UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549










FORM 10-K/A

(Amendment
No. 1)








(Mark One)

| | x | ANNUAL
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -----------------------------------------------------------------------------------------------------------------------------

For
the fiscal year ended June 30, 2017



| |  ̈ | 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  x



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  x



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  x    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  x    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   |  ̈(Do
    not check if a smaller reporting company) | Smaller reporting company | x
|                        |                                                    | 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  x



The aggregate
market value of common stock held by non-affiliates of the Registrant as of December 31, 2016 was $10.5 million based on
the closing price of $24.00 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 August
15, 2017, there are 4,021,822 shares of common stock outstanding and 2,250 shares of Series A preferred stock outstanding.


















EXPLANATORY NOTE



This Amendment No.
1 to Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended June 30, 2017 of
Aytu BioScience, Inc., as originally filed with the Securities and Exchange Commission (“SEC”) on August 31, 2017 (the
“Original Form 10-K”).We are filing this Amendment to correct certain disclosure in Item 12 Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.



Pursuant to Rule 12b-15
under the Securities Exchange Act of 1934, as amended, this Amendment contains current dated certifications from the Principal
Executive Officer and the Principal Financial Officer.



Except as described
above, no other changes have been made to the Original Form 10-K. This Amendment does not otherwise update information in the Original
Form 10-K to reflect facts or events occurring subsequent to the filing date of the Original Form 10-K. This Amendment should be
read in conjunction with the Original Form 10-K and with any of our filings made with the SEC subsequent to filing of the Original
Form 10-K.















TABLE OF CONTENTS



|             |                                                                                                                  | PAGE
|------------ | ---------------------------------------------------------------------------------------------------------------- | ----
|             | PART
    I                                                                                                       |     
|             |                                                                                                                  |     
|Item 1       | BUSINESS                                                                                                         | 4   
|Item 1A      | RISK FACTORS                                                                                                     | 39  
|Item 1B      | UNRESOLVED STAFF COMMENTS                                                                                        | 64  
|Item 2       | PROPERTIES                                                                                                       | 65  
|Item 3       | LEGAL PROCEEDINGS                                                                                                | 65  
|Item 4       | MINE SAFETY DISCLOSURES                                                                                          | 65  
|             |                                                                                                                  |     
|             | PART
    II                                                                                                      |     
|             |                                                                                                                  |     
|Item 5       | MARKET
    FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 66  
|Item 6       | SELECTED FINANCIAL
    DATA                                                                                      | 67  
|Item 7       | MANAGEMENT’S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 68  
|Item 7A      | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                                   | 74  
|Item 8       | FINANCIAL STATEMENTS
    AND SUPPLEMENTARY DATA                                                                  | 74  
|Item 9       | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         | 74  
|Item 9A      | CONTROLS AND PROCEDURES                                                                                          | 74  
|Item 9B      | OTHER INFORMATION                                                                                                | 75  
|             |                                                                                                                  |     
|             | PART
    III                                                                                                     |     
|             |                                                                                                                  |     
|Item 10      | DIRECTORS, EXECUTIVE
    OFFICERS, AND CORPORATE GOVERNANCE                                                      | 75  
|Item 11      | EXECUTIVE COMPENSATION                                                                                           | 78  
|Item 12      | SECURITY OWNERSHIP
    OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               | 82  
|Item 13      | CERTAIN RELATIONSHIPS
    AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    | 84  
|Item 14      | PRINCIPAL ACCOUNTANT
    FEES AND SERVICES                                                                       | 85  
|             |                                                                                                                  |     
|             | PART
    IV                                                                                                      |     
|             |                                                                                                                  |     
|Item 15      | EXHIBITS AND FINANCIAL
    STATEMENT SCHEDULES                                                                   | 85  
|             |                                                                                                                  |     
|SIGNATURES   | 88                                                                                                              
|Exhibit 23.1 |                                                                                                                  |     
|Exhibit 31.1 |                                                                                                                  |     
|Exhibit 31.2 |                                                                                                                  |     
|Exhibit 32.1 |                                                                                                                  |     



This Annual
Report on Form 10-K refers to trademarks, such as Aytu, Natesto, ProstaScint, Primsol, MiOXSYS, RedoxSYS, and Fiera 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 TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest
extent under applicable law, our rights to these trademarks and tradenames.



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.



2







SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA



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.



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.

3







AYTU BIOSCIENCE,
INC.



PART I



Item 1.
Business



Overview



We are a commercial-stage specialty
healthcare company focused on acquiring, developing and commercializing novel products in the field of urology. We have multiple
urology-focused products on the market, and we seek to build a portfolio of novel therapeutics that serve large medical needs
in the field of urology. We are concentrating on hypogonadism, prostate cancer, male infertility and, recently, female sexual
wellbeing and intimacy and plan to expand into other urological indications for which we believe there are significant medical
needs.



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, and we launched Natesto in the United States with our direct sales force in late summer 2016. 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 $2.0 billion market. 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 all other topically applied TRTs,
including the market leader AndroGel®.



Outside the U.S. we market MiOXSYS®,
a novel in vitro diagnostic device that is currently CE marked (which generally enables it to be sold within the European Economic
Area) and for which we intend to initiate a final clinical study to enable FDA clearance in the U.S.  Our MiOXSYS system
is a novel, point-of-care semen analysis system with the potential to become a standard of care in the diagnosis and management
of male infertility. Male infertility is a prevalent and underserved condition and oxidative stress is widely implicated in its
pathophysiology. MiOXSYS was developed from our core oxidation-reduction potential research platform known as RedoxSYS®.
We are advancing MiOXSYS toward FDA clearance.



We currently market ProstaScint®(capromab pendetide), the only radioimaging agent indicated to detect the prostate specific membrane antigen, or PSMA, in
the assessment and staging of prostate cancer. ProstaScint is approved by the FDA for use in both newly diagnosed, high-risk prostate
cancer patients and patients with recurrent prostate cancer.



On May 5, 2017, we acquired Nuelle,
Inc, or Nuelle, a women’s sexual health company. This transaction expanded our product portfolio with the addition of the
Fiera® personal care device for women. Fiera was recently launched in the U.S. and is a proprietary, revenue-generating
product scientifically proven to enhance physical arousal and sexual desire in the millions of adult women around the world impacted
by changes in sexual desire. This acquisition adds a novel, commercial-stage product in a complementary adjacency readily accessible
by our U.S.-based commercial infrastructure. Nuelle was previously a portfolio company of leading venture capital firm New Enterprise
Associates.



In the future we will look to
acquire additional urology products, including existing products we believe can offer distinct commercial advantages. Our management
team’s prior experience has involved identifying clinical assets that can be re-launched to increase value, with a focused
commercial infrastructure specializing in urology.



Natesto® (testosterone)
nasal gel.



On April 22, 2016, we entered
into an agreement to acquire the exclusive U.S. rights to Natesto (testosterone) nasal gel from Acerus Pharmaceuticals Corporation,
or Acerus, which rights we acquired on July 1, 2016. Natesto is a patented, FDA-approved testosterone replacement therapy, or
TRT, and is the only nasally-administered formulation of testosterone available in the United States. Natesto is a discreet, easy-to-administer
nasal gel that may be appropriate for men with active lifestyles as Natesto is small, portable, Transportation Security Administration,
or TSA-compliant, and easy to use. Importantly, Natesto is not applied directly to the patient’s skin as other topically
applied TRTs are. Rather, it is delivered directly into the nasal mucosa via a proprietary nasal applicator. Thus, Natesto does
not carry a black box warning related to testosterone transference to a man’s female partner or children — as other
topically (primarily gels and solutions) administered TRTs do by virtue of their delivery directly onto the skin. We launched
Natesto in the U.S. in late summer 2016 with our direct sales force, and we are positioning Natesto as the ideal treatment solution
for men with active, busy lifestyles who suffer from hypogonadism.



4







MiOXSYS®.



MiOXSYS is a rapid in vitrodiagnostic semen analysis test used in the quantitative measurement of static oxidation-reduction potential, or sORP, in human
semen. MiOXSYS is a CE marked system and is an accurate, easy to use, and fast infertility assessment tool. It is estimated that
72.4 million couples worldwide experience infertility problems. In the United States, approximately 10% of couples are defined
as infertile. Male infertility is responsible for between 40 – 50% of all infertility cases and affects approximately 7%
of all men. Male infertility is often unexplained (idiopathic), and this idiopathic infertility is frequently associated with
increased levels of oxidative stress in the semen. As such, having a rapid, easy-to-use diagnostic platform to measure oxidative
stress should provide a practical way for male infertility specialists to improve semen analysis and infertility assessments without
having to refer patients to outside clinical laboratories.



Male infertility is prevalent
and underserved, and oxidative stress is widely implicated in its pathophysiology. The global male infertility market is expected
to grow to over $300 million by 2020 with a CAGR of nearly 5% from 2014 to 2020. Oxidative stress is broadly implicated in the
pathophysiology of idiopathic male infertility, yet very few diagnostic tools exist to effectively measure oxidative stress levels
in men. However, antioxidants are widely available and recommended to infertile men. With the introduction of the MiOXSYS System,
we believe for the first time there will be an easy and effective diagnostic tool to assess the degree of oxidative stress and
potentially enable the monitoring of patients’ responses to antioxidant therapy as a treatment regimen for infertility.
The MiOXSYS System received CE marking in Europe in January 2016 and obtained Health Canada Class II Medical Device approval in
March 2016. We expect to advance MiOXSYS into clinical trials in the United States in order to enable 510k clearance.



ProstaScint® (capromab
pendetide).



We became a commercial stage company
by virtue of our acquisition of ProstaScint in May 2015 and are generating sales of this FDA-approved prostate cancer imaging
agent. As prostate cancer is a condition commonly diagnosed and treated by urologists, ProstaScint complements our urology-focused
product portfolio and pipeline. Prostate cancer is the most common cancer among men in the United States, with an estimated 241,000
annual cases (as of 2012). Further, more than 2.2 million men were alive in 2006 with some history of prostate cancer, and over
30,000 U.S. men die each year from the disease. The effect of prostate cancer on healthcare economics is substantial, which makes
the need for accurate disease staging critical for treatment and management strategies. The U.S. market for the diagnosis and
screening of prostate cancer is expected to total $17.4 billion by 2017, a compound annual growth rate, or CAGR, of 7.5% since
2012. At June 30, 2017, the ProstaScint asset was impaired based upon sales projections that we intend to only sell this product
through mid-fiscal 2019, when this product expires.



Fiera®Personal Care Device



The Fiera Personal Care Device
is the first hands-free wearable product for women, specifically designed to increase interest in, and physical readiness for
sex, naturally. The product does so by creating a physically aroused state via the genitals. Co-created with healthcare professionals,
Fiera is a small, discreet, fast-acting, and hands-free product that is designed to be used in advance of physical intimacy to
help women feel ready and in the mood for sex. Fiera uses gentle suction coupled with stimulation to enhance blood flow to the
genitals, increase lubrication, and ultimately get a woman ready for partnered intimacy in as little as 5 minutes.



With the
acquisition of Nuelle, Inc., Aytu is expanding into the women’s sexual health and wellness market. Sexual wellness is inclusive
of female sexual dysfunction which is a term that describes various sexual problems, such as low desire or interest, diminished
arousal, orgasmic difficulties, and dyspareunia. Female sexual dysfunction is considered common, with an estimated prevalence
of 43% from the U.S. National Health and Social Life Survey and similar estimates from other large, population-based surveys in
the United Statesand the United Kingdom. In a study of over 31,000 women in the United States it was determined that
44% of women report a sexual problem. Specifically, the most common sexual problem is low desire, with a prevalence of 39%; followed
by low arousal (26%) and orgasm difficulties (21%). Additionally, the incidence of sexual dysfunction is expected to increase
through 2020 to effect more than 124 million women worldwide.



Fiera has
been well studied and tested by health care professionals, and consumers and is scientifically proven to enhance arousal and interest
in women of all ages, including pre and post-menopausal women. Recent consumer study results in women ages 25 – 75 showed
that after 4 weeks of using Fiera:





| | · | 97%
                                         of women felt physically aroused;
| | - | ------------------------------------------------------------------------------

| | · | 96%
                                         looked forward to being intimate with their partner;
| | - | -------------------------------------------------------------------------------------------------

| | · | 93%
                                         felt excited and ready for sex;
| | - | ----------------------------------------------------------------------------

| | · | 89%
                                         of women felt more “in the mood”;
| | - | ------------------------------------------------------------------------------



| | · | 87%
                                         felt as ready for sex as their partner did;
| | - | ----------------------------------------------------------------------------------------

| | · | 86%
                                         of women felt a stronger emotional connection with their partner;
| | - | --------------------------------------------------------------------------------------------------------------

| | · | 85%
                                         reported their orgasm felt pleasurable and intense;
| | - | ------------------------------------------------------------------------------------------------

| | · | 85%
                                         thought about sex more often; and
| | - | ------------------------------------------------------------------------------

| | · | 85%
                                         engaged in sexual activity more often and felt satisfied in her relationship.
| | - | --------------------------------------------------------------------------------------------------------------------------



5







Previous studies also showed that
87% of women felt increased desire and 67% felt increased lubrication.



Key elements of our business
strategy include:



| | · | Expand
                                         the commercialization of Natesto in the U.S. for the treatment of hypogonadism with our
                                         direct sales force. We launched Natesto in late summer 2016 and are targeting high prescribing
                                         TRT prescribers with a primary emphasis on urologists and male health practitioners.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Expand
                                         the commercialization in the U.S. of Fiera, through professional promotion using our
                                         existing sales force.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Establish
                                         MiOXSYS as a leading in vitro diagnostic device in the assessment of male infertility.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | · | Continue
                                         the commercialization of FDA-approved ProstaScint for the staging of both newly diagnosed
                                         high-risk and recurrent prostate cancer patients.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Acquire
                                         additional marketed products and late-stage development assets within our core urology
                                         focus that can be efficiently marketed through our growing commercial organization.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Develop
                                         a pipeline of urology products, with a focus on identifying novel products with sufficient
                                         clinical proof of concept that require modest internal R&D expense.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We plan to augment our core in-development
and commercial assets through efficient identification of complementary therapeutics, devices, and diagnostics related to urological
disorders. We intend to seek assets that are near commercial stage or already generating revenues. Further, we intend to seek
to acquire products through asset purchases, licensing, co-development, or collaborative commercial arrangements (co-promotions,
co-marketing, etc.).



Our management team has extensive
experience across a wide range of business development activities and have in-licensed or acquired products from large, mid-sized,
and small enterprises in the United States and abroad. Through an assertive product and business development approach, we expect
that we will build a substantial portfolio of complementary urology products.



Corporate History



We were 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
carve out 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,
and 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, and we now solely pursue the specialty healthcare market, focusing on urological
related conditions, 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., and (ii)
effected a reverse stock split in which each common stock holder received one share of common stock for each 12.174 shares outstanding.
At our annual meeting of shareholders held on May 24, 2016, our shareholders approved (1) an amendment to our Certificate of Incorporation
to reduce the number of authorized shares of common stock from 300.0 million to 100.0 million, which amendment was effective on
June 1, 2016, and (2) an amendment to our Certificate of Incorporation to affect a reverse stock split at a ratio of 1-for-12 which
became effective on June 30, 2016. At our special meeting of shareholders held on July 26, 2017, our shareholders approved an amendment
to our Certificate of Incorporation to affect a reverse stock split at a ratio of 1-for-20 which became effective on August 25,
2017. All share and per share amounts in this report have been adjusted to reflect the effect of these three reverse stock splits
(hereafter referred to collectively as the “Reverse Stock Splits”).





6







Our Strategy



We expect to create value by implementing
a focused, three-pronged strategy. Our primary focus is on expanding Natesto in the U.S, growing our current, revenue-generating
products, and building a complementary portfolio of aligned urology assets. In just over two years since our merger we have acquired
or in-licensed three FDA-approved, marketed assets (and have since divested one asset – Primsol® Solution), launched
a specialty urology sales force, advanced our lead diagnostic asset MiOXSYS to CE marking, engaged in asset purchase and licensing
discussions for products aligned to our strategy, launched Natesto in the U.S. through our own sales force and acquired Nuelle
Inc., a wholly owned subsidiary focused on the Fiera product.



We believe the strategy of focusing
on commercializing assets prescribed by urologists is logical for several reasons. First, urology is a large yet concentrated
specialty practice area that can be efficiently targeted. There are approximately 10,000 active urologists in the U.S., and we
believe that this audience can be efficiently reached with a relatively small, focused sales force. Additionally, 90% of urologists
practice in metropolitan areas where concentrated sales targeting can be achieved and “windshield” or sales representative
driving time between targets can be minimized. Importantly, 81% of urologists practice in group practices, and over 60% are in
practices of four or more physicians. Further, and important in building a balanced yet focused product portfolio, sub-specialization
within large urology clinics is common whereby there is frequently individual clinical focus on specific areas within urology
including prostate cancer and conditions, infertility, sexual wellness and vitality, urinary incontinence, hypogonadism, etc.
This enables a company to offer multiple products to the various sub-specialties within these focused, concentrated customer targets.



Further, urologists treat a wide
range of conditions and are thus appropriate targets across a broad range of clinical assets (Natesto – hypogonadism; ProstaScint
– prostate cancer; MiOXSYS – male infertility; Fiera – female sexual wellness). Importantly, in urology, direct
physician office purchasing of drugs, devices, and diagnostics is common. Along with this, a significant proportion of urology
groups are privately-owned and often own and operate their own outpatient surgery centers and in-office laboratories. Further,
large urology group practices have substantial payer influence and can have the ability to negotiate as large groups to achieve
better reimbursement and coverage for favored treatments and procedures. Perhaps as important as these other factors, urologists
are exposed to relatively limited promotional focus by “Big Pharma” and we believe can therefore be accessed and impacted
more readily by an emerging company, such as Aytu, over time.



Aytu BioScience’s Strategic
Value Drivers







The primary elements of our strategy
are:





| | • | Expanding the commercialization of
    Natesto , our revenue-generating, FDA-approved product in the United States via our direct commercial infrastructure. Launching
    Fiera in the United States via our direct sales force, and commercializing Fiera and MiOXSYS outside the United States via
    a developing distribution network.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Natesto is a novel, recently FDA-approved
testosterone replacement therapy, or TRT, indicated for the treatment of hypogonadism in men. Natesto is the only nasal formulation
of testosterone and is delivered via a proprietary nasal gel to enable simple, discreet application of testosterone into the nostrils.
By virtue of applying Natesto to the nasal mucosa, and not to the man’s skin, there is no risk of transference to others.
As such Natesto is the only TRT that does not have a black box warning associated with this potential for transference. Additionally,
Natesto is a convenient form of testosterone that does not require application to large areas of the man’s body (arms, shoulders,
upper torso, under arms) as required with market-leading products AndroGel and Axiron. A convenient form of TRT, applied two-to-three
times a day in the nostrils, may be an appropriate option for men with hypogonadism who have active lifestyles, travel frequently,
and value having a discreet way to treat their hypogonadism.



7







Low testosterone is a condition
affecting approximately 13 million U.S. men, with U.S. revenues estimated at $2.4 billion in 2013. The market is expected to grow
and we believe multiple factors are in place to position Natesto favorably in gaining market share in this large, growing market.
By gaining less than a 5% share of the current U.S. market (assuming similar pricing and reimbursement), a novel TRT product could
achieve annual revenues in excess of $100.0 million.



ProstaScint is the only imaging agent that specifically targets
prostate cancer cells and demonstrates high sensitivity, specificity, and accuracy. In multiple clinical studies researchers have
shown that when SPECT/CT scans were used in patients pre-treated with ProstaScint, ProstaScint imaging was highly sensitive in
detecting prostate cancer and significantly predictive of 10-year biochemical disease-free survival in prostate cancer patients
(86.6% vs. 65.5%; p=0.0014). Additionally, the American Cancer Society specifically recognizes ProstaScint by name in current
prostate cancer diagnosis guidelines. At June 30, 2017, the ProstaScint asset was impaired based upon sales projections that we
intend to only sell this product through mid-fiscal 2019, when this product expires.





Prostate cancer is the second
most common cancer among men in the United States, with an estimated 241,000 annual cases (as of 2012). Further, more than 2.2
million men were alive in 2006 with some history of prostate cancer, and over 30,000 U.S. men die each year from the disease.
The effect of prostate cancer on healthcare economics is substantial, which makes the need for accurate disease staging critical
for treatment and management strategies. The U.S. market for the diagnosis and screening of prostate cancer is expected to total
$17.4 billion in 2017, a CAGR of 7.5% since 2012.



The Fiera Personal Care Device
is the first hands-free wearable product for women, specifically designed to increase interest in, and physical readiness for
sex, naturally. Sexual wellness is inclusive of female sexual dysfunction which is a term that describes various sexual problems,
such as low desire or interest, diminished arousal, orgasmic difficulties, and dyspareunia. Female sexual dysfunction is considered
common, with an estimated prevalence of 43% from the U.S. National Health and Social Life Survey and similar estimates from other
large, population-based surveys in the United Statesand the United Kingdom. In a study of over 31,000 women in the
United States it was determined that 44% of women report a sexual problem. Specifically, the most common sexual problem is low
desire, with a prevalence of 39%; followed by low arousal (26%) and orgasm difficulties (21%). Additionally, the incidence of
sexual dysfunction is expected to increase through 2020 to effect more than 124 million women worldwide.



United States. We have
launched a commercial infrastructure in the U.S. in order to support increased sales and distribution of Natesto, ProstaScint
and Fiera in the U.S. We have a highly experienced sales force that is distinctly focused on impacting the prescribing of urologists,
and through this efficient sales channel we are able to increase prescribing of our unique urology assets.



Ex-U.S. Fiera has not been
previously marketed outside the U.S., therefore we believe we can realize commercial opportunities through efficient corporate
partnerships in key markets around the world. With MiOXSYS now CE Marked we have started developing a distribution network to
launch this first-in-class in vitro diagnostic device.



| | • | Developing a pipeline of novel urological
    therapeutics through assertive acquisition, licensing, or co-promotion, inclusive of both marketed and late-stage development
    assets.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In order to diversify our product
portfolio and create more value, we intend to seek to acquire complementary products or product candidates to develop and/or commercialize,
including marketed assets. Initially, the focus will be on acquiring products or product candidates for urological conditions
but we will opportunistically consider other products or product candidates based on their ability to create value and complement
our focus. We plan to pursue product acquisitions, inclusive of therapeutics, diagnostics, and devices, which we will evaluate
for their strategic fit and potential for near-term and/or accretive value to us. In a little over two years from the Company’s
merger in April 2015 we began generating revenue from the acquisition of ProstaScint (which we have since divested), and we later
launched Natesto in July 2016 and Fiera in May 2017. We expect to continue to identify and acquire additional, complementary urology
assets in the future.



| | • | Completing U.S. studies in male infertility
    with the MiOXSYS System to enable 510k clearance by FDA.
| | - | --------------------------------------------------------------------------------------------------------



With MiOXSYS now CE marked and
available for sale in many markets outside the U.S., we are positioned to initiate our clinical studies in the U.S. to enable
510k clearance. We expect to receive guidance from FDA on clinical study design and patient criteria and implement the required
clinical program as soon as possible. If cleared in the U.S., MiOXSYS would be the first and only semen analysis diagnostic test
cleared by the FDA for the detection of oxidative stress in infertility.



8







Male infertility is prevalent
and underserved, and oxidative stress is widely implicated in its pathophysiology. As such, we have bolstered our research focus
in this area with the MiOXSYS System to complement our focus on urologic conditions. The ex-US global male infertility market
is estimated at over $800 million in diagnostics, therapeutics, and procedure costs. Oxidative stress is broadly implicated in
the pathophysiology of idiopathic male infertility, yet very few diagnostic tools exist to effectively measure oxidative stress
levels in men. However, antioxidants are widely available and recommended to infertile men. With the introduction of the MiOXSYS
System, we believe for the first time there will be an easy and effective diagnostic tool to assess degree of oxidative stress
and monitor patients’ responses to antioxidant therapy and improve diagnosis of male infertility.



Through our extensive network
of researchers developed at one of our predecessor companies Luoxis, the RedoxSYS System has demonstrated the potential to have
broad clinical applications inclusive of male infertility in semen analysis studies. Studies have been completed at the Cleveland
Clinic, a major U.S. university and Hamad Medical Corporation, major hospital in Doha, Qatar in the evaluation of male infertility.
As such, we developed the MiOXSYS System as a line extension to RedoxSYS to specifically assess oxidative stress in semen as a
tool to assess male infertility. In January 2016, the MiOXSYS System received CE Marking and is now available for sale in multiple
ex-U.S. markets including Europe, the Middle East, and parts of Asia. In March 2016, the MiOXSYS System obtained Health Canada
Class II Medical Device approval. With Health Canada approval in place, the Company has begun initial marketing of the product
in Canada.



Our FDA – Approved Urology
Products



Two of our products have received
FDA approval for marketing in the U.S.: Natesto and ProstaScint.



Natesto for Testosterone
Replacement



On April 22, 2016, we entered
into and closed a license and supply agreement to acquire the exclusive U.S. rights to Natesto® (testosterone)
nasal gel from Acerus Pharmaceuticals Corporation, or Acerus, which rights we acquired effective on July 1, 2016. Natesto is a
patented, FDA-approved testosterone replacement therapy, or TRT, and is the only nasally-administered formulation of testosterone
available in the United States. Natesto is a discreet, easy-to-administer nasal gel that may be appropriate for men with active
lifestyles as Natesto is small, portable, TSA-compliant, and easy to use.



Importantly, Natesto is not applied
directly to the patient’s skin as other topically applied TRTs are. Rather, it is delivered directly into the nasal mucosa
via a patented nasal applicator. Thus, Natesto does not carry a black box warning related to testosterone transference to a man’s
female partner or children — as other topically (primarily gels) administered TRTs do by virtue of their delivery directly
onto the skin.







Image of Natesto (testosterone)
nasal gel



The unique delivery of Natesto
also enables simple, discreet use by a single application into each nostril two to three times daily and may improve compliance
over topical forms that are applied to large sections of the arms, shoulders, and other large areas of the man’s upper torso.
It also offers a more discreet method of TRT administration compared to films/patches (Androderm & Testoderm, which is applied
to the scrotum) and doesn’t involve the pain, potential for site injection infections, and the administration inconvenience
of the implantable and/or injectable TRTs such as Testopel and Aveed.



A concern associated with the
use of the currently marketed testosterone gels is the unintentional transfer of testosterone to women (or children) by skin contact
with the man’s application site. In the event of a female partner receiving inadvertent testosterone exposure due to intimate
contact with her male partner, she may develop hyperandrogenism, a condition characterized by excess levels of androgens. This
condition may result in women developing acne, scalp hair loss, excessive facial or body hair, breast atrophy, and other symptoms.
Natesto, as it is nasally administered, does not present this potential complication of ‘transference’ and thus does
not have a black box warning as is associated with the topically applied testosterone supplements.



9







Natesto is an androgen indicated
for replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone including:



| | • | Primary hypogonadism (congenital or
    acquired): testicular failure due to conditions such as cryptorchidism, bilateral torsion, orchitis, vanishing testis syndrome,
    orchiectomy, Klinefelter’s syndrome, chemotherapy, or toxic damage from alcohol or heavy metals. These men usually have
    low serum testosterone concentrations and gonadotropins (follicle-stimulating hormone [FSH] and luteinizing hormone [LH])
    above the normal range.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Hypogonadotropic hypogonadism (congenital or acquired):
    gonadotropin or luteinizing hormone-releasing hormone (LHRH) deficiency or pituitary-hypothalamic injury from tumors, trauma,
    or radiation. These men have low serum testosterone concentrations but have gonadotropins in the normal or low range.                                                                                                                                          



The U.S. Testosterone Replacement
Therapy (TRT) Market



We believe we have an opportunity
to increase revenue with Natesto in the U.S. Natesto competes in a large, growing market. The U.S. TRT market is large, with annual
revenues in the U.S. in 2013 of $2.4 billion. At the current market size of over $2.0 billion, a product with 5% market penetration
could achieve sales in excess of $100 million annually, assuming comparatively similar product pricing and reimbursement levels
as seen with other TRTs.



The U.S. prescription testosterone
market is comprised primarily of topically applied treatments in the form of gels, solutions, and patches. Testopel® and Aveed®,
injectable products typically implanted directly under the skin by a physician, are also FDA-approved.



The actively marketed, FDA-approved
TRTs include:



|Brand Name |  | Form
    of Delivery    |  | Company              |  | Year
    Approved |  | Black
    Box Warning
|---------- |  | ----------------------- |  | -------------------- |  | ----------------- |  | ---------------------
|Androderm® |  | Film/Patch              |  | Actavis              |  | 1995              |  | No                   
|AndroGel®  |  | Gel                     |  | AbbVie               |  | 2000              |  | Yes                  
|Aveed®     |  | Injection               |  | Endo Pharmaceuticals |  | 2014              |  | No                   
|Axiron®    |  | Solution                |  | Eli Lilly & Company  |  | 2010              |  | Yes                  
|Fortesta®  |  | Gel                     |  | Endo Pharmaceuticals |  | 2010              |  | Yes                  
|Striant®   |  | Extended Release Tablet |  | Endo Pharmaceuticals |  | 2003              |  | No                   
|Testim®    |  | Gel                     |  | Endo Pharmaceuticals |  | 2002              |  | Yes                  
|Testoderm® |  | Film/Patch              |  | Johnson & Johnson    |  | 1993              |  | No                   
|Testopel®  |  | Injection               |  | Endo Pharmaceuticals |  | 1972              |  | No                   
|Vogelxo®   |  | Gel                     |  | Upsher-Smith         |  | 2014              |  | Yes                  



AndroGel®, marketed by AbbVie,
is the leading TRT and had 2012 revenues of $1.15 billion. AndroGel had over half of the total TRT market across its 1.0% and
1.62% formulations of the product.



Importantly, however, AndroGel
is now facing generic threats with the expiration of key patents for its 1.0% formulation, and is beginning to see generic equivalents
to its 1.62% formulation be introduced. Other products with significant shares of the TRT market include Axiron, Testim, Fortesta,
Androderm, and Testopel.



10







About Hypogonadism



Male hypogonadism is a condition
in which the body does not produce enough testosterone — the hormone that plays a key role in masculine growth and development
during puberty — or has an impaired ability to produce sperm or both. Men can be born with male hypogonadism, or it can
develop later in life from injury or infection.



Hypogonadism is formally defined
as deficient or absent male gonadal function that results in insufficient testosterone secretion. Hypogonadism may be caused primarily
by testicular failure, or secondarily by hypothalamic-pituitary axis dysfunction, resulting in the production or release of insufficient
testosterone to maintain testosterone-dependent functions and systems. It can also result from a combination of testicular failure
and hypothalamic-pituitary axis dysfunction.



Hypogonadism affects an estimated
13 million men in the United States, and although it may occur in men at any age, low testosterone levels are especially common
in older males. More than 60% of men over age 65 have free testosterone levels below the normal values of men aged 30 to 35. Studies
suggest that hypogonadism in adult men is often underdiagnosed and under treated.



Low testosterone, as male hypogonadism
is also known, is associated with a number of signs and symptoms, most notably loss of libido and erectile dysfunction (ED). Other
signs of low testosterone include depressive symptoms, a decrease in cognitive abilities, irritability and lethargy or loss of
energy. Deficient endogenous testosterone also has negative effects on bone mass and is a significant risk factor for osteoporosis
in men. Progressive decrease in muscle mass and muscle strength and testicular dysfunction, often resulting in impaired sperm
production, are also associated with low testosterone levels.



A younger patient may have pure
hypogonadism as a primary event, whereas an older man may have an age-related decline in testosterone production that is a part
of his ED profile. However, because both ED and loss of libido are hallmarks of hypogonadism, for a patient who presents with
ED it is recommended that he have a basic hormone profile to determine if he has low testosterone. Treatments to normalize testosterone
can not only improve libido, energy level and the potential to have normal erections, but can also improve the response to sildenafil,
if that is deemed appropriate treatment.



Natesto Clinical Studies
Demonstrating Safety and Efficacy



Natesto has been shown to be safe
and effective in men with hypogonadism. It was approved by the FDA in May 2014.



In its pivotal clinical trial,
Natesto was evaluated for efficacy in a 90-day, open-label, multicenter study of 306 hypogonadal men. Eligible patients were 18
years of age and older (mean age 54 years) and had morning serum total testosterone concentrations less than 300 ng/dL. Patients
were Caucasian (89%), African-American (6%), Asian (5%), or of other ethnicities (less than 1%).



Patients were instructed to self-administer
Natesto (11 mg of testosterone) intranasally either two or three times daily.



The primary endpoint was the percentage
of patients with an average serum total testosterone concentration (Cavg) within the normal range (300 to 1050 ng/dL)
on Day 90.



