirus and severe respiratory infections. The Company licensed exclusive worldwide rights to the technology from Cedars-Sinai for all endotracheal and nasopharyngeal indications. Patents have been filed by Cedars-Sinai Department of Technology Transfer, and Aytu will manage all aspects of intellectual property prosecution and filing globally. Aytu BioScience expects to partner the product outside the U.S.
 
 
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Patents - MiOXSYS  
 
Our patent portfolio related to MiOXSYS and the underlying oxidation-reduction potential (ORP) technology is focused on the U.S. and certain foreign jurisdictions which include Europe, Canada, Israel, Japan and China. The portfolio consists of 44 issued patents and 1 pending application. During the fourth quarter ended June 30, 2020, we wrote-down the fair value of the MiOXSYS patent portfolio to $0 as a result of the Company’s analysis indicating that the expected forecasted future cash flows from MiOXSYS sales would be unable to support the carrying value of the MiOXSYS patent portfolio.    
 
Aytu Consumer Health Segment
 
Our Aytu Consumer Health Segment consists of those products acquired as part of the February 2020 merger with Innovus. We currently hold 8 patents in the U.S. and 18 patents registered outside the U.S. We currently have 13 patent applications pending in the U.S. and 16 patent applications pending in countries other than the U.S.
 
We own or license 68 trademark registrations in the U.S. and have 32 trademark applications pending in the U.S. We also own or license 104 trademarks registered outside of the U.S. (including 21 Madrid Protocol registrations), with 69 applications currently pending.
 
We have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality agreements and assignment-of-inventions agreements with employees, independent contractors, consultants and companies with which we conduct business.
 
We will be able to protect our proprietary intellectual property rights from unauthorized use by third parties primarily to the extent that such rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. If we must litigate to protect our intellectual property from infringement, we may incur substantial costs and our officers may be forced to devote significant time to litigation-related matters. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the U.S. Our pending patent applications, or those we may file or license from third parties in the future, may not result in patents being issued. Until a patent is issued, the claims covered by an application for patent may be narrowed or removed entirely, thus depriving us of adequate protection. As a result, we may face unanticipated competition, or conclude that without patent rights the risk of bringing product candidates to market exceeds the returns we are likely to obtain. We are generally aware of the scientific research being conducted in the areas in which we focus our research and development efforts, but patent applications filed by others are maintained in secrecy for at least 18 months and, in some cases in the U.S., until the patent is issued. The publication of discoveries in scientific literature often occurs substantially later than the date on which the underlying discoveries were made. As a result, it is possible that patent applications for products similar to our drug or diagnostic products and product candidates may have already been filed by others without our knowledge.
 
 
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U.S. Patent Term Restoration and Marketing Exclusivity 
 
Depending upon the timing, duration and other specific aspects of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, if any of our NDA’s are approved, we intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond the current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.
 
Competition 
 
The healthcare industry is highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Significant competitive factors in our industry include product efficacy and safety; quality and breadth of an organization’s technology; skill of an organization’s employees and its ability to recruit and retain key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price of, products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and patent rights and their protection; and sales and marketing capabilities. Market acceptance of our current products and product candidates will depend on a number of factors, including: (i) potential advantages over existing or alternative therapies or tests, (ii) the actual or perceived safety of similar classes of products, (iii) the effectiveness of sales, marketing, and distribution capabilities, and (iv) the scope of any approval provided by the FDA or foreign regulatory authorities.
 
We are a very small specialty pharmaceutical company compared to other companies. Our current and potential competitors include large pharmaceutical, biotechnology, diagnostic, and medical device companies, as well as specialty pharmaceutical and generic drug companies. Many of our current and potential competitors have substantially greater financial, technical and human resources than we do and significantly more experience in the marketing, commercialization, discovery, development and regulatory approvals of products, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights. Specifically, our competitors will most likely have larger sales teams and have more capital resources to support their products then we do.
 
Accordingly, our competitors may be more successful than we may be in achieving widespread market acceptance and obtaining FDA approval for product candidates. We anticipate that we will face intense and increasing competition as new products enter the market, as advanced technologies become available and as generic forms of currently branded products become available. Finally, the development of new treatment methods for the diseases we are targeting could render our products non-competitive or obsolete.
 
We cannot assure you that any of our products that we acquire or successfully develop will be clinically superior or preferable to products developed or introduced by our competitors.
 
Our current approved products compete in highly competitive fields whereby there are numerous options available to clinicians including generics. These generic treatment options are frequently less expensive and more widely available.
 
 
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Competition – Primary Care Portfolio and Pediatric Portfolio
 
Natesto
 
The U.S. prescription testosterone market is comprised primarily of topically applied treatments in the form of injectables, gels, solutions, and patches. Testopel®, an injectable pellet typically implanted directly under the skin by a physician, is also FDA-approved.
 
Tuzistra XR
 
Tuzistra XR competes in the approximately $3.0 billion antitussive category and has an advantage over the existing codeine-based antitussives. The greatest point of differentiation of Tuzistra XR is the patented LiquiXR Technology that allows for extended release and flexible BID dosing Tuzistra XR is the only liquid codeine antitussive with a 12-hour duration, which provides more dosing convenience than the current 4-6 hour codeine cough syrups.
 
ZolpiMist
 
ZolpiMist competes in a large prescription category with over 43 million prescriptions written annually and generating $1.8 billion in wholesale sales. The non-benzodiazepine prescription sleep aid market is dominated by zolpidem tartrate (brand name Ambien), which accounts for approximately 30 million prescriptions annually. Various forms of zolpidem tartrate are commercially available, including both immediate release and controlled release tablets as well as orally dissolving tablets. ZolpiMist is the only oral spray formulation of zolpidem tartrate and, if only achieving 1% of the ‘zolpidem market’ this product could generate 300,000 prescriptions annually in the U.S. No zolpidem tartrate products are actively marketed in the U.S., so we believe our sales force will have the ability to effectively influence physician prescribing and grow ZolpiMist prescriptions.
 
Karbinal ER
 
Karbinal ER faces competition from over-the-counter (“OTC”) products such as non-sedating antihistamines, sedating antihistamines as well as nasal steroids. Karbinal ER’s greatest point of differentiation is the patented LiquiXR Technology that allows for extended release and flexible BID dosing. This feature makes Karbinal ER the only BID first generation antihistamine. Additionally, Karbinal ER has a significant anticholinergic / drying effect on the symptoms associated with seasonal, perennial, as well as vasomotor allergic rhinitis.
 
Poly-Vi-Flor and Tri-Vi-Flor
 
Poly-Vi-Flor and Tri-Vi-Flor primarily compete in the generic prescription multi-vitamin fluoride market and with the brands of FLORIVA and QFLORA. Our primary point of differentiation is Metafolin and that our form of Metafolin is a body-ready folate to aid in cell reproduction. As well, we offer formulations that are patient friendly in terms of size of tablet and taste of medication, ensuring compliance of daily fluoride vitamin supplementation. 
 
Cefaclor
 
Cefaclor (cefaclor oral suspension) faces significant competition from the generic antibiotic amoxicillin as well as Omnicef, Ceftin and others. The key point of differentiation for Cefaclor is our clinical positioning for appropriate patients who have failed first line therapies. Cefaclor is the best choice as a second line treatment for antibiotics that have failed with patients suffering from streptococcus, urinary tract infections and otitis media. Cefaclor is a second generation antibiotic indicated against a broad range of pathogens with a broad range of indications.
 
Competition – Devices
 
COVID-19 Test Kits
 
Our COVID-19 IgG/IgM Rapid Test (COVID-19 Test Kits) were licensed from Hong Kong based L.B. Resources, which licensed North American rights from product developer Zhejiang Orient Gene Biotech Co., Ltd. Our COVID-19 Test Kit 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, otherwise known as a serology test. In addition to other serology-based antibody test kits, our COVID-19 Test Kits compete with two other forms of tests, (i) molecular tests, such as RT-PCR tests, that detect the virus’s genetic material, and (ii) antigen tests that detect specific proteins on the surface of the virus.
 
 
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Healight Medical Device Platform Technology
 
The Healight Platform has been in development since 2016 by the Medically Associated Science and Technology (MAST) team at Cedars-Sinai Medical Center. We are engaging with the research team at Cedars-Sinai and the FDA to determine an expedited regulatory process to potentially enable near-term use of the technology initially as a coronavirus intervention for critically ill intubated patients. We also entered into an agreement with Sterling Medical Devices ("Sterling") to finalize the product development of Healight.. To date, there is no FDA-approved treatment for COVID-19 or conventional means to reduce secondary infections in mechanically ventilated patients.
 
Competition – Consumer Health
 
The OTC pharmaceutical market is highly competitive with many established manufacturers, suppliers and distributors that are actively engaged in all phases of the business. We believe that competition in the sale of our products will be based primarily on efficacy, regulatory compliance, brand awareness, availability, product safety and price. Our brand name OTC pharmaceutical products may be subject to competition from alternate therapies during the period of patent protection and thereafter from generic or other competitive products. All of our existing products compete with generic and other competitive products in the marketplace.
 
Competing in the branded product business requires us to identify and quickly bring to market new products embodying technological innovations. Successful marketing of branded products depends primarily on the ability to communicate the efficacy, safety and value to consumers. We anticipate that our branded product offerings will support our existing lines of therapeutic focus. Based upon business conditions and other factors, we regularly reexamine our business strategies and may from time to time reallocate our resources from one therapeutic area to another, withdraw from a therapeutic area or add an additional therapeutic area in order to maximize our overall growth opportunities.
 
Some of our existing products compete with one or more products marketed by very large pharmaceutical companies that have much greater financial resources for marketing, selling and developing their products. These competitors, as well as others, have been in business for a longer period of time, have a greater number of products on the market and have greater financial and other resources than we do. If we directly compete with them for the same markets and/or products, their financial and market strength could prevent us from capturing a meaningful share of those markets.
 
Research and Development
 
The research and development required for FDA approval of the Primary Care Portfolio and the Pediatric Portfolio has been conducted by previous owners of the products or the companies from which we licensed or acquired these products. To the extent we seek to further develop our products and/or improve clinical claims we rely upon outside collaborators to conduct research as we focus primarily on commercialization.
 
We financially supported a Natesto study conducted at the University of Miami, through which the investigators sought to demonstrate that Natesto improves hypogonadism while preserving fertility parameters. The study was led by Dr. Ranjith Ramasamy, MD, Director of Reproductive Urology at the University of Miami’s Department of Urology. In April 2020, we announced the results of the Phase IV single institution, prospective, clinical trial conducted between November 2017 and September 2019 at the University of Miami's Department of Urology by lead author and the study's principal investigator Dr. Ranjith Ramasamy, MD, the Director of Reproductive Urology. The study concluded that Natesto was effective in returning hypogonadal men to back to normal testosterone levels, significantly improve erectile function and quality of life, preserve gonadotropin hormones, and most importantly preserve semen parameters through 6 months of treatment.
 
Studies estimate ~12.4 - 15.6% of men under 39 years old receive prescribed testosterone therapy (TTh). The most commonly prescribed testosterone therapies, injections and topical gels, can impair semen parameters and can cause azoospermia in up to 65% of men. Additionally, off-label use of therapies such as selective estrogen receptor modulators (SERMs) are widely used to preserve spermatogenesis while simultaneously increasing testosterone. Many of these off-label products can have numerous additional adverse reactions, therefore identifying alternatives to increase testosterone in men without impacting fertility is paramount.
 
 
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Manufacturing 
 
Our business strategy is to use cGMP compliant contract manufacturers for the manufacture of clinical supplies as well as for commercial supplies if required by our commercialization plans, and to transfer manufacturing responsibility to our collaboration partners when possible.
 
Employees 
 
As of September 15, 2020, we had 75 full-time employees and utilized the services of a number of consultants on a temporary basis. Overall, we have not experienced any work stoppage and do not anticipate any work stoppage in the foreseeable future. None of our employees is subject to a collective bargaining agreement. Management believes that relations with our employees are good.
 
Available Information
 
Our principal executive offices are located at 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112 USA, and our phone number is (720) 437-6580.
 
We maintain a website on the internet at www.aytubio.com. We make available, free of charge, through our website, by way of a hyperlink to a third-party site that includes filings we make with the SEC website (www.sec.gov), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports electronically filed or furnished pursuant to Section 15(d) of the Exchange Act. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC. In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
 
Code of Ethics
 
We have adopted a written code of ethics that applies to our officers, directors and employees, including our principal executive officer and principal accounting officer. We intend to disclose any amendments to, or waivers from, our code of ethics that are required to be publicly disclosed pursuant to rules of the SEC by filing such amendment or waiver with the SEC. This code of ethics and business conduct can be found in the corporate governance section of our website, www.aytubio.com.
 
Item 1A.  Risk Factors
 
Investing in our securities includes a high degree of risk. You should consider carefully the specific factors discussed below, together with all of the other information contained in this Annual Report. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects would likely be materially and adversely affected. This could cause the market price of our securities to decline and could cause you to lose all or part of your investment.
 
Risks Related to Our Financial Condition and Capital Requirements
 
We have a limited operating history, have incurred losses, and can give no assurance of profitability.
 
We are a commercial-stage specialty pharmaceutical company with a limited operating history. Prior to implementing our commercial strategy in the fourth calendar quarter of 2015, we did not have a focus on profitability. Since then, we have incurred losses in each year since our inception. Our net loss for the years ended June 30, 2020 and 2019 was $13.6 million and $27.1 million, respectively. We have not demonstrated the ability to be a profit-generating enterprise to date. Even though we expect to have revenue growth in the next several fiscal years, it is uncertain that the revenue growth will be significant enough to offset our expenses and generate a profit in the future. We have a very limited operating history on which investors can evaluate our potential for future success. Potential investors should evaluate us in light of the expenses, delays, uncertainties, and complications typically encountered by early-stage healthcare businesses, many of which will be beyond our control. These risks include the following:
 
 
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uncertain market acceptance of our products and product candidates;
 
lack of sufficient capital;
 
U.S. regulatory approval of our products and product candidates;
 
foreign regulatory approval of our products and product candidates;
 
unanticipated problems, delays, and expense relating to product development and implementation;
 
lack of sufficient intellectual property;
 
the ability to attract and retain qualified employees;
 
competition; and
 
technological changes.
 
As a result of our limited operating history, and the increasingly competitive nature of the markets in which we compete, our historical financial data, is of limited value in anticipating future operating expenses. Our planned expense levels will be based in part on our expectations concerning future operations, which is difficult to forecast accurately based on our limited operating history and the historical experience acquiring products and or businesses as we continue to strategically develop our product and business portfolio. We may be unable to adjust spending in a timely manner to compensate for any unexpected budgetary shortfall.
 
To obtain revenues from our products and product candidates, we must succeed, either alone or with others, in a range of challenging activities, including expanding markets for our existing products and completing clinical trials of our product candidates, obtaining positive results from those clinical trials, achieving marketing approval for those product candidates, manufacturing, marketing and selling our existing products and those products for which we, or our collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. We, and our collaborators, if any, may never succeed in these activities and, even if we do, or one of our collaborators does, we may never generate revenues that are sufficient enough for us to achieve profitability.
 
We may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain necessary capital when needed may force us to delay, limit or terminate our product expansion and development efforts or other operations.
 
We are expending resources to expand the market for the Primary Care Portfolio, Pediatric Portfolio, the Consumer Health segment and COVID-19 Test Kits and investing in efforts to eventually commercialize the Healight Platform, none of which might be as successful as we anticipate or at all and all of which might take longer and be more expensive to market than we anticipate. As of June 30, 2020, our cash, cash equivalents and restricted cash totaling $48.3 million, available to fund our operations, offset by an aggregate $20.0 million in accounts payable and other and accrued liabilities. During the twelve months ended June 30, 2020, the Company raised approximately $87.2 million proceeds, net of fees from a combination of common stock offerings and common stock warrant exercises.
 
 
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Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we may require additional capital to continue the expansion of commercialization efforts for our pharmaceutical, device and commercial health products, and to obtain regulatory approval for, and to commercialize, our current product candidate, the Healight Platform. Raising funds in the current economic environment, as well as our limited operating history, may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
 
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to expand any existing product or develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities could dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
 
If we are unable to obtain funding on a timely basis, we may be unable to expand the market for our pharmaceutical, device and consumer health products, and/or be required to significantly curtail, delay or discontinue one or more of our research or development programs for the Healight Platform, or any future product candidate or expand our operations generally or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
 
We will incur increased costs associated with, and our management will need to devote substantial time and effort to, compliance with public company reporting and other requirements.
 
As a public company, we incur significant legal, accounting and other expenses. In addition, the rules and regulations of the SEC and any national securities exchange to which we may be subject in the future impose numerous requirements on public companies, including requirements relating to our corporate governance practices, with which we will need to comply. Further, we will continue to be required to, among other things, file annual, quarterly and current reports with respect to our business and operating results. Based on currently available information and assumptions, we estimate that we will incur up to approximately $500,000 in expenses on an annual basis as a direct result of the requirements of being a publicly traded company. Our management and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations, and our efforts and initiatives to comply with those requirements could be expensive.
 
If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act, our management conducted an assessment of the effectiveness of our internal controls over financial reporting for the year ended June 30, 2020 and concluded that such control was effective.
 
However, if in the future we were to conclude that our internal control over financial reporting were not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. As a consequence, we may not be able to complete any necessary remediation process in time to meet our deadline for compliance with Section 404 of the Sarbanes-Oxley Act. Also, there can be no assurance that we will not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. The presence of material weaknesses could result in financial statement errors which, in turn, could require us to restate our operating results.
 
 
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If we are unable to conclude that we have effective internal control over financial reporting or if our independent auditors are unwilling or unable to provide us, when required, with an attestation report on the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, our stock price could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to maintain listing on the NASDAQ Capital Market.
 
Risks Related to Product Development, Regulatory Approval and Commercialization
 
Our Pharmaceutical, Device and Consumer Health products may prove to be difficult to effectively commercialize as planned.
 
Various commercial, regulatory, and manufacturing factors may impact our ability to maintain or grow revenues from sales of our pharmaceutical, device and consumer health product offerings. Specifically, we may encounter difficulty by virtue of:
 
our inability to adequately market and increase sales of any of these products;
 
our inability to secure continuing prescribing of any of these products by current or previous users of the product;
 
our inability to effectively transfer and scale manufacturing as needed to maintain an adequate commercial supply of these products;
 
reimbursement and medical policy changes that may adversely affect the pricing, profitability or commercial appeal of pharmaceutical products; and
 
our inability to effectively identify and align with commercial partners outside the U.S., or the inability of those selected partners to gain the required regulatory, reimbursement, and other approvals needed to enable commercial success of the Healight Platform.
 
We have limited experience selling our current products as they were acquired from other companies or were recently approved for sale. As a result, we may be unable to successfully commercialize our products and product candidates.
 
Despite our management’s extensive experience in launching and managing commercial-stage healthcare companies, we have limited marketing, sales and distribution experience with our current products. Our ability to achieve profitability depends on attracting and retaining customers for our current products and building brand loyalty for our pharmaceuticals and consumer health product offerings . To successfully perform sales, marketing, distribution and customer support functions, we will face a number of risks, including:
 
our ability to attract and retain skilled support team, marketing staff and sales force necessary to increase the market for our approved products and to maintain market acceptance for our product candidates;
 
the ability of our sales and marketing team to identify and penetrate the potential customer base;
 
and the difficulty of establishing brand recognition and loyalty for our products.
 
 
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 In addition, we may seek to enlist one or more third parties to assist with sales, distribution and customer support globally or in certain regions of the world. If we do seek to enter into these arrangements, we may not be successful in attracting desirable sales and distribution partners, or we may not be able to enter into these arrangements on favorable terms, or at all. If our sales and marketing efforts, or those of any third-party sales and distribution partners, are not successful, our currently approved products may not achieve increased market acceptance and our product candidates may not gain market acceptance, which would materially impact our business and operations.
 
We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, our product candidates.
 
We may not be able to develop our current or future product candidates. Our product candidates will require substantial additional clinical development, testing, and regulatory approval before we are permitted to commence commercialization. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the U.S. and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can take many years and may include post-marketing studies and surveillance, which will require the expenditure of substantial resources. Of the large number of drugs in development in the U.S., only a small percentage successfully completes the FDA regulatory approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development and clinical programs, we cannot assure you that any of our product candidates will be successfully developed or commercialized.
 
For our more strictly regulated pharmaceutical products, such as our Primary Care Portfolio and Pediatric Portfolio product offerings, we are not permitted to market a pharmaceutical product in the U.S. until we receive approval of a New Drug Application, or an NDA, for that product from the FDA, or in any foreign countries until we receive the requisite approval from such countries. Obtaining approval of an NDA is a complex, lengthy, expensive and uncertain process, and the FDA may delay, limit or deny approval of any product candidate for many reasons, including, among others:
 
we may not be able to demonstrate that a product candidate is safe and effective to the satisfaction of the FDA;
 
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;
 
the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;
 
the FDA may require that we conduct additional clinical trials;
 
the FDA may not approve the formulation, labeling or specifications of any product candidate;
 
the clinical research organizations, or CROs, that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials;
 
the FDA may find the data from pre-clinical studies and clinical trials insufficient to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks, such as the risk of drug abuse by patients or the public in general;
 
 
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the FDA may disagree with our interpretation of data from our pre-clinical studies and clinical trials;
 
the FDA may not accept data generated at our clinical trial sites;
 
if an NDA, if and when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
 
the FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval or post-approval;
 
the FDA may not approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or
 
the FDA may change its approval policies or adopt new regulations.
 
These same risks apply to applicable foreign regulatory agencies from which we may seek approval for any of our product candidates.
 
Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market any product candidate. Moreover, because a substantial portion of our business is or may be dependent upon our product candidates, any such setback in our pursuit of initial or additional regulatory approval would have a material adverse effect on our business and prospects.
 
If we fail to successfully acquire new products, we may lose market position.
 
Acquiring new products is an important factor in our planned sales growth, including products that already have been developed and found market acceptance. If we fail to identify existing or emerging consumer markets and trends and to acquire new products, we will not develop a strong revenue source to help pay for our development activities as well as possible acquisitions. This failure would delay implementation of our business plan, which could have a negative adverse effect on our business and prospects.
 
 If we do not secure collaborations with strategic partners to test, commercialize and manufacture product candidates, we may not be able to successfully develop products and generate meaningful revenues.
 
We may enter into collaborations with third parties to conduct clinical testing, as well as to commercialize and manufacture our products and product candidates. If we are able to identify and reach an agreement with one or more collaborators, our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. Collaboration agreements typically call for milestone payments that depend on successful demonstration of efficacy and safety, obtaining regulatory approvals, and clinical trial results. Collaboration revenues are not guaranteed, even when efficacy and safety are demonstrated. Further, the economic environment at any given time may result in potential collaborators electing to reduce their external spending, which may prevent us from developing our product candidates.
 
 
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Even if we succeed in securing collaborators, the collaborators may fail to develop or effectively commercialize our products or product candidates. Collaborations involving our product candidates pose a number of risks, including the following:
 
collaborators may not have sufficient resources or may decide not to devote the necessary resources due to internal constraints such as budget limitations, lack of human resources, or a change in strategic focus;
 
collaborators may believe our intellectual property is not valid or is unenforceable or the product candidate infringes on the intellectual property rights of others;
 
collaborators may dispute their responsibility to conduct development and commercialization activities pursuant to the applicable collaboration, including the payment of related costs or the division of any revenues;
 
collaborators may decide to pursue a competitive product developed outside of the collaboration arrangement;
 
collaborators may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals;
 
collaborators may delay the development or commercialization of our product candidates in favor of developing or commercializing their own or another party’s product candidate; or
 
collaborators may decide to terminate or not to renew the collaboration for these or other reasons.
 
As a result, collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner or at all.
 
Collaboration agreements are generally terminable without cause on short notice. Once a collaboration agreement is signed, it may not lead to commercialization of a product candidate. We also face competition in seeking out collaborators. If we are unable to secure collaborations that achieve the collaborator’s objectives and meet our expectations, we may be unable to advance our products or product candidates and may not generate meaningful revenues.
 
We or our strategic partners may choose not to continue an existing product or choose not to develop a product candidate at any time during development, which would reduce or eliminate our potential return on investment for that product.
 
At any time and for any reason, we or our strategic partners may decide to discontinue the development or commercialization of a product or product candidate. If we terminate a program in which we have invested significant resources, we will reduce the return, or not receive any return, on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses. If one of our strategic partners terminates a program, we will not receive any future milestone payments or royalties relating to that program under our agreement with that party. As an example, we sold Primsol in March 2017, and abandoned Fiera and ProstaScint in June 2018.
 
 
 
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Our pre-commercial product candidates are expected to undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we or our collaborators may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
 
Pre-clinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. It may take several years to complete the pre-clinical testing and clinical development necessary to commercialize a drug, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. An unfavorable outcome in one or more trials would be a major set-back for that product candidate and for us. Due to our limited financial resources, an unfavorable outcome in one or more trials may require us to delay, reduce the scope of, or eliminate one or more product development programs, which could have a material adverse effect on our business, prospects and financial condition and on the value of our common stock.
  
In connection with clinical testing and trials, we face a number of risks, including:
 
a product candidate is ineffective, inferior to existing approved medicines, unacceptably toxic, or has unacceptable side effects;
 
patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested;
 
the results may not confirm the positive results of earlier testing or trials; and
 
the results may not meet the level of statistical significance required by the FDA or other regulatory agencies to establish the safety and efficacy of the product candidate.
 
If we do not successfully complete pre-clinical and clinical development, we will be unable to market and sell products derived from our product candidates and generate revenues. Even if we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed before an NDA may be submitted to the FDA. Although there are a large number of drugs in development in the U.S. and other countries, only a small percentage result in the submission of an NDA to the FDA, even fewer are approved for commercialization, and only a small number achieve widespread physician and consumer acceptance following regulatory approval. If our clinical trials are substantially delayed or fail to prove the safety and effectiveness of our product candidates in development, we may not receive regulatory approval of any of these product candidates and our business, prospects and financial condition will be materially harmed.
 
Delays, suspensions and terminations in any clinical trial we undertake could result in increased costs to us and delay or prevent our ability to generate revenues.
 
Human clinical trials are very expensive, time-consuming, and difficult to design, implement and complete. Should we undertake the development of a pharmaceutical product candidate, we would expect the necessary clinical trials to take up to 24 months to complete, but the completion of trials for any product candidates may be delayed for a variety of reasons, including delays in:
 
demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
 
reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
 
validating test methods to support quality testing of the drug substance and drug product;
 
 
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obtaining sufficient quantities of the drug substance or device parts;
 
manufacturing sufficient quantities of a product candidate;
 
obtaining approval of an IND from the FDA;
 
obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site;
 
determining dosing and clinical design and making related adjustments; and
 
patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial.
 
The commencement and completion of clinical trials for our product candidates may be delayed, suspended or terminated due to a number of factors, including:
 
lack of effectiveness of product candidates during clinical trials;
 
adverse events, safety issues or side effects relating to the product candidates or their formulation or design;
 
inability to raise additional capital in sufficient amounts to continue clinical trials or development programs, which are very expensive;
 
the need to sequence clinical trials as opposed to conducting them concomitantly in order to conserve resources;
 
our inability to enter into collaborations relating to the development and commercialization of our product candidates;
 
failure by us or our collaborators to conduct clinical trials in accordance with regulatory requirements;
 
our inability or the inability of our collaborators to manufacture or obtain from third parties' materials sufficient for use in pre-clinical studies and clinical trials;
 
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including mandated changes in the scope or design of clinical trials or requests for supplemental information with respect to clinical trial results;
 
failure of our collaborators to advance our product candidates through clinical development;
 
delays in patient enrollment, variability in the number and types of patients available for clinical trials, and lower-than anticipated retention rates for patients in clinical trials;
 
 
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difficulty in patient monitoring and data collection due to failure of patients to maintain contact after treatment;
 
a regional disturbance where we or our collaborative partners are enrolling patients in our clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster; and
 
varying interpretations of our data, and regulatory commitments and requirements by the FDA and similar foreign regulatory agencies.
 
 Many of these factors may also ultimately lead to denial of an NDA for a product candidate. If we experience delays, suspensions or terminations in a clinical trial, the commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
 
In addition, we may encounter delays or product candidate rejections based on new governmental regulations, future legislative or administrative actions, or changes in FDA policy or interpretation during the period of product development. If we obtain required regulatory approvals, such approvals may later be withdrawn. Delays or failures in obtaining regulatory approvals may result in:
 
varying interpretations of data and commitments by the FDA and similar foreign regulatory agencies; and
 
diminishment of any competitive advantages that such product candidates may have or attain.
 
Furthermore, if we fail to comply with applicable FDA and other regulatory requirements at any stage during this regulatory process, we may encounter or be subject to:
 
diminishment of any competitive advantages that such product candidates may have or attain;
 
delays or termination in clinical trials or commercialization;
 
refusal by the FDA or similar foreign regulatory agencies to review pending applications or supplements to approved applications;
 
product recalls or seizures;
 
suspension of manufacturing;
 
withdrawals of previously approved marketing applications; and
 
fines, civil penalties, and criminal prosecutions.
 
 
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The medical device regulatory clearance or approval process is expensive, time consuming and uncertain, and the failure to obtain and maintain required clearances or approvals could prevent us from broadly commercializing the MiOXSYS and Healight Platforms for clinical use.
 
The MiOXSYS System is subject to 510(k) De Novo clearance by the FDA prior to its marketing for commercial use in the U.S., and to regulatory approvals beyond CE marking required by certain foreign governmental entities prior to its marketing outside the U.S. The Healight Platform is also subject to 510(k) De Novo clearance or Emergency Use Authorization (EUA) during the COVID-19 pandemic by the FDA prior to its marketing for commercial use in the U.S., and to regulatory approvals required by certain foreign governmental entities prior to its marketing outside of the U.S.
 
In addition, any changes or modifications to a device that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or would constitute a major change in its intended use, may require the submission of a new application for 510(k) De Novo clearance, pre-market approval, or foreign regulatory approvals. The 510(k) De Novo clearance and pre-market approval processes, as well as the process of obtaining foreign approvals, can be expensive, time consuming and uncertain. It generally takes from four to twelve months from submission to obtain 510(k) De Novo clearance, and from one to three years from submission to obtain pre-market approval; however, it may take longer, and 510k De Novo clearance or pre-market approval may never be obtained. We have limited experience in filing FDA applications for 510(k) De Novo clearance and pre- market approval. In addition, we are required to continue to comply with applicable FDA and other regulatory requirements even after obtaining clearance or approval. There can be no assurance that we will obtain or maintain any required clearance or approval on a timely basis, or at all. Any failure to obtain or any material delay in obtaining FDA clearance or any failure to maintain compliance with FDA regulatory requirements could harm our business, financial condition and results of operations.
 
The approval process for pharmaceutical and medical device products outside the U.S. varies among countries and may limit our ability to develop, manufacture and sell our products internationally. Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
 
In order to market and sell our products in the European Union and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional testing. We may conduct clinical trials for, and seek regulatory approval to market, our product candidates in countries other than the U.S. Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may decide to first seek regulatory approvals of a product candidate in countries other than the U.S., or we may simultaneously seek regulatory approvals in the U.S. and other countries. If we or our collaborators seek marketing approval for a product candidate outside the U.S., we will be subject to the regulatory requirements of health authorities in each country in which we seek approval. With respect to marketing authorizations in Europe, we will be required to submit a European Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, which conducts a validation and scientific approval process in evaluating a product for safety and efficacy. The approval procedure varies among regions and countries and may involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.
  
Obtaining regulatory approvals from health authorities in countries outside the U.S. is likely to subject us to all of the risks associated with obtaining FDA approval described above. In addition, marketing approval by the FDA does not ensure approval by the health authorities of any other country, and approval by foreign health authorities does not ensure marketing approval by the FDA.
 
Even if we, or our collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we or they market our products, which could materially impair our ability to generate revenue.
 
Even if we receive regulatory approval for a product candidate, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or the patient population that may utilize the product or may be required to carry a warning in its labeling and on its packaging. Products with black box warnings are subject to more restrictive advertising regulations than products without such warnings. These restrictions could make it more difficult to market any product candidate effectively. Accordingly, assuming we, or our collaborators, receive marketing approval for one or more of our product candidates, we, and our collaborators, expect to continue to expend time, money and effort in all areas of regulatory compliance.
 
 
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Any of our products and product candidates for which we, or our collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we, and our collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
 
Any of our approved products and product candidates for which we, or our collaborators, obtain marketing approval, as well as the manufacturing processes, post approval studies and measures, labeling, advertising and promotional activities for such products, among other things, are or will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA requirement to implement a REMS to ensure that the benefits of a drug outweigh its risks.
 
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.
 
If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed, and our business will be harmed.
 