The secondary endpoint was the
percentage of patients with a maximum total testosterone concentration (Cmax) above three predetermined limits: greater
than 1500 ng/dL, between 1800 and 2500 ng/dL, and greater than 2500 ng/dL.



A total of 78 hypogonadal men
received Natesto (11 mg of testosterone) three times daily (33 mg of testosterone daily). Of these, a total of 73 hypogonadal
men were included in the statistical evaluation of efficacy (total testosterone pharmacokinetics) on Day 90 based on the intent-to-treat
(ITT) population with last observation carried forward (LOCF). Ninety percent of these 73 patients had a Cavg within
the normal range (300 to 1050 ng/dL) on Day 90. The percentages of patients with Cavg below the normal range (less
than 300 ng/dL) and above the normal range (greater than 1050 ng/dL) on Day 90 were 10% and 0%, respectively.



The table below (Table 3 from
the Natesto Prescribing Information) summarizes the mean (SD) serum total testosterone concentrations on Day 90 in 69 patients
who had a full pharmacokinetic sampling profile and were treated with Natesto (11 mg of testosterone) three times daily for 90
days.



Table 3:
Mean (SD) Serum Total Testosterone Concentration on Day 90 FollowingAdministration of Natesto (11 mg of testosterone) Three Times Daily



|Natesto(11 mg of testosterone) Three Times Daily (N=69)
|-------------------------------------------------------
|Cavg(ng/dL)                                            
|Cmax(ng/dL)                                            
|Cmin(ng/dL)                                            





In the same clinical trial studying
the safety and efficacy of Natesto, which was conducted at 39 U.S. outpatient sites, it was shown that 70% of the per protocol
patients in the twice-daily ‘titration arm’ (n=141) achieved normal testosterone levels. Ninety-one percent of the
per protocol patients in the thrice-daily group (n=77) achieved normal testosterone levels, demonstrating that the majority of
men in both treatment groups achieved normalization of testosterone levels while taking Natesto. The efficacy of both B.I.D. (twice
daily) and T.I.D. (three times daily) dosing of Natesto is demonstrated in the graphs below:



11











Newly Presented Natesto
Safety and Efficacy Data



Secondary endpoints that were
measured in the above-referenced pivotal trial included the impact on Natesto – over 90 days – on erectile function
as well as on mood. The 90-day clinical trial demonstrated that – within 30 days of initiating treatment with Natesto –
subjects exhibited a statistically significant and clinically meaningful improvement in all five domains of erectile function.
Specifically, at the end of the 90-day treatment period, improvement from baseline for each domain were as follows:



| | · | 36%
                                         improvement in erectile function
| | - | -----------------------------------------------------------------------------

| | · | 42%
                                         improvement in intercourse satisfaction
| | - | ------------------------------------------------------------------------------------

| | · | 35%
                                         improvement in orgasmic function
| | - | -----------------------------------------------------------------------------

| | · | 31%
                                         improvement in sexual desire
| | - | -------------------------------------------------------------------------

| | · | 38%
                                         improvement in overall satisfaction
| | - | --------------------------------------------------------------------------------



12











In
addition to demonstrating a significant improvement in erectile function, Natesto also exhibits a substantial impact on mood as
measured by Positive Affect and Negative Affect Schedule (PANAS). As early as 30 days – and continuing up to day 90 –
Natesto demonstrates a substantial increase in Positive Affect and a substantial decrease in Negative Affect.









In addition to efficacy parameters,
safety parameters have also been examined and recently reported. Natesto restores serum testosterone to normal levelswhile
Follicle Stimulating Hormone (FSH) and Luteinizing Hormone (LH)remained well within the reference range over 90 days.
Also, hematocrit (increased blood thickness) was not significantly impacted by Natesto over 360 days of treatment. Other testosterone
products alter levels of Follicle Stimulating Hormone (FSH) and Luteining Hormone (LH) and increase hematocrit.



13











Natesto Product Features
and Patient Benefits



We believe Natesto has a unique
opportunity to gain market share in the more than $2.4 billion U.S. market given the product’s novel features and patient
benefits including:



| | · | Ease of administration; Appropriate for men with busy, active lives;                                                                                                                                                                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Established efficacy in pivotal FDA trials with a unique, low dose of testosterone;
    Effective in improving serum testosterone levels while using a proven, lower dose of testosterone; significant symptom improvement,
    notably:



| | · | Natesto
                                         caused statistically significant improvements in each of the 5 domains of erectile function
                                         (P < 0.0001); The majority of the effect on erectile dysfunction was evident
                                         by Day 30
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Substantial
                                         Increase in Positive Affect and Substantial Decrease in Negative Affect (PANAS)
                                         as Early as Day 30 (P < 0.0001)
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14









| | · | Discreet product presentation and ease of transport (TSA compliant); Important
    for men who travel frequently and desire a simple, portable solution that travels easily with them;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | No risk of secondary exposure to testosterone due to dermal transference,
    an important consideration when thinking about a hypogonadal man’s partner’s or child’s safety;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Safety, with a lower incidence of rising PSA levels than the market leading
    product AndroGel; Natesto demonstrates a 5.5% rate of rising PSA levels in clinical trials, while AndroGel demonstrated a
    rising PSA rate of over 11% in clinical trials. This is an important consideration as physicians concerned with understanding
    and tracking prostate cancer risk frequently monitor PSA levels in men over 50 years of age. Additionally, Natesto restored
    serum testosterone to normal levels while Follicle Stimulating Hormone (FSH) and Luteinizing Hormone (LH)remained
    well within the reference range over 90 days.  Also, hematocrit (increased blood thickness) was not significantly
    impacted by Natesto over 360 days of treatment.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Natesto has proven efficacy and
a product profile well suited for men suffering from hypogonadism who have active, busy lifestyles who want a simple, discreet
TRT option. We believe Natesto can play an important role in the treatment of hypogonadism, a condition affecting approximately
13 million U.S. men.



Natesto Market Opportunity



Two recent developments have presented
a unique opportunity for Natesto that we believe will enable us to effectively compete and be well positioned in the more than
$2.0 billion TRT market. As previously indicated, AndroGel’s patent expired in 2015 and we expect a generic entrant to begin
eroding AbbVie’s market share. As a result, we expect there to be diminished promotional support in the form of fewer physician
details and lower overall promotional spending by AbbVie. In conjunction with the market leader’s diminished intellectual
property position and potential diminished promotional spending, the TRT market has received increased scrutiny from the FDA.



On January 31, 2014 and subsequently
on March 3, 2015, the FDA issued Safety Announcements relating to the possible increased risk of non-fatal heart attacks and strokes
in patients taking testosterone. While the FDA has not concluded that the FDA-approved testosterone treatment increases the risk
of stroke, heart attack, or death, this recent safety consideration has caused patient advocates and consumer groups to ask for
increased scrutiny on the direct to consumer advertising associated with the leading testosterone replacement products, most notably
AndroGel and Axiron. As a result, we expect decreased advertising spending in the TRT category to enable newer, less established
products like Natesto to more effectively infiltrate the market through on-label, physician-directed promotion with a direct selling
effort. While the potential safety concerns may cause a decrease in physician prescribing, we expect that physicians will continue
to prescribe TRTs for patients for whom TRT treatment is appropriate.



Leading urology groups including
the American Urological Association, or AUA, have strongly commented in favor of continued prescribing of TRTs for appropriate
patients, and the safety data precipitating the FDA’s comments have been called into question. Importantly, the FDA has
not called for discontinuation of TRTs. Rather, patients were encouraged to speak with their health care professional and not
stop taking TRTs.



In the FDA’s initial statement
about the potential cardiovascular risks associated with TRT treatment, the agency commented:



“Patients
should not stop taking their prescribed testosterone products without first discussing their questions or concerns with their
health care professionals. ... The prescribing information in the drug labels of FDA-approved testosterone products should be
followed.”



Importantly, following the FDA’s
statement, the AUA issued a strong response reiterating the clinical importance of low testosterone and maintaining their support
for the appropriate use of testosterone replacement therapy:



“Men
with hypogonadism may also experience reduced muscle mass and strength and increased body fat. Hypogonadism may also contribute
to reduced bone mineral density and anemia. Testosterone therapy is appropriate treatment for patients with clinically significant
hypogonadism, including those with idiopathic clinical hypogonadism that may or may not be age-related, after full discussion
of potential adverse effects.”



Additional publications publicly
refuted the validity of the data that precipitated the FDA’s safety concern in a subsequent statement following the 2014
annual meeting of the AUA:



15







“During
the last several months there has been a firestorm of negative media attention regarding testosterone deficiency and its treatment,
precipitated by a study reporting an increased rate of nonfatal myocardial infarction (MI) associated with testosterone prescriptions.
This public judgment of T therapy demands a response. As researchers and clinicians with extensive experience with T deficiency
and its treatment, we disagree that the recent study published in PLOS (Public Library of Science) One presents any credible evidence
that T prescriptions increase health risks, and we find baseless the general assertion that testosterone is prescribed to men
“who are simply reluctant to accept the fact that they are getting older.” We object to comments questioning whether
T deficiency is real, regardless of whether it is called hypogonadism or “low T” as used in advertisements.”
(Note: The PLOS is an open access online publication venue, and while peer reviewed it is not a published medical journal.)



AbbVie’s sales of AndroGel
dropped 5% in the first half of 2014, following the FDA’s initial Safety Announcement and the subsequent reaction of the
AUA and others. In the face of significant new competitive entrants (Aveed, Vogelxo) at that time and the FDA’s expressed
safety concerns, this represents a relatively insignificant sales decline. We believe this decline speaks to a real, present need
in hypogonadism and a substantial opportunity for newly marketed products like Natesto. Natesto has proven safety, a recent FDA
approval that speaks to the product’s efficacy, and unique product features and patient benefits we believe will set Natesto
apart from the topically administered competitive products in the more than $2.4 billion U.S. TRT market.



MiOXSYS In Vitro Diagnostic
System for Male Infertility



Male infertility is a significant
medical condition that urologists and infertility specialists treat frequently in the office setting or specialized fertility
centers around the world. Of all sexually active couples, 8% to 12% are infertile and male infertility is the sole cause or contributing
factor up to 50% of the time. The global male infertility market is large and growing. The market for male infertility diagnosis
and treatments is expected to grow to more than $300 million globally by 2020, with a CAGR of nearly 5% from 2014 to 2020. Despite
the prevalence of male infertility, difficulties remain in effectively diagnosing root causes. Oxidative stress assessment is
considered a standard practice in complex andrology laboratories around the world, but due to various factors oxidative stress
testing is not routinely employed in clinicians’ offices or standard laboratory settings.



Seminal oxidative stress has been
well established throughout the peer-reviewed literature to play a substantial role in unexplained male infertility, and researchers
and clinicians actively consider oxidative stress when conducting laboratory infertility assessment. While oxidative stress is
well established as a leading contributing factor to male infertility, a significant proportion of male infertility remains unexplained
in part because of the lack of standardized tests available to clinicians and researchers to assess oxidative stress in semen
and plasma. This lack of standardization has resulted in poor implementation of semen and plasma analysis around the world. Further,
current testing platforms are cost-prohibitive for small office settings or local medical laboratories and require extensive training
and on-site expertise. Additionally, antioxidant supplementation is frequently recommended to patients by clinicians without an
effective method of measuring treatment success. As such, we believe introducing the MiOXSYS System to assess oxidative stress
levels in semen and seminal fluid represents a significant commercial opportunity and novel way for clinicians to assess male
factor infertility and assess therapeutic responses of patients in a simple, reliable, and cost-effective way.



The MiOXSYS System was CE marked
in January 2016, and we have started early commercialization efforts outside the U.S.



An attractive aspect of the reproductive
health market relates to reimbursement as infertility treatments and the associated diagnostic tests are generally paid directly
by patients. The current infertility treatments could cost in excess of $10,000 per treatment cycle, so the addition of a moderately
priced oxidative stress test would consume nominal relative costs while providing specific, actionable information needed to improve
the oxidative status of infertile patients. The current infertility treatments include antioxidant supplements and lifestyle modifications
that lower oxidative stress (e.g., smoking cessation, exercise, dietary changes, etc.), so the measurements reported by the MiOXSYS
System could effectively guide treatment in the infertile patients.



The global male infertility market
is expected to grow to more than $300 million by 2020. With a substantial base of conditions for which the MiOXSYS System may
present utility, we believe there is significant revenue potential from this first-in-class system.



As part of our strategy to develop
future clinical applications of the RedoxSYS System (the MiOXSYS System’s predecessor product for plasma and whole blood
detection), we have conducted initial studies in male reproductive health. Male infertility is a significant medical condition
in which oxidative stress is well known to play a substantial role. As such, we believe developing a clinical application to assess
oxidative stress levels with the uniquely designed and programmed MiOXSYS System for semen analysis represents a significant commercial
opportunity. Oxidative stress is well established as a leading contributing factor to male infertility. Further, a significant
proportion of male infertility remains unexplained in part because of the lack of standardized tests available to clinicians and
researchers to assess oxidative stress in semen and seminal plasma. This lack of standardization has resulted in poor implementation
of semen and plasma analysis around the world. Further, currently available tests are cumbersome, time consuming to perform, and
costly.



16







We conducted initial proof-of-concept
clinical studies in male infertility with a leading research center in the United States, which demonstrated that oxidation-reduction
potential effectively measures oxidative stress levels in semen and seminal plasma — and that these levels strongly correlate
with established markers of infertility. Semen analysis studies are routinely conducted to assess causes of infertility, so we
expect clinicians and oxidative stress researchers to readily integrate the MiOXSYS System into routine use upon the completion
of more extensive studies and regulatory clearance for this use. Additional studies are now in the late planning stages that will
evaluate the MiOXSYS System’s performance in the detection of oxidative stress levels and correlations with key semen parameters
in both healthy and infertile males. The MiOXSYS System must receive 510k clearance from the FDA before we can market it for clinical
use in the United States. Of the $300 million male infertility market projected for 2020, the North American, Middle Eastern,
and Asia Pacific markets dominate due to prevalence, awareness of treatment, and availability of treatment resources. Thus, it
is important that we have already established distribution relationships and direct access to major oxidative stress researchers
in many of these important markets.



Following our initial proof of
concept studies with a leading center in the United States with the MiOXSYS system, we conducted our CE mark-enabling study with
over 300 infertile patients. The two key studies conducted with these leading centers are presented below.



United States-Based Proof-of-Concept
Clinical Study



Fifty-one (51) male patients were
seen in a national clinic for suspected infertility. In addition to standard semen analyses (WHO 5th Edition, 2010),
samples were measured for oxidative stress using the MiOXSYS System. Raw sORP values were normed to sperm concentration (mv/106sperm/mL) and compared across six semen parameters that are associated with fertility: ejaculate volume, concentration,
total sperm number, total motility, progressive motility, and normal morphology. Higher sORP values are associated with a higher
state of oxidative stress.



Patients with abnormally low ejaculate
volume had similar sORP values as those with a normal volume. Those with an abnormally low sperm concentration or overall total
number, have significantly higher sORP values than those in the normal range. Abnormally few motile sperm or few sperm with a
progressive motility were also associated with significantly higher sORP values than those in the normal range. Lastly, semen
samples that had fewer normal sperm had slightly, but not significantly, higher sORP values. Thus, most abnormal semen parameters
appear to be associated with higher measures of oxidative stress.



When samples that achieve all
six parameters of associated with fertile semen are compared to samples that fail one or more of the parameters, the samples that
meet the parameters have significantly lower sORP values than those that fail one or more. A cutoff value of 1.635 mv/106sperm/mL separated those that met fertility standards from those that did not. In the current study, 85.7% of samples that
met standards fell below this cutoff value, whereas 71.8% of those that failed one or more parameters had sORP values above this
cutoff. The probability that a semen sample with a measured sORP value higher than the cutoff is abnormal in at least one of the
semen parameters, is 96.5%. Lastly, the more parameters that a semen sample falls within the abnormal range, the higher the sORP
values, thus those that are abnormal on five or six parameters have higher sORP values than those that are abnormal on one or
two.



Data derived from patients of
the national clinic confirms the results obtained in an international fertility clinic. Overall, semen that falls into the abnormal
range for concentration, total number, motility, and morphology have higher levels of oxidative stress as indicated by higher
sORP values. These values are uniquely obtained using the MiOXSYS System for semen analysis.



In April 2016, we observed encouraging
data from two prospective studies of the MiOXSYS System that demonstrated its clinical utility as a tool for measuring ORP to
assess the degree of oxidative stress levels in human semen.



The first study measured sORP
in the semen samples of infertile men that correlated well with the sperm concentration, motility, and morphology. The second
study further suggests that sORP is an easy to determine one-step indicator of increased oxidative stress in semen samples of
infertile men especially with leukocytospermia. The results are currently being validated in a larger cohort of infertile men.



International Pivotal Clinical
Study



Three-hundred sixty-six (366)
male partners from couples seeking fertility advisement in an international clinic were recruited. In addition to standard semen
analyses (WHO 5th Edition, 2010), samples were measured for oxidative stress using the MiOXSYS System. Raw sORP values
were normed to sperm concentration (mv/106 sperm/mL) and compared across six semen parameters that are associated with
fertility: ejaculate volume, concentration, total sperm number, total motility, progressive motility, and normal morphology. Higher
sORP values are associated with a higher state of oxidative stress.



17







Patients with abnormally low ejaculate
volume had similar sORP values as those with a normal volume. Those with an abnormally low sperm concentration or overall total
number, have significantly higher sORP values than those in the normal range. Abnormally few motile sperm or few sperm with a
progressive motility were also associated with significantly higher sORP values than those in the normal range. Lastly, semen
samples that had fewer normal sperm had significantly higher sORP values than those that fell into the range of normal morphology.
Thus, most abnormal semen parameters appear to be associated with higher measures of oxidative stress.



When samples that achieve all
six parameters associated with fertile semen are compared to samples that fail one or more of the parameters, the samples that
meet the parameters have significantly lower sORP values than those that fail one or more. A cutoff value of 1.635 mv/106sperm/mL separated those that met fertility standards from those that did not. In the current study, 91.43% of samples that
met fertility standards fell below this cutoff value whereas 59.5% of those that failed one or more had sORP values above this
cutoff. The probability that a semen sample with a measured sORP value higher than the cutoff is abnormal in at least one of the
semen parameters, is 98.6%. Lastly, the more parameters that a semen samples falls within the abnormal range, the higher the sORP
values, thus those that are abnormal on five or six parameters have higher sORP values than those that are abnormal on one or
two.



Data derived from patients at
this international clinic confirms the results obtained in United States fertility clinic. Overall, semen that falls into the
abnormal range for concentration, total number, motility, and morphology have higher levels of oxidative stress as indicated by
higher sORP values. These values are obtained uniquely using the MiOXSYS System for semen analysis.



Proof of concept clinical studies
have been conducted at the Cleveland Clinic’s Department of Urology, and two posters were presented at the 2015 American
Society for Reproductive Medicine in November 2015. These abstracts are presented below.



Establishing the Oxidation-Reduction
Potential in Semen and Seminal Plasma



A. Agarwal,1 S. S.
Du Plessis,1,2 R. Sharma,1 L. Samanta,1,3 A. Harlev,1,4 G. Ahmad,1,5 S. Gupta,1E. S. Sabanegh6; 1. Center For Reproductive Medicine, Cleveland Clinic, Cleveland, OH, 2. Medical Physiology,
Stellenbosch University, Tygerberg, South Africa, 3. Redox Biology Laboratory, School of Life Sciences, Ravenshaw University,
Orissa, India, 4. Soroka Medical Center, Ben-Gurion University, Beer Sheva, Israel, 5. Physiology and Cell Biology, University
of Health Sciences, Lahore, Pakistan, 6. Department of Urology, Cleveland Clinic, Cleveland, OH



Abstract:



Objective: Oxidation-reduction
potential (ORP) is a novel measure of oxidative stress or redox imbalance in biological samples. Static ORP (sORP) provides an
integrated measure of the balance between total oxidants and reductants in a biological system, whereas capacity ORP (cORP) equates
to the amount of antioxidant reserves. sORP has been shown to correlate well with illness and injury severity that accompanies
the state of oxidative stress; cORP correlates with the ability to respond to illness or injury. Our objectives were to evaluate
whether 1) ORP can be measured in semen and seminal plasma samples and 2) ORP levels correlate with sperm motility.



Design: Prospective study
measuring ORP in both semen and seminal plasma.



Materials and Methods:
Semen samples (n=18) from normal control subjects were divided into two fractions and the seminal plasma was isolated from one
fraction (300 x g, 7min). Sperm count and motility were assessed manually. sORP (mV/106 sperm) and cORP (μC/106 sperm) were
measured in both fractions (RedoxSYS®, Aytu BioScience). Values are reported as Mean ± SEM. Spearman correlation and
Receiver Operating Characteristic curves (ROC) were used for statistical analysis.



Results: sORP and cORP
levels in semen correlated significantly with the levels in seminal plasma. A significant negative correlation existed between
sperm motility and sORP in both semen (r=-0.609; p=0.004) and seminal plasma (r=-0.690; p=0.002). Furthermore, a sORP cutoff of
4.73mV/106 sperm in semen (sensitivity = 100%, specificity = 89.5%, AUC=0.947) and 4.65mV/106 sperm in seminal plasma (sensitivity
= 100%, specificity = 93.8%, AUC = 0.969) was highly predictive of abnormal sperm motility.



Conclusions: RedoxSYS®
accurately measured sORP and cORP in both semen and seminal plasma samples. Based on high sensitivity as assessed by ROC analysis,
sORP levels can be used to screen infertile men with oxidative stress. These results are being validated in a larger cohort of
infertile men.



18







Effect of Time on Oxidation-Reduction
Potential in Semen and Seminal Plasma



R. Sharma,1 S. S. Du
Plessis,1,2 A. Agarwal,1 A. Harlev,1,3 L. Samanta,1,4 G. Ahmad,1,5 S. Gupta,1E. S. Sabanegh6; 1. Center For Reproductive Medicine, Cleveland Clinic, Cleveland, OH, 2. Medical Physiology,
Stellenbosch University, Tygerberg, South Africa, 3. Soroka Medical Center, Ben-Gurion University, Beer Sheva, Israel, 4. Redox
Biology Laboratory, School of Life Science, Ravenshaw University, Orissa, India, 5. Physiology and Cell Biology, University of
Health Sciences, Lahore, Pakistan, 6. Department of Urology, Cleveland Clinic, Cleveland, OH



Abstract:



Objective: Oxidation-reduction
potential (ORP) is a novel measure of oxidative stress or redox imbalance in biological fluids. Reactive oxygen species (ROS)
are highly reactive and have a very short half-life. ROS levels in the seminal ejaculate should be measured within an hour after
collection to prevent a reduction in ROS levels over time. The traditional methods of measuring seminal ROS are time sensitive
and time consuming, making it difficult to use them for diagnostic purposes. It would be highly advantageous to employ a method
that is independent of semen age and provides results in real time. The objective was to assess the effect of time on static ORP
(sORP), which provides a snapshot of current redox balance, and capacity ORP (cORP) which is indicative of the amount of antioxidant
reserves available.



Design: Prospective study
measuring ORP in semen and seminal plasma samples at time 0 and 120 minutes. Materials and Methods: The sORP and cORP of both
semen (n=18) and seminal plasma (n=15) samples from normal control subjects were measured after liquefaction (time 0) and after
120 minutes of incubation at room temperature (RedoxSYS®, Aytu BioScience). Values are mean ± SEM. Spearman correlation
was used for statistical analysis.



Results: A significant
correlation was seen between sORP at time 0 and 120 minutes in semen and seminal plasma. Similar correlations were found for cORP
values at both time intervals.



Conclusions: ORP values
are not affected by the age of semen or seminal plasma for up to 120 minutes, making it easier to employ this new technology for
diagnostic use.



Recently additional studies
have further demonstrated the clinical utility of the MiOXSYS System in Male Infertility.



Correlation of Sperm DNA fragmentation
and Seminal oxidation reduction potential in infertile men.



M. Arafa1, El Bardisi1,
A. Majzoub1, S. Alsaid1, H. Al Nawasra1, K. Khalafalla1, K. Al Rumaihi1,
A. Agarwal2.

1. Hamad Medical Corporation,
Urology, Doha, Qatar, 2. Cleveland Clinic, American Center for reproductive medicine, Cleveland, OH.



Abstract:



Objective:To determine
if Sperm DNA fragmentation is really correlated to seminal oxidative stress.



Design: Prospective
study performed on 312 patients attending the male infertility clinic at a tertiary medical center between February and August,
2016. Patients receiving medical or surgical treatment for infertility prior to their presentation or who had a sperm concentration
less than 5 million/ml sperm were excluded. Patients were subjected to history taking, clinical examination as well as semen analysis
and SDF assessment using Halosperm kit (cut off value <30%) and static oxidation reduction potential (sORP) using MiOXSYS system.
Patients were divided according to SDF result (normal/ high) and to age (<40 years / > 40 years).



Results:A total number
of 312 patients were included in the study. Patients with high SDF had significantly higher age than those with normal SDF. The
mean total and progressive motility was significantly higher in the normal SDF group while sORP was significantly lower in the
normal SDF group compared with the high SDF group. Presence of varicocele did not significantly affect SDF level (Table 1). SDF
was negatively correlated with total (-0.526, p<0.001) and progressive motility (-0.415, p<0.001) and positively correlated
with abnormal morphology, sORP and age (0.351, 0.222 and 0.192, respectively, p<0.001 for all). SDF was significantly lower
while total motility was significantly higher in patients <40 years compared with patients >40 years of age.



Conclusions:Sperm DNA
fragmentation is positively correlated with seminal oxidative stress measured by Seminal oxidation reduction potential. Sperm
DNA fragmentation and seminal oxidation reduction potential should be included in assessment of male infertility. Using ORP testing
can help in detecting the target patients for antioxidant therapy.



19







Effect of seminal
ORP value on embryo quality and clinical pregnancy rate



A. Ayaz1, B. Balaban2,
S. Sikka2, A. Isiklar2, M. Tasdemir2, B. Urman2.

1. Tulane University, Department
of Urology, New Orleans, LA, USA.

2. VKF American Hospital, Assisted
Reproduction Unit, Istanbul, Turkey.



Abstract:



Objective:To
determine whether ORP in semen of men undergoing ART affects embryo quality during IVF and plays any role in predictive value
for clinical pregnancy.



Design:Prospective study
was carried out in the VKF American Hospital, Assisted Reproduction Unit, Istanbul, Turkey. The study was approved by Koc University
the institutional review board and patients signed a consent prior to participation. The 154 male patients who were visiting Andrology
laboratory (between May 31, 2016 and Jan 1, 2017) were grouped in according to semen ORP values. IVF was performed using the semen
samples by our routine established protocol. Exclusion criteria included azoospermia, presence of STD or chronic disease, use
of any prescription drug or OTC medications or antioxidants. Semen samples were collected and assessed for routine parameters
using the WHO-2010 guidelines. sORP was measured (mV) using the MiOXSYS system and normalized to concentration (mV/10 sperm/mL).
Embryo was graded based on the quality (Grade 1 for best quality and Grade 5 is poor).



Results:All semen samples
were grouped as 'High ORP” and 'Low ORP” based upon seminal ORP cut-off value of 1.36 mV/10 sperm. Mean Grade 1 embryo
quality in High ORP group (n=81) and low ORP group (n=26) was 2.88 ± 1.76 and 1.33 ± 0.47 respectively. In addition,
Mean Grade 2 embryo in High ORP group was 2.47 ± 1.54 and in low group was 4 ± 1.63 accordingly. Clinical pregnancy
rate (Mean 0.48; 19/40) was significantly higher (p=0.006) in low ORP group compared to high ORP group (1/8) however there was
no significant difference in embryo quality in both high and low ORP groups (Grade I embryo p=0.67, Grade II G2 embryo p=0.33).
Also, mean mother age in two groups was not significantly different (low ORP = 37.2 years and high ORP=35.2 years; p=0.23). These
data suggest that ORP may play an important role in determining the success of clinical pregnancy irrespective of oocyte quality
in women >35 yrs. of age.



Conclusions:Semen ORP
measurement can be used as an indicator of oxidative stress and help determine the successful embryo development during IVF. These
findings may have important diagnostic and prognostic implications for couples experiencing male infertility and undergoing assisted
reproductive technique (ART). Further studies are warranted to explore the mechanism of increased ORP in a subset of couples (male
factor, no female factor) undergoing ART to corroborate the significance of these findings.



High levels
of seminal oxidation reduction potential (ORP) in infertile men with clinical varicocele



R. Saleh1,
A. Agarwal2

1. Faculty of
Medicine- Sohag University, Dermatology- Venereology and Andrology, Sohag, Egypt.

2. Cleveland Clinic, American
Center for reproductive medicine, Cleveland, OH.



Abstract:



Objective:To determine
if seminal oxidation reduction potential (ORP) increases in infertile men with clinical varicocele.



Design:A prospective controlled pilot study was conducted
on 36 men seeking medical advice for an infertility problem between October, 2016 and January, 2017. Following clinical examination,
and scrotal color Doppler ultrasound, infertile men were divided into two groups. Group1: infertile men with clinical varicocele;
and group 2: infertile men with idiopathic infertility (no detectable abnormality in their genital examination). Patients were
examined in an infertility center by the same Andrologist. Semen analysis was performed according to the WHO manual (2010). Seminal
ORP was measured using the MiOXSYS system (Aytu BioScience, Inc., Englewood, CO, USA). Absolute values of ORP, in millivolts (mV),
were normalized for sperm concentrations and results were expressed as mV/10 sperm/mL. Quantitative measures were presented as
median and inter-quartile range (25 and 75 centiles). P value less than 0.05 was considered significant.



Results:The study included
17 patients in group 1 and 19 in group 2. Patient's age and duration of infertility in group 1 [ 32 (30, 34) years] & [4 (1.5,
5) years] were not significantly different from group 2 [33 (30, 36.5) years] & [2 (1.25, 3.5) years] (P values = 0.64 &
0.27; respectively). Patients in group 1 had significantly lower sperm concentrations [ 20 (5, 30) × 10 /mL], and normal
forms [3 (2, 4) %] as compared to those in group 2 [ 30 (20, 72.5 × 10 /mL]; and [ 4 (3, 5) %] (P values = 0.03 & 0.005;
respectively). Levels of seminal ORP were significantly higher in group 1 [3.04 (1.94, 7.75) mV/10 sperm/mL] as compared to group
2 [1.12 (0.42, 2.25) mV/10 sperm/mL]. A significant inverse correlation was found between ORP and sperm concentration (= -0.531,
= 0.001), total sperm count ( = -0.453, = 0.008), progressive motility ( = -0.460, = 0.007), total motility ( = -0.526, = 0.002)
and normal forms ( = -0.597, < 0.001). A significant positive correlation was found between ORP and seminal leukocytes ( =
0.476, = 0.003).



20







Conclusions:Seminal ORP
is significantly higher in infertile men with clinical varicocele as compared to those with no

detectable abnormality
in their genital examination (idiopathic infertility). These findings may have important diagnostic and therapeutic implications.
Further studies are warranted to explore the mechanism of increased ORP in a subset of infertile men with clinical varicocele.
In addition, future studies may help determine those patients who would benefit from antioxidant therapy and/or surgical repair
of varicocele.



RedoxSYS System for Research
Use



We completed the development of
the RedoxSYS System (MiOXSYS’ predecessor product) during the two years preceding the April 2015 Merger. In 2014, we received
ISO 13485 certification, demonstrating our compliance with global quality standards in medical device manufacturing. This enabled
the launch of the RedoxSYS System into the research market around the world. We also received a CE marking in Europe in January
2016 and Health Canada clearance in March 2016 to begin the market development of the RedoxSYS System as a clinical diagnostic
in Europe, Canada, and elsewhere around the world where CE marking is recognized. We launched sales efforts into the research
market in late 2014 and since that time have placed the RedoxSYS System at a number of prominent research centers in the United
States, Europe, and Israel. We expect to leverage these research relationships and build numerous applications in areas where
researchers are studying oxidative stress. Currently, there are no available research platforms that measure oxidation-reduction
potential in biologic fluids (i.e., blood, plasma, serum, semen, seminal fluid, cerebrospinal fluid, tissue, and cells). While
oxidative stress is commonly studied in research settings around the world (both academia and industry), the current assessment
methods are incomplete, time consuming, and often impractical for assessing oxidative stress completely. To position the RedoxSYS
System effectively in the research market, we have placed key personnel in the United States, Europe, and Asia to develop direct
research business relationships as well as distribution networks. Through these proof of concept studies and clinical exploratory
studies, we identified the application of oxidation-reduction potential in male infertility assessment. As such, MiOXSYS was developed
specifically for assessing semen and seminal plasma ORP levels. While we expect additional clinical applications to be developed
through these applications, our near-term focus is on completing the development of MiOXSYS for use in semen analysis for male
infertility assessment.



Background on the MiOXSYS
System



MiOXSYS is a novel, portable device
that measures oxidation-reduction potential, or ORP, a global measure of oxidative stress. MiOXSYS is the first and only system
that measures ORP in biologic specimens to provide a complete measure of redox balance, which is broadly implicated across a wide
range of both acute and chronic conditions.



Potential Role of ORP in
Diagnosing Male Infertility



Oxidation-reduction potential
is defined in the published literature as follows:



“ORP
in a biological system is an integrated measure of the balance between total oxidants and reductants. In plasma, many constituents
contribute to the ORP. Reactive oxygen species (ROS), such as the superoxide ion, hydroxyl radical, hydrogen peroxide, nitric
oxide, peroxynitrite, transition metal ions, and hypochlorous acid, contribute to the oxidative potential. Plasma reductants include
thiols, vitamin C, tocopherol, β-carotene, lycopene, uric acid, bilirubin, and flavonoids. Enzymes such as superoxide dismutase,
or SOD, catalase, and glutathione peroxidase, are involved in the conversion of ROS into less reactive species. ORP monitoring
of plasma represents a single measurement that integrates the overall quantitative balance among the oxidants and reductants of
the system.”



Given that ORP represents a single,
global measure of oxidative stress in a biological system, we believe the potential for ORP to serve as a standardized marker
in semen analysis and other aspects of infertility assessment is significant. A major limitation of oxidative stress assays relates
to the fact that there is poor standardization in testing. As many factors contribute to oxidative stress (e.g., free radical
proliferation, antioxidant depletion, DNA damage, etc.), it is important to have an integrated measure that combines all known
and unknown oxidants and reductants in the respective system into one measurement. We believe ORP is an integrated measure of
oxidative stress that can be easily and quickly measured with the MiOXSYS System.



21







In the context of infertility,
having an integrated value representing all relevant biologic constituents contributing to oxidative stress will enable simple,
robust analysis in a two to three minute test. There are various techniques in use to assess semen in cases of male infertility.
The most commonly implemented techniques involve DNA fragmentation, oxidative stress analysis, microscopic examination, sperm
penetration assays, sperm agglutination, computer assisted semen analysis, and others. The currently available oxidative stress
analysis tools are widely considered expensive and cumbersome to use in routine clinical practice. In both developed countries
as well as in the developing world, expensive analysis tools and recurring reagent expenses make routine testing nearly impossible
to implement with regularity.



The MiOXSYS System Overview



The MiOXSYS System is comprised
of two distinct, patented components that enable a system capable of measuring the ORP and antioxidant capacity of a biological
fluid: an analyzer and sensor strips. In mechanical terms, ORP is defined as the potential between a working electrode, and a
reference electrode at equilibrium. The RedoxSYS System has been specifically studied in human whole blood, serum, semen, seminal
plasma, blood plasma, and other biological fluids.



The MiOXSYS System measures two
distinct elements to determine a patient’s oxidation reduction potential:



| | • | Static ORP — the standard potential between a working
    electrode and a reference electrode with no driving current (or extremely small current). This is proportional to the balance
    of redox agents and is what is classically defined as ORP. Low ORP values mean that the biological sample is in the normal
    range of oxidative stress. Higher than normal ORP values means that the biological sample is in a higher oxidation state.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Capacity — the measure of antioxidant reserve available
    in the body’s system. High capacity values mean that the biological sample has levels of antioxidant reserves. Lower
    than normal capacity values means that the biological sample has below normal antioxidant reserves.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The MiOXSYS Analyzer



The MiOXSYS analyzer is a portable,
lightweight desktop platform that may be used in a clinical or research laboratory or near a patient care area. The analyzer is
a small device that accepts an inserted sensor that has collected a small specimen as obtained by traditional specimen collection
procedures. The analyzer is battery powered and equipped with a custom 5 lead strip connector. The reader consists of a Galvanostat
analog circuit with greater than 1012 MHz input impedance.



The analyzer contains a 10 MHz
external crystal (internal 4X PLL for 40 MHz operation), and a programming/serial header is externally accessible. The device
has internal power/heart-beat indicator LED, primary storage of 128Mbit (16Mbyte) SPI Flash (3.3V) (Bulk data storage), and secondary
storage of 2Mbit (256Kbyte) SPI FRAM (3.3V) (Hi-Speed Storage).



The MiOXSYS analyzer contains
a user-friendly interface that is flexibly designed to accommodate multiple endpoints depending upon the specific clinical condition
being considered. The interface is LCD, 16x2, with a white backlight, variable delay auto-off time-out. Two status LED indicators
are visible through front panel mounted lenses. Further, the reader contains three DPDT push-button switches (Left, Center, Right),
power on button(s) for battery mode operation, switch usage switch, audible alerts, strip detection, and test completion signals.



Further, the MiOXSYS analyzer
enables data transfer, has USB serial communication, and is configured for data download to a connected PC.



The MiOXSYS analyzer’s power
management consists of an external 5VDC power jack with input capacitance and filtering, a boost converter supplied by external
5VDC power or internal Li-Ion battery, and provides main 5VDC digital board supply. The reader functions with or without the battery
connected. The battery lasts in excess of 24 hours with continuous operation to enable prolonged use outside of a laboratory setting.



22







Image of the MiOXSYS Analyzer







The MiOXSYS Sensor Strips



The MiOXSYS sensor strips, via
standard biological specimen collection techniques, receive 20 – 40 microliters of a specimen from which the ORP clinical
analysis is performed. The ORP sensor strips are small, disposable, and biocompatible and consist of a ceramic substrate and a
five-lead configuration. Significant intellectual property surrounds the design, construct, and electrochemical algorithms associated
with the sensors.



Image of the MiOXSYS Sensor
Strips







Regulatory Pathway



We achieved ISO 13485: 2003 in
late 2013 following the successful development of a compliant medical device quality system. Following the issuance of our ISO
certification, we obtained CE marking for the RedoxSYS System, which has enabled initial market development in Europe and markets
that accept a CE marking. In December 2015, we achieved CE marking for MiOXSYS following technical validation and clinical study
completion in male infertility. In March 2016, we obtained Health Canada Class II Medical approvals for MiOXSYS. In the United
States, we intend to pursue 510k clearance with the FDA for the MiOXSYS System. We have recent, ongoing correspondence with the
FDA and have confirmed that MiOXSYS is appropriate for the 510k pathway, and we are pursuing regulatory clearance through this
pathway.



United States Commercial
Strategy



If the clinical studies to measure
oxidative stress in male infertility are successful, we expect to pursue that intended use for the MiOXSYS System via the FDA
510k pathway. If cleared for the infertility intended use, we intend to seek to commercialize the MiOXSYS System as a new tool
for the assessment of oxidative stress in infertility in men. We envision pursuing a direct sales effort to high priority urology/andrology
laboratories, infertility clinics and reference centers across the United States. We have identified the primary, influential
centers in the United States and believe our commercial deployment will be efficient through a focused sales and marketing effort.
We intend to seek to sell the MiOXSYS System into individual centers and laboratories but will focus our revenue model on the
repeat ordering of the disposable, single use MiOXSYS sensor strips. We expect to realize a favorable gross margin on the basis
of estimated low cost of goods sold on both components of the system. We envision an average selling price for the disposable
sensors of approximately $25. We envision selling the MiOXSYS analyzers for approximately $2,500 but will also pursue an instrument
rental agreement model with minimum disposable sensor purchase requirements.



We also intend to leverage our
urology commercialization efforts with other products with a focus on urology centers, infertility clinics, and reproductive health
laboratories around the United States.



We believe a focused sales force
at the onset of commercialization will enable effective representation of our products and penetration of the reproductive health
market. Our sales efforts into the research markets will be enabled initially through a full-time business development professional
who will focus on collaborative research and research sales to major oxidative stress centers in the United States. We expect
to pursue identical pricing in the research market and the clinical diagnostics markets.



23







ROW Commercial Strategy



We intend to undertake a similar strategy outside the United States for the RedoxSYS and MiOXSYS Systems while
complementing our efforts in infertility and research with adjunct applications in critical care conditions. To efficiently execute
across our strategy, we intend to utilize a network of established distributors in the target markets in Europe and Asia. We have
already established distribution arrangements with multiple distributors in multiple countries, and through these distributors,
we have sold MiOXSYS in over 20 countries around the world. We anticipate slightly reduced pricing outside the U.S. for the disposable
sensors given the anticipated lower pricing observed ex-US for diagnostic and research products.



Nuelle and the Fiera® Personal
Care Device



Fiera is a revenue-generating women’s personal care product
marketed in the United States primarily through consumer promotion. Fiera is the first of its kind, hands-free, personal care
device for women that enhances physical arousal and interest in sex. In scientific and consumer studies conducted with hundreds
of women with stated sexual desire and response concerns, Fiera has demonstrated highly consistent benefit. Importantly, Fiera
is also endorsed by and receives professional recommendations from leading sexual health experts across the United States and
has been studied and presented by the same experts.





Fiera was created with OB-GYNs
and has multiple scientific studies showing it works. Fiera helps women who have changing levels of arousal, interest,
and vaginal dryness, enter a sexual experience with enhanced levels of excitement and interest. Fiera works naturally with
a woman’s body and provides a hands-free experience thanks to the innovative design.  Fiera uses light stimulation
and a gentle suction action to enhance blood flow and increase lubrication in advance of sex, in as little as 5 minutes.



Product Features of FieraPersonal Care Devices:



| | · | Proprietary
                                         dual-action technology enhances blood flow to the genitals
| | - | ---------------------------------------------------------------------------------------------------------------

| | · | Small,
                                         fast-acting and hands-free, typically worn for 5-15 minutes andthen removed in
                                         preparation for sexual activity
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Features
                                         pattern and intensity settings for a customizable experience
| | - | --------------------------------------------------------------------------------------------------------------

| | · | Made
                                         with comfortable, body-safe materials (phthalate free)
| | - | ----------------------------------------------------------------------------------------------------

| | · | Uses
                                         rechargeable battery
| | - | ------------------------------------------------------------------

| | · | Does
                                         not require a prescription (consumer device)
| | - | ------------------------------------------------------------------------------------------









|The Fiera Device | The Fiera Device + Remote
|---------------- | -------------------------





24











The Fiera
SofSenseTM Rings



The Fiera SofSenseTM ring refills are available and sold in two styles, for a custom fit. Each refill
box contains three SofSenseTM rings, and each ring is designed to be used up to five times.



United States-Based Consumer
Study



Fiera has been extensively studied
and tested by consumers and physicians. Fiera is scientifically proven to enhance genital arousal in women of all ages, including
pre and post-menopausal women.



Consumer study results in women
ages 25-75 showed that after 4 weeks of using Fiera + Remote:



| | · | 97% of women felt physically aroused
| | - | ------------------------------------

| | · | 96% looked forward to being intimate with their partner
| | - | -------------------------------------------------------

| | · | 93% felt excited and ready for sex
| | - | ----------------------------------

| | · | 89% of women felt more “in the mood”
| | - | ------------------------------------

| | · | 87% felt as ready for sex as their partner did
| | - | ----------------------------------------------



Previous studies also showed that
87% of women felt increased desire and 67% felt increased lubrication. In a separate scientific study of pre and post-menopausal
women, arousal occurred on average in 5 minutes.



Clinical Data on the Fiera
Personal Care Device



Fiera serves several important
functions:

| | 1. | It helps to encourage blood flow
                                         in the clitoris (vasocongestion), a key physical reaction that signals your body that
                                         you are ready for sex.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | It provides direct stimulation,
                                         accelerating the effect of the suction.
| | -- | ----------------------------------------------------------------------------------------------------------------

| | 3. | A soft, silicone ring adheres
                                         with a gentle suction holding the product in place so that your hands are free.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------



Fiera is tucked under the labia
and worn over the clitoris, a woman’s most sensitive sexual organ to enhance arousal through a proprietary combination of
gentle suction and multi-focal stimulation. As the nerve endings in the clitoris respond, a woman begins to experience enhanced
sensation to the genital area, which triggers a physical state of arousal.



Our research shows that use of
Fiera regularly over a 4-week period also increases a woman’s level of sexual desire. Women also report looking forward
to and enjoying sexual activity more.



A study of 14 sexually active,
premenopausal women was conducted to determine the degree of engorgement – as measured by temperature change in the
external genitalia – produced by Fiera. Fiera produced statistically significant increases in vulvar temperatures, which
is a marker of genital blood flow and engorgement. 100% of study participants reported feeling “In the Mood” for sex
after use of Fiera. Additionally, 100% of study participants experienced genital sexual arousal during use of Fiera. Another study
of 12 sexually active, postmenopausal women demonstrated that Fiera produced statistically significant increases in vulvar temperature.
Use of Fiera in this population of postmenopausal women produced sexual desire in 100% of the subjects while 83% experienced genital
arousal.



25







ProstaScint for the Detection
of Prostate Cancer



On May 20, 2015, we acquired ProstaScint® from Jazz Pharmaceuticals. The ProstaScint Kit, or capromab
pendetide, is a radio-labeled monoclonal antibody, which is a biologic product that targets a specific antigen. ProstaScint targets
prostate specific membrane antigen, or PSMA, a protein uniquely expressed by prostate tissue. A radioactive substance called Indium
(In 111) is attached to the proprietary, mouse-derived antibody. The radiolabeled antibody is infused into the patient and is taken
up by prostate cancer cells which can be detected and visualized with a special nuclear medicine scan (single-photon emission tomography,
or SPECT). ProstaScint has been shown to be clinically effective in determining the course of treatment for a patient who has had
a prostatectomy and/or has suspected metastasis (spread of the cancer cells beyond the prostate). Further, ProstaScint has demonstrated
efficacy in patients classified as high risk or with recurrent prostate cancer. ProstaScint has been approved by the FDA and Health
Canada, and significant clinical data exist demonstrating the significant predictive value in prostate cancer staging. At June
30, 2017, the ProstaScint asset was impaired based upon sales projections that we intend to only sell this product through mid-fiscal
2019, when this product expires.



Prostate Cancer Market



According to the American Cancer
Society prostate cancer is the most common cancer among men in the United States, with an estimated 241,000 annual cases (as of
2012). Further, more than 2.2 million men were alive in 2006 with some history of prostate cancer, and over 30,000 U.S. men die
each year from the disease. The effect of prostate cancer on healthcare economics is substantial, which makes the need for accurate
disease staging critical for treatment and management strategies. The U.S. market for the diagnosis and screening of prostate
cancer is expected to total $17.4 billion in 2017, a CAGR of 7.5% since 2012. Importantly, ProstaScint is the only FDA-approved
radiopharmaceutical (for use in radioimmunoscintigraphy) specifically indicated for prostate cancer screening and is specifically
highlighted in the American Cancer Society practice guidelines for prostate cancer screening and staging.



Prostate cancer is classified
into four stages based on severity: Stages 1 through 4. Stage 3 is considered “high risk” and Stage 4 is when cancer
has become metastatic. Radioimmunoscintigraphy has been established as a diagnostic to stage cancer malignancy and one of the
most widespread clinical uses has been for the detection of prostate cancer.



ProstaScint Clinical Data



Multiple clinical studies have
been conducted in the United States and published in peer-reviewed publications that consistently demonstrate substantial clinical
efficacy of ProstaScint in staging prostate cancer patients and specifically identify whether the cancer is confined to the prostate
or has metastasized to other parts of the body. Through more accurate clinical staging and identification of metastatic prostate
cancer, clinicians are able to better direct therapeutic interventions and improve outcomes. A brief summary of key clinical findings
for ProstaScint from select studies are summarized below.



|PrincipalInvestigator(s)/Primary Authors |  | Publication                                  |  | Patient
    Population                                                                                                                                                                                   |  | Conclusion/Results                                                                                                                                                                                                                                                                                                        
|---------------------------------------- |  | -------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ellis RJ et al.                          |  | Int. J. Radiation Oncology Biol. Phy. (2010) |  | Patients presenting for primary radiotherapy having a clinical diagnosis
    of localized primary prostate cancer; Patients evaluated for tumor stage using conventional staging and SPECT/CT (N=239)    |  | SPECT/CT imaging with ProstaScint pre-treatment was significantly predictive
    of 10-year biochemical disease-free survival (86.6% vs. 65.5%; p=0.0014)                                                                                                                                                                 
|Haseman MK et al.                        |  | Urology (2007)                               |  | Men with prostate cancer who underwent imaging with ProstaScint pretreatment;
    Patients were divided according to the presence or absence of central abdominal uptake (CAU) (N=341)                   |  | SPECT/CT imaging with ProstaScint pretreatment effectively predicted death
    rates among patients with central abdominal uptake (CAU), and demonstrated that prostate cancer-specific death rates were
    10 times higher in patients identified with ProstaScint as having central abdominal uptake (p=0.005).        
|Ellis RJ et al.                          |  | Brachytherapy (2005)                         |  | Men with prostate cancer of all risk categories who underwent imaging with
    ProstaScint pretreatment; patients were divided into low, intermediate, and high risk and underwent brachytherapy (N=239) |  | SPECT/CT imaging with ProstaScint pretreatment effectively predicted biochemical
    disease recurrence regardless of the patient’s risk category; 7-year outcomes data from brachytherapy patients with
    treatment based on the ProstaScint scan showed a significant difference in biochemical disease-free survival.



26







Radiation oncology experts have
published numerous papers expressing the potential for expanded use of ProstaScint in prostate cancer imaging due to advances
in imaging technologies since the product’s initial approval. Since the early 2000s, significantly greater image resolution
has been enabled due to the advent of dual head cameras (and improved imaging in general) along with the use of co-registered
images where radiologists now combine the images of SPECT and computerized tomography, or CT, or magnetic resonance imaging, or
MRI. Because of these factors, we believe there is significant commercial opportunity for ProstaScint.



ProstaScint Product Information



ProstaScint is provided as a two-vial
kit which contains all of the non-radioactive ingredients necessary to produce a single unit dose for administration by intravenous
injection. The ProstaScint vial contains 0.5 mg of capromab pendetide in 1 mL of sodium phosphate buffered saline solution adjusted
to pH 6; a sterile, pyrogen-free, clear, colorless solution that may contain some translucent particles. The vial of sodium acetate
buffer contains 82 mg of sodium acetate in 2 mL of water for injection adjusted to pH 5 – 7 with glacial acetic acid; it
is a sterile, pyrogen-free, clear, and colorless solution. Neither solution contains a preservative.



Each kit also includes one sterile
0.22 μm Millex® GV filter, prescribing information, and two identification labels. The hospital is responsible for addition
of Indium (In 111). ProstaScint may also be helpful in conjunction with other scans (CT or MRI) for higher risk patients, by detecting
lymph nodes in the abdomen that are involved with prostate cancer cells, but may still appear falsely normal on CT or MRI scans.



The procedure to administer ProstaScint
is as follows: the patient is given an intravenous, or IV, infusion of the monoclonal antibody, and 30 minutes later, a scan is
performed. A second scan is done between 96 and 120 hours (4 – 5 days) after the infusion. The first scan (on the day of
the infusion) takes approximately 1 hour, while the second scan takes approximately 2.5 hours.



ProstaScint Uses



ProstaScint is indicated as a
diagnostic imaging agent in newly-diagnosed patients with biopsy-proven prostate cancer, thought to be clinically-localized after
standard diagnostic evaluation (e.g. chest x-ray, bone scan, CT scan, or MRI), who are at high-risk for pelvic lymph node metastases.
It is not indicated in patients who are not at high risk.



ProstaScint is also indicated
as a diagnostic imaging agent in post-prostatectomy patients with a rising PSA and a negative or equivocal standard metastatic
evaluation in whom there is a high clinical suspicion of occult metastatic disease. The imaging performance of Indium (In 111)
ProstaScint following radiation therapy has not been studied.



The information provided by Indium
(In 111) ProstaScint imaging should be considered in conjunction with other diagnostic information. Scans that are positive for
metastatic disease should be confirmed histologically in patients who are otherwise candidates for surgery or radiation therapy
unless medically contraindicated. Scans that are negative for metastatic disease should not be used in lieu of histological confirmation.
ProstaScint is not indicated as a screening tool for carcinoma of the prostate nor for re-administration for the purpose of assessment
of response to treatment.



ProstaScint was initially marketed
by Cytogen Corporation, which was acquired by EUSA Pharma. Jazz Pharmaceuticals acquired EUSA in June 2012 but significantly reduced
promotion of ProstaScint due to a lack of strategic focus. Despite limited commercialization efforts, peak annual unit sales of
ProstaScint of 8,216 kits were achieved. At current pricing, this unit sales volume would equate to approximately $14.6 million
in annual revenue.



In late fiscal 2017, we decided
to implement a harvest strategy for the ProstaScint product, due to increased competition and the cost to continue manufacturing.
Based upon our current projections, we believe that we will continue to sell this product through fiscal 2018 and the first half
of fiscal 2019.



27







Our Business Development Strategy
— Identifying & Acquiring Complementary Urology Assets



A key growth and value driver
for our Company is the ongoing identification and acquisition of novel urology products for commercialization. We seek to identify
unique products with urologic indications that may be non-strategic, undervalued or under-resourced by the company that currently
markets the product. We believe that we can continue to acquire strategically aligned products at an appropriate valuation and
grow those products via our focused sales and marketing efforts. We will also consider acquiring novel, late-stage development
products that represent unique commercial opportunities and can be efficiently developed.



We will continue to look to identify unique product assets to acquire based on specific attributes including
but not limited to: therapeutic area/indication; growth potential; intellectual property position (patents, regulatory, manufacturing
or development technicalities, etc.); valuation; strategic fit; commercial orientation and other factors. Indications of interest
include products to treat conditions such as urinary incontinence, sexual wellness and vitality, hypogonadism, prostate and other
urological cancers, urinary tract infections, and other urological conditions. However, during fiscal 2018, our primary focus will
be on growing our current core assets and working towards cash-flow breakeven.



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 such products.
Currently, we are developing two medical device candidates, the RedoxSYS and MiOXSYS Systems, for which regulatory approval must
be received before we can market them within the United States. Regulatory approval processes for our current and any future product
candidates are discussed below.



Approval Process for Pharmaceutical
Products



FDA Approval Process for Pharmaceutical
Products



In the United States, pharmaceutical
products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, 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.



Pharmaceutical product development
in the United States typically involves the performance of satisfactory nonclinical, also referred to as pre-clinical, laboratory
and animal studies under the FDA’s Good Laboratory Practice, or GLP, regulation, the development and demonstration of manufacturing
processes, which conform to FDA mandated current good manufacturing requirements, or cGMP, including a quality system regulating
manufacturing, the submission and acceptance of an IND application, which must become effective before human clinical trials may
begin in the United States, obtaining the approval of Institutional Review Boards, or IRBs, at each site where we plan to conduct
a clinical trial to protect the welfare and rights of human subjects in clinical trials, adequate and well-controlled clinical
trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought, and the submission
to the FDA for review and approval of an NDA. Satisfaction of FDA requirements typically takes many years and the actual time
required may vary substantially based upon the type, complexity, and novelty of the product or disease.



Pre-clinical tests generally include
laboratory evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certain animal studies
to assess its potential safety and efficacy. Results of these pre-clinical tests, together with chemistry, manufacturing controls
and analytical data and the clinical trial protocol, which details the objectives of the trial, the parameters to be used in monitoring
safety, and the effectiveness criteria to be evaluated, along with other requirements must be submitted to the FDA as part of
an IND, which must become effective before human clinical trials can begin. The entire clinical trial and its protocol must be
in compliance with what are referred to as good clinical practice, or GCP, requirements. The term, GCP, is used to refer to various
FDA laws and regulations, as well as international scientific standards intended to protect the rights, health and safety of patients,
define the roles of clinical trial sponsors and assure the integrity of clinical trial data.



An IND automatically becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the intended
conduct of the trials and imposes what is referred to as a clinical hold. Pre-clinical studies generally take several years to
complete, and there is no guarantee that an IND based on those studies will become effective, allowing clinical testing to begin.
In addition to FDA review of an IND, each medical site that desires to participate in a proposed clinical trial must have the
protocol reviewed and approved by an independent IRB or Ethics Committee, or EC. The IRB considers, among other things, ethical
factors, and the selection and safety of human subjects. Clinical trials must be conducted in accordance with the FDA’s
GCP requirements. The FDA and/or IRB may order the temporary, or permanent, discontinuation of a clinical trial or that a specific
clinical trial site be halted at any time, or impose other sanctions for failure to comply with requirements under the appropriate
entity jurisdiction.



28







Clinical trials to support NDAs
for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1 clinical trials,
a product candidate is typically introduced either into healthy human subjects or patients with the medical condition for which
the new drug is intended to be used.



The main purpose of the trial
is to assess a product candidate’s safety and the ability of the human body to tolerate the product candidate. Phase 1 clinical
trials generally include less than 50 subjects or patients. During Phase 2 trials, a product candidate is studied in an exploratory
trial or trials in a limited number of patients with the disease or medical condition for which it is intended to be used in order
to: (i) further identify any possible adverse side effects and safety risks, (ii) assess the preliminary or potential efficacy
of the product candidate for specific target diseases or medical conditions, and (iii) assess dosage tolerance and determine the
optimal dose for Phase 3 trials. Phase 3 trials are generally undertaken to demonstrate clinical efficacy and to further test
for safety in an expanded patient population with the goal of evaluating the overall risk-benefit relationship of the product
candidate. Phase 3 trials are generally designed to reach a specific goal or endpoint, the achievement of which is intended to
demonstrate the candidate product’s clinical efficacy and adequate information for labeling of the approved drug.



There are three main types of
NDAs, which are covered by Section 505 of the FDC Act: (1) an application that contains full reports of investigations of safety
and efficacy (Section 505(b)(1)); (2) an application that contains full reports of investigations of safety and effectiveness
but where at least some of the information required for approval comes from studies not conducted by or for the applicant and
for which the application has not obtained a right of reference (Section 505(b)(2)); and (3) an application that contains information
to show that the proposed product is identical in active ingredient, dosage form, strength, route of administration, labeling,
quality, performance characteristics, and intended use, among other things, to a previously approved product (Section 505(j)).
Section 505(b)(2) expressly permits the FDA to rely, for approval of an NDA, on data not developed by the applicant. In the pre-IND
briefing meeting with Ampio and in June 2012, the FDA agreed that our NDA may be submitted under Section 505(b)(2). As such, we
intend to rely on studies published in the scientific literature and reference FDA-approved NDAs for tramadol-containing products
(NDAs 21-693, 20-281 and 21-692) to support the safety and efficacy demonstrated in our clinical program.



After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval
of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical,
clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and
controls. The cost of preparing and submitting an NDA is substantial. Under federal law, the submission of most NDAs is additionally
subject to a substantial application user fee, currently exceeding $2.3 million and the manufacturer and/or sponsor under an approved
NDA are also subject to annual product and establishment user fees, currently approximately $100,000 per product and $600,000 per
establishment. These fees are typically increased annually.



The FDA has 60 days from its receipt
of an NDA to determine whether the application will be accepted for filing based on the FDA’s threshold determination that
it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth
review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review drug
products are reviewed within ten months; most applications for priority review drugs are reviewed in six months. Priority review
can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy
exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider
certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA
may also refer applications for novel drug products, or drug products which present difficult questions of safety or efficacy,
to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation,
and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug
is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that
provide substantial evidence that the drug is safe and effective in the indication studied.



After the FDA evaluates the NDA
and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter
generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for
the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a
resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or
six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug with
specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation
and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks.



29







REMS can include medication guides,
communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited
to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring,
and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of
the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s
safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained
or problems are identified following initial marketing.



The Hatch-Waxman Act



In seeking approval for a drug
through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon
approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug
Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in
turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides
for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug
and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement
for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests
to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic
equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original
listed drug.



The ANDA applicant is required
to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book that: 1) the required
patent information has not been filed; 2) the listed patent has expired; 3) the listed patent has not expired, but will expire
on a particular date and approval is sought after patent expiration; or 4) the listed patent is invalid or will not be infringed
by the new product. A certification that the new product will not infringe the already approved product’s listed patents,
or that such patents are invalid, is called a Paragraph IV certification. If the applicant does not challenge the listed patents,
the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.



If the ANDA applicant has provided
a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and
patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement
lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days
of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30
months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA
applicant.



The ANDA application also will
not be approved until any non-patent exclusivity listed in the Orange Book for the referenced product has expired. Federal law
provides a period of five years following approval of a drug containing no previously approved active ingredients during which
ANDAs for generic versions of those drugs cannot be submitted, unless the submission contains a Paragraph IV challenge to a listed
patent — in which case the submission may be made four years following the original product approval. Federal law provides
for a period of three years of exclusivity during which FDA cannot grant effective approval of an ANDA based on the approval of
a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration
or combination, or for a new use; the approval of which was required to be supported by new clinical trials conducted by, or for,
the applicant.



Post-Approval Regulation



Even if a product candidate receives
regulatory approval, the approval is typically limited to specific clinical indications. Further, even after regulatory approval
is obtained, subsequent discovery of previously unknown problems with a product may result in restrictions on its use or even
complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us are subject to
continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Further,
drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and
are subject to periodic inspections by the FDA and state agencies for compliance with cGMP, which impose rigorous procedural and
documentation requirements upon us and our contract manufacturers. We cannot be certain that we or our present or future contract
manufacturers or suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply
with these requirements may result in, among other things, total or partial suspension of production activities, failure of the
FDA to grant approval for marketing, and withdrawal, suspension, or revocation of marketing approvals.



30







If the FDA approves one or more
of our product candidates, we and the contract manufacturers we use for manufacture of clinical supplies and commercial supplies
must provide certain updated safety and efficacy information. Product changes, as well as certain changes in the manufacturing
process or facilities where the manufacturing occurs or other post-approval changes may necessitate additional FDA review and
approval. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product or medical devices, also
must be in compliance with FDA and Federal Trade Commission, or FTC, requirements which include, among others, standards and regulations
for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional
activities involving the Internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations
can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards
and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.



Approval Process for Medical
Devices



In the United States, 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 molecular 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.



Unless an exemption applies, each
medical device we wish to distribute commercially in the United States will require marketing authorization from the FDA prior
to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also
called 510k clearance, and premarket approval, also called PMA approval. The type of marketing authorization is generally linked
to the classification of the device. The FDA classifies medical devices into one of three classes (Class I, II or III) based on
the degree of risk the FDA determines to be associated with a device and the level of regulatory control deemed necessary to ensure
the device’s safety and effectiveness. Devices requiring fewer controls because they are deemed to pose lower risk are placed
in Class I or II. Class I devices are deemed to pose the least risk and are subject only to general controls applicable to all
devices, such as requirements for device labeling, premarket notification and adherence to the FDA’s current Good Manufacturing
Practices, or cGMP, known as the Quality System Regulations, or QSR. Class II devices are intermediate risk devices that are subject
to general controls and may also be subject to special controls such as performance standards, product-specific guidance documents,
special labeling requirements, patient registries or post-market surveillance. Class III devices are those for which insufficient
information exists to assure safety and effectiveness solely through general or special controls and include life sustaining,
life-supporting or implantable devices, devices of substantial importance in preventing impairment of human health, or which present
a potential, unreasonable risk of illness or injury.



Most Class I devices and some
Class II devices are exempted by regulation from the 510k clearance requirement and can be marketed without prior authorization
from the FDA. Some Class I devices that have not been so exempted and Class II devices are eligible for marketing through the
510k clearance pathway. By contrast, devices placed in Class III require PMA approval prior to commercial marketing. The PMA approval
process is more stringent, time-consuming and expensive than the 510k clearance process, however, the 510k clearance process has
also become increasingly stringent and expensive. The FDA has provided initial guidance to us that the MiOXSYS and RedoxSYS Systems
are appropriate for the 510k clearance process.



510k Clearance. To obtain 510k
clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is
“substantially equivalent” to a device legally marketed in the United States that is not subject to PMA approval,
commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device,
it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics
and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not
raise different questions of safety or effectiveness. A showing of substantial equivalence sometimes, but not always, requires
clinical data. Generally, the 510k clearance process can exceed 90 days and may extend to a year or more.



After a device has received 510k
clearance for a specific intended use, any change or modification that significantly affects its safety or effectiveness, such
as a significant change in the design, materials, method of manufacture or intended use, may require a new 510k clearance or PMA
approval and payment of an FDA user fee. The determination as to whether or not a modification could significantly affect the
device’s safety or effectiveness is initially left to the manufacturer using available FDA guidance; however, the FDA may
review this determination to evaluate the regulatory status of the modified product at any time and may require the manufacturer
to cease marketing and recall the modified device until 510k clearance or PMA approval is obtained. The manufacturer may also
be subject to significant regulatory fines or penalties.