We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies and clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the initiation or completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of such milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:
 
our available capital resources or capital constraints we experience;
 
the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians and collaborators, and our ability to identify and enroll patients who meet clinical trial eligibility criteria;
 
our receipt of approvals from the FDA and other regulatory agencies and the timing thereof;
 
other actions, decisions or rules issued by regulators;
 
our ability to access sufficient, reliable and affordable supplies of compounds used in the manufacture of our product candidates;
 
the efforts of our collaborators with respect to the commercialization of our products; and
 
the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities.
  
 
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If we fail to achieve announced milestones in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and our business, prospects and results of operations may be harmed.
 
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing product candidates.
 
We rely, and will rely in the future, on medical institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data collection and analysis and others to carry out our clinical trials. Our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if:
 
the third parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines;
 
we replace a third party; or
 
the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.
 
Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.
 
Even if collaborators with which we contract in the future successfully complete clinical trials of our product candidates, those product candidates may not be commercialized successfully for other reasons.
 
Even if we contract with collaborators that successfully complete clinical trials for one or more of our product candidates, those candidates may not be commercialized for other reasons, including:
 
failure to receive regulatory clearances required to market them as drugs;
 
being subject to proprietary rights held by others;
 
being difficult or expensive to manufacture on a commercial scale;
 
having adverse side effects that make their use less desirable; or
 
failing to compete effectively with products or treatments commercialized by competitors.
 
Any third-party manufacturers we engage are subject to various governmental regulations, and we may incur significant expenses to comply with, and experience delays in, our product commercialization as a result of these regulations.
 
The manufacturing processes and facilities of third-party manufacturers we have engaged for our current approved products are, and any future third-party manufacturer will be, required to comply with the federal Quality System Regulation, or QSR, which covers procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of devices. The FDA enforces the QSR through periodic unannounced inspections of manufacturing facilities. Any inspection by the FDA could lead to additional compliance requests that could cause delays in our product commercialization. Failure to comply with applicable FDA requirements, or later discovery of previously unknown problems with the manufacturing processes and facilities of third-party manufacturers we engage, including the failure to take satisfactory corrective actions in response to an adverse QSR inspection, can result in, among other things:
 
 
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administrative or judicially imposed sanctions;
 
injunctions or the imposition of civil penalties;
 
recall or seizure of the product in question;
 
total or partial suspension of production or distribution;
 
the FDA’s refusal to grant pending future clearance or pre-market approval;
 
withdrawal or suspension of marketing clearances or approvals;
 
clinical holds;
 
warning letters;
 
refusal to permit the export of the product in question; and
 
criminal prosecution.
 
Any of these actions, in combination or alone, could prevent us from marketing, distributing or selling our products, and would likely harm our business.
   
In addition, a product defect or regulatory violation could lead to a government-mandated or voluntary recall by us. We believe the FDA would request that we initiate a voluntary recall if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have similar authority to recall drugs or devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert our management attention and financial resources, expose us to product liability or other claims, and harm our reputation with customers.
 
We face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving approval for, or commercializing products before or more successfully than us.
 
We compete with companies that design, manufacture and market already-existing and new urology and sexual wellbeing products. We anticipate that we will face increased competition in the future as new companies enter the market with new technologies and/or our competitors improve their current products. One or more of our competitors may offer technology superior to ours and render our technology obsolete or uneconomical. Most of our current competitors, as well as many of our potential competitors, have greater name recognition, more substantial intellectual property portfolios, longer operating histories, significantly greater resources to invest in new technologies, more substantial experience in product marketing and new product development, greater regulatory expertise, more extensive manufacturing capabilities and the distribution channels to deliver products to customers. If we are not able to compete successfully, we may not generate sufficient revenue to become profitable. Our ability to compete successfully will depend largely on our ability to:
 
 
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expand the market for our approved products, especially our pharmaceutical and devices regulated by the FDA;
 
successfully commercialize our product candidates alone or with commercial partners;
 
discover and develop product candidates that are superior to other products in the market;
 
obtain required regulatory approvals;
 
attract and retain qualified personnel; and
 
obtain patent and/or other proprietary protection for our product candidates.
 
Established pharmaceutical companies devote significant financial resources to discovering, developing or licensing novel compounds that could make our products and product candidates obsolete. Our competitors may obtain patent protection, receive FDA approval, and commercialize medicines before us. Other companies are or may become engaged in the discovery of compounds that may compete with the product candidates we are developing.
 
Except for the Healight Platform, we compete with companies that design, manufacture and market treatments that compete with our products.
 
We anticipate that we will face increased competition in the future as new companies enter the market with new technologies and our competitors improve their current products. One or more of our competitors may offer technology superior to ours and render our technology obsolete or uneconomical. Most of our current competitors, as well as many of our potential competitors, have greater name recognition, more substantial intellectual property portfolios, longer operating histories, significantly greater resources to invest in new technologies, more substantial experience in new product development, greater regulatory expertise, more extensive manufacturing capabilities and the distribution channels to deliver products to customers. If we are not able to compete successfully, we may not generate sufficient revenue to become profitable.
 
Any new product we develop or commercialize that competes with a currently-approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order to address price competition and be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow, and our financial condition and operations will suffer.
 
Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues.
 
The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of health care may adversely affect one or more of the following:
 
our or our collaborators’ ability to set a price we believe is fair for our approved products;
 
our ability to generate revenue from our approved products and achieve profitability; and
 
the availability of capital.
 
 
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The 2010 enactments of the Patient Protection and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act, or the Health Care Reconciliation Act, significantly impacted the provision of, and payment for, health care in the U.S. Various provisions of these laws are designed to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide health care benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support for medical research. Amendments to the PPACA and/or the Health Care Reconciliation Act, as well as new legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the U.S., could influence the purchase of medicines and medical devices and reduce demand and prices for our products and product candidates, if approved. This could harm our or our collaborators’ ability to market any approved products and generate revenues. As we expect to receive significant revenues from reimbursement for some of our Primary Care and Pediatric portfolios by commercial third-party payors and government payors, cost containment measures that health care payors and providers are instituting and the effect of further health care reform could significantly reduce potential revenues from the sale of any of our products and product candidates approved in the future, and could cause an increase in our compliance, manufacturing, or other operating expenses. In addition, in certain foreign markets, the pricing of prescription drugs and devices is subject to government control and reimbursement may in some cases be unavailable. We believe that pricing pressures at the federal and state level, as well as internationally, will continue and may increase, which may make it difficult for us to sell any approved product at a price acceptable to us or any of our future collaborators.
 
In addition, in some foreign countries, the proposed pricing for a drug or medical device must be approved before it may be lawfully marketed. The requirements governing pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. A member state may require that physicians prescribe the generic version of a drug instead of our approved branded product. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products or product candidates. Historically, pharmaceutical products launched in the European Union do not follow price structures of the U.S. and generally tend to have significantly lower prices.
 
Our financial results will depend on the acceptance among hospitals, third-party payors and the medical community of our products and product candidates.
 
Our future success depends on the acceptance by our target customers, third-party payors and the medical community that our products and product candidates are reliable, safe and cost-effective. Many factors may affect the market acceptance and commercial success of our products and product candidates, including:
 
our ability to convince our potential customers of the advantages and economic value our products and product candidates over existing technologies and products;
 
the relative convenience and ease of our products and product candidates have over existing technologies and products;
 
the introduction of new technologies and competing products that may make our products and product candidates less attractive for our target customers;
 
our success in training medical personnel on the proper use of our products and product candidates;
 
the willingness of third-party payors to reimburse our target customers that adopt our products and product candidates;
 
the acceptance in the medical community of our products and product candidates;
 
the extent and success of our marketing and sales efforts; and
 
general economic conditions.
 
 
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If third-party payors do not reimburse our customers for the products we sell or if reimbursement levels are set too low for us to sell one or more of our products at a profit, our ability to sell those products and our results of operations will be harmed.
 
While our pharmaceutical products are approved and generating revenues in the U.S., they may not receive, or continue to receive, physician or hospital acceptance, or they may not maintain adequate reimbursement from third party payors. Additionally, even if one of our product candidates is approved and reaches the market, the product may not achieve physician or hospital acceptance, or it may not obtain adequate reimbursement from third party payors. In the future, we might possibly sell other product candidates to target customers, substantially all of whom receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid, other domestic and foreign government programs, private insurance plans and managed care programs. Reimbursement decisions by particular third-party payors depend upon a number of factors, including each third-party payor’s determination that use of a product is:
 
a covered benefit under its health plan;
 
appropriate and medically necessary for the specific indication;
 
cost effective; and
 
neither experimental nor investigational.
 
Third-party payors may deny reimbursement for covered products if they determine that a medical product was not used in accordance with cost-effective diagnosis methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse for procedures and devices deemed to be experimental.
 
Obtaining coverage and reimbursement approval for a product from each government or third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our potential product to each government or third-party payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition, eligibility for coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs.
 
Third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may adversely affect the demand for and reimbursement available for any product or product candidate, which in turn, could negatively impact pricing. If our customers are not adequately reimbursed for our products, they may reduce or discontinue purchases of our products, which would result in a significant shortfall in achieving revenue expectations and negatively impact our business, prospects and financial condition.
 
Manufacturing risks and inefficiencies may adversely affect our ability to produce our products.
 
We expect to engage third parties to manufacture all of our products, at the very least, in the near future. For any future product, we expect to use third-party manufacturers because we do not have our own manufacturing capabilities. In determining the required quantities of any product and the manufacturing schedule, we must make significant judgments and estimates based on inventory levels, current market trends and other related factors. Because of the inherent nature of estimates and our limited experience in marketing our current products, there could be significant differences between our estimates and the actual amounts of product we require. If we do not effectively maintain our supply agreements, we will face difficulty finding replacement suppliers, which could harm sales of those products. If we fail in similar endeavors for future products, we may not be successful in establishing or continuing the commercialization of our products and product candidates.
 
 
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Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured these components ourselves, including:
 
reliance on third parties for regulatory compliance and quality assurance;
 
possible breaches of manufacturing agreements by the third parties because of factors beyond our control;
 
possible regulatory violations or manufacturing problems experienced by our suppliers; and
 
possible termination or non-renewal of agreements by third parties, based on their own business priorities, at times that are costly or inconvenient for us.
 
Further, if we are unable to secure the needed financing to fund our internal operations, we may not have adequate resources required to effectively and rapidly transition our third-party manufacturing. We may not be able to meet the demand for our products if one or more of any third-party manufacturers is unable to supply us with the necessary components that meet our specifications. It may be difficult to find alternate suppliers for any of our products or product candidates in a timely manner and on terms acceptable to us.
 
Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
 
Our future profitability will depend, in part, on our ability to commercialize our products and product candidates in foreign markets for which we intend to primarily rely on collaboration with third parties. If we commercialize our products or product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:
 
our inability to directly control commercial activities because we are relying on third parties;
 
the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
 
different medical practices and customs in foreign countries affecting acceptance in the marketplace;
 
import or export licensing requirements;
 
longer accounts receivable collection times;
 
longer lead times for shipping;
 
language barriers for technical training;
 
reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to our products;
 
 
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foreign currency exchange rate fluctuations;
 
our customers’ ability to obtain reimbursement for our products in foreign markets; and
 
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
 
Foreign sales of our products or product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.
 
We are subject to various regulations pertaining to the marketing of our approved products.
 
We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including prohibitions on the offer of payment or acceptance of kickbacks or other remuneration for the purchase of our products, including inducements to potential patients to request our products and services. Additionally, any product promotion educational activities, support of continuing medical education programs, and other interactions with health-care professionals must be conducted in a manner consistent with the FDA regulations and the Anti-Kickback Statute. The Anti-Kickback Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Violations of the Anti-Kickback Statute can also carry potential federal False Claims Act liability. Additionally, many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for healthcare items or services reimbursed by any third-party payer, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. These and any new regulations or requirements may be difficult and expensive for us to comply with, may adversely impact the marketing of our existing products or delay introduction of our product candidates, which may have a material adverse effect on our business, operating results and financial condition.
 
Our products and product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
 
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.
 
Further, if a product candidate receives marketing approval and we or others identify undesirable side effects caused by the product after the approval, or if drug abuse is determined to be a significant problem with an approved product, a number of potentially significant negative consequences could result, including:
 
regulatory authorities may withdraw or limit their approval of the product;
 
regulatory authorities may require the addition of labeling statements, such as a “Black Box warning” or a contraindication;
 
we may be required to change the way the product is distributed or administered, conduct additional clinical trials or change the labeling of the product;
 
we may decide to remove the product from the marketplace;
 
we could be sued and held liable for injury caused to individuals exposed to or taking the product; and
 
our reputation may suffer.
 
 
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Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing an affected product or product candidates and significantly impact our ability to successfully commercialize or maintain sales of our product or product candidates and generate revenues.
 
Certain of our products contain, and future other product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation, prescribing and distribution of which are subject to regulation by the DEA.
 
Certain of our products, such as Natesto, Tuzistra XR and ZolpiMist, which are approved by the FDA, are regulated by the DEA as Schedule III or Schedule IV controlled substances. Before any commercialization of any product candidate that contains a controlled substance, the DEA will need to determine the controlled substance schedule, taking into account the recommendation of the FDA. This may be a lengthy process that could delay our marketing of a product candidate and could potentially diminish any regulatory exclusivity periods for which we may be eligible. Natesto, Tuzistra XR and ZolpiMist are, and our other product candidates may, if approved, be regulated as “controlled substances” as defined in the Controlled Substances Act of 1970, or CSA, and the implementing regulations of the DEA, which establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quota and other requirements. These requirements are applicable to us, to our third-party manufacturersand to distributors, prescribers and dispensers of our product candidates. The DEA regulates the handling of controlled substances through a closed chain of distribution. This control extends to the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce. A number of states and foreign countries also independently regulate these drugs as controlled substances.
 
The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the U.S. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances are considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances.
 
Natesto and Tuzistra XR are regulated by the DEA as a Schedule III controlled substances, and ZolpiMist as a Schedule IV controlled substance. Consequently, the manufacturing, shipping, storing, selling and using of the products are subject to a high degree of regulation. Also, distribution, prescribing and dispensing of these drugs are highly regulated.
 
Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule.
 
Because of their restrictive nature, these laws and regulations could limit commercialization of our product candidates containing controlled substances. Failure to comply with these laws and regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution activities, consent decrees, criminal and civil penalties and state actions, among other consequences.
 
If testosterone replacement therapies are found, or are perceived, to create health risks, our ability to sell Natesto could be materially adversely affected and our business could be harmed.
 
Recent publications have suggested potential health risks associated with testosterone replacement therapy, such as increased cardiovascular disease risk, including increased risk of heart attack or stroke, fluid retention, sleep apnea, breast tenderness or enlargement, increased red blood cells, development of clinical prostate disease, including prostate cancer, and the suppression of sperm production. Prompted by these events, the FDA held a T-class Advisory Committee meeting on September 17, 2014 to discuss this topic further. The FDA has also asked health care professionals and patients to report side effects involving prescription testosterone products to the agency.
 
 
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At the T-class Advisory Committee meeting held on September 17, 2014, the Advisory Committee discussed (i) the identification of the appropriate patient population for whom testosterone replacement therapy should be indicated and (ii) the potential risk of major adverse cardiovascular events, defined as non-fatal stroke, non-fatal myocardial infarction and cardiovascular death associated with testosterone replacement therapy.
 
At the meeting, the Advisory Committee voted that the FDA should require sponsors of testosterone products to conduct a post marketing study (e.g. observational study or controlled clinical trial) to further assess the potential cardiovascular risk.
 
It is possible that the FDA’s evaluation of this topic and further studies on the effects of testosterone replacement therapies could demonstrate the risk of major adverse cardiovascular events or other health risks or could impose requirements that impact the marketing and sale of Natesto, including:
 
mandate that certain warnings or precautions be included in our product labeling;
 
require that our product carry a “black box warning”; and
 
limit use of Natesto to certain populations, such as men without specified conditions.
 
Demonstrated testosterone replacement therapy safety risks, as well as negative publicity about the risks of hormone replacement therapy, including testosterone replacement, could hurt sales of and impair our ability to successfully relaunch Natesto, which could have a materially adverse impact on our business.
 
FDA action regarding testosterone replacement therapies could add to the cost of producing and marketing Natesto.
 
The FDA is requiring post-marketing safety studies for all testosterone replacement therapies approved in the U.S. to assess long-term cardiovascular events related to testosterone use. Depending on the total cost and structure of the FDA’s proposed safety studies there may be a substantial cost associated with conducting these studies. Pursuant to our license agreement with Acerus Pharmaceuticals, Acerus is obligated to reimburse us for the entire cost of any studies required for Natesto by the FDA. However, in the event that Acerus is not able to reimburse us for the cost of any required safety studies, we may be forced to incur this cost, which could have a material adverse impact on our business and results of operations.
 