31







Before we can submit a medical
device for 510k clearance, we may have to perform a series of generally short studies over a period of months, including method
comparison, reproducibility, interference and stability studies to ensure that users can perform the test successfully. Some of
these studies may take place in clinical environments, but are not usually considered clinical trials. For PMA submissions, we
would generally be required to conduct a longer clinical trial over a period of years that supports the clinical utility of the
device and how the device will be used.



Although clinical investigations
of most devices are subject to the investigational device exemption, or IDE, requirements, clinical investigations of diagnostic
tests, including our products and products under development, are generally exempt from the IDE requirements. Thus, clinical investigations
by intended users for intended uses of our products generally do not require the FDA’s prior approval but may require approval
of an Institutional Review Board, or IRB, and written informed consent by the patient, provided the clinical evaluation testing
is non-invasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce
energy into the subject and is not used as a diagnostic procedure without confirmation by another medically established test or
procedure. In addition, our products must be labeled per FDA regulations “for research use only-RUO” or “for
investigational use only-IUO,” and distribution controls must be established to assure that our products distributed for
research, method comparisons or clinical evaluation studies are used only for those purposes.



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 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.



Foreign Regulatory Approval



Outside of the United States,
our ability to market our product candidates will be contingent also 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.



In the European Union, we are
required under the European Medical Device Directive (Council Directive 93/42/EEC) to affix the CE mark to certain of our products
in order to sell the products in member countries of the European Union. The CE mark is an international symbol that represents
adherence to certain essential principles of safety and effectiveness mandated in the European Medical Device Directive, which
are referred to as the “essential requirements”. Once affixed, the CE mark enables a product to be sold within the
European Economic Area, or EEA, which is composed of the 28 member states of the EU plus Norway, Iceland and Liechtenstein as
well as other countries that accept the CE mark.



To demonstrate compliance with
the essential requirements, we must undergo a conformity assessment procedure which varies according to the type of medical device
and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile) where
the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the
essential requirements of the Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization
accredited by a member state of the EEA to conduct conformity assessments, or a notified body. Depending on the relevant conformity
assessment procedure, the notified body would typically audit and examine the technical file and the quality system for the manufacture,
design and final inspection of our devices. The notified body issues a CE certificate of Conformity following successful completion
of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with
the essential requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having
prepared and signed a related EC Declaration of Conformity.



If we modify our devices, we may
need to apply for permission to affix the CE mark to the modified product. Additionally, we may need to apply for a CE mark for
any new products that we may develop in the future. Certain products regulated as medical devices according to EC-Directives are
subject to vigilance requirements for reporting of adverse events.



We will be subject to additional
regulations in other countries in which we market, sell and import our products, including Canada. We or our distributors must
receive all necessary approvals or clearance prior to marketing and/or importing our products in those markets.



32







The International Standards Organization,
or ISO, promulgates internationally recognized standards, including those for the requirements of quality systems. To support
ISO certifications, surveillance audits are conducted by a notified body yearly and recertification audits every three years that
assess continued compliance with the relevant ISO standards.



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, in the United States, 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
United States, 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 Affordability Reconciliation
Act, 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.



The distribution of pharmaceutical
products is subject to additional requirements and regulations, including extensive recordkeeping, licensing, storage and security
requirements intended to prevent the unauthorized sale of pharmaceutical products.



The failure to comply with regulatory
requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable
regulatory requirements can result in criminal prosecution, fines, imprisonment or other penalties, injunctions, recall or seizure
of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm
to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements,
new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in
an adverse way.



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.



United States 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.



33







Market exclusivity provisions
under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year
period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a
new chemical entity, or NCE. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. Recently, the FDA stated
that it may change its interpretation of 5-year NCE exclusivity determinations to apply to each drug substance in a fixed-combination
drug product, not for the drug product as a whole. If this change is implemented, for example, a fixed-combination drug product
that contains a drug substance with a single, new active moiety would be eligible for 5 year NCE exclusivity, even if the fixed-combination
also contains a drug substance with a previously approved active moiety. During the exclusivity period, the FDA may not accept
for review an abbreviated new drug application, or ANDA, or a Section 505(b)(2) NDA submitted by another company for another drug
based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator
drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for
approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement
to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity
for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted
or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received
approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing
the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission
or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference
to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted,
adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other
exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with
an FDA-issued “Written Request” for such a trial.



Reimbursement



Natesto is covered by many commercial insurance providers and pharmacy benefit management companies and is
largely dependent upon reimbursement for continued use in the U.S. market. Natesto is also covered under a Rebate Agreement between
us and Centers for Medicare and Medicaid Services. This, in turn, enables states to offer public payer coverage of Natesto through
their separate Medicare and public assistance programs. Additionally, privately managed Medicare Part D plans may choose to cover
Natesto prescriptions through their plans’ pharmacy benefits. ProstaScint is dependent upon reimbursement for continued use
in the U.S. market, and ProstaScint does have a reimbursement code as assigned by the American Medical Association. ProstaScint
is currently reimbursed by Medicare, Medicaid, and various private health plans. However, reimbursement is not universally available
throughout the United States for ProstaScint. We do not anticipate that the sales of the MiOXSYS System, if approved for sale in
the U.S., will be heavily dependent upon reimbursement by third-party payors. Traditionally, sales of pharmaceuticals, diagnostics,
ad devices that are not “lifestyle” indications 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. These third-party
payors are increasingly reducing reimbursements for medical products and services. The sexual wellness market is typically known
as a cash payor market, and because Fiera is not classified as a pharmaceutical or a medical device by the FDA, there will be no
reimbursement paid by third parties on the product.



Lack of third-party reimbursement
for our product candidate or a decision by a third-party payor to not cover our product candidates could reduce physician usage
of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.



In addition, in some foreign countries,
the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug 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. 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. Historically, products launched in the European Union do not follow
price structures of the United States and generally tend to be significantly lower.



DEA Regulation



Natesto, already approved by the
FDA, is a “controlled substance” as defined in the Controlled Substances Act of 1970, or CSA, because it contains
testosterone. As a result, the U.S. Drug Enforcement Agencies, or DEA, regulate Natesto and have listed it as a Schedule III substance.



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.



34







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 thefts
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 total in the United States 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, although the DEA has substantial discretion
in whether or not to make such adjustments. Our or 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 or 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.



Intellectual Property



Aytu has an exclusive license
from Acerus Pharmaceuticals Corporation for the United States to intellectual property related to a nasal gel drug product containing
testosterone to treat hypogonadism in males, including the FDA approved product Natesto®, as well as an authorized generic
version and OTC versions thereof. The license includes sublicense rights to intellectual property owned by Mattern Pharmaceuticals
and exclusively licensed to Acerus by Mattern Pharmaceuticals. The sublicensed intellectual property includes four Orange Book
listed patents directed at nasal gel formulations containing testosterone or methods of testosterone replacement therapy by nasal
administration of the same. It further includes three patents that are not listed in the Orange Book directed at a testosterone
formulation, a method of making a testosterone formulation and a method for reducing physical or chemical interactions between
a nasal testosterone formulation and a plastic container.



The Acerus license also grants
rights to intellectual property owned by Acerus which includes ten nonprovisional patent applications, some of which may be abandoned.
These patent applications include at least four pending applications directed to testosterone titration methods, intranasal testosterone
bio-adhesive gel formulations, and controlled release testosterone formulations.



We have an extensive range of
intellectual property for MiOXSYS, RedoxSYS, Fiera and ProstaScint. We have patent protection in the United States and several
other large markets worldwide. Specifically, we have numerous patents issued and pending for the RedoxSYS/MiOXSYS systems and
their use in the U.S., Europe, Canada, Israel, Japan, and China.



Our patent portfolio related to
RedoxSYS/MiOXSYS is focused on the United States and core foreign jurisdictions which include Europe, Canada, Israel, Japan and
China. The portfolio is supported in the United States and core foreign jurisdictions and consists of 20 issued patents and 27
pending applications.



The portfolio primarily consists
of seven families filed in the United States and in core foreign jurisdictions. The first family includes seven issued patents
and three pending applications with claims directed to the measurement of the ORP of a patient sample to evaluate various conditions.
The standard 20-year expiration for patents in this family is in 2028. The second family includes two pending United States applications,
two issued United States patents and four pending applications in core foreign jurisdictions with claims directed to the measurement
of the ORP capacity of a patient sample to evaluate various conditions. The standard 20-year expiration for patents in this family
is in 2033. The third family includes eight issued patents and three pending applications with claims directed to devices and
methods for the measurement of ORP and ORP capacity. The standard 20-year expiration for patents in this family is in 2032. The
fourth family includes one pending United States application, one issued United States patent, two issued patents in core foreign
jurisdictions and three pending applications in core foreign jurisdictions with claims directed to multiple layer gel test strip
measurement devices and methods of making for use in measuring ORP and ORP capacity. The standard 20-year expiration for patents
in this family is in 2033. The fifth family includes one pending United States application and one pending application filed under
the Patent Cooperative Treaty with claims directed to methods for monitoring food production and quality. The standard 20-year
expiration for patents in this family is in 2035. The sixth family includes one pending United States application and six pending
applications in core foreign jurisdictions with claims directed to methods for determining fertility characteristics from the
ORP of a biological sample. The standard 20-year expiration for patents in this family is in 2035. The seventh family includes
one pending United States application and one pending application filed under the Patent Cooperation Treaty with claims directed
to methods for evaluating stroke patients from the ORP characteristics of a biological sample. The standard 20-year expiration
for patents in this family is in 2036.



35







The Fiera portfolio includes multiple
utility patent families in the United States and foreign jurisdictions with claims to the Fiera device. The United States portfolio
includes one issued patent and nine pending applications; the foreign portfolio includes six issued patents, nine pending applications
and one PCT application. In addition, Fiera is protected by a substantial design patent portfolio with four issued United States
design patents and three pending United States design applications. As well, the design portfolio includes forty-one issued design
patents.



ProstaScint is protected by significant
trade secrets and manufacturing know-how related to the production of the product and linkage of the base monoclonal antibody
and imaging component. The antibody in the ProstaScint product is produced by a proprietary cell line.



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 United States
and foreign patent protection for drug and diagnostic products we discover, as well as therapeutic and diagnostic 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 diagnostic products and processes, and which may be used to develop novel therapeutic
and diagnostic products and processes.



The patent positions of companies
such as ours involve complex legal and factual questions and, therefore, their enforceability cannot be predicted with any certainty.
Our issued and licensed patents, and those that may be issued to us in the future, may be challenged, invalidated or circumvented,
and the rights granted under the patents or licenses may not provide us with meaningful protection or competitive advantages.
Our competitors may independently develop similar technologies or duplicate any technology developed by us, which could offset
any advantages we might otherwise realize from our intellectual property. Furthermore, even if our product candidates receive
regulatory approval, the time required for development, testing, and regulatory review could mean that protection afforded us
by our patents may only remain in effect for a short period after commercialization. The expiration of patents or license rights
we hold could adversely affect our ability to successfully commercialize our pharmaceutical drugs or diagnostics, thus harming
our operating results and financial position.



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 United States. 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 United States, 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.



36







The biotechnology and pharmaceutical
industries are characterized by extensive litigation regarding patents and other intellectual property rights, and it is possible
that our development of products and product candidates could be challenged by other pharmaceutical or biotechnology companies.
If we become involved in litigation concerning the enforceability, scope and validity of the proprietary rights of others, we
may incur significant litigation or licensing expenses, be prevented from further developing or commercializing a product or product
candidate, be required to seek licenses that may not be available from third parties on commercially acceptable terms, if at all,
or subject us to compensatory or punitive damage awards. Any of these consequences could materially harm our business.



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 life sciences company compared to other companies that we are competing against. 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 scientifically 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.



Natesto



Natesto competes in a growing market. The U.S. TRT market is large, with annual revenues in the U.S. in 2016
of approximately $2.0 billion. At the current market size of approximately $2.0 billion, a product with 5% market penetration could
achieve sales of approximately $100 million annually, assuming comparatively similar product pricing and reimbursement levels as
seen with other TRTs.



The U.S. prescription testosterone
market is comprised primarily of topically applied treatments in the form of gels, solutions, and patches. Testopel® and Aveed®,
injectable products typically implanted directly under the skin by a physician, are also FDA-approved. AndroGel is the market-leading
TRT and is marketed by AbbVie.



ProstaScint



Currently, there are several FDA
approved imaging techniques for cancer in general, however there is only one SPECT-specific agent targeting prostate cancer —
ProstaScint. The other imaging methods are F18-fluorodeoxyglucose (F18-FDG), C11-Acetate, and C11-Choline. The primary advantage
of these methods is that they all use PET imaging, a technique with better resolution than SPECT. The use of PET is also a disadvantage,
however, since it uses radiolabels with short half-lives necessitating the need for a local or on-site cyclotron to generate the
labels. The half-life of fluorine-18 (F18) and of carbon-11 (C11) are approximately 110 and 20 minutes, respectively. The radiolabel
used by ProstaScint is Indium-11, with a half-life of about 2 – 3 days. This longer time period allows the radiolabel to
be made remotely and shipped to the imaging facility; however, it does use SPECT as the imaging modality.



37







As indicated, ProstaScint is the
only radio-imaging marker that is specific for prostate specific membrane antigen (PMSA). ProstaScint is based on radiolabeling
the antibody against PSMA, a protein express by prostate cells. This specificity for prostate cells is what allows ProstaScint
to detect the metastases of prostate cancer regardless of location. The mechanism of labeling for F18-FDG, C11-Acetate, and C11-Choline
is the intracellular accumulation of these markers in cancer cells, due to the fact that cancer cells typically have a higher
cellular metabolism than non-cancerous cells. Thus, these markers can accumulate in any type of cancer cell with a high metabolism.
Unfortunately for these technologies, prostate cancer cells tend to have a lower cellular metabolism resulting in higher false
positives attributed to hyperplasia and prostatitis.



In a meta-analysis of 21 studies
evaluating accuracy, sensitivity, specificity, positive/negative predictive values, ProstaScint using combined SPECT/CT imaging
was comparable to PET/CT imaging based on F18-FDG and C11-Choline.



MiOXSYS/RedoxSYS



With respect to MiOXSYS competitive
offerings, there are other oxidative stress diagnostic tests available throughout the world, although none are approved in the
United States for clinical use. Diagnostic systems that are marketed for clinical use outside the United States include the FRAS
4 system (H&D srl), FREE Carpe Diem (Diacron International), and the FORM and FORMPlus systems (Callegari srl). These systems
are used in both research and clinical settings but do not generate significant sales in the clinical setting. If approved in
the United States for clinical use, these systems could present competition to the MiOXSYS System. However, their testing parameters
differ significantly from MiOXSYS and would need to demonstrate clinical superiority to MiOXSYS in order to substantially detract
from MiOXSYS prescribing and sales. Additionally, to our knowledge these systems have not demonstrated clinical feasibility in
human semen or seminal plasma.



Research and Development



Our strategy is to minimize our
research and development activities. When we do conduct research and development, we intend to utilize consultants with domain
experience for research, development and regulatory guidance.



Our MiOXSYS System has been developed
in conjunction with numerous medical device and diagnostic development consultants. Further, we have relationships with regulatory
consultants who are actively assisting in the development of our regulatory strategy with the FDA. To complement our internal
clinical research efforts with the MiOXSYS System, we have engaged with numerous universities around the world to identify and
develop research and clinical applications for the MiOXSYS System. Through these engagements we have access to data and analyses
that enable us to develop new uses for the MiOXSYS and RedoxSYS systems. Additionally, we have formal research agreements in place
with two prominent U.S.-based universities and one prominent European university for which we are paying a research fee.



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.



Natesto



On April 22, 2016, we entered
into a license and supply agreement with Acerus pursuant to which we will pay Acerus a supply price per unit of the greater of
(i) a fixed percentage of Acerus’ cost of goods sold for Natesto, not to exceed a fixed ceiling price and (ii) a low double
digit percentage of the net selling price for the first year of the agreement, that increases in each of the second and third
years and remains constant after that.



ProstaScint



We have acquired a two-year supply of ProstaScint through our asset purchase agreement with Jazz Pharmaceuticals,
which we project to last through fiscal 2018 and the first half of fiscal 2019.



38







MiOXSYS/RedoxSYS



We have completed the technical
development of the RedoxSYS System by engaging contract development and manufacturing companies in the United States. We secured
supply and quality agreements with manufacturers for both the RedoxSYS and MiOXSYS instruments as well as the RedoxSYS and MiOXSYS
sensor strips. Both manufacturers hold long-standing ISO 13485:2003 certifications and are established medical device manufacturers.
Both manufacturers have high volume manufacturing capacity such that production volumes can be easily scaled. Both manufacturers
have been audited by our quality engineers and are fully compliant.



Employees



As of August 15, 2017, we had
63 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 http://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, http://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 healthcare 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. As a result, we have not generated substantial revenue to date and are not profitable, and have incurred losses
in each year since our inception. Our net loss for the years ended June 30, 2017 and 2016 was $22.5 million and $28.2 million,
respectively. We have not demonstrated the ability to be a profit-generating enterprise to date. With the financing that occurred
in August 2017 of $11.8 million, we believe that we can get to cash flow break even and profitability but we still expect to incur
substantial losses during fiscal 2018. 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. Our ability to
generate significant revenue is uncertain, and we may never achieve profitability. 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:



39







| | · | 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 recentness of the
acquisition of our products Natesto, MiOXSYS, ProstaScint and Fiera. We may be unable to adjust spending in a timely manner to
compensate for any unexpected budgetary shortfall.



We have not received any substantial
revenues from the commercialization of our current products to date and might not receive significant revenues from the commercialization
of our current products or our product candidates in the near term. Even though ProstaScint and Natesto are each an approved drug
that we are marketing, we only acquired ProstaScint in May 2015 and Natesto in April 2016. In addition, we only acquired Fiera
in May 2017 and launched our MiOXSYS device in early fiscal 2017. As a result, we have limited experience on which to base the
revenue we could expect to receive from sales of these products. 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 Natesto, MiOXSYS and Fiera, 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. We
also are currently advancing our MiOXSYS device through clinical development. Developing product candidates is expensive, lengthy
and risky, and we expect to incur research and development expenses in connection with our ongoing clinical development activities
with the MiOXSYS System. As of June 30, 2017, our cash, cash equivalents and restricted cash totaling $878,000, available to fund
our operations offset by an aggregate $3.0 million in accounts payable and other and accrued liabilities. In November 2016, we
conducted a public offering of our common stock and warrants from which we received net cash proceeds of approximately $7.6 million.
We closed on a private placement of common stock, Series A preferred stock and warrants in August 2017 from which we received gross
proceeds of approximately $11.8 million. 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 will require additional capital to continue the expansion of marketing efforts
for Natesto, ProstaScint and Fiera and to obtain regulatory approval for, and to commercialize, our current product candidate,
the MiOXSYS System. Raising funds in the current economic environment, as well our lack of 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
would 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.



40







If we are unable to obtain funding
on a timely basis, we may be unable to expand the market for Natesto, MiOXSYS or Fiera and/or be required to significantly curtail,
delay or discontinue one or more of our research or development programs for the MiOXSYS system, 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.



If we do not obtain the
capital necessary to fund our operations, we will be unable to successfully expand the commercialization of Natesto, ProstaScint
and Fiera and to develop, obtain regulatory approval of, and commercialize, our current product candidate, the MiOXSYS System.



The expansion of marketing and
commercialization activities for our existing products and the development of pharmaceutical products, medical diagnostics and
medical devices is capital-intensive. We anticipate we may require additional financing to continue to fund our operations. Our
future capital requirements will depend on, and could increase significantly as a result of, many factors including:



| | · | the
                                         costs, progress and timing of our efforts to expand the marketing of Natesto, ProstaScint
                                         and Fiera;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | progress
                                         in, and the costs of, our pre-clinical studies and clinical trials and other research
                                         and development programs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         costs of securing manufacturing arrangements for commercial production;
| | - | --------------------------------------------------------------------------------------------------------------------

| | · | the
                                         scope, prioritization and number of our research and development programs;
| | - | -----------------------------------------------------------------------------------------------------------------------

| | · | the
                                         achievement of milestones or occurrence of other developments that trigger payments under
                                         any collaboration agreements we obtain;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         costs of establishing, expanding or contracting for sales and marketing capabilities
                                         for any existing products and if we obtain regulatory clearances to market our current
                                         product candidate, the MiOXSYS system;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical
                                         trial costs under future collaboration agreements, if any; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         costs involved in filing, prosecuting, enforcing and defending patent claims and other
                                         intellectual property rights.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If funds are not available, we
may be required to delay, reduce the scope of, or eliminate one or more of our commercialization efforts or our technologies,
research or development programs.



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 control over financial reporting for the year
ended June 30, 2017, 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.



41







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 obtain listing on a securities exchange such as the NASDAQ Capital Market or the NYSE American, LLC.





Risks Related
to Product Development, Regulatory Approval and Commercialization



Natesto, MiOXSYS, ProstaScint
and Fiera 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 Natesto, MiOXSYS, ProstaScint and
Fiera. 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 Natesto, MiOXSYS, or ProstaScint; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         inability to effectively identify and align with commercial partners outside the United
                                         States, or the inability of those selected partners to gain the required regulatory,
                                         reimbursement, and other approvals needed to enable commercial success of MiOXSYS, ProstaScint
                                         or Fiera.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Natesto, MiOXSYS, ProstaScint and Fiera. 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.
| | - | -----------------------------------------------------------------------------------------------------------------------



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, any of our current or future product candidates.



We may not be able to develop
our current or any 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 United States 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.



42







We are not permitted to market
a 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.



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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



43







| | · | 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. For example,
our former collaborator that licensed our former product candidate, Zertane conducted clinical trials which we believe demonstrated
efficacy in treating PE, but the collaborator undertook a merger that we believe altered its strategic focus and thereafter terminated
the collaboration agreement. The Merger also created a potential conflict with a principal customer of the acquired company, which
sells a product to treat premature ejaculation in certain European markets.



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 discontinued the development of Zertane in June 2016 and
sold Primsol in March 2017.



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 United States 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.



44







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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| | · | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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 delay, 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



45







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.
| | - | -------------------------------------------------------------------------------------------



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 System for clinical use.



The MiOXSYS System is subject
to 510k clearance by the FDA prior to its marketing for commercial use in the United States, and to regulatory approvals beyond
CE marking required by certain foreign governmental entities prior to its marketing outside the United States. 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
510k clearance, pre-market approval, or foreign regulatory approvals. The 510k 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 510k clearance, and from one to three years from submission to obtain pre-market approval;
however, it may take longer, and 510k clearance or pre-market approval may never be obtained. We have limited experience in filing
FDA applications for 510k 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 United States 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 United States. 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 United States,
or we may simultaneously seek regulatory approvals in the United States and other countries. If we or our collaborators seek marketing
approval for a product candidate outside the United States, 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 Authorisation 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 United States 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.



46







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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47







| | · | 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:



| | · | 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.



48







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:



| | · | expand the market for our approved products, especially Natesto, MiOXSYS and Fiera;
| | - | -----------------------------------------------------------------------------------

| | · | 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.



Natesto competes in a large, growing
market. The U.S. prescription testosterone market is comprised primarily of topically applied treatments in the form of gels,
solutions, and patches. Testopel® and Aveed®, injectable products typically implanted directly under the skin by a physician,
are also FDA-approved. AndroGel is the market-leading TRT and is marketed by AbbVie.



For the MiOXSYS System and ProstaScint,
we compete with companies that design, manufacture and market already existing and new in-vitro diagnostics and diagnostic imaging
systems and radio-imaging agents for cancer detection. Additionally, with respect to Fiera, we compete with numerous companies
who produce sexual wellbeing related products. There are any number of products available on the market that could compete with
Fiera.



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.
| | - | ---------------------------------------------------------------------



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 United States. 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 United
States, 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 of our Natesto and ProstaScint products 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.



49







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 United States 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 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.
| | - | ---------------------------------------------------------------------



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 Natesto and ProstaScint
are already FDA-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.



50







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.



As part of the acquisition of
ProstaScint from Jazz Pharmaceuticals, we terminated the relationship with the third-party manufacturer of ProstaScint. We have
initiated the process of transferring the manufacturing to Biovest International, which we believe is a qualified manufacturer
and with whom we have entered into a Master Services Agreement. Although this contract is currently on hold as we evaluate our
strategic options for the ProstaScint product. In the event that this manufacturing transfer does not occur or we do not find
a replacement manufacturer by the time our current inventory expires, which could adversely impact our continued sales of ProstaScint
or its disposition should we elect to do so, we may not be able to supply sufficient quantities and on a timely basis, while maintaining
product quality, acceptable manufacturing costs and complying with regulatory requirements, such as quality system regulations.
In addition, we expect to engage third parties to manufacture components of the MiOXSYS and RedoxSYS systems. We have an agreement
for supplies of Natesto with Acerus, from whom we license Natesto. We have an agreement with a third party manufacturer for our
Fiera product as well. 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 for Natesto and Fiera, we will
face difficulty finding replacement suppliers, which could harm sales of those products. If we do not effectively transition sites
with our manufacturing and development partners to enable to production scale of ProstaScint, or if we do not secure collaborations
with manufacturing and development partners to enable production to scale of the MiOXSYS System, we may not be successful in selling
ProstaScint or in commercializing the MiOXSYS System in the event we receive regulatory approval of the MiOXSYS System. 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.



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.



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 engage for our current and any future FDA-approved products are 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:



51







| | · | 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.



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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.



52







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.
| | - | -------------------------------------------------------------------



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.



Natesto contains, 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.



Natesto, which is approved by
the FDA, is regulated by the DEA as a Schedule III controlled substance. 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 is, 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 administered by the DEA. These requirements are applicable to
us, to our third-party manufacturers and 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 United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II
substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such
substances.



Natesto is regulated by the DEA
as a Schedule III 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.



53







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.



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.



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.



54







Intellectual
Property Risks Related 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:



| | · | 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.



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 United States 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.



55







In addition, changes in or different
interpretations of patent laws in the United States 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 United
States Supreme Court, other federal courts, the United States 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.



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 United States 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.



56







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 United States. 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 United States 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.



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:



57







| | · | 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks
Related to Our Organization, Structure and Operation



We intend to acquire, through
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
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 ProstaScint in May
2015, Natesto in April 2016 and Fiera in May 2017. 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 2017, the great
majority of our net revenue and gross accounts receivable were due to three significant customers, the loss of which could materially
and adversely affect our results of operations.



During fiscal 2017 and fiscal
2016, three customers accounted for 74% and one customer that accounted for 86%, respectively, of our net revenue. At June 30,
2017 and 2016, the same customers accounted for 60% and 69%, respectively, of our gross accounts receivable. Although we expect
to increase revenue and not be as reliant on only a few customers, at least for fiscal 2018, and perhaps beyond, the loss of any
of these customers could have a material adverse effect on our results of operations.



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, 2017, we had 60
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 Gregory Gould
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.



58







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.



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, 2017, we had federal
net operating loss carryforwards of approximately $42.3 million. The available net operating losses, if not utilized to offset
taxable income in future periods, will begin to expire in 2032 and will completely expire in 2036. 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 (such as research tax credits) 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 (by value) 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.



59







Our outstanding warrants
may result in dilution to our stockholders and may impede our ability to raise equity capital.



The exercise of some or all of our outstanding warrants to purchase our common stock may dilute the ownership
interests of existing stockholders. In particular, on August 15, 2017, we had outstanding warrants to purchase up to an aggregate
of 6,600,714 shares. Included in these warrants are warrants that we issued in August 2017 to purchase up to an aggregate of 5,919,998
shares of common stock (the August 2017 warrants), with a current exercise price of $3.60 per share, that contain certain price
adjustment and anti-dilution provisions. Until such time as our common stock is listed on any NASDAQ or NYSE exchange, these anti-dilution
provisions may be triggered upon any future issuance by us of securities convertible into shares of our common stock or any rights,
warrants or options to purchase shares of our common stock at a price per share below the then-exercise price of the warrants,
subject to some exceptions.



To the extent that these anti-dilution
provisions are triggered in the future, we would be required to reduce the exercise price of all of the warrants on a full-ratchet
basis, which would have a dilutive effect on our stockholders. In addition, any sales in the public market of the shares of our
common stock issuable upon such exercise could adversely affect prevailing market prices of our common stock.



Furthermore, the existence of
these August 2017 warrants may encourage short selling by market participants because the anticipated exercise of such warrants
for shares of our common stock could depress the market price of our common stock.



The anti-dilution provisions of
the August 2017 warrants also may impede our ability to raise equity capital in the future due to the limitation on issuing any
common stock or securities convertible into common stock at a price less than $3.60 per share. On August 22, 2017, the closing
price of our common stock as reported on the OTCQX was $4.00. Should we be unable to list our common stock on any NASDAQ or NYSE
exchange and should our common stock price remain at or near that level, any equity financing in the future may be too onerous
due to the anti-dilution protection afforded the August 2017 warrants.



Several stockholders potentially
own a significant percentage of our stock and could be able to exert significant control over matters subject to stockholder approval.



At August 15, 2017, eight entities who invested in our August 2017 common and preferred stock and warrant
financing own common and/or preferred stock and warrants that potentially would enable them to beneficially own in excess of 4.99%
or 9.99% of our common stock. The preferred stock and warrants held by these investors contain a provision that prohibits the conversion
or exercise of the preferred stock or warrants should the holder beneficially own in excess of 4.99% or 9.99%, as elected by the
investor, after giving effect to such conversion or exercise. However, the significant ownership potential of these investors,
and the significant investment that they have made in our company, could give these stockholders the ability to influence us through
their ownership positions, even if they are prohibited from converting or exercising their preferred stock or warrants to acquire
more than 4.99% or 9.99% of our common stock at any time. Further, this significant ownership potential may prevent or discourage
unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.



Restrictions under our August
2017 Securities Purchase Agreement may limit our ability to raise funds and operate our business.



The August 2017 Securities Purchase
Agreement contains covenants described below that may restrict our ability to finance future operations or capital needs or to
engage in other business activities.



For the 24 months following the
Effective Date, as defined in the Securities Purchase Agreement, upon any issuance by us of any common stock or common stock equivalents
for cash consideration or indebtedness or a combination thereof (a “Subsequent Financing”), each investor in the offering
will have the right to participate in up to an amount of the Subsequent Financing equal to 35% of the Subsequent Financing on
the same terms, conditions and price provided for in the Subsequent Financing. The “Effective Date” is the earliest
of the date that (a) the initial registration statement registering all of the shares of common stock and the shares of common
stock into which the Series A Preferred Stock is convertible and the warrants (collectively, the “Securities”) are
exercisable has been declared effective by the SEC, (b) all of the Securities have been sold pursuant to Rule 144 or may be sold
pursuant to Rule 144 without the requirement for our company to be in compliance with the current public information required
under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of August 15, 2017,
all of the Securities may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act of 1933,
as amended (the “Securities Act”), without volume or manner-of-sale restrictions.



Until the later of (i) 270 days
after the Effective Date and (ii) 365 days from August 15, 2017, without the consent of investors that purchased at least 51%
of the shares of common stock in the offering, we may not issue, enter into any agreement to issue or announce the issuance or
proposed issuance of any shares of common stock or common stock equivalents, or file any registration statement covering the issuance
or resale of any shares of common stock or common stock equivalents. If the value weighted average price of our common stock exceeds
$1.00 (as adjusted for stock splits, stock dividends and similar corporate events) for five or more consecutive trading days,
this right will terminate.



60







Until such time as no investor in the August 2017 offering
holds any of the warrants, we are prohibited from effecting or entering into an agreement to affect any issuance by us of our
common stock or common stock equivalents involving a Variable Rate Transaction, as defined in the Securities Purchase Agreement.
“Variable Rate Transaction” means a transaction in which we (i) issue any debt or equity securities that are convertible
into common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or
varies with, the trading prices of or quotations for the shares of our common stock at any time after the initial issuance of
such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly
or indirectly related to our business or the market for our common stock or (ii) enter into any transaction under, any agreement,
including, but not limited to, an equity line of credit, an “at-the-market” offering or similar agreement, whereby
we may issue securities at a future determined price.





The restrictions and covenants
in the August 2017 Securities Purchase Agreement, as well as any future financing agreements that we may enter into, may restrict
our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability
to comply with these covenants may be affected by events beyond our control and we may not be able to meet those covenants.



Risks Related
to Securities Markets and Investment in our Securities



There is a limited trading
market for our common stock, which could make it difficult to liquidate an investment in our common stock, in a timely manner.