There is a risk we may be unable to sell and distribute certain of our products if we cannot comply with the serialization requirements of the Drug Quality and Security Act within the necessary time frames.
 
Title II of the Drug Quality and Security Act of 2013 provided increased FDA oversight over the ability to track and monitor the sale and distribution of prescription drugs. Over time, the level within the supply chain for which prescription drugs are to be tracked gets farther and farther down the chain. Currently, we are required to provide product identification information, or serialization, at the manufacturing batch, or lot level. However, going forward the law requires such tracking to be done farther down the distribution chain including, (i) wholesaler authentication and verification in November 2019, (ii) pharmacy authentication and verification in the Fall of 2020, and at the unit level throughout the entire supply chain near the end of 2023. There is no guarantee that we will be able to satisfy each ever-stringent product identification requirements. Failing to do so could result in a delay or inability to sell our products within the United States of America.
 
 
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Our approved products may not be accepted by physicians, patients, or the medical community in general.
 
Even if the medical community accepts a product as safe and efficacious for its indicated use, physicians may choose to restrict the use of the product if we or any collaborator is unable to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product is preferable to any existing medicines or treatments. We cannot predict the degree of market acceptance of any of our approved products, which will depend on a number of factors, including, but not limited to:
 
the efficacy and safety of the product;
 
the approved labeling for the product and any required warnings;
 
the advantages and disadvantages of the product compared to alternative treatments;
 
our and any collaborator’s ability to educate the medical community about the safety and effectiveness of the product;
 
the reimbursement policies of government and third-party payors pertaining to the product; and
 
the market price of our product relative to competing treatments.
 
We may use hazardous chemicals and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
 
Our research and development processes may involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed any insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Compliance with environmental laws and regulations may be expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced.
 
Risks Related to COVID-19
 
Our business may be adversely affected by the effects of the COVID-19 pandemic.
 
In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. It has since spread to multiple other countries; and, in March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. This pandemic has adversely affected or has the potential to adversely affect, among other things, the economic and financial markets and labor resources of the countries in which we operate, our manufacturing and supply chain operations, research and development efforts, commercial operations and sales force, administrative personnel, third-party service providers, business partners and customers, and the demand for some of our marketed products.
 
 
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The COVID-19 pandemic has resulted in travel and other restrictions to reduce the spread of the disease, including governmental orders across the globe, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, maintain social distancing, and order cessation of non-essential travel. As a result of these recent developments, we have implemented work-from-home policies for a significant part of our employees. The effects of shelter-in-place and social distancing orders, government-imposed quarantines, and work-from-home policies may negatively impact productivity, disrupt our business, and delay our business timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Such restrictions and limitations may also negatively impact our access to regulatory authorities (which may be affected, among other things, by travel restrictions and may be delayed in responding to inquiries, reviewing filings, and conducting inspections). The COVID-19 pandemic may also result in the loss of some of our key personnel, either temporarily or permanently. In addition, our sales and marketing efforts may be impacted by postponement of face-to-face meetings and restrictions on access by non-essential personnel to hospitals or clinics, all of which could slow adoption and implementation of our marketed products, resulting in lower net product sales. For example, while the impact of shelter-in-place and social distancing orders, physicians' office closures, and delays in the treatment of patients following the COVID-19 pandemic on our net product sales of our products for the three months ended March 31, 2020 was limited, overall demand was lower in April 2020 compared to the same period of 2019. In addition to other potential impacts of the COVID-19 pandemic on net product sales, we expect to see continued adverse impact on new patient starts for all products while these measures remain in place. See Part III, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" for a discussion of our net product sales. Demand for some or all of our marketed products may continue to be reduced while the shelter-in-place or social distancing orders are in effect and, as a result, some of our inventory may become obsolete and may need to be written off, impacting our operating results. These and similar, and perhaps more severe, disruptions in our operations may materially adversely impact our business, operating results, and financial condition.
 
Quarantines, shelter-in-place, social distancing, and similar government orders (or the perception that such orders, shutdowns, or other restrictions on the conduct of business operations could occur) related to COVID-19 or other infectious diseases are impacting personnel at our research and manufacturing facilities, our suppliers, and other third parties on which we rely, and may impact the availability or cost of materials produced by or purchased from such parties, which could result in a disruption in our supply chain.
 
In addition, infections and deaths related to COVID-19 may disrupt the United States' healthcare and healthcare regulatory systems. Such disruptions could divert healthcare resources away from, or materially delay, FDA review and potential approval of our marketed products. It is unknown how long these disruptions could continue. Further, while we are focused on therapies to address the COVID-19 pandemic, our other product candidates may need to be de-prioritized. Any elongation or de-prioritization of our other products could materially affect our business.
 
While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, it is currently resulting in significant disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for us to access capital if needed. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. The global COVID-19 pandemic continues to rapidly evolve. The ultimate impact of this pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, healthcare systems, or the global economy as a whole. These effects could have a material impact on our operations. To the extent the COVID-19 pandemic adversely affects our business, prospects, operating results, or financial condition.
 
 
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We are relying on FDA policies and guidance provisions that have changed very recently, and may continue to change, and relate directly to the COVID-19 health crisis. If we misinterpret this guidance or the guidance changes unexpectedly and/or materially, potential sales of the COVID-19 tests would be impacted.
 
The U.S. Food and Drug Administration (FDA) issued non-binding guidance for manufacturers relating to the pathway to enable FDA approval for devices related to testing for COVID-19 under an Emergency Use Authorization (EUA). Following the issuance of the initial published guidance, on March 16, 2020, revised guidance specific to COVID-19 “antibody tests” was issued. Newer guidance was published on May 4, 2020 and May 11, 2020 further describing the requirements for serology tests to continue to be marketed under an Emergency Use Authorization. If our interpretation of the newly revised guidance is incorrect or specifics around the guidance change, the sales of the COVID-19 test could be materially impacted. In addition, if we or our manufacturing partners are not able to obtain EUA on the COVID-19 tests or our manufacturing partners’ EUAs do not cover us our potential sales of the COVID-19 tests would be impacted.
 
If the COVID-19 tests we distribute do not perform as expected or the reliability of the technology is questioned, we could experience delayed or reduced market acceptance of the tests, increased costs and damage to our reputation.
 
Our success depends on the market’s confidence that we can provide reliable, high-quality COVID-19 diagnostic tests. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our licensed COVID-19 diagnostic tests may be impaired if they fail to perform as expected or are perceived as difficult to use. Despite quality control testing, defects or errors could occur with the tests.

In the future, if the COVID-19 diagnostic tests experience a material defect or error, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our business. Such defects or errors could also prompt us to amend certain warning labels or narrow the scope of the use of our diagnostic tests, either of which could hinder our success in the market. Even after any underlying concerns or problems are resolved, any widespread concerns regarding our technology or any manufacturing defects or performance errors in the test could result in lost revenue, delayed market acceptance, damaged reputation, increased service and warranty costs and claims against us.
 
 
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If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur significant cost and time to comply
 
Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, (OSHA), and the Environmental Protection Agency (EPA), and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act in the United States. OSHA or the EPA may adopt additional regulations in the future that may affect our research and development programs. The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.
 
The COVID-19 tests we distribute have not been manufactured on a high-volume scale and could be subject to unforeseen scale-up risks.
 
While the manufacturers of the COVID-19 tests have experience manufacturing diagnostic tests, there can be no assurance that they can manufacture the COVID-19 diagnostic tests at a scale that is adequate for our current and future commercial needs. We may face significant or unforeseen difficulties in securing adequate supply of the COVID-19 diagnostic tests, relating to the manufacturing of the tests. These risks include but are not limited to:
 
Technical issues relating to manufacturing components of the COVID-19 diagnostic tests on a high-volume commercial scale at reasonable cost, and in a reasonable timeframe;
 
difficulty meeting demand or timing requirements for orders due to excessive costs or lack of capacity for part or all of an operation or process;
 
changes in government regulations or in quality or other requirements that lead to additional manufacturing costs or an inability to supply product in a timely manner, if at all; and
 
increases in raw material or component supply cost or an inability to obtain supplies of certain critical supplies needed to complete our manufacturing processes.
 
These and other difficulties may only become apparent when scaling up to the manufacturing process of the COVID-19 diagnostic tests to a more substantive commercial scale. In the event the tests cannot be manufactured in sufficient commercial quantities or manufacturing is delayed, our future prospects could be significantly impacted, and our financial prospects could be materially harmed.
 
Our suppliers may experience development or manufacturing problems or delays that could limit the growth of our revenue or increase our losses.
 
We may encounter unforeseen situations in the manufacturing of the COVID-19 diagnostic tests that could result in delays or shortfalls in our production. Suppliers may also face similar delays or shortfalls. In addition, suppliers’ production processes may have to change to accommodate any significant future expansion of manufacturing capacity, which may increase suppliers’ manufacturing costs, delay production of diagnostic tests, reduce our product gross margin and adversely impact our business. If we are unable to keep up with demand for the COVID-19 diagnostic test by successfully securing supply and shipping our diagnostic tests in a timely manner, our revenue could be impaired, market acceptance for the test could be adversely affected and our customers might instead purchase our competitors’ diagnostic tests.
 
 
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We have relied and expect to continue to rely on third parties to conduct studies of the COVID-19 diagnostic tests that will be required by the FDA or other regulatory authorities and those third parties may not perform satisfactorily.
 
Although we intend to sell the COVID-19 IgG/IgM rapid tests by virtue of recent FDA guidance allowing for reduced product clinical and analytical studies, we have relied on third parties, such as independent testing laboratories and hospitals, to conduct such studies. Our reliance on these third parties will reduce our control over these activities. These third-party contractors may not complete activities on schedule or conduct studies in accordance with regulatory requirements or our study design. We cannot control whether they devote sufficient time, skill and resources to our studies. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensure compliance with, various procedures required under good clinical practices. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for additional diagnostic tests.
 
If the manufacturers’ delivery of the COVID-19 tests and the required clinical data is delayed, then our ability to obtain necessary regulatory approvals and/or authorizations to distribute the COVID-19 tests will be impaired, which will adversely affect our business plans.
 
While the FDA has provided a path forward to begin selling the COVID-19 tests on an expedited basis, we are still required to provide the FDA with data concerning the validation of the tests and to satisfy certain labeling conditions. If the manufacturers are delayed in delivering to us the COVID-19 tests and related validation data, we will, in turn, be delayed in obtaining FDA authorization or approval required before we can begin selling the COVID-19 tests. Any such delays will adversely affect our business plans.
 
We rely on third parties to manufacture the COVID-19 tests for us and if such third-party refuses or is unable to supply us with the COVID-19 test, our business will be materially harmed.
 
We rely on third parties to manufacture the COVID-19 diagnostic tests, which manufacturers licenses their rights from the owners of the intellectual property underlying the COVID-19 tests. If any issues arise with respect to the manufacturers’ ability to manufacture and deliver to us the COVID-19 tests, our business could be materially harmed.
 
Risks Related to the Healight Technology
 
We must rely on a third party to develop the Healight Technology.
 
We must rely on Cedars-Sinai Medical Center to conduct testing and clinical trials of the Healight Technology (“Healight Platform”). As a result, we are expected to remain dependent on a third party to conduct ongoing trials and the timing and completion of these trials will be partially controlled by such third party and may result in delays to the Healight development program. Nevertheless, we are responsible for ensuring that each of the trials is conducted in accordance with the applicable protocol and legal, regulatory, and scientific standards and our reliance on a third party does not relieve us of our regulatory responsibilities. If we or Cedars-Sinai Medical Center fail to comply with applicable requirements, the FDA may require us to perform additional clinical trials.
 
There is no guarantee that Cedars-Sinai Medical Center will devote adequate time and resources to the Healight development activities or perform as contractually required. Furthermore, Cedars-Sinai Medical Center may also have relationships with other entities, some of which may be our competitors. If Cedars-Sinai Medical Center fails to meet expected deadlines, adhere to our clinical protocols, meet regulatory requirements, or otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for the Healight technology development may be extended, delayed, suspended, or terminated.
 
 
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The development of Healight faces uncertainties related to testing.
 
The development of Healight is based on scientific hypotheses and experimental approaches that may not lead to desired results. It is possible that the timeframe for obtaining proof of principle and other results may be considerably longer than originally anticipated, or may not be possible given time, resource, financial, strategic, and collaborator constraints. Success in one stage of testing is not necessarily an indication that the Healight program will succeed in later stages of testing and development. The discovery or unexpected side effects, inability to increase scale of manufacture, market attractiveness, regulatory hurdles, competition, as well as other factors may make the Healight technology unattractive of unsuitable for human use.
 
Intellectual Property Risks Related to Our Business
 
We are dependent on our relationships and license agreements, and we rely on the patent rights granted to us pursuant to the license agreements.
 
A number of our patent rights are derived from our license agreements with third parties. Pursuant to these license agreements, we have licensed rights to various patents and patent applications within and outside of the United States. We may lose our rights to these patents and patent applications if we breach our obligations under such license agreements, including, without limitation, our financial obligations to the licensors. If we violate or fail to perform any term or covenant of the license agreements, the licensors may terminate the license agreements upon satisfaction of applicable notice requirements and expiration of any applicable cure periods. Additionally, any termination of license agreements, whether by us or the licensors will not relieve us of our obligation to pay any license fees owing at the time of such termination. If we fail to retain our rights under these license agreements, we will not be able to commercialize certain products subject to patent or patent application, and our business, results of operations, financial condition and prospects would be materially adversely affected.
 
The commercial success of our products depends, in large part, on our ability to use patents licensed to us by third parties in order to exclude others from competing with our products. The patent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex legal and technical issues. Until our licensed patents are interpreted by a court, either because we have sought to enforce them against a competitor or because a competitor has preemptively challenged them, we will not know the breadth of protection that they will afford us. Our patents may not contain claims sufficiently broad to prevent others from practicing our technologies or marketing competing products. Third parties may intentionally attempt to design around our patents or design around our patents so as to compete with us without infringing our patents. Moreover, the issuance of a patent is not conclusive as to its validity or enforceability, and so our patents may be invalidated or rendered unenforceable if challenged by others.
 
We may renegotiate any of our existing license agreements or other material contracts on terms that might not be viewed by the market as favorable.
 
From time to time we may renegotiate the terms of our existing licensing agreements. There can be no guarantee that the terms of the renegotiated license agreement or other material contract will be viewed favorably by the market as evidenced by our stock price although the renegotiated terms might be advantageous to our business.
 
Our ability to compete may decline if we do not adequately protect our proprietary rights or if we are barred by the patent rights of others.
 
Our commercial success depends on obtaining and maintaining proprietary rights to our products and product candidates as well as successfully defending these rights against third-party challenges. We will only be able to protect our products and product candidates from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them. Our ability to obtain patent protection for our products and product candidates is uncertain due to a number of factors, including that:
 
 
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we may not have been the first to make the inventions covered by pending patent applications or issued patents;
 
we may not have been the first to file patent applications for our products and product candidates;
 
others may independently develop identical, similar or alternative products, compositions or devices and uses thereof;
 
our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
 
any or all of our pending patent applications may not result in issued patents;
 
we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;
 
any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages, or may be successfully challenged by third parties;
 
our compositions, devices and methods may not be patentable;
 
others may design around our patent claims to produce competitive products which fall outside of the scope of our patents; or
 
others may identify prior art or other bases which could invalidate our patents.
 
Even if we have or obtain patents covering our products and product candidates, we may still be barred from making, using and selling them because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering products that are similar or identical to ours. There are many issued U.S. and foreign patents relating to chemical compounds, therapeutic products, diagnostic devices, personal care products and devices and some of these relate to our products and product candidates. These could materially affect our ability to sell our products and develop our product candidates. Because patent applications can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our products and product candidates may infringe. These patent applications may have priority over patent applications filed by us.
 
Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, various other governmental fees on patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the cost associated with complying with numerous procedural provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.
 
 
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Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents, or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our business, prospects, financial condition and results of operations.
 
Pharmaceutical and medical device patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.
 
The patent positions of pharmaceutical and medical device companies can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth of claims allowed in some patents covering pharmaceutical compositions may be uncertain and difficult to determine and are often affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The standards of the U.S. Patent and Trademark Office, or USPTO, are sometimes uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, re-examination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.
 
In addition, changes in or different interpretations of patent laws in the U.S. and foreign countries may permit others to use our discoveries or to develop and commercialize our technology and products and product candidates without providing any compensation to us or may limit the number of patents or claims we can obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries may lack adequate rules and procedures for defending our intellectual property rights.
 
If we fail to obtain and maintain patent protection and trade secret protection of our products and product candidates, we could lose our competitive advantage and competition we face would increase, reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.
 
Developments in patent law could have a negative impact on our business.
 
From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability and any such changes could have a negative impact on our business.
 
In addition, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes the way issued patents are challenged, and changes the way patent applications are disputed during the examination process. These changes may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions, became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries and our ability to enforce or defend any patents that may issue from our patent applications, all of which could have a material adverse effect on our business.
 
 
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
 
In addition to patent protection, because we operate in the highly technical field of discovery and development of therapies and medical devices, we rely in part on trade secret protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We expect to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific and commercial collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us.
 
In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secrets. Trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.
 
We may not be able to enforce our intellectual property rights throughout the world.
 
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to pharmaceuticals and medical devices. This could make it difficult for us to stop the infringement of some of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
  
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the U.S. and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.
 
Third parties may assert ownership or commercial rights to inventions we develop.
 
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have or expect to have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations. These agreements provide that we must negotiate certain commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from the results of the collaboration. In some instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s samples, we may be limited in our ability to capitalize on the market potential of these inventions. In addition, we may face claims by third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome could have an adverse impact on our business.
 
 
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Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
 
We might employ individuals who were previously employed at universities or other biopharmaceutical or medical device companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
 
A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm our business.
 
There is significant litigation in the pharmaceutical and medical device industries regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our products or product candidates infringe the intellectual property rights of others. If our development and commercialization activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. A patentee could prevent us from using the patented drugs, compositions or devices. We may need to resort to litigation to enforce a patent issued to us, to protect our trade secrets, or to determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel or consultants formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We may not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our cash position and stock price. Any legal action against us or our collaborators could lead to:
 
payment of damages, potentially treble damages, if we are found to have willfully infringed a party’s patent rights;
 
injunctive or other equitable relief that may effectively block our ability to further develop, commercialize, and sell products; or
 
we or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all, all of which could have a material adverse impact on our cash position and business, prospects and financial condition. As a result, we could be prevented from commercializing our products and product candidates.
 
 
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Risks Related to Our Organization, Structure and Operation
 
Our Amended and Restated Bylaws provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, including claims under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
 
Our Amended and Restated Bylaws provides that the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. Notwithstanding the foregoing, the exclusive provision shall not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the Exchange Act, or the Securities Act of 1933, as amended, or the Securities Act, or the respective rules and regulations promulgated thereunder.
 
We intend to acquire, through mergers, asset purchases or in-licensing, businesses or products, or form strategic alliances, in the future, and we may not realize the intended benefits of such acquisitions or alliances.
 
We intend to acquire, through mergers, asset purchases or in-licensing, additional businesses or products, form strategic alliances and/or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses or assets with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses or assets if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition or alliance, we will achieve the expected synergies to justify the transaction. These risks apply to our acquisition of Natesto in April 2016, ZolpiMist in June 2018, and Tuzistra XR in November 2018, our acquisition of the Pediatric Portfolio in November 2019 and the merger with Innovus Pharmaceuticals, Inc. in February 2020. As an example, we acquired Primsol in October 2015, but sold it in March 2017. Depending on the success or lack thereof of any of our existing or future acquired products and product candidates, we might seek to out-license, sell or otherwise dispose of any of those products or product candidates, which could adversely impact our operations if the dispositions triggers a loss, accounting charge or other negative impact.
  
In fiscal 2020, the great majority of our gross revenue and gross accounts receivable were due to three significant customers, the loss of which could materially and adversely affect our results of operations.
 
Three customers contributed greater than 10% of the Company's gross revenue during the year ended June 30, 2020 and four customers contributed greater than 10% of the Company’s gross revenue during the year ended 2019, respectively. As of June 30, 2020, three customers accounted for 46% of gross revenue. The loss of one or more of the Company's significant partners or collaborators could have a material adverse effect on its business, operating results or financial condition.
 
We are also subject to credit risk from our accounts receivable related to our product sales. As of June 30, 2020, four customers accounted for 61% of gross accounts receivable. As of June 30, 2019, four customers accounted for 88% of gross accounts receivable.
 
 
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We will need to develop and expand our company, and we may encounter difficulties in managing this development and expansion, which could disrupt our operations.
 
As of June 30, 2020, we had 75 full-time employees, and in connection with being a public company, we expect to continue to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the planned expanded commercialization of our approved products and the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to expand the market for our approved products and develop our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.
   
We depend on key personnel and attracting qualified management personnel and our business could be harmed if we lose personnel and cannot attract new personnel.
 
Our success depends to a significant degree upon the technical and management skills of our directors, officers and key personnel. Any of our directors could resign from our board at any time and for any reason. Although our executive officers Joshua Disbrow, Jarrett Disbrow and David Green have employment agreements, the existence of an employment agreement does not guarantee the retention of the executive officer for any period of time, and each agreement obligates us to pay the officer lump sum severance of two years of salary if we terminate him without cause, as defined in the agreement, which could hurt our liquidity. The loss of the services of any of these individuals would likely have a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. We do not maintain key person life insurance for any of our officers or key personnel. The loss of any of our directors or key executives, or the failure to attract, integrate, motivate, and retain additional key personnel could have a material adverse effect on our business.
 
We compete for such personnel, including directors, against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. There can be no assurance that we will be successful in attracting or retaining such personnel, and the failure to do so could have a material adverse effect on our business, prospects, financial condition, and results of operations.
 
Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our product candidates.
 
The risk that we may be sued on product liability claims is inherent in the development and commercialization of pharmaceutical, medical device and personal care products and devices. Side effects of, or manufacturing defects in, products that we develop and commercialized could result in the deterioration of a patient’s condition, injury or even death. Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits increases. Claims may be brought by individuals seeking relief for themselves or by individuals or groups seeking to represent a class. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of the affected products.
 
We may be subject to legal or administrative proceedings and litigation other than product liability lawsuits which may be costly to defend and could materially harm our business, financial condition and operations.
 
Although we maintain general liability, clinical trial liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition, inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product or other legal or administrative liability claims could prevent or inhibit the commercial production and sale of any of our products and product candidates that receive regulatory approval, which could adversely affect our business. Product liability claims could also harm our reputation, which may adversely affect our collaborators’ ability to commercialize our products successfully. 
 
 
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 Our internal computer systems, or those of our third-party contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
 
Despite the implementation of security measures, our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we do not believe that we have experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a loss of clinical trial data for our product candidates which could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed.
 
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
 
As of June 30, 2020, we had federal net operating loss carryforwards of approximately $147.1 million. The available net operating losses, if not utilized to offset taxable income in future periods, will begin to expire in 2025 and will, except for certain indefinite-lived net operating loss carryforwards, completely expire in 2038. Under the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations promulgated thereunder, including, without limitation, the consolidated income tax return regulations, various corporate changes could limit our ability to use our net operating loss carryforwards and other tax attributes to offset our income. Because Ampio’s equity ownership interest in our company fell to below 80% in January 2016, we were deconsolidated from Ampio’s consolidated federal income tax group. As a result, certain of our net operating loss carryforwards may not be available to us and we may not be able to use them to offset our U.S. federal taxable income. As a consequence of the deconsolidation, it is possible that certain other tax attributes and benefits resulting from U.S. federal income tax consolidation may no longer be available to us. Our company and Ampio do not have a tax sharing agreement that could mitigate the loss of net operating losses and other tax attributes resulting from the deconsolidation or our incurrence of liability for the taxes of other members of the consolidated group by reason of the joint and several liability of group members. In addition to the deconsolidation risk, an “ownership change” (generally a 50% change in equity ownership over a three-year period) under Section 382 of the Code could limit our ability to offset, post-change, our U.S. federal taxable income. Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre- ownership change net operating loss carryforwards and certain recognized built-in losses. We believe that the August 2017 financing created over a 50% change in our equity ownership so our current tax loss carryforward will be limited in the future. Either the deconsolidation or the ownership change scenario could result in increased future tax liability to us.
 
Risks Related to Securities Markets and Investment in our Securities
 
Our failure to meet the continued listing requirements of the NASDAQ Capital Market could result in a delisting of our common stock.
 
If we fail to satisfy the continued listing requirements of the NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement, the exchange may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we anticipate that we would take actions to restore our compliance with applicable exchange requirements, such as stabilize our market price, improve the liquidity of our common stock, prevent our common stock from dropping below such exchange’s minimum bid price requirement, or prevent future non-compliance with such exchange’s listing requirements.
 
 
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Future sales and issuances of our equity securities or rights to purchase our equity securities, including pursuant to equity incentive plans, would result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
 
To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may, as we have in the past, sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be further diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to existing stockholders.
 
Pursuant to our 2015 Stock Plan, our Board of Directors is currently authorized to award up to a total of 5.0 million shares of common stock or options to purchase shares of common stock to our officers, directors, employees and non-employee consultants. As of June 30, 2020, options to purchase 765,937 shares of common stock issued under our 2015 Stock Plan at a weighted average exercise price of $1.85 per share were outstanding. In addition, at June 30, 2020, there were outstanding warrants to purchase an aggregate of 23,125,293 shares of our common stock at a weighted average exercise price of $3.78. Stockholders will experience dilution in the event that additional shares of common stock are issued under our 2015 Stock Plan, or options issued under our 2015 Stock Plan are exercised, or any warrants are exercised for shares of our common stock.
 
Our share price is volatile and may be influenced by numerous factors, some of which are beyond our control.
 
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:
 
the products or product candidates we acquire for commercialization;
 
the products and product candidates we seek to pursue, and our ability to obtain rights to develop, commercialize and market those product candidates;
 
our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
 
actual or anticipated adverse results or delays in our clinical trials;
 
our failure to expand the market for our currently approved products or commercialize our product candidates, if approved;
 
unanticipated serious safety concerns related to the use of any of our product candidates;
 
overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;
 
conditions or trends in the healthcare, biotechnology and pharmaceutical industries;
 
 
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introduction of new products offered by us or our competitors;
 
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
 
our ability to maintain an adequate rate of growth and manage such growth;
 
issuances of debt or equity securities;
 
sales of our common stock by us or our stockholders in the future, or the perception that such sales could occur;
 
trading volume of our common stock;
 
ineffectiveness of our internal control over financial reporting or disclosure controls and procedures;
 
general political and economic conditions;
 
effects of natural or man-made catastrophic events;
 
other events or factors, many of which are beyond our control;
 
adverse regulatory decisions;
 
additions or departures of key scientific or management personnel;
 
changes in laws or regulations applicable to our product candidates, including without limitation clinical trial requirements for approvals;
 
disputes or other developments relating to patents and other proprietary rights and our ability to obtain patent protection for our product candidates;
 
our dependence on third parties, including CROs and scientific and medical advisors;
 
our ability to uplist our common stock to a national securities exchange;
 
failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;
 
actual or anticipated variations in quarterly operating results; and
 
failure to meet or exceed the estimates and projections of the investment community.
 
In addition, the stock market in general, and the stocks of small-cap healthcare, biotechnology and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.
 
 
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any trading volume could decline.
 
Any trading market for our common stock that may develop will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us or our business. If no securities or industry analysts commence coverage of our company, the trading price for our stock could be negatively affected. If securities or industry analysts initiate coverage, and one or more of those analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and any trading volume to decline.
 
Shareholders approved a reverse stock split of up to 1-for-20 on April 24, 2020 which if the Board of Directors elected to effect, and enacted, may not achieve one or more of our objectives.
 
Historically, we have affected four reverse stock splits since June 8, 2015, each of which has impacted the trading liquidity of the shares of our common stock. There can be no assurance that the market price per share of our common stock after a reverse stock split will remain unchanged or increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split. The market price of our shares may fluctuate and potentially decline after a reverse stock split. Accordingly, the total market capitalization of our common stock after a reverse stock split may be lower than the total market capitalization before the reverse stock split. Moreover, the market price of our common stock following a reverse stock split may not exceed or remain higher than the market price prior to the reverse stock split.
 
Additionally, there can be no assurance that a reverse stock split will result in a per-share market price that will attract institutional investors or investment funds or that such share price will satisfy investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve. Further, if a reverse stock split is effected and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of a reverse stock split.
 
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plan or otherwise, could result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
 
We could need significant additional capital in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors in a prior transaction may be materially diluted by subsequent sales. Additionally, any such sales may result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock. Further, any future sales of our common stock by us or resales of our common stock by our existing stockholders could cause the market price of our common stock to decline. Any future grants of options, warrants or other securities exercisable or convertible into our common stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price of our common stock.
 
 
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 Some provisions of our charter documents and applicable Delaware law may discourage an acquisition of us by others, even if the acquisition may be beneficial to some of our stockholders.
 
Provisions in our Certificate of Incorporation and Amended and Restated Bylaws, as well as certain provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so may benefit some of our stockholders. These provisions include:
 
the authorization of 50.0 million shares of “blank check” preferred stock, the rights, preferences and privileges of which may be established and shares of which may be issued by our Board of Directors at its discretion from time to time and without stockholder approval;
 
limiting the removal of directors by the stockholders;
 
allowing for the creation of a staggered board of directors;
 
eliminating the ability of stockholders to call a special meeting of stockholders; and
 
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
 
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by the board of directors. This provision could have the effect of discouraging, delaying or preventing someone from acquiring us or merging with us, whether or not it is desired by or beneficial to our stockholders.
 
Any provision of our Certificate of Incorporation or Bylaws or of Delaware law that is applicable to us that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock in the event that a potentially beneficial acquisition is discouraged, and could also affect the price that some investors are willing to pay for our common stock.
 
The elimination of personal liability against our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.
 
Our Certificate of Incorporation and our Bylaws eliminate the personal liability of our directors and officers to us and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our Certificate of Incorporation and our Bylaws and individual indemnification agreements we intend to enter with each of our directors and executive officers provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by the Delaware law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.
 
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
 
We have never declared or paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends in the future would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors and will be at the discretion of our Board of Directors. Our stockholders should not expect that we will ever pay cash or other dividends on our outstanding capital stock.
 
 
 
55
 
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
In August 2015, the Company entered into a 37-month operating lease in Englewood, Colorado. This lease has an initial base rent of $9,000 a month with a total base rent over the term of the lease of approximately $318,000. In October 2017, the Company signed an amendment to the 37-month operating lease in Englewood, Colorado. The amendment extended the lease for an additional 24 months beginning October 1, 2018. The base rent will remain at $9,000 a month. In April 2019, the Company extended the lease for an additional 36 months beginning October 1, 2020.
 
In June 2018, the Company entered into a 12-month operating lease, beginning on August 1, 2018, for a new office space in Raleigh. This lease has base rent of $1,100 a month, with total rent over the term of the lease of approximately $13,200. The Company terminated the lease agreement on July 31, 2020.
 
In July 2020, Aytu entered into a 24-month operating lease for office space in Raleigh, North Carolina. The lease has initial base rent of $792 a month, with the annual base rent of approximately $9,500.
 
The Company recognizes rent expense on a straight-line basis over the term of each lease. Differences between the straight-line net expenses on rent payments are classified as liabilities between current deferred rent and long-term deferred rent.
 
Item 3. Legal Proceedings
 
In November and December 2019, four lawsuits were filed in connection with the Company’s disclosure statement regarding the October 2019 financing transaction and the acquisition of the Pediatric Portfolio. As of the date of this 10-K Report, all plaintiffs have dismissed their claims after the Company amended its disclosure.
 
On November 20, 2019, an individual named Carl Pliscott, filed a Verified Class Action Complaint in Delaware Chancery Court, alleging that the Company’s Board of Directors had breached its fiduciary duty to the Company stockholders by disseminating a proxy statement which, according to the Complaint, did not provide stockholders with sufficient information to allow stockholders to meaningfully assess the reasonableness or financial fairness of two transactions: (i) an Asset Purchase Agreement, entered on October 10, 2019, with Cerecor Inc., (“Cerecor”) pursuant to which the Company had purchased certain assets, and assumed certain liabilities, from Cerecor; and (ii) Securities Purchase Agreements entered on October 11, 2019 with two investors pursuant to which the Company issued and sold $10.0 million of Aytu’s Series F Convertible Preferred Stock.
 
After the Pliscott case was filed three additional cases making similar allegations were filed: Adam Franchi v. Aytu Bioscience, Inc., et al., was filed in U.S. District Court in Delaware on November 26, 2019; Adam Kirschenbaum v. Aytu Bioscience, Inc., et al., was filed in Delaware Chancery Court on December 10, 2019; and Michael Sebree v. Josh Disbrow, et al., was filed in Delaware Chancery Court on December 17, 2019.
 