Our common stock is currently
traded on the OTCQX. Because there is a limited public market for our common stock, investors may not be able to liquidate their
investment whenever desired. We cannot assure that we will maintain an active trading market for our common stock and the lack
of an active public trading market could mean that investors may be exposed to increased risk. In addition, if we failed to meet
the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities
to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers
from recommending or selling our common stock, which may further affect its liquidity.



Our ability to uplist our common
stock to the NASDAQ or NYSE American is subject to us meeting applicable listing criteria.



We intend to apply for our common stock to be listed on the NASDAQ
or NYSE American, each a national securities exchange. Each exchange requires companies desiring to list their common stock to
meet certain listing criteria including total number of stockholders; minimum stock price, total value of public float, and in
some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing criteria could
prevent us from listing our common stock on either exchange. In the event we are unable to uplist our common stock, our common
stock will continue to trade on the OTCQX market, which is generally considered less liquid and more volatile than the either exchange.
Our failure to uplist our common stock could make it more difficult for you to trade our common stock shares, could prevent our
common stock trading on a frequent and liquid basis and could result in the value of our common stock being less than it would
be if we were able to uplist.



If we apply and our common stock is accepted for uplisting
on the NASDAQ or NYSE American, our failure to meet the continued listing requirements of such exchange could result in a delisting
of our common stock.



If our common stock were to be uplisted on the NASDAQ or NYSE American, and thereafter we fail to satisfy
the continued listing requirements of such exchange, 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.



If we fail to comply with
the continued trading standards of the OTCQX U.S. Premier tier, it may result in our common stock moving tiers in the OTC Markets.



Our common stock is currently
quoted for trading on the OTCQX U.S. Premier tier, and the continued quotation of our common stock on the OTCQX U.S. Premier tier
is subject to our compliance with a number of standards. These standards include the requirement of our common stock to have a
minimum bid price of $1.00 per share as of the close of business for at least one of every thirty consecutive calendar days.



61







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 3.0 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, 2017, options to purchase
38,263 shares of common stock issued under our 2015 Stock Plan at a weighted average exercise price of $16.31 per share were outstanding.
In addition, at June 30, 2017, there were outstanding warrants to purchase an aggregate of 286,049 shares of our common stock
at a weighted average exercise price of $50.29. 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------



62







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.



FINRA sales practice requirements
may limit a stockholder’s ability to buy and sell our stock.



The Financial Industry Regulatory
Authority, or FINRA, has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced
securities to their non institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated
its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers.
Because these FINRA requirements are applicable to our common stock, they may make it more difficult for broker-dealers to recommend
that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our
common stock and could have an adverse effect on the market for and price of our common stock.



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.



We have a substantial number
of shares of authorized but unissued capital stock, and if we issue additional shares of our capital stock in the future, our
existing stockholders will be diluted.



Our Certificate of Incorporation authorize the issuance of
up to 100.0 million shares of our common stock and up to 50.0 million shares of preferred stock with the rights, preferences and
privileges that our Board of Directors may determine from time to time. At the next annual shareholders meeting, we may seek approval
to increase our authorized common shares from 100.0 million common shares authorized to 200.0 million or 300.0 million shares.
As of June 30, 2017, we had 824,831 shares of our common stock issued and outstanding, which represents less than 1% of our total
authorized shares of common stock. In addition to capital raising activities, which we expect to continue to pursue to raise the
funding we will need in order to continue our operations, other possible business and financial uses for our authorized capital
stock include, without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares
of our capital stock, issuing shares of our capital stock to partners or other collaborators in connection with strategic alliances,
attracting and retaining employees by the issuance of additional securities under our equity compensation plans, or other transactions
and corporate purposes that our Board of Directors deems are in the best interest of our company. Additionally, shares of our
capital stock could be used for anti-takeover purposes or to delay or prevent changes in control or our management. Any future
issuances of shares of our capital stock may not be made on favorable terms or at all, they may not enhance stockholder value,
they may have rights, preferences and privileges that are superior to those of our common stock, and they may have an adverse
effect on our business or the trading price of our common stock. The issuance of any additional shares of our common stock will
reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common
stock. Additionally, any such issuance will reduce the proportionate ownership and voting power of all of our current stockholders.



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.



63







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.





Item 
1B.      Unresolved Staff Comments



None.



64







Item 
2.        Properties



On August 19, 2015, Aytu entered
into a 37 month non-cancellable operating lease for new office space effective September 1, 2015. The new lease has initial base
rent of $8,500 per month beginning in October 2015, with the total base rent over the term of the lease of approximately $318,000
which includes rent abatements. We have also opened a 1,333 square foot office in Raleigh, North Carolina for which the lease
runs until July 31, 2018. We believe our current office space is sufficient to meet our current needs.



We recognize rental expense of
the facility on a straight-line basis over the term of the 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



We are currently not party to
any material legal or administrative proceedings and are not aware of any material pending or threatened legal or administrative
proceedings in which we will become involved.



Item 
4.        Mine Safety Disclosures



Not applicable.





65









PART II



Item 5.	     Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



Market Data



Our common stock is quoted on
the OTCQX under the symbol “AYTU.” Prior to December 14, 2015, our common stock was quoted on the OTCQB Market. The
following table sets forth the range of bid and asked closing quotations for our common stock on the OTCQX or OTCQB, for the periods
shown. The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent
actual transactions.



|Fiscal Year ended June 30,
    2016      |  | High |          |  | Low |  
|---------------------------------------- |  | ---- | -------- |  | --- | -
|First Quarter (ended September 30, 2015) |  | $    | 1,140.00 |  |     | $
|Second Quarter (ended December 31, 2015) |  | $    | 1,140.00 |  |     | $
|Third Quarter (ended March 31, 2016)     |  | $    | 840.00   |  |     | $
|Fourth Quarter (ended June 30, 2016)     |  | $    | 146.40   |  |     | $



|Fiscal Year ended June
    30, 2017      |  |   | High   |  |  |   | Low   | 
|---------------------------------------- |  | - | ------ |  |  | - | ----- | 
|First Quarter (ended September 30, 2016) |  | $ | 100.00 |  |  | $ | 60.20 | 
|Second Quarter (ended December 31, 2016) |  | $ | 77.80  |  |  | $ | 20.40 | 
|Third Quarter (ended March 31, 2017)     |  | $ | 25.20  |  |  | $ | 14.82 | 
|Fourth Quarter (ended June 30, 2017)     |  | $ | 18.20  |  |  | $ | 10.20 | 



On August 21, 2017, the closing
price as reported on the OTCQX of our common stock was $3.80. As of August 21, 2017, there were 570 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. The following table displays equity compensation plan
information as of June 30, 2017.



66









|Plan Category                                              |  | Number of Securities to
    be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) |        |  | Weighted-Average Exercise
    Price of Outstanding Options, Warrants and Rights (b) |   |       | Number of Securities Remaining
    Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected
    in Column (a)) (c) | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ------ |  | ----------------------------------------------------------------------------------- | - | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------ | 
|                                                           |  |                                                                                                     |        |  |                                                                                     |   |       |                                                                                                                                                  | 
|Equity compensation plans approved by security holders     |  |                                                                                                     | 38,263 |  |                                                                                     | $ | 16.31 |                                                                                                                                                  | 
|Equity compensation plans not approved by security holders |  |                                                                                                     | 32,641 |  |                                                                                     | $ | 44.12 |                                                                                                                                                  | 
|                                                           |  |                                                                                                     |        |  |                                                                                     |   |       |                                                                                                                                                  | 
|Total                                                      |  |                                                                                                     | 70,904 |  |                                                                                     | $ | 29.11 |                                                                                                                                                  | 



In connection with our private placement of approximately $4.7 million of common stock in 2013, we were obligated
to issue to the placement agent warrants to purchase 444 shares of our common stock. The placement agent warrants have a term of
five years from the date of issuance and an exercise price of $1,087.20. In connection with our private placement of approximately
$5.2 million of convertible notes in July and August 2015, we were obligated to issue to the placement agents warrants for an amount
of shares equal to 8% of the number of shares of our common stock issued upon conversion of the notes and any accrued interest.
The placement agents’ warrants have a term of five years from the date of issuance of the related notes in July and August
2015, an exercise price equal to 100% of the price per share at which equity securities were sold in our next equity financing,
and provide for cashless exercise. Those warrants were not approved by our stockholders. In connection with the conversions of
the notes in February 2016 and May 2016, which were triggered by an equity financing in January 2016 and our public offering of
common stock and warrants in May 2016, respectively, we issued warrants to the placement agents to purchase an aggregate of 1,115
shares of our common stock at a weighted average exercise price of $156.00 per share, and an aggregate of 1,129 shares of our common
stock at an exercise price of $96.00 per share. In connection with our May 2016 public offering, we issued warrants to purchase
an aggregate of 5,474 shares of common stock at an exercise price of $120.00 to the underwriters of the public offering. In July
2016, we issued warrants to purchase an aggregate of 4,402 shares of common stock at an exercise price of $80.00 to initial investors.
In connection with our November 2016 public offering, we issued warrants to purchase an aggregate of 20,077 shares of common stock
with an exercise price of $15.00.



Dividend
Policy



We have not paid any cash dividends
on our common stock 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.



67







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, 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.



Overview







We are a commercial-stage specialty pharmaceutical company concentrating
on developing and commercializing products with an initial focus on urological diseases and conditions. We are currently focused
on addressing significant medical needs in the areas of hypogonadism, male infertility, urological cancers and female personal
care.







Through a multi-step reverse triangular merger, on April 16,
2015, Vyrix Pharmaceuticals, Inc. (“Vyrix”) and Luoxis Diagnostics, Inc. (“Luoxis”) merged with and into
our Company (herein referred to as the Merger) and we abandoned our pre-merger business plans to solely pursue the specialty healthcare
market, including the business of Vyrix and Luoxis. In the Merger, we acquired the RedoxSYS, MiOXSYS and Zertane products. On June
8, 2015, we reincorporated as a domestic Delaware corporation under Delaware General Corporate Law and changed our name from Rosewind
Corporation to Aytu BioScience, Inc., and effected a reverse stock split in which each common stock holder received one share of
common stock for every 12.174 shares outstanding. On June 30, 2016, we effected another reverse stock split in which each common
stock holder received one share of common stock for each 12 shares. Additionally, on August 25, 2017 we completed another reverse
split in which each common stockholder received one share of common stock for each 20 shares then owned. All share and per share
amounts in this Report have been adjusted to reflect the effect of these two reverse stock splits (herein referred to collectively
as the Reverse Stock Splits).



In May 2015, we entered into an asset purchase agreement with
Jazz Pharmaceuticals, Inc., pursuant to which we purchased assets related to Jazz Pharmaceuticals’ product known as ProstaScint
(capromab pendetide), including certain intellectual property and contracts, and the product approvals, inventory and work in progress
(together, the “ProstaScint Business”), and assumed certain of Jazz Pharmaceuticals’ liabilities, including those
related to product approvals and the sale and marketing of ProstaScint. The purchase price consisted of the upfront payment of
$1.0 million. We also paid an additional $500,000 within five days after transfer for the ProstaScint-related product inventory
and $227,000 on September 30, 2015 (which represents a portion of certain FDA fees). We also will pay 8% on net sales made after
October 31, 2017, payable up to a maximum aggregate payment of an additional $2.5 million. Based upon the estimated expiration
date, per our projections we could stop selling this product mid-fiscal 2019, thus, we impaired the non-tangible assets related
to this product.



In October 2015, we entered into an asset purchase agreement
with FSC Laboratories, Inc., or FSC. Pursuant to the agreement, we purchased assets related to FSC’s product known as Primsol
(trimethoprim solution), including certain intellectual property and contracts, inventory, work in progress and all marketing and
sales assets and materials related solely to Primsol (together, the “Primsol Business”), and assumed certain of FSC’s
liabilities, including those related to the sale and marketing of Primsol arising after the closing. We paid $500,000 at closing
for the Primsol Business and we paid an additional $142,000, of which $102,000 went to inventory and $40,000 towards the Primsol
Business, for the transfer of the Primsol-related product inventory. We also paid $500,000 on April 1, 2016 and $500,000 on July
1, 2016, and paid $250,000 in November 2016 (together, the “Installment Payments”), for a total purchase price of $1,892,000.
During fiscal 2017 we sold our Prismol product which was used in the treatment of urinary tract infections.





In April 2016, we entered into a license and supply agreement to acquire the exclusive U.S. rights to Natesto
nasal gel from Acerus Pharmaceuticals Corporation, or Acerus, which rights we received on July 1, 2016. We paid Acerus an upfront
fee of $2.0 million upon execution of the agreement. In October 2016 we paid an additional $2.0 million and in January of 2017,
we paid the final upfront payment of $4.0 million. We also purchased on April 28, 2016, an aggregate of 12,245,411 shares of Acerus
common stock for Cdn. $2,535,000 (approximately US $2.0 million), with a purchase price per share equal to Cdn. $0.207 or approximately
US $0.16 per share. We also agreed to make various payments based upon certain sales milestones up to an aggregate of $37.5 million
based on net sales of Natesto. During the term of the agreement, we will purchase all of our Natesto product needs from Acerus
at a designated price. In our third fiscal quarter of 2017. We sold all of the shares of common stock of Acerus Pharmaceutics Corporation
that we acquired in April 2016 for approximately $2.0 million as a condition to our licensing of Natesto. Acerus common stock is
traded on the Toronto Stock Exchange. The gross proceeds from the sale of the Acerus shares was approximately $1.1 million.



68







In May 2016, we sold in an underwritten
public offering 78,125 shares of our common stock, par value $0.0001 per share, and warrants to purchase up to an aggregate 78,125
shares of common stock at a combined public offering price of $96.00 per share and related warrant. Each warrant is exercisable
for five years from issuance and has an exercise price equal to $120.00. In addition, we granted the underwriters a 45-day option
to purchase up to an additional 11,719 shares of common stock and/or 11,719 additional warrants. The underwriters elected a partial
exercise of their over-allotment option to purchase 8,542 warrants. The net cash proceeds from the sale of the shares and warrants
were approximately $6.6 million, after deducting underwriting discounts and commissions and estimated offering expenses.



In July 2016, Aytu issued 50,000
shares of restricted stock to executive officers and directors.



In July 2016, we entered into a purchase agreement (the “Purchase Agreement”), together with a
registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), an Illinois limited liability company. Upon signing the Purchase Agreement, Lincoln Park agreed to purchase 6,684
shares of our common stock for $500,000 as an initial purchase under the agreement. We
also issued as a commitment fee to Lincoln Park of 2,625 shares of common stock. During fiscal 2017, Lincoln Park purchased 10,000
common shares for $240,000. As part of our August 2017 private placement financing, we terminated the Purchase Agreement, effective
August 16, 2017.



On October 27, 2016, we priced
an underwritten public offering of 286,749 shares of our common stock and warrants to purchase up to an aggregate of 286,749 shares
of our common stock at a combined public offering price of $30.00 per share and related warrant. The gross proceeds
from the offering to Aytu was $8.6 million, before deducting the underwriting discount and estimated offering expenses payable
by Aytu, but excluding the exercise of any warrants. The Company also granted the representative of the underwriters a 45-day
option to purchase up to an additional 43,013 shares and/or 43,013 additional warrants. The shares of common stock were immediately
separable from the warrants and were issued separately. The warrants are exercisable immediately upon issuance, expire five years
after the date of issuance and have an exercise price of $37.20 per share. On November 2, 2016, we completed the public
offering. In connection with the closing, the underwriters purchased a portion of their 45-day option and purchased an additional
14,263 additional warrants at closing. Our net cash proceeds from the offering, after deducting the placement agent fees and the
offering expenses, was $7.6 million.



On February 28, 2017, we consummated
our warrant tender offer to exercise, at a temporarily reduced exercise price of $15.00 per share, (i) outstanding warrants to
purchase 86,667 shares of our common stock with an exercise price of $120.00 per share, which were originally issued to investors
in our May 2016 financing (the “May 2016 Warrants”), and (ii) outstanding warrants to purchase 301,013 shares of our
common stock with an exercise price of $37.20 per share, which were originally issued to investors in our October 2016 financing
(the “October 2016 Warrants” and together with the May 2016 Warrants, the “Original Warrants”).



The warrant tender offer expired
at 11:59 p.m. Eastern Time on the evening of February 27, 2017 (the “Expiration Date”). Original warrants to purchase
an aggregate of 149,552 shares of our common stock were tendered and exercised in the warrant tender offer, for aggregate gross
proceeds to our Company of approximately $2.2 million. Original warrants tendered and exercised represent approximately 38.6%
of the original warrants outstanding immediately prior to the Expiration Date. Original warrants that were not tendered and exercised
remain in effect at the pre-tender offer exercise prices of $120.00 per share and $37.20 per share, respectively.



Joseph Gunnar & Co., LLC and
Fordham Financial Management, Inc. acted as warrant solicitation agents and received a fee equal to 6% of the aggregate gross
proceeds to our Company, plus reimbursement of approximately $25,000 in out-of-pocket expenses and indemnification against certain
liabilities. We also reduced the exercise prices of an aggregate of 25,541 warrants to purchase shares of our common stock, which
were originally issued as underwriters’ compensation in the May 2016 and October 2016 financings, from $120.00 per share
and $37.20 per share, respectively, to $15.00 per share. In March, we also reduced the price of the 429 warrants issued to the
bankers that helped us with the Convertible Promissory Notes in fiscal 2016 to an exercise price of $15.00.



On March 16, 2017, we reduced
the exercise price of outstanding options issued to directors, employees and consultants to purchase an aggregate of 36,834 shares
of our common stock from a weighted average exercise price of $70.60 to $16.40 to incentivize the holders of these options.



On March 31, 2017, we entered
into and closed on an Asset Purchase Agreement with Allegis Holdings, LLC (the “Purchaser”). Pursuant to the agreement,
we sold to the Purchaser all of our assets related to our Primsol product, including certain intellectual property and contracts,
inventory, work in process and all marketing assets and materials related solely to Primsol (together, the “Primsol Asset”).
We evaluated this transaction and concluded that it is not significant to our business.



69







On May 5, 2017, we acquired Nuelle,
Inc, or Nuelle, a women’s sexual health company. This transaction expanded our product portfolio with the addition of the
Fiera® personal care device for women. Fiera was recently launched in the U.S. and is a proprietary, revenue-generating
product scientifically proven to enhance physical arousal and sexual desire in the millions of adult women around the world impacted
by changes in sexual desire. This acquisition adds a novel, commercial-stage product in a complementary adjacency readily accessible
by our U.S.-based commercial infrastructure. We purchased Nuelle for 125,000 common shares at closing and future contingent royalty
payment averaging the high single digits and milestone payments dependent on achieving certain annualized sales amounts. Nuelle
was previously a portfolio company of leading venture capital firm New Enterprise Associates.



On August 11, 2017, we entered into a Securities Purchase Agreement
with various investors pursuant to which we agreed to sell Class A and Class B equity units for gross proceeds of approximately
$11.8 million. Class A units consist of one (1) share of common stock and a warrant to purchase one and one-half (1.5) shares
of common stock and were sold at a negotiated price of $3.00 per unit. Class B units consist of one (1) share of our newly created
Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase one and one-half (1.5)
shares of common stock for each share of common stock into which the Series A Preferred Stock is convertible and were sold at
a negotiated price of $1,000 per unit to those purchasers who, together with their affiliates and certain related parties, would
beneficially own more than 9.99% of our outstanding common stock following the offering. The offering closed on August 15, 2017.



In the offering, we issued an aggregate of 3,196,665 shares of our
common stock, 2,250 shares of Series A Preferred Stock and warrants to purchase up to an aggregate of 5,919,998 shares of our common
stock.



As of the date of this Report, we have financed operations through
a combination of private and public debt and equity financings including net proceeds from the private placements of stock and
convertible notes. Although it is difficult to predict our liquidity requirements, based upon our current operating plan, as of
the date of this Report, we believe we will have sufficient cash to meet our projected operating requirements into the first half
of fiscal 2019, at which point we anticipate nearing or reaching cash-flow breakeven. See “Liquidity and Capital Resources.”



We have only begun to generate material revenues from the commercialization of our product candidates in the
last fiscal year. We have recognized approximately $3.2 million in revenue from Natesto, ProstaScint, Primsol, MiOXSYS and Fiera
sales during fiscal 2017. We have incurred accumulated net losses since our inception, and at June 30, 2017, we had an accumulated
deficit of $69.1 million. Our net loss was $22.5 million for fiscal 2017 and we used $13.8 million in cash from operations during
that year.



Significant Accounting Policies
and Estimates



Information regarding our Significant
Accounting Policies and Estimates is contained in Note 2 to the Financial Statements.



Newly Issued Accounting
Pronouncements



Information regarding the recently
issued accounting standards (adopted and not adopted as of June 30, 2017) is contained in Note 2 to the Financial Statements.



Results of Operations—June
30, 2017 Compared to June 30, 2016



Results of operations for the
year ended June 30, 2017 (“fiscal 2017”) and the year ended June 30, 2016 (“fiscal 2016”) reflected
losses of approximately $22.5 million and $28.2 million, respectively.



Revenue



Product and service
revenue



The total product and service revenue recognized during 2017 was $3.2 million, related to the sales of our
products Natesto, ProstaScint,and Primsol, the MiOXSYS and RedoxSYS Systems, as well as products in the Fiera line. The product
and service revenue in fiscal 2016 was $2.1 million, which was from the ProstaScint and Primsol product lines, as well as the RedoxSYS
and MiOXSYS Systems. The increase in product revenue of over 57% from fiscal 2016 to 2017 is due to our acquisitions and ensuing
sales of the Natesto and Fiera products, which occurred late in fiscal 2016 and late fiscal 2017, respectively, and expanded marketing
of our commercial products.



70







As is customary in the pharmaceutical
industry, our gross product sales are subject to a variety of deductions in arriving at reported net product sales. Provisions
for these deductions are recorded concurrently with the recognition of gross product sales revenue and include discounts, chargebacks,
distributor fees, processing fees, as well as allowances for returns and Medicaid rebates. Provision balances relating to estimated
amounts payable to direct customers are netted against accounts receivable and balances relating to indirect customers are included
in accounts payable and accrued liabilities. The provisions recorded to reduce gross product sales and net product sales are as
follows:



|                                                                              |  | Year
    Ended June 30, |           
|----------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                              |  | 2017                    |           
|                                                                              |  |                         |           
|Gross product and service revenue                                             |  | $                       | 4,694,000 
|Provisions to reduce gross product sales to
    net product and service sales |  |                         | (1,472,000
|Net product and service revenue                                               |  | $                       | 3,222,000 
|                                                                              |  |                         |           
|Percentage to net sales                                                       |  |                         | 68.6      



License revenue



During fiscal 2017 and fiscal
2016, we recognized $0 and $512,000, respectively, in license revenue. In 2012, we received a payment of $500,000 for our license
agreement of our former product candidate Zertane with a Korean pharmaceutical company. This payment was deferred and was being
recognized over 10 years. In 2014, we received a payment of $250,000 for our license agreement of Zertane with a Canadian-based
supplier. This payment was deferred and was being recognized over seven years. At June 30, 2016, Aytu determined that the Zertane
asset has no value as Aytu does not have the resources to complete the necessary clinical trials and bring it to market before
the patents expire. Therefore, the remaining unamortized deferred revenue of $426,000 which was outstanding as of the date it
was determined not to proceed with the clinical trials was recognized as of June 30, 2016.



Expenses



Cost of Sales



The cost of sales of $1.4 million
and $1.0 million recognized for fiscal 2017 and fiscal 2016, respectively, are related to the Natesto, ProstaScint and Primsol
products, the MiOXSYS and RedoxSYS Systems, as well as products in the Fiera line. We expect to see cost of sales to continue
to increase in the year ending June 30, 2018 (“fiscal 2018”) as we expect our sales of our current products to continue
to grow.



Research and Development



Research and development costs
consist of clinical trials and sponsored research, labor, stock-based compensation, sponsored research – related party and
consultants and other. These costs relate solely to research and development without an allocation of general and administrative
expenses and are summarized as follows:





|                                       |  | Year Ended June 30, |          
|-------------------------------------- |  | ------------------- | ---------
|                                       |  | 2017                |          
|                                       |  |                     |          
|Clinical trials and sponsored research |  | $                   | 956,000  
|Manufacturing tech transfer            |  |                     | -        
|Labor                                  |  |                     | -        
|Stock-based compensation               |  |                     | -        
|Sponsored research - related party     |  |                     | 388,000  
|Consultants and other                  |  |                     | 4,000    
|                                       |  | $                   | 1,348,000





Comparison of Years Ended June
30, 2017 and 2016



Research and development expenses
decreased $5.0 million, or 78.7%, in fiscal 2017 compared to fiscal 2016. This was due primarily to placing the contract for our
manufacturing tech transfer on hold for our ProstaScint product, as well as shifting our focus to our existing commercialized
products. We expect that the research and development expenses will decrease in fiscal 2018 as compared to fiscal 2017 due to
the fact that we will continue to focus on our existing products.



71







General and Administrative



General and administrative expenses
consist of personnel costs for employees in executive, business development and operational functions and director fees; stock-based
compensation; patents and intellectual property; professional fees including legal, auditing, accounting, investor relations,
shareholder expense and printing and filing of SEC reports; occupancy, travel and other including rent, governmental and regulatory
compliance, insurance, and professional subscriptions. These costs are summarized as follows:





|                               |  | Year Ended June 30, |           
|------------------------------ |  | ------------------- | ----------
|                               |  | 2017                |           
|                               |  |                     |           
|Labor                          |  | $                   | 7,488,000 
|Stock-based compensation       |  |                     | 3,227,000 
|Professional fees              |  |                     | 1,133,000 
|Occupancy, travel and other    |  |                     | 5,267,000 
|Patent costs                   |  |                     | 168,000   
|Director fees                  |  |                     | 160,000   
|Management fee - related party |  |                     | 165,000   
|                               |  | $                   | 17,608,000



Comparison of Years Ended June
30, 2017 and 2016



General and administrative costs
increased $8.8 million, or 99.5%, in fiscal 2017 over fiscal 2016. The increase in labor costs, stock-based compensation, and
occupancy, travel and other primarily relates to increased costs related to the increase in commercial department staffing during
fiscal 2017 as compared to fiscal 2016, increased travel expense and stock options granted, as well as the continuing vesting
of stock option awards granted in previous years. We expect general and administrative expenses to remain flat in fiscal 2018.



Impairment of Intangible Assets



Impairment of intangible assets
was $1.3 million for fiscal 2017, which was related to the impairment of the ProstaScint product. Impairment of intangible assets
was $7.5 million for fiscal 2016 related to the impairment of the Zertane in process research and development (IPRD).



Amortization of Intangible
Assets



Amortization of intangible assets
was $1.7 million and $665,000 for fiscal 2017 and fiscal 2016, respectively. This expense increased due to the acquisition of
the Natesto and Fiera businesses in late fiscal 2016 and late fiscal 2017, respectively, and the corresponding amortization of
their finite-lived intangible assets.



Net Cash Used in Operating
Activities



During fiscal 2017, our operating
activities used $13.8 million in cash. The use of cash was approximately $8.7 million lower than the net loss due primarily to
non-cash charges for asset impairment, stock-based compensation, issuance of restricted stock, depreciation, amortization and
accretion, amortization of prepaid research and development related party, common stock issued to executives, warrants issued
to initial investors, and an increase in accounts payable. These charges were offset by a decrease in accrued compensation, accrued
liabilities, and accounts receivable, a gain on the sale of an asset, and derivative income.



During fiscal 2016, our operating
activities used $10.7 million in cash. The use of cash was approximately $17.5 million lower than the net loss due primarily to
non-cash charges for asset impairment, amortization of the beneficial conversion feature, stock-based compensation, depreciation,
amortization and accretion, unrecognized loss on investment, noncash interest expense, amortization of prepaid research and development
related party, an increase in accounts payable and accrued liabilities and an increase accrued compensation offset by an increase
to inventory and a decrease to deferred revenue.



72







Net Cash Used in Investing
Activities



During fiscal 2017, cash was received
through the sale of Primsol, the sale of our investment in Acerus and the merger with Nuelle, Inc. Cash was used to make additional
required payments for Natesto and Primsol, and to purchase fixed assets.



During fiscal 2016, cash was used
to acquire Natesto, our investment in Acerus common stock, Primsol, the purchase of fixed assets as well as the refund of a deposit
for office space.



Net Cash from Financing
Activities



Net cash of $10.2 million provided
by financing activities during fiscal 2017 was primarily related to our warrant tender offer of $2.2 million offset by issuance
costs of $312,000, our registered public offering of $8.6 million of common stock and warrants offset by cash issuance costs of
$998,000, and the issuance of common stock to Lincoln Park Capital of $740,000 offset by issuance costs of $91,000.



Net cash of $16.7 million provided
by financing activities during fiscal 2016 was primarily related to our registered public offering of $7.5 million of common stock
and warrants offset by cash issuance costs of $905,000, the issuance of convertible promissory notes which reflects gross proceeds
of $5.2 million offset by the cash portion of the debt issuance costs of $298,000, as well as the $5.0 million stock subscription
payment from Ampio and $200,000 for a sale of stock subscriptions in January 2016 as well as the issuance costs of $30,000 related
to the debt conversion.



Contractual Obligations and
Commitments



Information regarding our Contractual
Obligations and Commitments is contained in Note 7 to the Financial Statements.



Liquidity and Capital Resources



We are a relatively young company
and we have not yet generated substantial revenue as our primary activities are focused on commercializing our approved products,
acquiring products and developing our product candidates, and raising capital. As of June 30, 2017, we had cash, cash equivalents
and restricted cash totaling $878,000 available to fund our operations offset by an aggregate of $3.0 million in accounts payable
and other and accrued liabilities.



With the additional capital that we raised in August 2017 of
approximately $11.8 million, we believe we have sufficient resources to fund our operations through fiscal 2018 and into the middle
of fiscal 2019. We believe, if our sales continue to grow as we have projected, this could be sufficient until we reach cash-flow
breakeven and potentially profitability. If necessary, in the future we will evaluate the capital markets from time to time to
determine if we need to raise additional capital in the form of equity, convertible debt or other financing instruments, depending
on market conditions relative to our need for funds at such time. We may seek to raise additional capital at such time as we conclude
that such capital is available on terms that we consider to be in the best interests of our Company and our stockholders.



At this time, we expect to satisfy our future cash needs through sales revenue related to our current products
and if necessary, private or public sales of our securities or debt financings. We cannot be certain that financing will be available
to us on acceptable terms, or at all. Over the last three years, including recently, volatility in the financial markets has adversely
affected the market capitalizations of many bioscience companies and generally made equity and debt financing more difficult to
obtain. This volatility, coupled with other factors, may limit our access to additional financing.



If we cannot raise adequate additional
capital in the future when we require it, we could be required to delay, reduce the scope of, or eliminate one or more of our
commercialization efforts or our research and development programs. We also may be required to relinquish greater or all rights
to product candidates at less favorable terms than we would otherwise choose. This may lead to impairment or other charges, which
could materially affect our balance sheet and operating results.



Going Concern





The continuation of our business as of June 30, 2017 was dependent
upon us obtaining further financing for our business. With the completion of our financing of $11.8 million in August 2017, we
believe this going concern has been remediated as we believe that we now have enough capital to operate through fiscal 2018 and
into the middle of fiscal 2019 and possibly achieve cash-flow breakeven and profitability with no additional financing, please
see Note 3 for additional information.



73







Off Balance Sheet Arrangements



We do not have off-balance sheet
arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “variable
interest entities.”



Impact of Inflation



In general, we believe that our
operating expenses can be negatively impacted by increases in the cost of clinical trials due to inflation and rising health care
costs.



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.



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, 2017. 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, 2017, our internal control over financial reporting is effective based on these criteria.



EKS&H LLLP, 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, 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.



74







Item 9B.    Other
Information



None.

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 August 15, 2017. Our Board of Directors is currently comprised
of five 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     |  | 42  |  | Chairman and Chief Executive Officer                 
|Jarrett T. Disbrow    |  | 42  |  | Chief Operating Officer                              
|Gregory A. Gould      |  | 51  |  | Chief Financial Officer, Secretary,
    and Treasurer
|Michael Macaluso      |  | 65  |  | Director                                             
|Carl C. Dockery       |  | 54  |  | Director                                             
|John A. Donofrio, Jr. |  | 49  |  | Director                                             
|Gary V. Cantrell      |  | 62  |  | 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.



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 exclusive consulting role with Mayne Pharma (ASX: MYX) as Business Development Executive focused on acquiring branded
prescription assets for Mayne’s U.S. Specialty Brands Division. 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.



75







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 serves as a director of CytoDyn
Inc. (OTCQB: “CYDY”), a biotechnology company. 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.