Although the Company believed that its proxy statement provided stockholders with sufficient information, the Company determined that it would be most efficient and least costly to file an amended proxy statement making supplemental disclosures in order to moot the claims asserted in the Pliscott, Franchi, Kirschenbaum and Sebree plaintiffs.
 
After the amended proxy statement was filed, the Pliscott, Franchi, Kirschenbaum and Sebree plaintiffs agreed to dismiss their claims, and the Company agreed to pay attorney fees to the lawyers representing the plaintiffs in these cases.
 
Item 4.  Mine Safety Disclosures
 
Not applicable.
  
PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Data
 
Our common stock has been listed on the NASDAQ Capital Market under the symbol “AYTU” since October 20, 2017. The following table sets forth the range of high and low sales prices on the NASDAQ Capital Market, as applicable, for the periods shown.
 
Fiscal Year ended June 30, 2019
 
High
 
 
Low
 
First Quarter (ended September 30, 2018)
 $7.80 
 $2.40 
Second Quarter (ended December 31, 2018)
 $3.23 
 $0.68 
Third Quarter (ended March 31, 2019)
 $2.53 
 $0.78 
Fourth Quarter (ended June 30, 2019)
 $2.61 
 $1.50 
 
Fiscal Year ended June 30, 2020
 
High
 
 
Low
 
First Quarter (ended September 30, 2019)
 $1.95 
 $1.21 
Second Quarter (ended December 31, 2019)
 $1.35 
 $0.67 
Third Quarter (ended March 31, 2020)
 $2.05 
 $0.35 
Fourth Quarter (ended June 30, 2020)
 $2.02 
 $1.19 
 
 
56
 
 
On September 15, 2020, the closing price as reported on the NASDAQ of our common stock was $1.18. As of September 15, 2020, there were 1,026 holders of record of our common stock.
 
Equity Compensation Plan Information
 
In June 2015, our shareholders approved the adoption of a stock and option award plan (the “2015 Plan”). At the special meeting of stockholders on July 26, 2017, the Aytu stockholders voted to increase the plan to 3.0 million shares. The 2015 Plan permits grants of equity awards to employees, directors and consultants. At the special meeting of stockholders on January 24, 2020, the Aytu stockholders voted to increase the plan to 5.0 million shares. The following table displays equity compensation plan information as of June 30, 2020 relating to securities reserved for future issuance upon exercise.
 
Plan Category
 
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (Column A)
 
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (Column B)
 
Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Column C - Excluding Securities Reflected in Column (A))
Equity compensation plans approved by security holders
  765,937 
 $1.85 
  4,837 
Equity compensation plans not approved by security holders
  1,624 
 $594.63 
  - 
Total
  767,561 
 $3.10 
  4,837 
 
Dividend Policy
 
We have not paid any cash dividends and our Board of Directors presently intends to continue a policy of retaining earnings, if any, for use in our operations. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by the Board of Directors in light of conditions then existing, including earnings, financial condition, capital requirements and other factors. Delaware law prohibits us from declaring dividends where, if after giving effect to the distribution of the dividend:
 
we would not be able to pay our debts as they become due in the usual course of business; or
 
our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
 
Except as set forth above, there are no restrictions that currently materially limit our ability to pay dividends or which we reasonably believe are likely to limit materially the future payment of dividends on common stock.
 
Our Board of Directors has the right to authorize the issuance of preferred stock, without further stockholder approval, the holders of which may have preferences over the holders of our common stock as to payment of dividends.
 
Item 6.
Selected Financial Data
 
Not applicable.
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing strategy, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
 
 
57
 
 
Overview, Liquidity and Capital Resources
 
We are a commercial-stage specialty pharmaceutical company focused on commercializing novel products that address significant healthcare needs in both prescription and consumer health categories. Through our heritage prescription business, we currently market a portfolio of prescription products addressing large primary care and pediatric markets.
 
Prior to the date of this Annual Report, we have financed operations through a combination of private and public debt and equity financings, funds from the sale of our products, and occasionally through divestures of non-strategic assets. Our financing transactions have included private placements of stock and convertible notes, and public offerings of our equity securities. Since the formation of Aytu in June 2015, we have raised approximately $157.6 million from the sale of our securities to investors and the exercise of warrants by investors.
 
Our operations have historically consumed cash and are expected to continue to require cash, but at a declining rate. Revenues have increased 277% and 100% for each of the years ended June 30, 2020 and 2019, respectively, and are expected to continue to increase, allowing us to rely less on our existing cash balance and proceeds from financing transactions. Despite increased revenue, cash used in operations during the year ended June 30, 2020 was $28.4 million compared to $13.8 million for the year ended June 30, 2019. The increased cash use was due to funding existing operations as well as the funding required to consummate and integrate the operations of two significant transactions which substantially increased the size and scope of our commercial operations. Additional funds were required to license the Healight Platform and pursue its development. Revenue from our Covid-19 test kit sales has supplemented revenue from our core Rx and Consumer Health operations beginning in the fourth quarter of 2020. While this revenue and related cash flow has a positive impact on the Company’s financial performance and reduces the amount of capital required from financings, we believe this revenue will be temporary, potentially limited to the period while the US is experiencing the Covid-19 pandemic. Additionally, our Covid-19 test kits are, serology test kits that do not provide confirmatory results. Our COVID-19 test kits are intended for patient screening purposes. This may limit the addressable market for our Covid-19 test kits. However, the utility of our Covid-19 test kits is high as they are a lower cost diagnostic tool and produce results quickly compared to other testing technologies. We believe these characteristics, allow for a substantial addressable market for our serology test kits. On September 22, 2020, we were informed by FDA that our Covid-19 serology test kits manufactured by Zhejiang Orient Gene Biotech Co., Ltd. are viewed by FDA as a distinct product from another Zhejiang Orient Gene Biotech Co., Ltd. test kit that was covered by an EUA (the “Healgen Scientific test kit”) given the differences in labeling between the products. The FDA advised us that we could consider aligning our test kit labeling to the Healgen Scientific test kit labeling to be covered under their EUA, given that the tests are identical from a technical perspective, or that we could sell the test kit as currently configured under Section IV.D of the FDA’s Policy for Coronavirus Disease-2019 Tests as already allowed for under the policy. Given what we expect to be the current and future market of serology based Covid-19 tests, we have decided to sell the remaining kits under Section IV.D of the FDA’s Policy for Coronavirus Disease-2019 Tests rather relying on the Healgen Scientific EUA. The main difference between selling test kits under a Section IV.C and under Section IV.D of the FDA’s Policy for Coronavirus Disease-2019 Tests is that purchasers of our serology test kits under Section IV.D of the FDA’s Policy for Coronavirus Disease-2019 are required to have access to high complexity laboratories. Substantially all of our test kit customers have access to high complexity laboratories and therefore we expect a minimal impact on our sales outlook. However, this could limit the number of potential customers for the test kits which may impact our revenue and profitability.
 
As of the date of this Report, we expect costs for our current operation to stabilize as we integrate the acquisition of the Pediatrics Portfolio and Innovus (Aytu Consumer Health) and continues to focus on revenue growth through increasing product sales and the introduction of new products. Our total current asset position of approximately $75.0 million plus the proceeds expected from ongoing product sales will be used to fund operations.  Since we have sufficient cash and cash equivalents on-hand as of June 30, 2020, to fund potential net cash outflows for the twelve months following the filing date of this Annual Report, in accordance with ASU 2014-15, Subtopic 205-40, we report that there does not exist any indication of substantial doubt about our ability to continue as a going concern.
 
The Company's business model involves in-licensing and/or acquiring new products, product lines, or businesses that are complementary to its current products and businesses. Because of this the Company is frequently engaged in ongoing discussions to evaluate and consider the acquisition or licensing of new products. At any given time, the Company may be exploring transactions inclusive of product-specific transactions or larger, strategic transactions. In fiscal 2020 the Company completed two transactions, a significant asset purchase and a merger, and may consider additional transactions of that size or larger.
 
While our capital is sufficient to fund our near-term operations, there is no guarantee that such capital resources will be sufficient until such time we reach profitability. We may access capital markets to fund strategic acquisitions or ongoing operations on terms management believes are favorable. The timing and amount of capital that may be raised is dependent on market conditions and the terms and conditions upon which investors would require to provide such capital. We may utilize debt or sell newly issued equity securities through public or private transactions, or through the use of an at the market facility. There is no guarantee that capital will be available on terms favorable to Aytu and our stockholders, or at all. However, we have been successful in accessing the capital markets in the past and are confident in our ability to access the capital markets again, if needed.
 
If we are unable to raise adequate capital in the future, if and when it is required, we can adjust our operating plans to reduce the magnitude of the capital need under our existing operating plans. Some of the adjustments that could be made include delays of and reductions to M&A plans and commercial programs, reductions in headcount, narrowing the scope of our commercial plans, or reductions to our research and development programs. Without sufficient operating capital, we 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 our balance sheet and operating results.
 
Nasdaq Listing Compliance. The Company’s common stock is listed on The Nasdaq Capital Market (the “Nasdaq”). In order to maintain compliance with Nasdaq listing standards, the Company must, amongst other requirements, maintain a stockholders’ equity balance of at least $2.5 million pursuant to Nasdaq Listing Rule 5550(b). In that regard, on June 30, 2020, the Company’s stockholders’ equity totaled approximately $95.0 million.
 
On September 30, 2019, the Company’s stockholders’ equity totaled approximately $2.3 million. However, subsequent to September 30, 2019, the Company completed (i) the Offering with the Investors, raising approximately $9.3 million, net in equity financing (see Note 1), and (ii) the “Asset Purchase Agreement” in which the Company issued approximately 9.8 million shares of Series G Convertible Preferred Stock worth approximately $5.6 million, resulting in an increase in stockholders’ equity of approximately $14.8 million in the aggregate. Further, the Company raised additional funds including (i) $71.3 million in net proceeds from the March 10, 2020, March 12, 2020 and March 19, 2020 Offerings and exercises of warrants during March and April of 2020, and (ii) $6.6 million in net proceeds raised from our at the market facility during June 2020.
 
Accordingly, as of the filing of this Form 10-K, the Company’s stockholders’ equity balance significantly exceeds the minimum $2.5 million threshold and, therefore, the Company believes it is currently in compliance with all applicable Nasdaq Listing Requirements.
 
We have incurred accumulated net losses since inception, and at June 30, 2020, we had an accumulated deficit of $120.0 million. Our annual net loss decreased to $13.6 million for the year ended June 30, 2020 compared to a net loss of $27.1 million during our previous fiscal year ended June 30, 2019. We used $28.4 million and $13.8 million in cash from operations during the years ended June 30, 2020 and 2019, respectively.
 
 
58
 
 
Results of Operations
 
Comparison of the years ended June 30, 2020 and 2019
 
 
Year Ended June 30,
  
 
 
   
 
 
 
2020
 
 
 
2019
 
 
$
Change
 
 
%
Change
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Product revenue, net
 $27,632,080 
 $7,314,581 
 $20,317,499 
  278%
License revenue, net
  - 
  5,776 
  (5,776)
  -100%
Total product revenue
  27,632,080 
  7,320,357 
  20,311,723 
  277%
 
    
    
    
    
Operating expenses
    
    
    
    
Cost of sales
  7,553,031 
  2,202,041 
  5,350,990 
  243%
Research and development
  1,721,419 
  589,072 
  1,132,347 
  192%
Selling, general and administrative
  34,802,432 
  18,887,783 
  15,914,649 
  84%
Selling, general and administrative - related party
  - 
  351,843 
  (351,843)
  -100%
Impairment of intangible assets
  195,278 
  - 
  195,278 
   
Amortization of intangible assets
  4,490,466 
  2,136,255 
  2,354,211 
  110%
Total operating expenses
  48,762,626 
  24,166,994 
  24,545,632 
  102%
 
    
    
    
    
Loss from operations
  (21,130,546)
  (16,846,637)
  (4,283,909)
  25%
 
    
    
    
    
Other (expense) income
    
    
    
    
Other (expense), net
  (2,606,487)
  (535,500)
  (2,070,719)
  387%
(Loss) / gain from contingent consideration
  10,430,252 
  (9,830,550)
  20,260,802 
  -206%
Gain (Loss) on extinguishment of debt
  (315,728)
  - 
  (315,728)
   
Gain from warrant derivative liability
  1,830 
  80,779 
  (78,949)
  -98%
Total other (expense) income
  7,509,867 
  (10,285,271)
  17,795,138 
  -173%
 
    
    
    
    
Net loss
 $(13,620,679)
 $(27,131,908)
 $13,511,229 
  -50%
 
 
59
 
 
Product revenue. During the year ended June 30, 2020, we recognized revenue of $27.6 million associated with the sale of our products, an increase of approximately $20.3 million compared to the same period ended June 30, 2019. This increase was primarily driven by revenues from (i) sales of the recently acquired Pediatric Portfolio and from sales of our COVID-19 Test Kits, and (ii) approximately $10.4 million from sales from our Consumer Health segment as a result of the Merger with Innovus on February 14, 2020.
 
Cost of sales. Cost of sales increased approximately $5.4 million during the year ended June 30, 2020 compared to the same period ended June 30, 2019. This increase was primarily driven by the additional costs of higher sales resulting from the (i) acquisition of the Pediatric Portfolio on November 1, 2019, (ii) the Merger with Innovus on February 14, 2020, and (iii) sales of our COVID-19 Test Kits during the three months ended June 30, 2020.
 
Research and Development. Research and development expenses increased $1.1 million, or 192%, in fiscal 2020 compared to fiscal 2019. The increase was due primarily to approximately $1.3 million related to costs associated with the Company’s Healight Platform license and initial development and clinical costs.
 
Selling, General and Administrative. Selling, general and administrative costs increased $15.9 million, or 84%, for the year ended June 30, 2020 compared to the same period in 2019. This increase was primarily driven by the cost of personnel and the commercial support associated with generating additional revenues from the (i) acquisition of the Pediatric Portfolio on November 1, 2019 and (ii) the Merger with Innovus on February 14, 2020. Additionally, we incurred significant expenses associated with the execution of the Merger and Pediatric Portfolio transactions.
 
Selling, General and Administrative – Related Party. Selling, general and administrative costs – related party relate to the cost of services provided by TrialCard, one of our vendors that previously employed one of our Directors, Mr. Donofrio, for a period of time during the fiscal year ended June 30, 2019.
 
Impairment of Intangible Assets. We incurred an impairment loss of approximately $0.2 million for the year-ended June 30, 2020 as a result of the write-down of the carrying value of the MiOXSYS patent portfolio.
 
Amortization of Intangible Assets. Amortization expense for our intangible assets was $4.5 million for the year ended June 30, 2020 compared to $2.1 million for the year ended June 30, 2019. The increase of $2.4 million in amortization expense was the result of (i) the November 1, 2019 acquisition of the Pediatric Portfolio from Cerecor, Inc. and (ii) the February 14, 2020 Innovus Merger.
 
Other (expense) income, net. Other (expense) income, net for the year ended June 30, 2020 was income of approximately $7.5 million, compared to expenses of $10.3 million for the year ended June 30, 2019. The approximately $17.8 million difference was due to (i) a gain of approximately $10.4 million as a result of a decline in the fair value of the contingent consideration liability related to ZolpiMist and Tuzistra for the year ended June 30, 2020, compared to the prior year when we realized a loss of approximately $9.8 million for the year-ended June 30, 2019, and (ii) offset by an approximately $2.0 million increase in other expenses due to accretion and interest expense resulting from the assumed fixed payment obligations and other long-term liabilities that arose from the (i) November 1, 2019 acquisition of the Pediatric Portfolio from Cerecor, Inc. and (ii) the February 14, 2020 Merger with Innovus.
 
 
60
 
 
Liquidity and Capital Resources
 
 
 
Year ended June 30,
 
 
 
2020
 
 
2019
 
 Net cash used in operating activities
 $(28,373,887)
 $(13,831,377)
 Net cash used in investing activities
 $(5,655,772)
 $(1,061,985)
 Net cash provided by financing activities
 $71,068,739 
 $19,075,062 
 
Net Cash Used in Operating Activities
 
During fiscal 2020, net operating cash outflows totaled $28.4 million. The use of cash was approximately $14.8 million greater than the net loss due primarily to non-cash income/gains from change in fair value of contingent consideration and derecognition of contingent consideration. In addition, the Company’s use of cash increased due to changes in working capital including increases in accounts receivable, inventory, prepaid and other assets. These charges were offset by depreciation, amortization and accretion and an increase in accrued liabilities and accrued compensation.
 
During fiscal 2019, our operating activities consumed $13.8 million of cash. Our cash use was approximately $13.3 million less than the net loss due primarily to non-cash charges for stock-based compensation, issuance of restricted stock, depreciation, amortization and accretion, other loss and an increase in accounts payable, accrued liabilities and accrued compensation. These charges were offset by an increase in accounts receivable, inventory, prepaid expenses, and derivative income.
 
Net Cash Used in Investing Activities
 
During fiscal 2020, net investing cash outflows totaled $5.7 million as the result of (i) $1.4 million for the Innovus Merger, (ii) $4.5 million for the acquisition of the Pediatric Portfolio from Cerecor, (iii) payment of $0.2 million in contingent consideration and (iv) offset by cash of $0.4 million acquired due to the Innovus Merger.
 
During fiscal 2019, net investing cash outflows totaled $1.1 million was used to acquire $0.8 million of intangible assets relating to our products, paydown of $0.2 million of a contingent consideration obligation relating to our products, and the purchase of approximately $0.1 million in fixed assets.
 
Net Cash from Financing Activities
 
Net cash provided by financing activities during fiscal 2020 was $71.1 million. This was primarily related to the (i) October 2019 Offering for gross proceeds of $10.0 million, offset by the offering cost of $0.7 million which was paid in cash; (ii) $49 million raised in the March 2020 Offerings, offset by offering costs of approximately $4.5 million, (iii) $27.0 million raised as the result of warrant exercises in March 2020, and (iv) gross proceeds of $6.8 million from the at-the-market offering program in June 2020, offset by offering cost of $0.2 million.
 
Net cash of $19.1 million provided by financing activities during fiscal 2019 was primarily related to the October 2018 public offering of $15.2 million, offset by the offering cost of $1.5 million which was paid in cash. In addition, we received proceeds of $5.0 million from a collateralized promissory note issued to Armistice Capital. We also received proceeds of $375,000 from warrant exercises.
 
 
61
 
 
Payroll Protection Plan. During the year ended June 30, 2020, the Company participated in the Paycheck Protection Program (“PPP”), a Small Business Administration (“SBA”) loan program through a third-party financial institution in response to the COVID-19 global pandemic. The Company borrowed approximately $2.5 million during the three months ended June 30, 2020. However, the Company elected to return the proceeds to the SBA during the same three months ended June 30, 2020 after reviewing the Company’s financial and liquidity position and taking into account the goals of the PPP.
 
Contractual Obligations and Commitments
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item. 
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risks
 
Not applicable.
 
Item 8.
Financial Statements and Supplementary Data
 
The financial statements required by this item are identified in Item (a)(1) of Part IV and begin at page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
 
62
 
 
Item 9A. 
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining adequate “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report to provide the reasonable assurance discussed above.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Our management has concluded that, as of June 30, 2020, our internal control over financial reporting is effective based on these criteria.
 
Plante Moran, PLLC, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, was not required to issue an attestation report on our internal control over financial reporting.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal controls over financial reporting, except as described below, known to the chief executive officer or the chief financial officer that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
The Company’s assessment over changes in our internal controls over financial reporting excluded those processes or controls that exist at our Aytu Consumer Health reporting unit which we acquired from the February 14, 2020 Innovus Merger. Aytu Consumer Health comprises approximately 37.6% of net revenues, 23.6% of net losses, and 17.4% of the total assets.
 
Item 9B. 
Other Information
 
None.
 
 
63
 
 
PART III
 
Item 10. 
Directors and Executive Officers, and Corporate Governance
 
The following table sets forth the names and ages of all of our directors and executive officers as of September 15, 2020. Our Board of Directors is currently comprised of seven members, who are elected annually to serve for one year or until their successor is duly elected and qualified, or until their earlier resignation or removal. Executive officers serve at the discretion of the Board of Directors and are appointed by the Board of Directors.
 
Name
 
Age
 
Position
Joshua R. Disbrow
 
45
 
Chairman and Chief Executive Officer
David A. Green
 
57
 
Chief Financial Officer, Secretary, and Treasurer
Steven J. Boyd
 
39
 
Director
Gary V. Cantrell
 
65
 
Director
Carl C. Dockery
 
57
 
Director
John A. Donofrio, Jr.
 
52
 
Director
Michael E. Macaluso
 
68
 
Director
Ketan Mehta
 
59
 
Director
 
The following is a biographical summary of the experience of our executive officers and directors during the past five years, and an indication of directorships held by the director in other companies subject to the reporting requirements under the federal securities law.
 
Joshua R. Disbrow – Chairman and Chief Executive Officer
 
Joshua R. Disbrow has been employed by us since April 16, 2015. Prior to the closing of the Merger, Mr. Disbrow was the Chief Executive Officer of Luoxis since January 2013. Mr. Disbrow was also the Chief Operating Officer of Ampio since December 2012. Prior to joining Ampio, he served as the Vice President of Commercial Operations at Arbor Pharmaceuticals, a specialty pharmaceutical company, from May 2007 through October 2012. He joined Arbor as that company’s second full-time employee. Mr. Disbrow led the company’s commercial efforts from inception to the company’s acquisition in 2010 and growth to over $127 million in net sales in 2011. By the time Mr. Disbrow departed Arbor in late 2012, he had led the growth of the commercial organization to comprise over 150 people in sales, marketing, sales training, managed care, national accounts, and other commercial functions. Mr. Disbrow has spent over 17 years in the pharmaceutical, diagnostic and medical device industries and has held positions of increasing responsibility in sales, marketing, sales management, commercial operations and commercial strategy. Prior to joining Arbor, Mr. Disbrow served as Regional Sales Manager with Cyberonics, Inc., a medical device company focused on neuromodulation therapies from June 2005 through April 2007. Prior to joining Cyberonics he was the Director of Marketing at LipoScience, an in vitro diagnostics company. Mr. Disbrow holds an MBA from Wake Forest University and BS in Management from North Carolina State University. Mr. Disbrow’s experience in executive management and marketing within the pharmaceutical industry, monetizing company opportunities, and corporate finance led to the conclusion that he should serve as a director of our Company in light of our business and structure.
 
David A. Green – Chief Financial Officer, Executive Vice President, Secretary, and Treasurer
 
David A. Green has been our Chief Financial Officer since December 18, 2017. Prior to joining Aytu BioScience, Mr. Green was the Chief Accounting Officer from 2016 to 2017 of Intarcia Therapeutics, a biopharmaceutical company engaged in late stage clinical development, where he was involved in IPO readiness and some of the largest private financing transactions in history for a pre-commercial, venture funded, life science company. Mr. Green was a consultant with DAG Associates from 2014 to 2017 working in various senior operating and advisory roles for clients such as Q Therapeutics, Perseon Corporation and Lineagen, Inc. Mr. Green served as Chief Financial Officer of Catheter Connections, a venture financed medical device company that was acquired by Merit Medical [NASDAQ: MMSI] from 2012 to 2014; and CFO of Specialized Health Products International, a publicly traded medical device company that was acquired by C.R. Bard [NYSE: BCR] from 2006 to 2008. Prior to his operating roles, Mr. Green advised a broad range of life science companies on issues of corporate finance and the use of strategic transactions to accelerate growth as a Managing Director of Duff & Phelps and as a member of Ernst & Young’s Palo Alto Center for Strategic Transactions®. Mr. Green began his career performing medical research after he received a Bachelor of Science in chemistry from the State University of New York. Mr. Green holds a Master of Business Administration in finance from the University of Rochester and is a Certified Public Accountant.
 
 
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Steven J. Boyd - Director
 
Steven J. Boyd has been a member of our Board of Directors since April 2019. Mr. Boyd is the Founder and Chief Investment Officer of Armistice Capital, a healthcare equity hedge fund he founded in 2012. Prior to founding Armistice, Mr. Boyd was a Research Analyst at Senator Investment Group, York Capital, and SAB Capital Management, where he focused on healthcare. Mr. Boyd began his career as an Analyst at McKinsey & Company. Mr. Boyd has served as a member of the board of directors of Cerecor (NASDAQ: CERC), an integrated biopharmaceutical company focused on pediatric healthcare, since April 2017 and EyeGate Pharmaceuticals (NASDAQ: EYEG), a clinical-stage specialty pharmaceutical company focused on disorders of the eye, since May 2018. Mr. Boyd received a B.S. in Economics and a B.A. in Political Science from The Wharton School of the University of Pennsylvania. Mr. Boyd’s experience in the capital markets and strategic transactions, and his focus on the healthcare industry, led to the conclusion that he should serve as a director of our company in light of our business and structure
 
Gary V. Cantrell – Director
 
Gary Cantrell joined our Board in July 2016. He has 30 years of experience in the life sciences industry ranging from clinical experience as a respiratory therapist to his current position as Principle of Averaden, LLC. Since July 2015, Mr. Cantrell consulted for pharmaceutical and biotechnology companies. Most notably, he served as an exclusive business development consultant with Mayne Pharma (ASX: MYX) for 2.5 years. Mr. Cantrell served as CEO of Yasoo Health Inc., a global specialty nutritional company from 2007 through June 2016, highlighted by the sale of its majority asset AquADEKs to Actavis in March 2016. Previously, he was President of The Catevo Group, a U.S.-based healthcare consulting firm. Prior to that, he was Executive Vice President, Sales and Marketing for TEAMM Pharmaceuticals, an Accentia Biopharmaceuticals company, where he led all commercial activities for a public specialty pharmaceutical business. His previous 22 years were at GlaxoSmithKline plc where he held progressively senior management positions in sales, marketing and business development. Mr. Cantrell is a graduate of Wichita State University and serves as an advisor to several emerging life science companies. He served as a director for Yasoo Health Inc., Yasoo Health Limited and Flexible Stenting Solutions, Inc., a leading developer of next generation peripheral arterial, venous, neurovascular and biliary stents, which was sold to Cordis, while a Division of Johnson & Johnson in March 2013. Mr. Cantrell served as a director of Vyrix Pharmaceuticals from February 2014 to April 2015. Mr. Cantrell’s experience in consulting and executive management within the pharmaceutical industry led to the conclusion that he should serve as a director of our company in light of our business and structure.
 
Carl C. Dockery – Director
 
Carl Dockery joined our Board in April 2016. Mr. Dockery is a financial executive with 30 years of experience as an executive in the insurance and reinsurance industry and more recently in 2006 as the founder and president of a registered investment advisory firm, Alpha Advisors, LLC. Mr. Dockery’s career as an insurance executive began in 1988 as an officer and director of two related and closely held insurance companies, including serving as secretary of Crossroads Insurance Co. Ltd. of Bermuda and as vice president of Gulf Insurance Co. Ltd. of Grand Cayman. Familiar with the London reinsurance market, in the 1990s, Mr. Dockery worked at Lloyd’s and the London Underwriting Centre brokering various types of reinsurance placements. Mr. Dockery graduated from Southeastern University with a Bachelor of Arts in Humanities. Mr. Dockery’s financial expertise and experience, as well as his experience as a director of a publicly traded biopharmaceutical company, led to the conclusion that he should serve as a director of our company in light of our business and structure.
 
 
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John A. Donofrio, Jr. – Director
 
 
John Donofrio joined our Board in July 2016. He is a Senior Finance Executive with over 25 years of experience in the pharmaceutical industry. Mr. Donofrio is trusted finance leader with a proven track record of building strategy, financial management, business partnering, leading teams and strong collaboration among all levels of an organization. In March 2019, Mr. Donofrio was appointed President of EPI Health, a privately-held specialty pharmaceutical company focused on dermatology. From March 2018 through February 2019, Mr. Donofrio served as Chief Financial Officer of TrialCard. TrialCard is a technology-enabled pharmaceutical solutions company that provides patient-centric solutions to the pharmaceutical industry improving access, affordability and adherence to medicines. Mr. Donofrio is responsible for overall finance strategy, accounting, tax, treasury management, reporting and internal controls. Prior to joining TrialCard, he served as the Chief Financial Officer and Head of North American Business Development for Merz North America, or Merz. Merz is a specialty healthcare company dedicated to the development and marketing of innovative quality Aesthetics and Neurosciences products for physicians and patients in the U.S. and Canada. Prior to joining Merz, Mr.Donofrio served as Vice President, Stiefel Global Finance, U.S. Specialty Business and Puerto Rico for Stiefel, a GlaxoSmithKline plc company from July 2009 to July 2013. In that role, Mr. Donofrio was responsible for the financial strategy, management reporting, and overall control framework for the Global Dermatology Business Unit. He was also the Senior Finance Partner accountable for the U.S. Specialty Business Units of GlaxoSmithKline plc. MrDonofrio served as a director of Vyrix Pharmaceuticals from February 2014 to April 2015. Mr. Donofrio holds a degree in Accounting from North Carolina State University. Mr. Donofrio’s financial expertise and diverse experience in the pharmaceutical industry, led to the conclusion that he should serve as a director of our company in light of our business and structure.
 
Michael E. Macaluso – Director 
 
Michael Macaluso has been a member of our Board of Directors since April 2015. Mr. Macaluso is also the Chairman and Chief Executive Officer of Ampio. Mr. Macaluso has been a member of Ampio Pharmaceuticals’ Board of Directors since March 2010 and Ampio’s Chief Executive Officer since January 2012. Mr. Macaluso served in the roles of president and Chief Executive Officer of Isolagen, Inc. (AMEX: ILE) from June 2001 until September 2004. Mr. Macaluso also served on the board of directors of Isolagen from June 2001 until April 2005. From October 1998 until June 2001, Mr. Macaluso was the owner of Page International Communications, a manufacturing business. Mr. Macaluso was a founder and principal of International Printing and Publishing, a position Mr. Macaluso held from 1989 until 1997, when he sold that business to a private equity firm. Mr. Macaluso’s experience in executive management and marketing within the pharmaceutical industry, monetizing company opportunities, and corporate finance led to the conclusion that he should serve as a director of our company in light of our business and structure.
 
Ketan Mehta - Director
 
Ketan Mehta has been a member of our Board of Directors since November 2018. Mr. Mehta is the Founder, President, and Chief Executive Officer of TRIS, a fully-integrated specialty pharmaceutical company focused on developing and commercializing advanced delivery technologies. Ketan founded Tris in 2000 and has built the company into a leading specialty pharmaceutical company with over 500 employees. Tris develops, manufactures, licenses, and commercializes both branded and generic products directly and through commercial partnerships with both large and emerging pharmaceutical companies. Tris has developed many pharmaceutical technologies, including its extended-release platform LiquiXR® and holds over 150 patents in the U.S. and around the world. Before founding TRIS, Ketan worked for Capsugel (formerly a division of Pfizer) in sales, marketing and business development for eight years. Prior to Capsugel, he spent approximately six years as a pharmaceutical scientist for three different large pharmaceutical companies. Ketan is a pharmacist by education and holds an MS degree in Pharmaceutical Sciences from the University of Oklahoma. Mr. Mehta’s experience as a founder and CEO of a pharmaceutical company, led to the conclusion that he should serve as a director of our company in light of our business and structure.

Family Relationships 
 
Jarrett T. Disbrow, our Executive VP, Corporate Development, is the brother of Joshua R. Disbrow, our Chief Executive Officer and a director. There are no other family relationships among or between any of our other current or former executive officers and directors.
 
 
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Involvement in Certain Legal Proceedings 
 
None of our directors or executive officers has been involved in any legal proceeding in the past 10 years that would require disclosure under Item 401(f) of Regulation S-K promulgated under the Securities Act.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act requires our officers and directors and persons who own more than 10% of our outstanding common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These officers, directors and stockholders are required by regulations under the Securities Exchange Act to furnish us with copies of all forms they file under Section 16(a).
  
Based solely on our review of the copies of forms we have received, we believe that all such required reports have been timely filed.
 
Code of Ethics
 
The information required by this Item regarding our Code of Ethics is found in Part I, Item 1, under the caption “Code of Ethics.”
 
Board Committees
 
Our Board has established an Audit Committee, Compensation Committee and a Nominating and Governance Committee. Our Audit Committee consists of Mr. Donofrio (Chair), Mr. Macaluso and Mr. Dockery. Our Compensation Committee consists of Mr. Macaluso (Chair), Mr. Cantrell, Mr. Dockery and Mr. Donofrio. Our Nominating and Governance Committee consists of Mr. Dockery (Chair), Mr. Cantrell and Mr. Donofrio. The independence of our directors is discussed in Part III, Item 13 under the caption “Director Independence.”
 
Each of the above-referenced committees operates pursuant to a formal written charter. The charters for these committees, which have been adopted by our Board, contain a detailed description of the respective committee’s duties and responsibilities and are available on our website at www.aytubio.com under the “Investor Relations—Corporate Governance” tab.
 