John A. Donofrio, Jr. –
Director



John
Donofriojoined our Board in July 2016. He is a Senior
Finance Executive with24 years of experience in the pharmaceutical industry across a broad range of areas, including consolidated
financial reporting, international accounting and internal controls, financial systems development and implementation, cost accounting,
inventory management, supply chain, transfer pricing, budget and forecast planning, integration of mergers and acquisitions and
business development.He has served as theChief Financial Officer and Head of North
American Business Development for Merz North America, or Merz, since August 2013. Merz is a specialty healthcare company that
develops and commercializes innovative treatment solutions in aesthetics, dermatology and neurosciences in the U.S. and Canada. At
Merz, Mr. Donofrio is accountable for financial performance, cost management, business development and strategic business planning
and analysis for the finance organization in North America. 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. Mr. Donofrio 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 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 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.



Jarrett T. Disbrow –
Chief Operating Officer



Jarrett 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 Vyrix from November
2013. Mr. Disbrow joined Vyrix from Eurus Pharma LLC, or Eurus Pharma, where he held the position of general manager from 2011
to 2013. Prior to joining Eurus Pharma, Mr. Disbrow was the founder, president and chief executive officer of Arbor Pharmaceuticals,
Inc., or Arbor Pharmaceuticals from 2006 to 2010. Following Arbor Pharmaceuticals’ acquisition in 2010, Mr. Disbrow remained
with the company as vice president of commercial development. Prior to founding Arbor Pharmaceuticals in 2006, he was head of
marketing for Accentia Biopharmaceuticals, Inc. from 2002 to 2006. Mr. Disbrow began his career with GlaxoWellcome, Inc. (now
GlaxoSmithKline plc) from 1997 to 2001, where he held positions of increasing responsibility in sales and later marketing. Mr.
Disbrow received a BS in business management from North Carolina State University in Raleigh, NC. Mr. Disbrow served on our Board
of Directors from April 2015 to July 2016.



76







Gregory A. Gould – Chief
Financial Officer, Secretary, and Treasurer



Gregory A. Gould has been our Chief Financial Officer since
April 16, 2015. However, prior to joining Aytu on a full time basis in June 2017, he split his time between Aytu and Ampio Pharmaceuticals,
Inc. from April 2015 until June 2017. Mr. Gould joined Ampio as their Chief Financial Officer, Secretary and Treasurer in June
2014. Prior to joining Ampio, he provided financial and operational consulting services to the biotech industry through his consulting
company, Gould LLC from April 2012 until June 2014. Mr. Gould was Chief Financial Officer, Treasurer and Secretary of SeraCare
from November 2006 until the company was sold to Linden Capital Partners in April 2012. During the period from July 2011 until
April 2012 Mr. Gould also served as the Interim President and Chief Executive Officer of SeraCare Life Sciences. Mr. Gould has
held several other executive positions at publicly traded life sciences companies including the Chief Financial Officer role at
Atrix Laboratories, Inc., an emerging specialty pharmaceutical company focused on advanced drug delivery. During Mr. Gould’s
tenure at Atrix he was instrumental in the negotiation and sale of the company to QLT, Inc. (now Novelion Therapeutics, Inc.)
for over $855 million. He also played a critical role in the management of several licensing agreements including the global licensing
agreement with Sanofi-Synthelabo of the Eligard® products. Mr. Gould was the Chief Financial Officer at Colorado MedTech,
Inc., a publicly traded medical device design and manufacturing company where he negotiated the transaction to sell the company
to KRG Capital Partners. Mr. Gould began his career as an auditor with Arthur Andersen, LLP. He currently serves on the board
of directors of CytoDyn, Inc., a publicly traded drug development company pursuing anti-viral agents for the treatment of HIV.
Mr. Gould graduated from the University of Colorado with a BS in Business Administration and is a Certified Public Accountant.



Family Relationships



Jarrett T. Disbrow, our Chief
Operating Officer, 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 current or former executive officers and directors.



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, except for the following:
a Form 3 and Form 4 for John Donofrio to report the appointment as a director, the issuance of restricted stock and stock options,
which reports were due on July 15, 2016, and were filed on July 18, 2016.



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 Nominating and Governance Committee. Our Audit Committee consists of Mr. Donofrio (Chair),
Mr. Cantrell and Mr. Dockery. Our Compensation Committee consists of Mr. Cantrell (Chair), 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 http://www.aytubio.comunder 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.



77







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.



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 the board chair, $25,000
for each other director, $10,000 for each committee chair and $5,000 for each other committee member; a grant of 65,000 restricted
shares of stock upon appointment to the board; and an annual stock option grant of 15,000 shares thereafter.



The following table provides information
regarding all compensation paid to non-employee directors of Aytu during the fiscal year ended June 30, 2017.



|Name                     |  | Fees Earned or
    Paid in Cash |        |  | Stock Option Awards
    (1) |   |        | All Other Compensation
    (2) |  |   | Total   | 
|------------------------ |  | ------------------------------- | ------ |  | --------------------------- | - | ------ | ------------------------------ |  | - | ------- | 
|                         |  |                                 |        |  |                             |   |        |                                |  |   |         | 
|Gary V. Cantrell (3)     |  | $                               | 45,000 |  |                             | $ | 46,860 |                                |  | $ | 209,950 | 
|Carl C. Dockery (3)      |  | $                               | 45,000 |  |                             | $ | 20,840 |                                |  | $ | 209,950 | 
|John A. Donofrio Jr. (3) |  | $                               | 45,000 |  |                             | $ | 46,860 |                                |  | $ | 209,950 | 
|Michael E. Macaluso (3)  |  | $                               | 25,000 |  |                             | $ | 70,331 |                                |  | $ | 209,950 | 



| | (1) | This column reflects the aggregate
                                         grant date fair value computed in accordance with Financial Accounting Standards Board,
                                         or FASB, issued Accounting Standards Update, or ASC, Topic 718
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | This column reflects the aggregate
                                         grant date fair value of restricted stock.
| | --- | ----------------------------------------------------------------------------------------------------------------------

| | (3) | As of June 30, 2017, the number
                                         of shares underlying options and restricted shares held by each non-employee director
                                         was as follows: 750 options and 3,250 restricted shares for Mr. Cantrell; 334 options
                                         and 3,250 restricted shares for Mr. Dockery; 750 options and 3,250 restricted shares
                                         for Mr. Donofrio; 1,125 options and 3,250 restricted shares for Mr. Macaluso. Gary V.
                                         Cantrell and John A. Donofrio Jr. were each appointed a director in July 2016 and therefore
                                         received no compensation or equity awards from Aytu in the fiscal year ended June 30,
                                         2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



78







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, 2017 and 2016
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)        |  |         | (d)       |  |  | (e)              |  |  | (f)                   |         |  | (g)                                               |  |         | (h)                                                                                   |  |  | (i)                         |  |  | (j)       |  
|                                   |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Named Executive Officers           |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|                                   |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Joshua R. Disbrow                  |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Chief Executive Officer            |  |      | 2017 |  |            |  | 250,000 |           |  |  | -                |  |  |                       | 614,000 |  |                                                   |  | 189,000 |                                                                                       |  |  | -                           |  |  |           | -
|since December 2012                |  |      | 2016 |  |            |  | 250,000 |           |  |  | 313,000          |  |  |                       | -       |  |                                                   |  | 559,000 |                                                                                       |  |  | -                           |  |  |           | -
|                                   |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Jarrett T. Disbrow                 |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Chief Operating Officer, Secretary |  |      | 2017 |  |            |  | 250,000 |           |  |  | -                |  |  |                       | 533,000 |  |                                                   |  | 189,000 |                                                                                       |  |  | -                           |  |  |           | -
|and Treasurer                      |  |      | 2016 |  |            |  | 250,000 |           |  |  | 288,000          |  |  |                       | -       |  |                                                   |  | 559,000 |                                                                                       |  |  | -                           |  |  |           | -
|                                   |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Gregory A. Gould (2)               |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Chief Financial Officer            |  |      | 2017 |  |            |  | 10,000  |           |  |  | -                |  |  |                       | 533,000 |  |                                                   |  | 79,000  |                                                                                       |  |  | -                           |  |  |           | -
|since June 2014                    |  |      | 2016 |  |            |  | -       |           |  |  | 250,000          |  |  |                       | -       |  |                                                   |  | -       |                                                                                       |  |  | -                           |  |  |           | -
|                                   |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|Jonathan H. McGrael (3)            |  |      |      |  |            |  |         |           |  |  |                  |  |  |                       |         |  |                                                   |  |         |                                                                                       |  |  |                             |  |  |           |  
|VP of Commercial Operations        |  |      | 2017 |  |            |  | 144,000 |           |  |  | 75,000           |  |  |                       | 452,000 |  |                                                   |  | 91,000  |                                                                                       |  |  | -                           |  |  |           | -
|                                   |  |      | 2016 |  |            |  | 140,000 |           |  |  | 238,000          |  |  |                       | -       |  |                                                   |  | 186,000 |                                                                                       |  |  | -                           |  |  |           | -



| | (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 11 — Equity Instruments.”
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Mr. Gould was appointed
                                         to Chief Financial Officer, Secretary and Treasurer full time effective June 16, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Mr. McGrael was hired
                                         in September 2015 and he resigned in March, 2017.
| | --- | ----------------------------------------------------------------------------------------------------------------

| | (4) | Represents reimbursed
                                         relocation expenses and severance.
| | --- | -------------------------------------------------------------------------------------------------



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 the most beneficial to our company and our shareholders. No interest is paid on amounts reimbursed to the executives.



79







Grants
of Plan-Based Awards



The following table sets forth
certain information regarding grants of plan-based awards to the Named Executive Officers during the year ended June 30, 2017:



|Name                     |  | Grant Date |  | All Other Option Awards:
    Number of Securities Underlying Options
    (#) |       |  | Exercise Price of Option
    Awards ($/Share) |   |       | Grant Date Fair Value
    of Option Awards ($)(1) | 
|------------------------ |  | ---------- |  | ---------------------------------------------------------------------------- | ----- |  | --------------------------------------------- | - | ----- | ------------------------------------------------- | 
|                         |  |            |  |                                                                              |       |  |                                               |   |       |                                                   | 
|Named Executive Officers |  |            |  |                                                                              |       |  |                                               |   |       |                                                   | 
|Joshua R Disbrow         |  | 7/7/2016   |  |                                                                              | 3,000 |  |                                               | $ | 16.40 |                                                   | 
|Jarrett T Disborw        |  | 7/7/2016   |  |                                                                              | 3,000 |  |                                               | $ | 16.40 |                                                   | 
|Gregory A Gould          |  | 7/7/2016   |  |                                                                              | 1,250 |  |                                               | $ | 16.40 |                                                   | 



| | (1) | The amounts reported
                                         in this column represent the aggregate grant date fair value computed in accordance with
                                         FASB ASC 718, excluding the effect of any estimated forfeitures and may not correspond
                                         to the actual value that will be realized by the named executive officer.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Outstanding Equity Awards at
Fiscal Year-End 2017



The following table contains certain
information concerning unexercised options for the Named Executive Officers as of June 30, 2017.





|                         |  | Option
    Awards                                                            |       |  | Stock
    Awards                                                                | 
|------------------------ |  | ---------------------------------------------------------------------------- | ----- |  | ------------------------------------------------------------------------------- | 
|Name                     |  | Number of
 Securities
 Underlying

    Unexercised
 Options
 Exercisable (#) |       |  | Number of
 Securities
 Underlying

    Unexercised
 Options
 Unexercisable
 (#) | 
|                         |  |                                                                              |       |  |                                                                                 | 
|Named Executive Officers |  |                                                                              |       |  |                                                                                 | 
|                         |  |                                                                              |       |  |                                                                                 | 
|Joshua R. Disbrow        |  |                                                                              | 834   |  |                                                                                 | 
|Joshua R. Disbrow        |  |                                                                              | 1,000 |  |                                                                                 | 
|Jarrett T. Disbrow       |  |                                                                              | 834   |  |                                                                                 | 
|Jarrett T. Disbrow       |  |                                                                              | 1,000 |  |                                                                                 | 
|Gregory A. Gould         |  |                                                                              | 1,042 |  |                                                                                 | 
|Gregory A. Gould         |  |                                                                              | 417   |  |                                                                                 | 
|Jonathan H. McGrael      |  |                                                                              | 834   |  |                                                                                 | 
|Jonathan H. McGrael      |  |                                                                              | 1,167 |  |                                                                                 | 



| | (1) | Based on $11.80 per share
which was the closing price of our common stock on OTCQX on June 30, 2017, the last trading day of that fiscal year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



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 discussed below). Mr. Disbrow is entitled to receive $250,000 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 16, 2017, we
extended this agreement for another 24 months.



We entered into an employment
agreement with Jarrett Disbrow, our Chief Operating Officer, in connection with his employment with us. 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 the officer’s
disability, or by the officer with or without Good Reason (as discussed below). Mr. Disbrow is entitled to receive $250,000 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
16, 2017, we extended this agreement for another 24 months.



80







On June 15, 2017, we entered into an employment agreement with
Gregory A. Gould, effective June 16, 2017, to serve as our Chief Financial Officer. Mr. Gould had been serving as our Chief Financial
Officer on a part-time basis since April 2015.



The agreement is identical to the two-year employment agreement
entered into effective April 16, 2017, with Jarrett Disbrow, our Chief Operating Officer, except for the positon that Mr. Gould
is to occupy. The agreement is for a term of 24 months beginning on June 16, 2017, subject to termination by us with or without
Cause (as defined below) or as a result of Mr. Gould’s disability, or by Mr. Gould with or without Good Reason (as defined
below). Mr. Gould is entitled to receive $250,000 in annual salary, plus a discretionary performance bonus with a target of 125%
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. Gould. Mr. Gould 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.





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.                                                                                                                                                                            





“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.



81







“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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



Our only obligation to Joshua
Disbrow, Jarrett Disbrow and Gregory A. Gould had a Change in Control occurred as of June 30, 2017, would be the acceleration
of the vesting of all options held by them at that date. On June 30, 2017, the closing price of our common stock was below the
exercise price for all of the options held by Joshua Disbrow, Jarrett Disbrow and Gregory A. Gould and therefore there would have
been no economic benefit to them upon the acceleration of vesting of those options.



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 August 15, 2017 for:



| | · | each beneficial owner of more than 5%
    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 August 15, 2017. The percentage ownership information
shown in the table is based upon 4,021,822 shares of common stock outstanding as of August 15, 2017.



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 15,
2017. 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 table below is 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.



82









|Name of Beneficial Owner                                                             |  | Number of Shares Beneficially Owned |         |  | Percentage of Shares Beneficially Owned | 
|------------------------------------------------------------------------------------ |  | ----------------------------------- | ------- |  | --------------------------------------- | 
|5% Stockholders:                                                                     |  |                                     |         |  |                                         | 
|G. Nicholas Farwell &
    Gale Farwell TTEE U/A 12-2-98 FBO Farwell Family Trust (1) |  |                                     | 420,484 |  |                                         | 
|Armistice Capital Master Fund Ltd (2)                                                |  |                                     | 405,667 |  |                                         | 
|Jeb Partners, L.P. (3)                                                               |  |                                     | 424,000 |  |                                         | 
|Galileo Partners Fund I, L.P. (4)                                                    |  |                                     | 375,000 |  |                                         | 
|Pacific Capital Mgmt LLC (5)                                                         |  |                                     | 291,663 |  |                                         | 
|Triple Gate Partners, LP (6)                                                         |  |                                     | 250,000 |  |                                         | 
|Lincoln Park Capital (7)                                                             |  |                                     | 250,000 |  |                                         | 
|Manchester Management Company, LCC (8)                                               |  |                                     | 210,331 |  |                                         | 
|Clifford Disbrow (9)                                                                 |  |                                     | 208,334 |  |                                         | 
|Sheila Ryan Disbrow (10)                                                             |  |                                     | 208,334 |  |                                         | 
|                                                                                     |  |                                     |         |  |                                         | 
|Directors and Named Executive Officers:                                              |  |                                     |         |  |                                         | 
|Joshua R. Disbrow (11)                                                               |  |                                     | 243,125 |  |                                         | 
|Jarrett T. Disbrow (12)                                                              |  |                                     | 240,219 |  |                                         | 
|Gregory A. Gould (13)                                                                |  |                                     | 18,471  |  |                                         | 
|Michael Macaluso (14)                                                                |  |                                     | 6,802   |  |                                         | 
|Carl C. Dockery(15)                                                                  |  |                                     | 45,865  |  |                                         | 
|John Donofrio(16)                                                                    |  |                                     | 4,000   |  |                                         | 
|Gary Cantrell(17)                                                                    |  |                                     | 7,521   |  |                                         | 
|All directors and executive officers as a group (seven persons)                      |  |                                     | 566,003 |  |                                         | 



* Represents beneficial
ownership of less than 1%.



| | (1)  | Consists of 233,334 shares of common stock and 187,150 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.   G. Nicholas Farwell & Gale Farwell TTEE U/A 12-2-98 FBO Farwell Family Trust is contractually limited to beneficial ownership of our common shares not to exceed 9.99% and this limitation has been taken into account in calculating the number of shares shown in the table for G. Nicholas Farwell & Gale Farwell TTEE U/A 12-2-98 FBO Farwell Family Trust. The table does not include 162,850 shares of common stock issuable upon the exercise of warrants held by G. Nicholas Farwell & Gale Farwell TTEE U/A 12-2-98 FBO Farwell Family Trust.                                                                                                                                                        
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2)  | Based on information provided in a Schedule 13G filed by Armistice Capital, LLC (“Armistice”) on August 24, 2017. Includes 366,667 shares of common stock and 39,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.  Armistice is contractually limited to beneficial ownership of our common shares not to exceed 9.99% and this limitation has been taken into account in calculating the number of shares shown in the table for Armistice. The table does not include the following securities held by Armistice: (i) 633,333 shares of common stock underlying shares of Series A Preferred Stock and (ii) 1,461,000 shares of common stock issuable upon the exercise of warrants.  The Managing Member of Armistice is Steven Boyd and its address is 510 Madison Avenue, 22nd Floor, New York, New York 10022.
| | (3)  | Consists of 200,000 shares of common stock and 224,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.  Jeb Partners, L.P. is contractually limited to beneficial ownership of our common shares not to exceed 9.99% and this limitation has been taken into account in calculating the number of shares shown in the table for Jeb Partners, L.P. The table does not include 76,000 shares of common stock issuable upon the exercise of warrants held by Jeb Partners, L.P.                                                                                                                                                                                                                                                                                                                                          
| | (4)  | Based on information provided in a Schedule 13G filed by Manchester Management Company, LCC (“Manchester”) on August 23, 2017.  Consists of 4,206,614 shares held by Manchester and 1,357,341 shares held by the managing member of Manchester, James E. Besser.  Manchester’s address is 3 West Hill Place, Boston, Massachusetts 02114.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (5)  | Consists of 150,000 shares of common stock and 225,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (6)  | Consists of 116,665 shares of common stock and 174,998 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (7)  | Consists of 100,000 shares of common stock and 150,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (8)  | Consists of 100,000 shares of common stock and 150,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (9)  | Consists of 83,334 shares of common stock and 125,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (10) | Consists of 83,334 shares of common stock and 125,000 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (11) | Consists of (i) 105,344 shares, (ii) 9,500 restricted shares (iii) 1,834 vested options to purchase shares of  stock, (iv) 1,447 shares issuable upon the exercise warrants and (v) 125,000 shares issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017. Does not include 2,328 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.                                                     
| | (12) | Consists of (i) 105,135 shares, (ii) 8,230 restricted shares, (iii) 1,834 vested options to purchase shares of common stock and (iv) 125,000 shares issuable upon the exercise of warrants exercisable within 60 days of August 15, 2017. Does not include 2,328 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.                                                                                                    
| | (13) | Consists of (i) 8,762 shares, (ii) 8,250 restricted shares, and (iii) vested options to purchase 1,459 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (14) | Consists of (i) 1,489 shares, (ii) 3,250 restricted shares, and (iii) vested options to purchase 2,063 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (15) | Consists of (i) 3,250 restricted shares, (ii) vested options to purchase 750 shares of common stock, and (iii) 41,865 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (16) | Consists of (i) 3,250 restricted shares, and (ii) vested options to purchase 750 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (17) | Consists of (i) 3,250 restricted shares, (ii) 3,521 shares, and (iii) vested options to purchase 750 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



Information regarding our equity
compensation plans is contained in Part II, Item 5.



83







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 three 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Services Agreements



In January 2013, Luoxis entered
into a services agreement with Ampio whereby Ampio provides corporate overhead services and a shared facility with Luoxis in exchange
for $15,000 per month. The amount can be modified in writing upon the consent of both parties. The agreement may be terminated
at any time by either party. In January 2014, Vyrix entered into a services agreement with Ampio whereby Ampio provides corporate
overhead services to Vyrix in exchange for $7,000 per month. The amount can be modified in writing upon the consent of both parties.
The agreement may be terminated at any time by either party. Both agreements were assigned to us upon the closing of the Merger.



In July 2015, the prior service agreements were canceled and Aytu entered into agreements with Ampio whereby
Aytu agreed to pay Ampio $30,000 per month for shared overhead which includes costs related to the shared facility, corporate staff,
and other miscellaneous overhead expenses. This agreement will be in effect until it is terminated in writing by both parties.
This agreement was amended periodically to reflect the amount of resources used from Ampio, the final amount was $4,000 for the
month of June 2017. This agreement was cancelled in June 2017 and Ampio is no longer considered a related party.



Sponsored Research Agreement



In June 2013, Luoxis entered into
a sponsored research agreement with TRLLC, an entity controlled by Ampio’s director and Chief Scientific Officer, Dr. Bar-Or.
The agreement, which was amended in September 2013 and provides for Luoxis to pay $6,000 per month to TRLLC in consideration for
services related to research and development of Luoxis’ RedoxSYS System. In March 2014, Luoxis also agreed to pay a sum
of $615,000 which is being amortized over the contractual term of 60.5 months and is divided between current and long-term on
the balance sheet; this amount has been paid in full. This agreement is set to expire March 2019 and cannot be terminated prior
to March 2017. This agreement was cancelled in March 2017.



Review, Approval or Ratification
of Transactions with Related Persons



Effective
upon its adoption in July 2016, pursuant to the Audit Committee Charter, the Audit Committee is responsible for reviewing and
approving all related party transactions as defined under Item 404 of Regulation S-K, after reviewing each such transaction for
potential conflicts of interests and other improprieties. Our policies and procedures for review and approval of transactions
with related persons are in writing in our Code of Conduct and Ethics available on our website at http://www.aytubio.com
under the “Investor Relations—Corporate Governance” tab.



Prior to the adoption of the Audit
Committee Charter, and due to the small size of our company, we did not have a formal written policy regarding the review of related
party transactions, and relied on our Board of Directors to review, approve or ratify such transactions and identify and prevent
conflicts of interest. Our Board of Directors reviewed any such transaction in light of the particular affiliation and interest
of any involved director, officer or other employee or stockholder and, if applicable, any such person’s affiliates or immediate
family members.



Director Independence



Our common stock is not listed
on any exchange. Consequently, no exchange rules regarding director independence are applicable to us. Audit Committee members
must satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, for listed
companies. In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed
company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board
committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any
of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.



84









Three of our five directors are
independent under the definition of either the NYSE or Nasdaq. The other two directors are not independent under either definition
due to (i) being an executive officer of our Company, in the case of Josh Disbrow, and (ii) the payments we make to Ampio under
the services agreement with Aytu, in the case of Mr. Macaluso.



Item 
14.	Principal Accountant Fees and Services



EKS&H LLLP has served as our
independent auditor since April 2015, and has been appointed by our Board of Directors to continue as our independent auditor
for the fiscal year ending June 30, 2018.



The following table presents aggregate
fees for professional services rendered by our independent registered public accounting firm, EKS&H LLLP, for the audit of
our annual financial statements for the respective periods, all of which were approved by our full Board of Directors for fiscal
2016 and by the Audit Committee for fiscal 2017.





|                       |  | Year Ended June 30, |        
|---------------------- |  | ------------------- | -------
|                       |  | 2017                |        
|Audit fees (1)         |  |                     | 132,000
|Audit-related fees (2) |  |                     | 90,000 
|Tax fees (3)           |  |                     | -      
|Total Fees             |  |                     | 222,000



| | (1) | Audit fees are comprised
                                         of annual audit fees and quarterly review fees.
| | --- | -----------------------------------------------------------------------------------------------------------------

| | (2) | Audit-related fees
                                         for both fiscal year 2016 and 2017 were comprised of fees related to registration statements,
                                         including for our May 2016 public offering and November 2016 public offering, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Tax fees are comprised
                                         of tax compliance, preparation and consultation fees.
| | --- | ---------------------------------------------------------------------------------------------------------------------



PART IV



Item 
15.	Exhibits and Consolidated Financial Statement Schedules



| | (a)(1) | Financial Statements
| | ------ | --------------------



The following documents
are filed as part of this Form 10-K, as set forth on the Index to Financial Statements found on page F-1.



| | • | Report of Independent Registered
                                         Public Accounting Firm
| | - | ------------------------------------------------------------------------------------------------



| | • | Consolidated Balance Sheets
                                         as of June 30, 2017 and 2016
| | - | -------------------------------------------------------------------------------------------------



| | • | Consolidated Statements
                                         of Operations for the years ended June 30, 2017 and 2016
| | - | -------------------------------------------------------------------------------------------------------------------------



| | • | Consolidated Statements
                                         of Stockholders’ Equity (Deficit) for the years ended June 30, 2017 and 2016
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | • | Consolidated Statements
                                         of Cash Flows for the years ended June 30, 2017 and 2016
| | - | -------------------------------------------------------------------------------------------------------------------------



| | • | Consolidated Notes to the
                                         Financial Statements
| | - | ---------------------------------------------------------------------------------------



| | (a)(2) | Financial Statement
                                         Schedules
| | ------ | ----------------------------------------------------------------------



Not Applicable.



85







| | (a)(3) | Exhibits
| | ------ | --------





|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                  |  | Registrant’sForm |  | DateFiled |  | ExhibitNumber |  | FiledHerewith
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | --------- |  | ------------- |  | -------------
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.1         |  | Certificate
    of Incorporation                                                                                                                                                                                                                                                                                             |  | 8-K              |  | 6/09/15   |  | 3.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.2         |  | Certificate
    of Amendment of Certificate of Incorporation effective June 1, 2016                                                                                                                                                                                                                                          |  | 8-K              |  | 6/02/16   |  | 3.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.3         |  | Certificate
    of Amendment of Certificate of Incorporation, effective June 30, 2016                                                                                                                                                                                                                                        |  | 8-K              |  | 7/01/16   |  | 3.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.4         |  | Certificate
    of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, filed on August 11, 2017.                                                                                                                                                                                     |  | 8-K              |  | 8/16/17   |  | 3.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.5         |  | Certificate
    of Amendment of Certificate of Incorporation, effective August 25, 2017                                                                                                                                                                                                                                      |  | 8-K              |  | 8/29/17   |  | 3.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|3.6         |  | Bylaws                                                                                                                                                                                                                                                                                                                       |  | 8-K              |  | 6/09/15   |  | 3.2           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.2         |  | Form
    of Placement Agent Warrant issued in 2015 Convertible Note Financing                                                                                                                                                                                                                                                |  | 8-K              |  | 7/24/15   |  | 4.2           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.3         |  | Warrant
    Agent Agreement, dated May 6, 2016 by and between Aytu BioScience, Inc. and VStock Transfer, LLC.                                                                                                                                                                                                                |  | 8-K              |  | 5/6/16    |  | 4.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.4         |  | First
    Amendment to May 6, 2016 Warrant Agent Agreement between Aytu BioScience, Inc. and VStock Transfer LLC.                                                                                                                                                                                                            |  | S-1              |  | 9/21/16   |  | 4.5           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.5         |  | Warrant
    Agent Agreement, dated November 2, 2016 by and between Aytu BioScience, Inc. and VStock Transfer, LLC.                                                                                                                                                                                                           |  | 8-K              |  | 11/2/16   |  | 4.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.6         |  | Form
    of Amended and Restated Underwriters’ Warrant (May 2016 Financing)                                                                                                                                                                                                                                                  |  | 8-K              |  | 3/1/17    |  | 4.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.7         |  | Form
    of Amended and Restated Underwriters’ Warrant (October 2016 Financing)                                                                                                                                                                                                                                              |  | 8-K              |  | 3/1/17    |  | 4.2           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|4.8         |  | Form
    of Common Stock Purchase Warrant issued on August 15, 2017.                                                                                                                                                                                                                                                         |  | 8-K              |  | 8/16/17   |  | 4.1           |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.1†       |  | Form
    of Indemnification Agreement, to be entered into between the Registrant and its directors and officers                                                                                                                                                                                                              |  | 8-K              |  | 4/22/15   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.2#       |  | Asset
    Purchase Agreement between the Registrant (as assigned to it by Ampio/Vyrix) and Valeant International (Barbados) SRL, effective
    as of December 2, 2011                                                                                                                                                        |  | 8-K/A            |  | 6/08/15   |  | 10.4          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.3#       |  | Manufacturing
    and Supply Agreement between the Registrant (as assigned to it by Ampio/Vyrix) and Ethypharm S.A., dated September 10, 2012                                                                                                                                                                                |  | 8-K/A            |  | 6/08/15   |  | 10.5          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.4        |  | License,
    Development and Commercialization Agreement between the Registrant (as assigned to it by Ampio/Vyrix) and Daewoong Pharmaceuticals
    Co., Ltd., effective as of August 23, 2011 (incorporated by reference to Exhibit 10.1 of Ampio Pharmaceutical’s Form
    8-K/A filed October 5, 2011;File No. 001-25182) |  |                  |  |           |  |               |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.5#       |  | Distribution
    Agreement between the Registrant (as assigned to it by Ampio/Vyrix) and FBM Industria Farmaceutica, Ltda., dated as ofMarch 1, 2012                                                                                                                                                                         |  | 8-K/A            |  | 6/08/15   |  | 10.7          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.6#       |  | Distribution
    and License Agreement between the Registrant (as assigned to it by Ampio/Vyrix) and Endo Ventures Limited, dated April 9,
    2014                                                                                                                                                                          |  | 8-K/A            |  | 6/08/15   |  | 10.8          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.7#       |  | Sponsored
    Research Agreement between the Registrant (as assigned to it by Ampio/Luoxis) and Trauma Research LLC, dated September 1,
    2009                                                                                                                                                                             |  | 8-K/A            |  | 6/08/15   |  | 10.9          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.8#       |  | Addendum
    No. 4 to Sponsored Research Agreement between the Registrant (as assigned to it by Ampio/Luoxis) and Trauma Research LLC,
    dated March 17, 2014                                                                                                                                                              |  | 8-K              |  | 5/27/15   |  | 10.14         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.9        |  | Promissory
    Note issued by Ampio to the Registrant on April 16, 2015                                                                                                                                                                                                                                                      |  | 8-K              |  | 4/22/15   |  | 10.11         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.10       |  | Subscription
    Agreement between the Registrant and Ampio, dated April 16, 2015                                                                                                                                                                                                                                            |  | 8-K              |  | 4/22/15   |  | 10.12         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.11       |  | Voting
    Agreement between the Registrant and Ampio, dated April 21, 2015 (incorporated by reference to Exhibit 10.1 to Ampio’s
    Form 8-K filed April 22, 2015; File No. 001-35182)                                                                                                                                     |  |                  |  |           |  |               |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.12       |  | Asset
    Purchase Agreement between Jazz Pharmaceuticals, Inc. and Rosewind Corporation, dated May 20, 2015                                                                                                                                                                                                                 |  | 8-K              |  | 5/27/15   |  | 10.14         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                              |  |                  |  |           |  |               |  |              
|10.13       |  | Form
    of Note Purchase Agreement for 2015 Convertible Note Financing                                                                                                                                                                                                                                                      |  | 8-K              |  | 7/24/15   |  | 10.1          |  |              





86









|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                         |  | Registrant’sForm |  | DateFiled |  | ExhibitNumber |  | FiledHerewith
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | --------- |  | ------------- |  | -------------
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.14       |  | Asset
    Purchase Agreement, dated October 5, 2015, between Aytu BioScience, Inc. and FSC Laboratories, Inc.                                                                                                                                                                                                                                                                                       |  | 8-K              |  | 10/07/15  |  | 10.18         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.15       |  | Master
    Services Agreement between Biovest International, Inc. and Aytu BioScience, Inc., entered into on October 8, 2015, and effective
    October 5, 2015                                                                                                                                                                                                                                     |  | 8-K              |  | 10/13/15  |  | 10.19         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.16       |  | Form
    of Subscription Agreement for January 2016 common stock purchases                                                                                                                                                                                                                                                                                                                          |  | 8-K              |  | 1/20/16   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.17       |  | License
    and Supply Agreement between the Registrant and Acerus Pharmaceuticals Corporation, dated April 22, 2016                                                                                                                                                                                                                                                                                |  | 8-K              |  | 4/25/16   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.18       |  | Subscription
    Agreement between the Registrant and Acerus Pharmaceuticals Corporation, dated April 22, 2016                                                                                                                                                                                                                                                                                      |  | 8-K              |  | 4/25/16   |  | 10.2          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.19       |  | First
    Amendment, dated May 15, 2016, to Employment Agreement dated September 16, 2015 between Aytu BioScience, Inc. and Jonathan
    McGrael                                                                                                                                                                                                                                                    |  | 8-K              |  | 5/16/16   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.20       |  | Purchase
    Agreement, dated July 27, 2016, by and between Aytu BioScience, Inc. and Lincoln Park Capital Fund, LLC.                                                                                                                                                                                                                                                                               |  | 8-K              |  | 7/28/16   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.21       |  | Registration
    Rights Agreement dated July 27, 2016, by and between Aytu BioScience, Inc. and Lincoln Park Capital Fund, LLC.                                                                                                                                                                                                                                                                     |  | 8-K              |  | 7/28/16   |  | 10.2          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.22†      |  | Employment
    Agreement, effective as of April 16, 2017, between Aytu BioScience, Inc. and Joshua R. Disbrow.                                                                                                                                                                                                                                                                                      |  | 8-K              |  | 4/18/17   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.23†      |  | Employment
    Agreement, effective as of April 16, 2017, between Aytu BioScience, Inc. and Jarrett T. Disbrow.                                                                                                                                                                                                                                                                                     |  | 8-K              |  | 4/18/17   |  | 10.2          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.24       |  | Asset
    Purchase Agreement, dated March 31, 2017, between Allegis Holdings, LLC and Aytu BioScience, Inc.                                                                                                                                                                                                                                                                                         |  | 10-Q             |  | 5/11/17   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.25^      |  | Merger
    Agreement, dated May 3, 2017, between Nuelle, Inc. and Aytu BioScience, Inc.                                                                                                                                                                                                                                                                                                             |  | 10-K             |  | 8/31/17   |  | 10.25         |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.26†      |  | Employment
    Agreement, effective as of June, 2017, between Aytu BioScience, Inc. and Gregory A. Gould.                                                                                                                                                                                                                                                                                           |  | 8-K              |  | 6/19/17   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.27†      |  | 2015
    Stock Option and Incentive Plan, as amended on July 26, 2017.                                                                                                                                                                                                                                                                                                                              |  | 8-K              |  | 7/27/17   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.28       |  | Securities
    Purchase Agreement, dated August 11, 2017, between Aytu BioScience, Inc. and the investors named therein.                                                                                                                                                                                                                                                                            |  | 8-K              |  | 8/16/17   |  | 10.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|10.29       |  | Registration
    Rights Agreement, dated August 11, 2017, between Aytu BioScience, Inc. and the investors named therein.                                                                                                                                                                                                                                                                            |  | 8-K              |  | 8/16/17   |  | 10.2          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|23.1        |  | Consent
    of EKS&H LLLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                           |  | 10-K             |  | 8/31/17   |  | 23.1          |  |              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|31.1        |  | Certificate
    of the Chief Executive Officer of Aytu BioScience, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                  |  |                  |  |           |  |               |  | X            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|31.2        |  | Certificate
    of the Chief Financial Officer of Aytu BioScience, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                  |  |                  |  |           |  |               |  | X            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|32.1        |  | Certificate
    of the Chief Executive Officer and the Chief Financial Officer of Aytu BioScience, Inc. pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                              |  |                  |  |           |  |               |  | X            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  |  |           |  |               |  |              
|101         |  | XBRL (extensible Business Reporting Language). The following materials from
    Aytu BioScience, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2017 formatted in XBRL: (i) the Balance
    Sheets, (ii) the Statements of Operations, (iii) the Statements of Stockholders’ Equity (Deficit), (iv) the Statements
    of Cash Flows, and (v) the Notes to the Financial Statements. |  | 10-K             |  | 8/31/17   |  | 101           |  |              












|† |  | Indicates is a management contract
    or compensatory plan or arrangement.                                                                                                                                                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|# |  | The company has received confidential treatment
    of certain portions of this agreement. These portions have been omitted and filed separately with the Securities and Exchange
    Commission pursuant to a confidential treatment request.
|^ |  | Confidential treatment has been requested with
    respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.                                                                                     





87







SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



|                       |     |                                     
|---------------------- | --- | ------------------------------------
|                       |     | AYTU BIOSCIENCE, INC.               
|                       |     |                                     
|Date: October 12, 2017 | By: | /s/ Joshua R. Disbrow               
|                       |     | Joshua R. Disbrow                   
|                       |     | Chairman and Chief Executive Officer
|                       |     | (Principal Executive Officer)       



Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in
the capacities indicated, on October 12, 2017.





|Signature             |  | Title                                       
|--------------------- |  | --------------------------------------------
|                      |  |                                             
|/s/ Joshua R. Disbrow |  | Chairman and Chief Executive Officer        
|Joshua R. Disbrow     |  | (Principal Executive Officer)               
|                      |  |                                             
|/s/ Gregory A. Gould  |  | Chief Financial Officer                     
|Gregory A. Gould      |  | (Principal Financial and Accounting Officer)
|                      |  |                                             
|/s/ Michael Macaluso  |  |                                             
|Michael Macaluso      |  | Director                                    
|                      |  |                                             
|/s/ Carl Dockery      |  |                                             
|Carl Dockery          |  | Director                                    
|                      |  |                                             
|/s/ John Donofrio     |  | Director                                    
|John Donofrio         |  |                                             
|                      |  |                                             
|/s/ Gary Cantrell     |  | Director                                    
|Gary Cantrell         |  |                                             





88









INDEX TO
THE CONSOLIDATED FINANCIAL STATEMENTS

AYTU BIOSCIENCE,
INC.



|                                                              | Page
|------------------------------------------------------------- | ----
|Report
    of Independent Registered Public Accounting Firm   | F-2 
|Consolidated
    Balance Sheets                               | F-3 
|Consolidated
    Statements of Operations                     | F-4 
|Consolidated
    Statements of Stockholders’ Equity (Deficit) | F-5 
|Consolidated
    Statements of Cash Flows                     | F-6 
|Consolidated
    Notes to the Financial Statements            | F-7 



F-1







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM









To the Board of Directors and Stockholders

Aytu BioScience, Inc.

Englewood, Colorado





We have audited the accompanying consolidated
balance sheets of Aytu BioScience, Inc. (the “Company”) as of June 30, 2017 and 2016, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the years then ended. The Company’s management
is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Aytu BioScience, Inc. as of June
30, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting
principles generally accepted in the United States of America.





/s/EKS&H LLLP



August 31, 2017

Denver, Colorado





F-2







AYTU
BIOSCIENCE, INC. AND SUBSIDIARY

Consolidated
Balance Sheets



|                                                                                                                                      |  | June 30, |            
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -----------
|                                                                                                                                      |  | 2017     |            
|                                                                                                                                      |  |          |            
|Assets                                                                                                                                |  |          |            
|Current assets                                                                                                                        |  |          |            
|Cash and cash equivalents                                                                                                             |  | $        | 802,328    
|Restricted cash                                                                                                                       |  |          | 75,214     
|Accounts receivable, net                                                                                                              |  |          | 528,039    
|Inventory, net                                                                                                                        |  |          | 1,312,221  
|Prepaid expenses and other                                                                                                            |  |          | 310,760    
|Prepaid research and development - related party  (Note
    11)                                                                       |  |          | -          
|Investment in Acerus                                                                                                                  |  |          | -          
|Total current assets                                                                                                                  |  |          | 3,028,562  
|                                                                                                                                      |  |          |            
|                                                                                                                                      |  |          |            
|Fixed assets, net                                                                                                                     |  |          | 647,254    
|Developed technology, net                                                                                                             |  |          | 1,337,333  
|Customer contracts, net                                                                                                               |  |          | 77,667     
|Trade names, net                                                                                                                      |  |          | 164,037    
|Natesto asset                                                                                                                         |  |          | 9,231,072  
|Goodwill                                                                                                                              |  |          | 238,426    
|Patents, net                                                                                                                          |  |          | 271,278    
|Long-term portion of prepaid research and development
    - related party (Note 11)                                                   |  |          | -          
|Deposits                                                                                                                              |  |          | 2,888      
|Total long-term assets                                                                                                                |  |          | 11,969,955 
|                                                                                                                                      |  |          |            
|Total assets                                                                                                                          |  | $        | 14,998,517 
|                                                                                                                                      |  |          |            
|Liabilities and Stockholders' Equity                                                                                                  |  |          |            
|Current liabilities                                                                                                                   |  |          |            
|Accounts payable and other                                                                                                            |  | $        | 2,220,400  
|Accrued liabilities                                                                                                                   |  |          | 782,536    
|Natesto payable                                                                                                                       |  |          | -          
|Accrued compensation                                                                                                                  |  |          | 339,704    
|Deferred rent                                                                                                                         |  |          | 6,673      
|Current contingent consideration                                                                                                      |  |          | 261,155    
|Total current liabilities                                                                                                             |  |          | 3,610,468  
|                                                                                                                                      |  |          |            
|Contingent consideration                                                                                                              |  |          | 7,386,782  
|Deferred rent                                                                                                                         |  |          | 1,451      
|Warrant derivative liability                                                                                                          |  |          | -          
|Total liabilities                                                                                                                     |  |          | 10,998,701 
|                                                                                                                                      |  |          |            
|Commitments and contingencies (Note 7)                                                                                                |  |          |            
|                                                                                                                                      |  |          |            
|Stockholders' equity                                                                                                                  |  |          |            
|Preferred Stock, par value $.0001; 50,000,000
    shares authorized; none issued                                                      |  |          | -          
|Common Stock, par value
    $.0001; 100,000,000 shares authorized; shares issued  and outstanding 824,831 in 2017 and 187,098 in 2016 |  |          | 82         
|Additional paid-in capital                                                                                                            |  |          | 73,069,463 
|Ampio stock subscription                                                                                                              |  |          | -          
|Accumulated deficit                                                                                                                   |  |          | (69,069,729
|Total stockholders' equity                                                                                                            |  |          | 3,999,816  
|                                                                                                                                      |  |          |            
|Total liabilities and stockholders' equity                                                                                            |  | $        | 14,998,517 



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



F-3







AYTU
BIOSCIENCE, INC. AND SUBSIDIARY

Consolidated
Statements of Operations





|                                                                |  | Year Ended June 30, |            
|--------------------------------------------------------------- |  | ------------------- | -----------
|                                                                |  | 2017                |            
|                                                                |  |                     |            
|                                                                |  |                     |            
|Revenue                                                         |  |                     |            
|Product and service revenue                                     |  | $                   | 3,221,590  
|License revenue                                                 |  |                     | -          
|Total revenue                                                   |  |                     | 3,221,590  
|                                                                |  |                     |            
|Operating expenses                                              |  |                     |            
|Cost of sales                                                   |  |                     | 1,417,355  
|Research and development                                        |  |                     | 959,857    
|Research and development - related party (Note
    11)          |  |                     | 387,960    
|Sales, general and administrative                               |  |                     | 17,442,627 
|Sales, general and administrative - related party
    (Note 11) |  |                     | 165,131    
|Impairment of intangible assets                                 |  |                     | 1,265,125  
|Amortization of intangible
    assets                           |  |                     | 1,708,771  
|Total operating expenses                                        |  |                     | 23,346,826 
|                                                                |  |                     |            
|Loss from operations                                            |  |                     | (20,125,236
|                                                                |  |                     |            
|Other (expense)                                                 |  |                     |            
|Interest (expense)                                              |  |                     | (2,534,358 
|(Loss) on investment                                            |  |                     | (61,519    
|Derivative income (expense)                                     |  |                     | 212,809    
|Total other (expense)                                           |  |                     | (2,383,068 
|                                                                |  |                     |            
|Net
    loss                                                    |  | $                   | (22,508,304
|                                                                |  |                     |            
|Weighted average
    number of Aytu common shares outstanding   |  |                     | 466,024    
|                                                                |  |                     |            
|Basic
    and diluted Aytu net loss per common share            |  | $                   | (48.30     





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



F-4







AYTU
BIOSCIENCE, INC. AND SUBSIDIARY

Consolidated
Statements of Stockholders’ Equity



|                                                                                                                 |  | Common Stock |         |  | Additionalpaid-in |   |    | Ampio   |  |   | Accumulated        |  |  | TotalStockholders' |           
|---------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ----------------- | - | -- | ------- |  | - | ------------------ |  |  | ------------------ | ----------
|                                                                                                                 |  | Shares       |         |  | Amount            |   |    | capital |  |   | Stock Subscription |  |  | Deficit            |           
|                                                                                                                 |  |              |         |  |                   |   |    |         |  |   |                    |  |  |                    |           
|Balance - June 30, 2015                                                                                          |  |              | 59,415  |  |                   | $ | 6  |         |  | $ | 38,997,787         |  |  | $                  | (5,000,000
|                                                                                                                 |  |              |         |  |                   |   |    |         |  |   |                    |  |  |                    |           
|Ampio stock subscription                                                                                         |  |              | -       |  |                   |   | -  |         |  |   | -                  |  |  |                    | 5,000,000 
|Stock subscription                                                                                               |  |              | 1,282   |  |                   |   | -  |         |  |   | 200,000            |  |  |                    | -         
|Conversion of convertible
    promissory notes and interest to common stock, net of $29,754 conversion costs     |  |              | 48,108  |  |                   |   | 5  |         |  |   | 10,090,844         |  |  |                    | -         
|Issuance of warrants related
    to the convertible promissory notes                                             |  |              | -       |  |                   |   | -  |         |  |   | 136,828            |  |  |                    | -         
|Issuance of common stock,
    net of $1,202,231 in issuance costs                                                |  |              | 78,125  |  |                   |   | 8  |         |  |   | 4,237,866          |  |  |                    | -         
|Warrants issued in connection
    with registered financing                                                      |  |              | -       |  |                   |   | -  |         |  |   | 2,059,895          |  |  |                    | -         
|Warrants issued in connection
    with registered offering to the placement agents for the over-allotment option |  |              | -       |  |                   |   | -  |         |  |   | 20,493             |  |  |                    | -         
|Adjustment for rounding
    of shares due to stock split                                                         |  |              | 168     |  |                   |   | -  |         |  |   | -                  |  |  |                    | -         
|Stock-based compensation                                                                                         |  |              | -       |  |                   |   | -  |         |  |   | 902,946            |  |  |                    | -         
|Net
    loss                                                                                                     |  |              | -       |  |                   |   | -  |         |  |   | -                  |  |  |                    | -         
|                                                                                                                 |  |              |         |  |                   |   |    |         |  |   |                    |  |  |                    |           
|Balance - June 30, 2016                                                                                          |  |              | 187,098 |  |                   |   | 19 |         |  |   | 56,646,659         |  |  |                    | -         
|                                                                                                                 |  |              |         |  |                   |   |    |         |  |   |                    |  |  |                    |           
|Lincoln  Park
    stock issuance, net of issuance costs $90,924                                                  |  |              | 19,309  |  |                   |   | 2  |         |  |   | 648,931            |  |  |                    | -         
|Stock-based compensation                                                                                         |  |              | -       |  |                   |   | -  |         |  |   | 2,502,092          |  |  |                    | -         
|Issuance of restricted
    stock                                                                                 |  |              | 50,000  |  |                   |   | 5  |         |  |   | 724,608            |  |  |                    | -         
|Common stock issued to
    executives                                                                            |  |              | 7,123   |  |                   |   | -  |         |  |   | 509,996            |  |  |                    | -         
|Issurance of warrants
    to initial investors                                                                   |  |              | -       |  |                   |   | -  |         |  |   | 596,434            |  |  |                    | -         
|Issuance of common stock,
    net of $997,865 in issuance costs                                                  |  |              | 286,749 |  |                   |   | 29 |         |  |   | 3,671,552          |  |  |                    | -         
|Warrants issued in connection
    with registered offering                                                       |  |              |         |  |                   |   |    |         |  |   | 3,470,646          |  |  |                    | -         
|Warrants issued in connection
    with registered offering to the placement agents for the over-allotment option |  |              | -       |  |                   |   | -  |         |  |   | 172,629            |  |  |                    | -         
|Warrants issued in connection
    with the registered offering to the placement agents, non-cash issuance costs  |  |              | -       |  |                   |   | -  |         |  |   | 292,630            |  |  |                    | -         
|Warrant tender offer,
    net of $312,159 in issuance costs                                                      |  |              | 149,552 |  |                   |   | 15 |         |  |   | 1,931,108          |  |  |                    | -         
|Warrant amendments                                                                                               |  |              | -       |  |                   |   | -  |         |  |   | 64,690             |  |  |                    | -         
|Investment in Subsidiary                                                                                         |  |              | 125,000 |  |                   |   | 12 |         |  |   | 1,837,488          |  |  |                    | -         
|Net loss                                                                                                         |  |              | -       |  |                   |   | -  |         |  |   | -                  |  |  |                    | -         
|                                                                                                                 |  |              |         |  |                   |   |    |         |  |   |                    |  |  |                    |           
|Balance - June 30,
    2017                                                                                      |  |              | 824,831 |  |                   | $ | 82 |         |  | $ | 73,069,463         |  |  | $                  | -         



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



F-5







AYTU
BIOSCIENCE, INC. AND SUBSIDIARY

Consolidated
Statements of Cash Flows



|                                                                                                                      |  | Year
    Ended June 30, |            
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -----------
|                                                                                                                      |  | 2017                    |            
|                                                                                                                      |  |                         |            
|Cash flows from operating activities:                                                                                 |  |                         |            
|Net loss                                                                                                              |  | $                       | (22,508,304
|Adjustments to reconcile net loss to cash used
    in operating activities:                                           |  |                         |            
|Depreciation, amortization and accretion                                                                              |  |                         | 4,364,680  
|Asset impairment                                                                                                      |  |                         | 1,265,125  
|Stock-based compensation expense                                                                                      |  |                         | 2,502,092  
|Issuance of restricted stock                                                                                          |  |                         | 724,613    
|Amortization of debt issuance costs                                                                                   |  |                         | -          
|Amortization of beneficial conversion feature                                                                         |  |                         | -          
|Noncash interest expense                                                                                              |  |                         | -          
|Derivative (income) expense                                                                                           |  |                         | (212,809   
|Amortization of prepaid research and development
    - related party (Note 11)                                        |  |                         | 335,454    
|Loss on investment                                                                                                    |  |                         | 61,519     
|Common stock issued to executives                                                                                     |  |                         | 509,996    
|Issuance of warrants to initial investors                                                                             |  |                         | 596,434    
|Gain on sale of asset                                                                                                 |  |                         | (428,374   
|Warrant amendment                                                                                                     |  |                         | 1,507      
|Adjustments to reconcile
    net loss to net cash used in operating activities:                                       |  |                         |            
|(Increase) in accounts receivable                                                                                     |  |                         | (355,031   
|Decrease (increase) in inventory                                                                                      |  |                         | 195,427    
|(Increase) decrease in prepaid expenses and other                                                                     |  |                         | (95,202    
|Increase in accounts payable and other                                                                                |  |                         | 493,217    
|(Decrease) increase in accrued liabilities                                                                            |  |                         | (414,570   
|(Decrease) increase in accrued compensation                                                                           |  |                         | (861,226   
|(Decrease) increase in deferred rent                                                                                  |  |                         | (4,200     
|(Decrease) in deferred revenue                                                                                        |  |                         | -          
|Net cash used in operating activities                                                                                 |  |                         | (13,829,652
|                                                                                                                      |  |                         |            
|Cash flows used in investing activities:                                                                              |  |                         |            
|Purchases of fixed assets                                                                                             |  |                         | (111,608   
|Purchase of Natesto assets                                                                                            |  |                         | (6,000,000 
|Investment in Acerus                                                                                                  |  |                         | 1,071,707  
|Sale of investment in Acerus cost                                                                                     |  |                         | (91,864    
|Sales of Primsol assets                                                                                               |  |                         | 1,750,000  
|Purchase of Primsol asset                                                                                             |  |                         | (750,000   
|Cash proceed from Nuelle                                                                                              |  |                         | 613,309    
|Cost related to Nuelle acquisition                                                                                    |  |                         | (16,082    
|Deposits                                                                                                              |  |                         | -          
|Net cash used in investing activities                                                                                 |  |                         | (3,534,538 
|                                                                                                                      |  |                         |            
|Cash flows from financing activities:                                                                                 |  |                         |            
|Issuance of common stock to Lincoln Park                                                                              |  |                         | 739,857    
|Costs related to the sale of common stock                                                                             |  |                         | (90,924    
|Warrant tender offer                                                                                                  |  |                         | 2,243,282  
|Warrant tender offer cost                                                                                             |  |                         | (312,159   
|Proceeds from convertible promissory notes, net
    (Note 8)                                                          |  |                         | -          
|Debt issuance costs (Note 8)                                                                                          |  |                         | -          
|Costs related to the conversion of the convertible
    promissory notes to equity                                     |  |                         | -          
|Ampio stock subscription payment                                                                                      |  |                         | -          
|Registerd offering                                                                                                    |  |                         | 8,602,499  
|Registered offering costs                                                                                             |  |                         | (997,865   
|Over-allotment warrants purchased by placement
    agents                                                             |  |                         | 2,852      
|Sale of stock subscription                                                                                            |  |                         | -          
|Net cash provided by financing activities                                                                             |  |                         | 10,187,542 
|                                                                                                                      |  |                         |            
|Net change in cash and cash equivalents                                                                               |  |                         | (7,176,648 
|Cash and cash equivalents at beginning of period                                                                      |  |                         | 8,054,190  
|Cash and cash equivalents at end of period                                                                            |  | $                       | 877,542    
|                                                                                                                      |  |                         |            
|Non-cash transactions:                                                                                                |  |                         |            
|Issuance of common stock to Nuelle share holders                                                                      |  | $                       | 1,837,500  
|Fixed assets included in accounts payable                                                                             |  | $                       | 10,789     
|Warrants issued in connection with the equity financing to the placement
    agents                                   |  | $                       | 292,630    
|Warrants amended in connection with warrant tender offer                                                              |  | $                       | 63,182     
|Warrant derivative liability related to the issuance of the convertible
    promissory notes (Note 8)                 |  | $                       | -          
|Primsol asset purchase included in primsol payable, $1,250,000 less
    future accretion of $173,000                  |  | $                       | -          
|Conversion of convertible promissory notes and interest of $221,000
    to common stock                               |  | $                       | -          
|Natesto asset purchase included in Natesto payable, $6,000,000 less
    future accretion of $620,325                  |  | $                       | -          
|Warrant derivative liability related to the issuance of the registered
    offering placement agent warrants (Note 8) |  | $                       | -          
|Reclassification of liability based warrants to equity presentation
    related to the convertible promissory notes   |  | $                       | -          
|Beneficial conversion feature related to convertible promissory
    notes                                             |  | $                       | -          
|Debt issuance costs related to notes that converted to equity                                                         |  | $                       | -          



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



F-6







AYTU
BIOSCIENCE, INC. AND SUBSIDIARY

Notes to
the Financial Statements



Note 1 – Business, Basis
of Presentation, Merger and Business Combinations



Business



Aytu BioScience, Inc. (“Aytu”,
the “Company” or “we”) was incorporated as Rosewind Corporation on August 9, 2002 in the State of
Colorado. Aytu was re-incorporated in the state of Delaware on June 8, 2015. Aytu is a commercial-stage specialty healthcare
company concentrating on developing and commercializing products with an initial focus on urological diseases and conditions.
Aytu is currently focused on addressing significant medical needs in the areas of hypogonadism, urological cancers, male infertility,
and sexual wellness and vitality.



Basis of Presentation



Through a multi-step reverse triangular
merger, on April 16, 2015, Vyrix Pharmaceuticals, Inc. (‘‘Vyrix’’) and Luoxis Diagnostics, Inc. (‘‘Luoxis’’)
merged with and into our Company (herein referred to as the Merger) and we abandoned our pre-merger business plans to solely pursue
the specialty healthcare market, including the business of Vyrix and Luoxis. In the Merger, we acquired the RedoxSYS, MiOXSYS
and Zertane products. On June 8, 2015, we reincorporated as a domestic Delaware corporation under Delaware General Corporate Law
and changed our name from Rosewind Corporation to Aytu BioScience, Inc., and effected a reverse stock split in which each common
stockholder received one share of common stock for every 12.174 shares outstanding. On June 30, 2016, Aytu effected another reverse
stock split in which each common stockholder received one share of common stock for every 12 shares outstanding; On August 25,
2017, Aytu effected another reverse stock split in which each common stockholder received one share of common stock for every
20 shares outstanding (herein referred to collectively as the “Reverse Stock Splits”). All share and per share amounts
in this report have been adjusted to reflect the effect of these Reverse Stock Splits.



Business Combination—ProstaScint



In May 2015,
Aytu entered into and closed on an asset purchase agreement with Jazz Pharmaceuticals, Inc. (“Jazz Pharmaceuticals”).
Pursuant to the agreement, Aytu purchased assets related to the Jazz Pharmaceuticals’ product known as ProstaScint®(capromab pendetide), including certain intellectual property and contracts, and the product approvals, inventory and work
in progress (together, the ‘‘ProstaScint Business’’), and assumed certain of Jazz Pharmaceuticals’
liabilities, including those related to product approvals and the sale and marketing of ProstaScint. The purchase price consists
of the upfront payment of $1.0 million. We also agreed to pay an additional $500,000 which was paid after transfer for the ProstaScint-related
product inventory and $227,000 which was paid September 30, 2015 (which represents a portion of certain FDA fees). We also will
pay 8% on net sales made after October 31, 2017, payable up to a maximum aggregate payment of an additional $2.5 million.The contingent consideration was initially valued at $664,000 and was revalued as of June 30, 2017
at $54,000 using a discounted cash flow. The total fair value consideration for the purchase was $2.4 million.



The Company’s allocation
on consideration transferred for ProstaScint as of the purchase date May 20, 2015 was as follows:



|                      |  | Estimated
    Fair Value |          
|--------------------- |  | ------------------------ | ---------
|Tangible assets       |  | $                        | 727,000  
|Intangible assets     |  |                          | 1,590,000
|Goodwill              |  |                          | 74,000   
|Total assets acquired |  | $                        | 2,391,000



F-7







Included in the intangible assets
at May 2015 was developed technology of $790,000, customer contracts of $720,000 and trade names of $80,000, each of which will
be amortized over a ten-year period. Amortization expense of $159,000 was recognized in both fiscal 2017 and 2016.



At June 30, 2017, the ProstaScint asset was impaired based upon sales projections that we intend to only sell
this product through mid-fiscal 2019, when this product expires. The value for the intangible assets were adjusted to $54,000 for
developed technology, $7,000 for trade names and $0 for customer contracts. The estimated future amortization of ProstaScint after
June 30, 2017 is as follows:



|Total ProstaScint |  |   |        | 
|----------------- |  | - | ------ | 
|                  |  |   |        | 
|2018              |  | $ | 47,000 | 
|2019              |  |   | 14,000 | 
|2020              |  |   | -      | 
|2021              |  |   | -      | 
|2022              |  |   | -      | 
|Thereafter        |  |   | -      | 
|                  |  | $ | 61,000 | 



Business Combination—Primsol



In October 2015, Aytu entered
into and closed on an Asset Purchase Agreement with FSC Laboratories, Inc. (“FSC”). Pursuant to the agreement, Aytu
purchased assets related to FSC’s product known as Primsol® (trimethoprim solution), including certain intellectual
property and contracts, inventory, work in progress and all marketing and sales assets and materials related solely to Primsol
(together, the “Primsol Business”), and assumed certain of FSC’s liabilities, including those related to the
sale and marketing of Primsol arising after the closing.



Aytu paid $500,000 at closing
for the purchase of the Primsol Business and paid an additional $142,000, of which $102,000 went to inventory and $40,000 towards
the Primsol Business, for the transfer of the Primsol-related product inventory. We also agreed to pay an additional (a) $500,000
which was paid on April 1, 2016, (b) $500,000 which was paid on July 1, 2016, and (c) $250,000 which was paid in November 2016
(together, the “Installment Payments”).



The Company’s allocation
on consideration transferred for Primsol as of the purchase date of October 5, 2015 was as follows:



|                      |  | Fair Value |          
|--------------------- |  | ---------- | ---------
|                      |  |            |          
|Tangible assets       |  | $          | 182,000  
|                      |  |            |          
|Intangible assets     |  |            | 1,470,000
|                      |  |            |          
|Goodwill              |  |            | 147,000  
|                      |  |            |          
|Total assets acquired |  | $          | 1,799,000



Included in tangible assets was
$102,000 of inventory and $80,000 of work-in-process inventory. Included in the intangible assets was developed technology of
$520,000, customer contracts of $810,000 and trade names of $140,000, each of which was being amortized over a six-year period.
Amortization expense of $184,000 and $174,000 was recognized in fiscal 2017 and fiscal 2016, respectively.



Divestiture – Primsol



In March 2017, we entered into
and closed on an Asset Purchase Agreement with Allegis Holdings, LLC (the “Purchaser”). Pursuant to the agreement,
we sold to the Purchaser all of our assets related to our Primsol product, including certain intellectual property and contracts,
inventory, work in process and all marketing assets and materials related solely to Primsol (together, the “Primsol Asset”).
We retain any liability associated with the Primsol Asset that occurred prior to the closing. The Purchaser paid us $1,750,000
at the closing for the Primsol Asset. We recognized a gain of approximately $428,000 on the sale which is included in sales, general
and administrative expense on our statement of operations.



F-8







We have evaluated this transaction
and concluded that it is not significant to our business and therefore the results are included in continuing operations, as the
criteria to be presented as discontinued operations was not satisfied.



License and Supply Agreement—Natesto



In April, 2016, Aytu entered into
and closed a license and supply agreement to acquire the exclusive U.S. rights to Natesto® (testosterone) nasal gel from Acerus
Pharmaceuticals Corporation, or Acerus, which rights we acquired effective upon the expiration of the current licensee’s
rights, which occurred on June 30, 2016. The licensee’s term runs for the greater of eight years or until the expiry of
the latest to expire patent including claims covering Natesto and until the entry on the market of at least one AB-rated generic
product.



Aytu
paid Acerus an upfront fee of $2.0 million upon execution of the agreement. In October 2016, we paid an additional $2.0 million.
In January 2017, Aytu paid the final upfront payment of $4.0 million. Aytu
also purchased, on April 28, 2016, an aggregate of 12,245,411 shares of Acerus common stock for Cdn. $2.5 million (approximately
US $2.0 million), with a purchase price per share equal to Cdn. $0.207 or approximately US $0.16 per share. These shares were
a held for sale trading security and were valued at fair market value. Aytu could not dispose of these shares until after August
29, 2016. During fiscal 2017, Aytu sold all of these shares. The gross proceeds from the sales totaled $1.1 million, the cost
of the sales totaled $92,000, and we recognized a loss on investment of $62,000 and $972,000 during fiscal 2017 and 2016, respectively.



In addition to the upfront payments, we must make the following one-time, non-refundable payments to Acerus
within 45 days of the occurrence of the following event (provided that, the maximum aggregate amount payable under such milestone
payments will be $37.5 million):





| | ▪ | $2.5 million if net sales during any four consecutive calendar quarter period equal or exceed $25.0 million (the “First Milestone”); the First Milestone payment is required to be paid even if the threshold is not met in the event that the agreement is terminated for any reason other than material breach by Acerus, bankruptcy of either party, or termination by Acerus because it believes the amounts payable to Aytu for agreed upon trial work would no longer make the agreement economically viable for Acerus;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ▪ | $5.0 million if net sales during any four consecutive calendar quarter period equal or exceed $50.0 million;                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ▪ | $7.5 million if net sales during any four consecutive calendar quarter period equal or exceed $75.0 milion;                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ▪ | $10.0 million if net sales during any four consecutive calendar quarter period equal or exceed $100.0 million; and                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ▪ | $12.5 million if net sales during any four consecutive calendar quarter period equal or exceed $125.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                



The fair value of the net identifiable asset acquired totaled $10.5 million which is being amortized over
eight years. The amortization expense for fiscal 2017 was $1.3 million and zero for fiscal 2016. The estimated future amortization
of Natesto after June 30, 2017 is as follows:



|2018       |  |   | 1,319,000 | 
|---------- |  | - | --------- | 
|2019       |  |   | 1,319,000 | 
|2020       |  |   | 1,319,000 | 
|2021       |  |   | 1,319,000 | 
|2022       |  |   | 1,319,000 | 
|Thereafter |  |   | 2,636,000 | 
|           |  | $ | 9,231,000 | 



F-9







The contingent consideration was
valued at $3.2 million using a Monte Carlo simulation, as of June 30, 2016. The contingent consideration accretion expense for
fiscal 2017 and 2016 was $228,000, and zero respectively. As of June 30, 2017, the contingent consideration was revalued and increased
to $5.7 million based on increased future estimated sales performance of Natesto using a Monte Carlo simulation.