Our Board has determined Mr. Donofrio qualifies as an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC. 
 
Stockholder Proposals
 
Our bylaws establish procedures for stockholder nominations for elections of directors and bringing business before any annual meeting or special meeting of stockholders. A stockholder entitled to vote in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder’s intent to make such nomination or nominations has been delivered to our Corporate Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the prior year’s annual meeting. In the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the prior year’s annual meeting, the stockholder notice must be given not more than 120 days nor less than the later of 90 days prior to the date of the annual meeting or, if it is later, the 10th day following the date on which the date of the annual meeting is first publicly announced or disclosed by us. These notice deadlines are the same as those required by the SEC’s Rule 14a-8.
 
Pursuant to the bylaws, a stockholder’s notice must set forth among other things: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder; and (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made.
 
 
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There have been no changes to these nominating procedures since the adoption of the bylaws.
 
Item 11. 
Executive Compensation
 
Executive Compensation
 
In accordance with Item 402 of Regulation S-K promulgated by the SEC, we are required to disclose certain information regarding the makeup of and compensation for our company’s directors and named executive officers.
 
In establishing executive compensation, our Board is guided by the following goals:
 
compensation should consist of a combination of cash and equity awards that are designed to fairly pay the executive officers and directors for work required for a company of our size and scope;
 
compensation should align the executive officers’ and directors’ interests with the long-term interests of stockholders; and
 
compensation should assist with attracting and retaining qualified executive officers and directors.
 
Compensation of Directors 
 
Our current compensation package for non-employee directors, effective July 1, 2017, consists of: an annual cash retainer of $40,000 for each non-employee director, $20,000 for the committee chair of the Audit and Compensation Committees, $10,000 for each other member of the Audit and Compensation Committees, $10,000 for the committee chair of the Nominating and Governance committee, and $5,000 for each other member of the Nominating and Governance committee; a grant of 65,000 restricted shares of stock upon appointment to the board; and an annual stock option grant or a combination of options and restricted stock units for each year of service thereafter.
 
The following table provides information regarding all compensation paid to non-employee directors of Aytu during the fiscal year ended June 30, 2020.
 
Name
 
Fees Earned or Paid in Cash
 
 
All Other Compensation (1)
 
 
 
Total
 
Carl C. Dockery (2)(3)
 $74,400 
 $56,130 
 $130,530 
John A. Donofrio Jr. (2)(3)
 $74,400 
 $56,130 
 $130,530 
Michael E. Macaluso (2)(3)
 $69,400 
 $56,130 
 $125,530 
Gary V. Cantrell (2)(3)
 $64,400 
 $42,564 
 $106,964 
Ketan Mehta (2)(3)
 $44,600 
 $61,800 
 $106,400 
Steven J. Boyd (2)(3)
 $ 
 $ 
 $ 
 
(1)
This column reflects the aggregate grant date fair value of restricted stock and stock options.
 
(2)
As of June 30, 2020, the number of restricted shares held by each non-employee director was as follows: (i) 152,663 restricted shares for Mr. Dockery; (ii) 152,663 restricted shares for Mr. Donofrio; (iii) 202,663 restricted shares for Mr. Macaluso; (iv) 162,663 restricted shares for Mr. Cantrell; and (v) 75,000 restricted shares for Mr. Mehta.
 
(3)
As of June 30, 2020, the number of stock options held by each non-employee director was as follows: (i) 40,038 shares for Mr. Dockery; (ii) 40,038 shares for Mr. Donofrio; (iii) 40,105 shares for Mr. Macaluso; (iv) 20,038 shares for Mr. Cantrell and (v) 40,000 shares for Mr. Mehta
  
 
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Executive Officer Compensation 
 
The following table sets forth all cash compensation earned, as well as certain other compensation paid or accrued for the years ended June 30, 2020 and 2019 to each of the following named executive officers.
 
Name and Principal Position
Year
 
Salary ($)
 
 
Bonus ($)
 
 
Stock Award ($)
 
 
Option Award ($)(1)
 
 
Non-Equity Incentive Plan Compensation ($)
 
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)
 
 
All Other Compensation ($)
 
 
Total ($)
 
 
(a)
 
 
(b)
 
 
(c)(3)
 
 
(d)
 
 
(e)
 
 
(f)
 
 
(g)
 
 
(h)
 
 
(i)
 
 
(j)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Named Executive Officers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joshua R. Disbrow
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chief Executive Officer
2020
 $607,620 
 $185,000 
 $652,500 
 $140,330 
 
 
 
 
 
 
 
 
 
 $1,585,450 
since December 2012
2019
 $330,000 
 $135,000 
 $578,705 
 $ 
 $ 
 $ 
 $ 
 $1,043,705 
 
    
    
    
    
    
    
    
    
David A. Green (2)
 
    
    
    
    
    
    
    
    
Chief Financial Officer, Secretary
2020
 $400,046 
 $150,000 
 $362,500 
 $140,330 
 $ 
 $ 
 $ 
 $1,052,876 
and Treasurer, since December 2017
2019
 $250,000 
 $95,000 
 $340,988 
 $ 
 $ 
 $ 
 $ 
 $685,988 
 
(1)
Option awards are reported at fair value at the date of grant. See Item 15 of Part IV, “Notes to the Financial Statements — Note 9 — Fair Value Considerations.”
 
(2)
Mr. Green was appointed to Chief Financial Officer, Secretary and Treasurer effective December 18, 2017.
 
(3)
 Salaries for the year ended June 30, 2020 include accrued deferred payments of $222,203 to Mr. Joshua R. Disbrow and $130,463 to Mr. David A. Green that were paid in July 2020. 
 
Our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf. Executives are reimbursed for business expenses directly related to Aytu business activities, such as travel, primarily for business development as we grow and expand our product lines. On average, each executive incurs between $1,000 to $3,000 of out-of-pocket business expenses each month. The executive management team meets weekly and determines which activities they will work on based upon what we determine will be most beneficial to our company and our shareholders. No interest is paid on amounts reimbursed to the executives.
 
Outstanding Equity Awards at Fiscal Year-End 2020
 
The following table contains certain information concerning unexercised options for the Named Executive Officers as of June 30, 2020.
 
 
 
Option Awards
 
 
Stock Awards
 
Name
 
Number of Securities Underlying Unexercised Options Exercisable (#)
 
 
Number of Securities Underlying Unexercised Options Unexercisable (#)
 
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
 
 
Option Exercise Price ($)
 
 
Option Expiration Date
 
 
Number of Shares or Units of Stock That Have Not Vested (#)
 
 
Market Value of Shares or Units of Stock That Have Not Vested ($) (1)
 
 
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
 
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Named Executive Officers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joshua R. Disbrow
  125 
   
   
 $328.00 
 
11/11/2025
 
  - 
 $- 
   
 $- 
Chief Executive Officer
  150 
   
   
 $328.00 
 
7/7/2026
 
  - 
 $- 
   
 $- 
 
   
  100,000 
    
 $1.45 
 
6/8/2030
 
  - 
 $- 
    
    
 
   
   
   
   
   
  903,475 
 $1,282,935 
   
 $- 
David A. Green
   
  100,000 
   
 $1.45 
 
6/8/2030
 
  - 
 $- 
    
    
Chief Financial Officer
   
   
   
   
   
  516,250 
 $733,075 
   
 $- 
 
(1)
Based on $1.42 per share which was the closing price of our common stock on NASDAQ on June 28, 2020, the last trading day of that fiscal year.
 
 
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Employment Agreements 
 
We entered into an employment agreement with Joshua Disbrow in connection with his employment as our Chief Executive Officer. The agreement is for a term of 24 months beginning on April 16, 2015, subject to termination by us with or without Cause or as a result of officer’s disability, or by the officer with or without Good Reason (as defined below). Mr. Disbrow is entitled to receive $330,000 in annual salary, plus a discretionary performance bonus with a target of 125% of his base salary. Mr. Disbrow is also eligible to participate in the benefit plans maintained by us from time to time, subject to the terms and conditions of such plans. On April 15, 2019, we extended this agreement for another 24 months.  
 
We entered into an employment agreement with David A. Green, effective December 18, 2017, to serve as our Chief Financial Officer. The agreement is subject to termination by us with or without Cause (as defined below) or as a result of Mr. Green’s disability, or by Mr. Green with or without Good Reason (as defined below). Mr. Green is entitled to receive $250,000 in annual salary, plus a discretionary performance bonus with a target of 50% of his base salary, based on his individual achievements and company performance objectives established by the board or the compensation committee in consultation with Mr. Green. Mr. Green is also eligible to participate in the benefit plans maintained by us from time to time, subject to the terms and conditions of such plans. 
 
On July 1, 2020, we entered into employment agreements with Joshua Disbrow (the “CEO Amendment”) and David Green (the “CFO Amendment”) The material terms of the respective amendments are as follows.
 
CEO Amendment
 
Effective June 1, 2020, increase base salary to $500,000 and lower annual bonus % target from 100% to 60% of base salary
Effective January 1, 2021, increase base salary to $590,000
Granted 100,000 options on terms set forth in a separate option agreement
Granted 450,000 shares of restricted stock on the terms set forth in a separate restricted stock agreement.
 
CFO Amendment
 
Effective June 1, 2020, increase base salary to $375,000
Effective January 1, 2021, increase base salary to $400,000
Granted 100,000 options on terms set forth in a separate option agreement
Granted 250,000 shares of restricted stock on the terms set forth in a separate restricted stock agreement.
 
The CEO Amendment and the CFO Amendment are filed as exhibits to this Form 10-K. The foregoing description of the CEO Amendment and the CFO Amendment is qualified in its entirety by reference to the text of the CEO Amendment and the CFO Amendment as attached to this Form 10-K.
 
Payments Provided Upon Termination for Good Reason or Without Cause 
 
Pursuant to the employment agreements, in the event employment is terminated without Cause by us or the officer terminates his employment with Good Reason, we will be obligated to pay him any accrued compensation and a lump sum payment equal to two times his base salary in effect at the date of termination, as well as continued participation in the health and welfare plans for up to two years. All vested stock options shall remain exercisable from the date of termination until the expiration date of the applicable award. So long as a Change in Control is not in effect, then all options which are unvested at the date of termination Without Cause or for Good Reason shall be accelerated as of the date of termination such that the number of option shares equal to 1/24th the number of option shares multiplied by the number of full months of such officer’s employment shall be deemed vested and immediately exercisable by the officer. Any unvested options over and above the foregoing shall be cancelled and of no further force or effect and shall not be exercisable by such officer.
 
“Good Reason” means, without the officer’s written consent, there is:
 
a material reduction in the officer’s overall responsibilities or authority, or scope of duties (it being understood that the occurrence of a Change in Control shall not, by itself, necessarily constitute a reduction in the officer’s responsibilities or authority);
 
a material reduction of the level of the officer’s compensation (excluding any bonuses) (except where there is a general reduction applicable to the management team generally, provided, however, that in no case may the base salary be reduced below certain specified amounts); or
 
a material change in the principal geographic location at which the officer must perform his services.
 
 
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“Cause”, means:
 
conviction of, or entry of a plea of guilty to, or entry of a plea of nolo contendere with respect to, any crime, other than a traffic violation or a misdemeanor;
 
willful malfeasance or willful misconduct by the officer in connection with his employment;
 
gross negligence in performing any of his duties;
 
willful and deliberate violation of any of our policies;
 
unintended but material breach of any written policy applicable to all employees adopted by us which is not cured to the reasonable satisfaction of the board;
 
unauthorized use or disclosure of any proprietary information or trade secrets of us or any other party as to which the officer owes an obligation of nondisclosure as a result of the officer’s relationship with us;
 
willful and deliberate breach of his obligations under the employment agreement; or
 
any other material breach by officer of any of his obligations which is not cured to the reasonable satisfaction of the board.
 
Payments Provided Upon a Change in Control 
 
In the event of a Change in Control of us, all stock options, restricted stock and other stock-based grants granted or may be granted in the future by us to the officers will immediately vest and become exercisable.
 
“Change in Control” means: the occurrence of any of the following events:
 
the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the “Acquiring Person”), other than us, or any of our Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 50% or more of the combined voting power or economic interests of the then outstanding voting securities of us entitled to vote generally in the election of directors (excluding any issuance of securities by us in a transaction or series of transactions made principally for bona fide equity financing purposes); or
 
the acquisition of us by another entity by means of any transaction or series of related transactions to which we are party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any issuance of securities by us in a transaction or series of transactions made principally for bona fide equity financing purposes) other than a transaction or series of related transactions in which the holders of the voting securities of us outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, as a result of shares in us held by such holders prior to such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of us or such other surviving or resulting entity (or if we or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent); or
 
the sale or other disposition of all or substantially all of the assets of us in one transaction or series of related transactions.
 
 
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Our only obligation to Joshua Disbrow and David Green, had a Change in Control occurred as of June 30, 2020, would be the acceleration of the vesting of all equity securities held by them at that date. On June 30, 2020, the closing price of our common stock was below the exercise price for all of the options held by Joshua Disbrow and therefore there would have been no economic benefit to them upon the acceleration of vesting of those options. RSU acceleration is now a part of our contracts.
 
Item 12. 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The following table sets forth information with respect to the beneficial ownership of our common stock as of September 15, 2020 for:
 
each beneficial owner of more than 10% of our outstanding common stock;
 
each of our director and named executive officers; and
 
all of our directors and executive officers as a group.
 
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include common stock that can be acquired within 60 days of September 15, 2020. The percentage ownership information shown in the table is based upon 125,837,357 shares of common stock outstanding as of September 15, 2020.
 
Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
 
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are immediately exercisable or exercisable within 60 days of August 31, 2020. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The information in the tables below are based on information known to us or ascertained by us from public filings made by the stockholders. Except as otherwise indicated in the table below, addresses of the director, executive officers and named beneficial owners are in care of Aytu BioScience, Inc., 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112.
  
 
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Number of Shares Beneficially Owned
 
 
Percentage of Shares Beneficially Owned
 
5% Stockholders
 
 
 
 
 
 
 
 
 
None
   
  - 
  0.00%
 
    
    
    
Directors and Named Officers
    
    
    
Disbrow, Joshua
  (1)
  997,830 
  * 
Green, David
  (2)
  524,580 
  * 
Macaluso, Michael
  (3)
  202,843 
  * 
Cantrell, Gary
  (4)
  162,878 
  * 
Dockery, Carl
  (5)
  154,795 
  * 
Donofrio, John
  (6)
  152,701 
  * 
Ketan Mehta
  (7)
  75,000 
  * 
All directors and executive officers as a group (either persons)
    
  2,522,883 
  2.00%
* Represents beneficial ownership of less than 1%.
 
(1)
Consists of (i) 71,573 shares, (ii) 903,475 restricted shares, (iii) 275 vested options to purchase shares of stock, and (iv) 22,557 shares issuable upon the exercise of warrants. Does not include 116 shares held by an irrevocable trust for estate planning in which Mr. Disbrow is a beneficiary. Mr. Disbrow does not have or share investment control over the shares held by the trust, Mr. Disbrow is not the trustee of the trust (nor is any member of Mr. Disbrow’s immediate family) and Mr. Disbrow does not have or share the power to revoke the trust. As such, under Rule 16a-8(b) and related rules, Mr. Disbrow does not have beneficial ownership over the shares purchased and held by the trust.
(2)
Consists of (i) 5,000 shares, (ii) 516,250 restricted shares, and (iii) 3,330 shares issuable upon the exercise of warrants.
(3)
Consists of (i) 75 shares, (ii) 202,663 restricted shares, and (iii) vested options to purchase 105 shares of common stock.
(4)
Consists of (i) 162,663 restricted shares, (ii) 177 shares, and (iii) vested options to purchase 38 shares of common stock.
(5)
Consists of (i) 152,663 restricted shares, (ii) vested options to purchase 38 shares of common stock, and (iii) 2,094 shares held by Alpha Venture Capital Partners, L.P Mr. Dockery is the President of the general partner of Alpha Venture Capital Partners, L.P. and therefore may be deemed to beneficially own the shares beneficially owned by Alpha Venture Capital Partners, L.P.
(6)
Consists of (i) 152,663 restricted shares, and (ii) vested options to purchase 38 shares of common stock.
(7)
Consists of 75,000 shares of restricted stock.
 
Item 13. 
Certain Relationships, Related Transactions, and Director Independence
 
Related Party Transactions 
 
We describe below all transactions and series of similar transactions, other than compensation arrangements, during the last two fiscal years, to which we were a party or will be a party, in which:
 
the amounts involved exceeded or will exceed $120,000; and
 
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.