Merger/Subsidiary



In May 2017, Aytu Women’s
Health, LLC., a wholly-owned subsidiary of Aytu, acquired Nuelle, Inc., or Nuelle, a women’s sexual health company. This
transaction expanded our product portfolio with the addition of the Fiera® personal care device for women.



In the Merger, (i) each share
of Nuelle common stock and each option or warrant to purchase Nuelle stock was cancelled, and (ii) each share of Nuelle preferred
stock was converted into the right to receive shares of our common stock. We issued to the Nuelle preferred stockholders an aggregate
of 125,000 shares of our common stock.



In addition, Nuelle preferred stockholders will be entitled to revenue earn-out payments equal to a designated
percentage of net sales on tiers of net sales up to $100.0 million, with an average rate for all tiers in the mid-single digit
range and a maximum aggregate payout of $6.9 million.



Nuelle stockholders additionally
will be entitled to milestone earn-out payments of up to a potential aggregate of $24.0 million, upon the attainment by us of
designated net sales thresholds over any sequential four calendar quarter period.



The first $1.0 million of earn-out
payments will be paid in shares of our common stock and all other earn-out payments will be comprised of 60% cash and 40% shares
of our common stock. The stock portion of any earn-out will be calculated by dividing each Nuelle stockholder’s portion
of the earn-out by the average closing price of our common stock for the 10 trading days prior to the earlier of the date we deliver
notice to the Nuelle stockholders of the earn-out or any public disclosure by us of the earn-out being due and payable.



In the event that we do not make
all of the required earn-out payments to the Nuelle stockholders before May 3, 2022, and we also close a divestiture before May
3, 2022 of any of the products acquired in the transaction, we will pay the Nuelle stockholders a combination of (i) cash in an
amount equal to 10% of the value of all cash, securities and other property paid to us in the divestiture (cash is to be 60% of
the total consideration), and (ii) shares of our common stock equal to the Nuelle stockholders’ portion of the divestiture
payment divided by the average closing price of our common stock for the 10 trading days prior to the earlier of the closing date
of the divestiture or the public disclosure of the divestiture (shares of common stock are to be 40% of the total consideration).



In addition to the upfront issuance
of common stock, we must make the following one-time payments to the Nuelle stockholders within 90 days of the occurrence of the
following events (provided that, the maximum aggregate amount payable under such milestone payments will be $24.0 million):





| | ▪ | Upon achieving the first occurrence of Net Sales of $10.0 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $1.0 million;    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                             
| | ▪ | Upon achieving the first occurrence of Net Sales of $17.5 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $1.8 million.    
| |   |                                                                                                                                                                                                                             
| | ▪ | Upon achieving the first occurrence of Net Sales of $25.0 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $2.5 million.    
| |   |                                                                                                                                                                                                                             
| | ▪ | Upon achieving the first occurrence of Net Sales of $37.5 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $3.8 million;    
| |   |                                                                                                                                                                                                                             
| | ▪ | Upon achieving the first occurrence of Net Sales of $50.0 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $5.0 million; and
| |   |                                                                                                                                                                                                                             
| | ▪ | Upon achieving the first occurrence of Net Sales of $100.0 million over any sequential four calendar quarter period, Aytu will make a one-time payment to the Nuelle security holders of an amount equal to $10.0 million.  



F-10







The Company’s allocation
on consideration transferred for Nuelle as of the purchase date May 5, 2017 is as follows:



|                      |  | Fair Value |          
|--------------------- |  | ---------- | ---------
|                      |  |            |          
|Tangible assets       |  | $          | 2,061,000
|                      |  |            |          
|Intangible assets     |  |            | 1,540,000
|                      |  |            |          
|Goodwill              |  |            | 238,000  
|                      |  |            |          
|Total assets acquired |  | $          | 3,839,000



Included in the intangible assets
is developed technology of $1.3 million, customer contracts of $80,000 and trade names of $160,000, each of which will be amortized
over a nine to twelve-year period. Amortization expense of $22,000 and $0 was recognized in fiscal 2017 and 2016, respectively.



Future amortization after the
year ended June 30, 2017 is as follows:



|2018       |  | $ | 144,000   | 
|---------- |  | - | --------- | 
|2019       |  |   | 144,000   | 
|2020       |  |   | 144,000   | 
|2021       |  |   | 144,000   | 
|2022       |  |   | 144,000   | 
|Thereafter |  |   | 798,000   | 
|           |  | $ | 1,518,000 | 



The contingent consideration was
valued at $1.9 million using a Monte Carlo simulation, as of May 2017. The contingent consideration accretion expense for fiscal
2017 and 2016 was $12,000, and zero respectively.



Additionally, we assumed liabilities
of $47,000.



Note
2 – Summary of Significant Accounting Policies



Principals
of Consolidation



These
consolidated financial statements include the accounts of Aytu and its wholly-owned subsidiary, Aytu Women’s Health. All
material intercompany transactions and balances have been eliminated.



Cash, Cash Equivalents and
Restricted Cash



Aytu considers all highly liquid
instruments purchased with an original maturity of three months or less to be cash equivalents. Restricted cash consist primarily
of a certificate of deposit investment account. Aytu’s investment policy is to preserve principal and maintain liquidity.
The Company periodically monitors its positions with, and the credit quality of the financial institutions with which it invests.
Periodically, throughout the year, Aytu has maintained balances in excess of federally insured limits.



F-11







Revenue Recognition



License Agreements and Royalties



Payments received upon signing
of license agreements are for the right to use the license and are deferred and amortized over the lesser of the license term
or patent life of the licensed drug. Milestone payments relate to obtaining regulatory approval, cumulative sales targets, and
other projected milestones and are recognized at the time the milestones are achieved. Royalties will be recognized as revenue
when earned.



Product &
Service Sales



The Company
recognizes revenue only when all of the following criteria have been met:



| | · | Persuasive
                                         evidence of an arrangement exists,
| | - | --------------------------------------------------------------------------------------

| | · | Delivery
                                         has occurred or services have been performed,
| | - | -----------------------------------------------------------------------------------------------

| | · | The
                                         fee for the arrangement is fixed or determinable, and
| | - | --------------------------------------------------------------------------------------------------

| | · | Collectability
                                         is reasonably assured.
| | - | ------------------------------------------------------------------------------



Persuasive evidence
of an arrangement exists - The Company documents all terms of an arrangement in a written contract by the customer prior to recognizing
revenue.



Delivery has
occurred or services have been performed - The Company delivers all products prior to recognizing revenue. Equipment is considered
delivered upon delivery to a customer's designated location.



Device sales
are recorded when products are shipped to customers. Drug sales are recorded when the product arrives at the customer’s
dock. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded and are estimated at the time of sale.



The fee for
the arrangement is fixed or determinable - Prior to recognizing revenue, a customer's fee is either fixed or determinable under
the terms of the written contract.



Collectability
is reasonably assured - The Company determines that collectability is reasonably assured prior to recognizing revenue. Collectability
is assessed on a customer-by-customer basis based on criteria outlined by management. New customers are subject to a credit review
process, which evaluates the customer's financial position and ultimately its ability to pay. The Company does not enter into
arrangements unless collectability is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations
based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured,
revenue is recognized on a cash basis.



Estimated Sales Returns
and Allowances



Aytu records estimated reductions
in revenue for potential returns of products by customers. As a result, management must make estimates of potential future product
returns and other allowances related to current period product revenue. In making such estimates, management analyzes historical
returns, current economic trends and changes in customer demand and acceptance of our products. If management were to make different
judgments or utilize different estimates, material differences in the amount of the Company’s reported revenue could result.
As of June 30, 2017 and 2016, we accrued $58,000 and $284,000, respectively, in our estimated returns allowance.



Shipping and Handling



The Company's
shipping and handling costs are included in cost of goods sold for all periods presented.



Accounts Receivable



Accounts receivable are recorded
at their net realized value. Aytu evaluates collectability of accounts receivable on a quarterly basis and records a valuation
allowance accordingly. As of June 30, 2017 we had an allowance for doubtful accounts of $44,000, and as of June 30, 2016, there
had been an allowance for doubtful accounts of $41,000.



F-12







Concentration of Business Risks



The following
counterparties contributed greater than 10% of the Company's total revenue during the year ended June 30, 2017 and 2016,
respectively. The revenue from these counterparties as a percentage of total revenue was as follows:



|           |  | Year
    Ended June 30, |   
|---------- |  | ----------------------- | --
|           |  | 2017                    |   
|Customer A |  |                         | 34
|Customer B |  |                         | 22
|Customer C |  |                         | 18
|Customer D |  |                         | 0 



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. Although the Company is impacted by economic conditions in the biotechnology and pharmaceutical sectors, management
does not believe significant credit risk exists as of June 30, 2017.



We are
also subject to credit risk from our accounts receivable related to our product sales. Historically, we have not experienced significant
credit losses on our accounts receivable and we do not expect to have write-offs or adjustments to accounts receivable which would
have a material adverse effect on our financial position, liquidity or results of operations. As of June 30, 2017, three customers
accounted for 60% of gross accounts receivable. As of June 30, 2016, one customer accounted for 69% of gross accounts receivable.



|           |  | Year
    Ended June 30, |   
|---------- |  | ----------------------- | --
|           |  | 2017                    |   
|Customer A |  |                         | 25
|Customer B |  |                         | 17
|Customer C |  |                         | 18
|Customer D |  |                         | 0 



Inventories



Inventories consist of raw materials,
work in process and finished goods and are recorded at the lower of cost or net realizable value, with cost determined on a first-in,
first-out basis. Aytu periodically reviews the composition of its inventories in order to identify obsolete, slow-moving or otherwise
unsaleable items. If unsaleable items are observed and there are no alternate uses for the inventory, Aytu will record a write-down
to net realizable value in the period that the impairment is first recognized. We currently have a reserve of $311,000 for slow
moving inventory as of June 30, 2017 and $199,000 at June 30, 2016.



Inventory consist of the following:



|                |  | June
    30, |          
|--------------- |  | ------------ | ---------
|                |  | 2017         |          
|Raw materials   |  | $            | 442,000  
|Work in process |  |              | 442,000  
|Finished goods  |  |              | 738,000  
|Reserve         |  |              | (310,000 
|                |  | $            | 1,312,000



Trading Securities



Trading
securities are carried at fair value with realized and unrealized gains and losses recorded in earnings.



F-13







Fixed Assets



Fixed assets are recorded at cost.
After being placed in service, the fixed assets are depreciated using the straight-line method over estimated useful lives. Fixed
assets consist of the following:



|                                               |  | Estimated                 |  | June
    30, |         
|---------------------------------------------- |  | ------------------------- |  | ------------ | --------
|                                               |  | Useful
    Lives in years |  | 2017         |         
|                                               |  |                           |  |              |         
|                                               |  |                           |  |              |         
|Office equipment, furniture and other          |  | 2 - 5                     |  | $            | 405,000 
|Lab equipment                                  |  | 3 - 5                     |  |              | 111,000 
|Leasehold improvements                         |  | 3                         |  |              | 287,000 
|Manufacturing equipment                        |  | 2 - 5                     |  |              | 90,000  
|Less accumulated depreciation and amortization |  |                           |  |              | (246,000
|                                               |  |                           |  |              |         
|Fixed assets, net                              |  |                           |  | $            | 647,000 



Aytu recorded the following depreciation
expense in the respective periods:



|                     |  | Year
    Ended June 30, |        
|-------------------- |  | ----------------------- | -------
|                     |  | 2017                    |        
|                     |  |                         |        
|Depreciation expense |  | $                       | 134,000



F-14







Patents



Costs of establishing patents,
consisting of legal and filing fees paid to third parties, are expensed as incurred. The fair value of the Zertane patents, determined
by an independent third party appraisal, was $500,000. The Zertane patents were acquired in connection with the 2011 acquisition
of DMI BioSciences by Ampio, the former parent company of Aytu, and were being amortized over the remaining U.S. patent lives
of approximately 11 years, which were to expire in March 2022. In fiscal 2016, we redirected our resources towards our commercial-stage
products and the Company determined that this asset had no further value as the Company did not have the resources to complete
the necessary clinical trials and bring it to market before the patents expired. The remaining fair value of the Zertane patents
were expensed as of June 30, 2016.



The cost of the Luoxis patents
were $380,000 when they were acquired in connection with the 2013 formation of Luoxis and are being amortized over the remaining
U.S. patent lives of approximately 15 years, which expires in March 2028. Patents consist of the following:



|                              |  | June 30, |         
|----------------------------- |  | -------- | --------
|                              |  | 2017     |         
|                              |  |          |         
|Patents                       |  | $        | 880,000 
|Less accumulated amortization |  |          | (609,000
|                              |  |          |         
|Patents, net                  |  | $        | 271,000 



Aytu recorded the following amortization
expense in the respective periods:



|                     |  | Year Ended June 30, |       
|-------------------- |  | ------------------- | ------
|                     |  | 2017                |       
|                     |  |                     |       
|Amortization expense |  | $                   | 26,000



Future amortization from the year
ended June 30, 2017 is as follows:



|2018       |  | $ | 25,000  | 
|---------- |  | - | ------- | 
|2019       |  |   | 25,000  | 
|2020       |  |   | 25,000  | 
|2021       |  |   | 25,000  | 
|2022       |  |   | 25,000  | 
|Thereafter |  |   | 146,000 | 
|           |  | $ | 271,000 | 



Business Combinations



The Company accounts for its business
acquisitions under the acquisition method of accounting as indicated in the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) 805, “Business Combinations”, which requires the acquiring entity
in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest
in the acquired business; and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes
assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling
interest in the acquiree, based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company
recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the
fair value of the identified net assets acquired.



Goodwill





The Nuelle, ProstaScint and Primsol purchase price allocations
were based upon an analysis of the fair value of the assets and liabilities acquired. The final purchase price may be adjusted
up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities
acquired required the use of estimates by management, and were based upon currently available data, as noted below.





F-15







The Company allocated the excess
of purchase price over the identifiable intangible and net tangible assets to goodwill. Such goodwill is not deductible for tax
purposes and represents the value placed on entering new markets and expanding market share.



The Company tests its goodwill
for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing
the carrying value to its implied fair value. Impairment may result from, among other things, deterioration in the performance
of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other
circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying
value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability
of the carrying value of goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments
in the future and require an adjustment to the recorded balances. The goodwill was recorded as part of the acquisition of ProstaScint
that occurred on May 20, 2015, Primsol that occurred on October 5, 2015 and Nuelle that occurred on May 5, 2017. There was
an impairment of $74,000 related to the ProstaScint goodwill for the year ended June 30, 2017.



Use of Estimates



The preparation of financial statements
in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets
and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Significant items subject to such estimates and assumptions include valuation allowances, stock-based compensation, warrant
valuation, purchase price allocation, valuation of contingent consideration, sales returns and allowances, useful lives of fixed
assets, collectability of accounts receivable, and assumptions in evaluating impairment of definite and indefinite lived assets.
Actual results could differ from these estimates.



Income Taxes



Aytu has been included in the
consolidated tax returns of Ampio, the former parent company of Aytu, for tax years ended on or before December 31, 2015. As of
January 2016, due to the decrease in Ampio’s ownership percentage of Aytu stock, Aytu will begin to file tax returns separate
from Ampio. For all consolidated tax return periods, Aytu's taxes were computed and reported on a "separate return"
basis for these financial statements. Deferred taxes are provided on an asset and liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.



The amount of income taxes and
related income tax positions taken are subject to audits by federal and state tax authorities. The Company has adopted accounting
guidance for uncertain tax positions which provides that in order to recognize an uncertain tax position, the taxpayer must be
more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is
more than 50% likely to be realized upon settlement with the taxing authority. The Company believes that it has no material uncertain
tax positions. The Company's policy is to record a liability for the difference between the benefits that are both recognized
and measured pursuant to FASB ASC 740-1 "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement 109"
(ASC 740-10) and tax position taken or expected to be taken on the tax return. Then, to the extent that the assessment of such
tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports
tax-related interest and penalties as a component of income tax expense. During the periods reported, management of the Company
has concluded that no significant tax position requires recognition under ASC 740-10.



Stock-Based Compensation



Aytu accounts for share based
payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company
determines the estimated grant fair value using the Black-Scholes option pricing model and recognizes compensation costs ratably
over the period of service using the graded method.



Research and Development



Research and development costs
are expensed as incurred with expenses recorded in the respective period.



Income (Loss) Per Common
Share



Basic income (loss) per common
share is calculated by dividing the net income (loss) available to the common shareholders by the weighted average number of common
shares outstanding during that period. Diluted net loss per share reflects the potential
of securities that could share in the net loss of Aytu. Basic and diluted loss per share was the same in 2017 and 2016. Although
there were common stock equivalents of 367,312 and 126,239 shares outstanding at June 30, 2017 and 2016, respectively, consisting
of stock options and warrants; they were not included in the calculation of the diluted net loss per share because they would
have been anti-dilutive.



F-16







Fair Value of Financial
Instruments



The carrying amounts of financial
instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current assets
and other liabilities approximate their fair value due to their short maturities. The fair value of acquisition-related contingent
consideration is based on estimated discounted future cash flows and assessment of the probability of occurrence of potential
future events. The fair values of marketable securities is based on quoted market prices, if available, or estimated discounted
future cash flows.



Derivative Liability



Aytu accounts for liability warrants
by recording the fair value of each instrument in its entirety and recording the fair value of the warrant derivative liability.
The fair value of the financial instruments and related warrants were calculated using a Monte Carlo based valuation model. We
recorded a derivative expense at the inception of the instrument reflecting the difference between the fair value and cash received.
Changes in the fair value in subsequent periods was recorded as unrealized gain or loss on fair value of debt instruments for
the financial instruments and to derivative income or expense for the warrants.



The fair
value of the warrants issued to the placement agents in connection with the registered offering were valued using the Black-Scholes
valuation methodology. Changes in the fair value in subsequent periods were recorded to derivative income or expense.



Adoption of Newly Issued Accounting
Pronouncements



In November 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, "Statement
of Cash Flows: Restricted Cash."  The amendments address diversity in practice that exists in the classification and
presentation of changes in restricted cash on the statement of cash flows.  ASU 2016-18 is effective for the fiscal year
commencing after December 15, 2017. During fiscal 2017, the Company early adopted this pronouncement, the impact of which was
minimal, which is now shown on the statements of cash flows within cash and cash equivalents.



In August 2016, the FASB issued
ASU 2016-15 “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments,” which provides
guidance on the presentation of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity
in existing practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017. Early adoption
is permitted. During fiscal 2017, the Company early adopted this standard. The primary cash flow categorization that will impact
the Company will be contingent consideration payments, however, no such payments have been made to date.



In March 2016, the FASB issued
ASU 2016-09, “Compensation –Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting.”
The standard includes multiple provisions intended to simplify various aspects of the accounting for share based payments. The
amendments are expected to impact net income, earnings per share, and the statement of cash flows. Implementation and administration
may present challenges to companies with significant share based payment activities. The amendments are effective for public entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted this standard
during fiscal, 2017. Aytu has elected to account for forfeitures as they occur, rather than estimate expected forfeitures. Prior
to adopting this standard, the Company had not estimated any forfeitures, therefore, no adjustments were necessary. Aytu is also
operating at a net operating loss, therefore, there was no tax implication.



F-17







In July 2015, the FASB issued
ASU 2015-11, “Simplifying the Measurement of Inventory.”  ASU 2015-11 clarifies that inventory should
be held at the lower of cost or net realizable value.  Net realizable value is defined as the estimated selling price, less
the estimated costs to complete, dispose and transport such inventory.  ASU 2015-11 was effective for fiscal years and interim
periods beginning after December 15, 2016.  ASU 2015-11 is required to be applied prospectively.  The amendments
in ASU 2015-11 were adopted by the Company during fiscal 2017. The adoption of this standard did not have an impact on the Company’s
financial position or results of operations.



In August 2014, the FASB issued
ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s
responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern
and to provide related footnote disclosures. The amendments in this ASU are effective for reporting periods ending after December
15, 2016. The Company adopted this standard during fiscal 2017 and has included the required disclosure in the Company’s
financial statements (Note 3).



Recently Issued Accounting
Pronouncements, Not Adopted as of June 30, 2017



In May 2017, the FASB issued ASU
No. 2017-09, “Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting (ASU 2017-09).”
ASU 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. The standard is effective for interim and annual reporting periods beginning after December 15, 2017,
with early adoption permitted. The Company is currently evaluating the impact of its adoption of this standard on its financial
statements.



In January 2017, the FASB issued
ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350).” The amendment simplifies the subsequent measurement of
goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual,
or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge
should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to
perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment
should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. The Company does not believe that adoption of this amendment will have a material impact
on its financial statements.



In January 2017, the FASB issued
ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business.” The amendment clarifies
the definition of a business, which is fundamental in the determination of whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. This determination is important given the diverging accounting models used for each type
of transaction. The guidance is generally expected to result in fewer transactions qualifying as business combinations. The amendment
is effective prospectively for public business entities for interim and annual periods beginning after December 15, 2017, including
interim periods within those periods. Early adoption is permitted. The Company does not expect an immediate impact on its financial
statements from this codification however, if Aytu seeks to purchase additional assets in the future it could have an impact if
that purchase is accounted for as a business combination or an asset purchase.



In February 2016, the FASB issued
ASU 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (ROU) model that requires a lessee
to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will
be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. A modified retrospective transition approach is required for leases for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company is currently evaluating the impact of its adoption of this standard on its financial statements.



In January 2016, the FASB issued
ASU No. 2016-01,Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic
825). ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation
of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in
fair value of many equity investments to be recognized in net income. ASU No. 2016-01 is effective for interim and annual periods
beginning after December 15, 2017, with early adoption permitted.  Adopting ASU No. 2016-01 may result in a cumulative effect
adjustment to the consolidated statement of equity retained earnings as of the beginning of the year of adoption. The Company
is currently evaluating the impact of this standard on its financial statements.



F-18







In May 2014, the FASB issued ASU
2014-09, Topic 606, Revenue from Contracts with Customers (the "New Revenue Standard"). The amendments in this ASU provide
a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition
guidance, including industry-specific revenue guidance. The core principle of the new ASU is that revenue should be recognized
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods and services. New disclosures about the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers are also required. In August 2015, the FASB issued ASU 2015-14
which deferred the effective date of the New Revenue Standard. In 2016, the FASB issued ASU 2016-08, ASU 2016-10, ASU 2016-11,
and ASU 2016-12 to clarify, among other things, the implementation guidance related to principal versus agent considerations,
identifying performance obligations, and accounting for licenses of intellectual property. The guidance also requires expanded
disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes
in judgments, and assets recognized from the costs to obtain or fulfill a contract.  The New Revenue Standard is effective
for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is
permitted for interim and annual periods beginning after December 5, 2017. The amendments in this update are to be applied on
a retrospective basis, either to each prior reporting period presented or by presenting the cumulative effect of applying the
update recognized at the date of initial application. The New Revenue Standard will be effective for the Company in fiscal 2019.
We will adopt the standard in our third quarter of fiscal 2018 and preliminarily expect to use the modified prospective method.
However, we are continuing to evaluate the impact of the standard, and our adoption method is subject to change. We currently
do not anticipate these standards to have a material impact on our consolidated financial statements outside of the expanded disclosure
requirements.



Note 3
– Going Concern



As reflected in the accompanying financial statements, the Company had a net loss of $22.5 million and net
cash used in operations of $13.8 million, for the year ended June 30, 2017. At June 30, 2017, Aytu had $878,000 of cash, cash equivalents
and restricted cash, stockholders’ equity of $4.0 million and an accumulated deficit of $69.1 million at June 30, 2017.  In
addition, the Company is in the early stage of commercialization and has not yet generated any profits. These factors raised substantial
doubt about the Company’s ability to continue as a going concern.



However,
with the completion of the August 2017 financing of $11.8 million, the Company expects that its current cash resources plus this
additional funding will be sufficient to fund operations through fiscal 2018 and into mid-fiscal 2019.



The accompanying
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue
as a going concern.



Note 4 – License Agreement/Revenue
Recognition



During 2011, Ampio Pharmaceuticals,
Inc., (“Ampio”), Aytu’s former parent company, entered into a license, development and commercialization agreement
with a major Korean pharmaceutical company which was assigned to Vyrix when it was formed in 2013. The agreement grants the pharmaceutical
company exclusive rights to market Zertane in South Korea for the treatment of premature ejaculation (“PE”) and for
a combination drug to be developed, utilizing Zertane and an erectile dysfunction drug. Upon signing of the agreement, Ampio received
a $500,000 upfront payment, the net proceeds of which were $418,000 after withholding of Korean tax. The upfront payment was deferred
and was being recognized as license revenue over a ten-year period. Milestone payments of $3.2 million could have been earned
and recognized contingent upon achievement of regulatory approvals and cumulative net sales targets, which could have taken several
years. In addition, Aytu could have earned a royalty based on 25% of net sales, as defined, if the royalty exceeded the transfer
price of the Zertane product. No royalties have been earned to date.



In April 2014, Vyrix entered into a Distribution and License Agreement (the “Paladin Agreement”)
with Endo Ventures Limited, which acquired Paladin Labs Inc. (“Paladin”), whereby Paladin has exclusive rights to market,
sell and distribute Zertane in Canada, the Republic of South Africa, certain countries in Sub Saharan Africa, Colombia and Latin
America. The Paladin Agreement expires on a country by country basis upon the later of 15 years after the first commercial sale
of the product in that country or expiration of market exclusivity for Zertane in that country. Paladin paid $250,000 to Vyrix
upon signing the Paladin Agreement and is obligated to make milestone payments aggregating up to $3.0 million based upon achieving
Canadian and South African product regulatory approval and achieving specific sales goals. The upfront payment was deferred and
was being recognized as license revenue over a seven-year period. In addition, the Paladin Agreement provides that Paladin pay
royalties based on sales volume.





F-19







At the end of fiscal 2016, Aytu determined that the Zertane asset had no further
value as Aytu did not have the resources to complete the necessary clinical trials and bring it to market before the patents expire.
The remaining deferred revenue of $426,000 was recognized as of June 30, 2016.



Note 5 – Fair Value Considerations



The carrying amounts of financial
instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current assets
and other liabilities approximate their fair value due to their short maturities. The fair value of acquisition-related contingent
consideration is based on estimated discounted future cash flows and assessment of the probability of occurrence of potential
future events. The fair values of marketable securities is based on quoted market prices, if available, or estimated discounted
future cash flows. The valuation policies are determined by the Chief Financial Officer and approved by the Company’s
Board of Directors.



Authoritative guidance defines
fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset
or liability developed based on market data obtained from sources independent of Aytu. Unobservable inputs are inputs that reflect
Aytu’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:



|Level 1: | Inputs that reflect unadjusted
    quoted prices in active markets that are accessible to Aytu for identical assets or liabilities;                                                       
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                           
|Level 2: | Inputs include quoted prices for similar
    assets and liabilities in active or inactive markets or that are observable for the asset or liability either directly or
    indirectly; and
|         |                                                                                                                                                                                           
|Level 3: | Unobservable inputs that are supported by
    little or no market activity.                                                                                                               



Aytu’s assets and liabilities
which are measured at fair value are classified in their entirety based on the lowest level of input that is significant to their
fair value measurement. Aytu’s policy is to recognize transfers in and/or out of fair value hierarchy as of the date in
which the event or change in circumstances caused the transfer. Aytu has consistently applied the valuation techniques discussed
below in all periods presented.



The following table presents Aytu’s
financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2017 and 2016, by level within
the fair value hierarchy:



|                             |  | Fair
    Value Measurements Using |          
|---------------------------- |  | --------------------------------- | ---------
|                             |  | Level
    1                       |          
|June 30, 2017                |  |                                   |          
|ASSETS                       |  |                                   |          
|Investment in Acerus         |  | $                                 | -        
|                             |  |                                   |          
|LIABILITIES                  |  |                                   |          
|Warrant derivative liability |  | $                                 | -        
|Contingent consideration     |  | $                                 | -        
|                             |  |                                   |          
|June 30, 2016                |  |                                   |          
|ASSETS                       |  |                                   |          
|Investment in Acerus         |  | $                                 | 1,041,000
|                             |  |                                   |          
|LIABILITIES                  |  |                                   |          
|Warrant derivative liability |  | $                                 | -        
|Contingent consideration     |  | $                                 | -        



F-20







The estimated fair value of the Company’s investment, which is classified as Level 1 (quoted price is
available), was $1.0 million as of June 30, 2016. This investment was sold during fiscal 2017.



The warrant derivative liability
was valued using the Black-Scholes valuation methodology because that model embodies all of the relevant assumptions that address
the features underlying these instruments. The warrants related to the warrant derivative liability are not actively traded and
therefore classified as Level 3. Significant assumptions in valuing the warrant derivative liability, based on estimates of the
value of Aytu common stock and various factors regarding the warrants, were as follows as of February 28, 2017, the date when
the derivative instruments converted into equity, and at June 30, 2016:



|                        |  | February
    28, 2017 |       |   | June
    30, 2016 | 
|----------------------- |  | --------------------- | ----- | - | ----------------- | 
|Warrants:               |  |                       |       |   |                   | 
|Volatility              |  |                       | 160.7 | % |                   | 
|Equivalent term (years) |  |                       | 4.18  |   |                   | 
|Risk-free interest rate |  |                       | 1.87  | % |                   | 
|Dividend yield          |  |                       | 0.00  | % |                   | 
|                        |  |                       |       |   |                   | 



The following table sets forth
a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair valued hierarchy:



|                                                                        |  | Derivative
    Instruments |         
|----------------------------------------------------------------------- |  | -------------------------- | --------
|                                                                        |  |                            |         
|Balance as of June 30, 2016                                             |  | $                          | 276,000 
|Warrant issuances                                                       |  |                            | -       
|Change in fair value included in earnings (February
    28, 2017)       |  |                            | (213,000
|Reclassification of warrant
    from liability to equity upon amendment |  |                            | (63,000 
|Balance as of June 30, 2017                                             |  | $                          | -       



The contingent consideration was
valued using the Monte-Carlo valuation methodology because that model embodies all of the relevant assumptions that address the
features underlying these instruments. Contingent consideration is not actively traded and therefore classified as Level 3.





As of June 30, 2016, we had $3.9 million in contingent consideration.
During fiscal 2017, this balance increased to $7.6 million as a result of $305,000 in accretion, which is included in our interest
expense, as well as an increase of $1.9 million related to our Nuelle merger and adjustments of $1.5 million related to the revaluation
of our ProstaScint and Natesto products.





Note 6 – Income Taxes



As previously
discussed in Note 2 - Summary of Significant Accounting Policies, the Company has been included in the consolidated tax returns
of Ampio for tax years ending on or before December 31, 2015. Beginning in January 2016, Aytu will file tax returns separate from
Ampio. For all consolidated tax return periods, the Company's taxes have been computed and reported on a "separate return"
basis. Ampio and Aytu did not have a tax sharing agreement for the consolidated return periods. Accordingly, certain tax attributes,
e.g. net operating loss carryforwards, reflected in these financial statements, may or may not be available to Aytu. In January
2016, Ampio's ownership interest in Aytu fell below 80% so that Aytu will no longer be included in the Ampio consolidated tax
return. The deconsolidation resulted in approximately $4.5 million of net operating loss carryforwards originating prior to the
incorporation of Vyrix and Luoxis no longer being available to Aytu. Upon deconsolidation, the deferred tax asset and related
valuation allowance for these pre-incorporation net operating losses have been removed.



Income tax
benefit resulting from applying statutory rates in jurisdictions in which Aytu is taxed (Federal and various states) differs from
the income tax provision (benefit) in the Aytu financial statements. The following table reflects the reconciliation for the respective
periods.



F-21









|                                                       |  | Year Ended June 30, |           
|------------------------------------------------------ |  | ------------------- | ----------
|                                                       |  | 2017                |           
|                                                       |  |                     |           
|Benefit at statutory rate                              |  | $                   | (7,653,000
|State income taxes, net of federal benefit             |  |                     | (681,000  
|Stock based compensation                               |  |                     | 116,000   
|Interest on convertible debt                           |  |                     | -         
|Offering costs                                         |  |                     | 203,000   
|Contingent consideration                               |  |                     | 4,000     
|Change in tax rate                                     |  |                     | (11,000   
|Change in valuation allowance                          |  |                     | 7,922,000 
|Reduction of net operating losses upon deconsolidation |  |                     | -         
|Other                                                  |  |                     | 100,000   
|Net income tax provision (benefit)                     |  | $                   | -         



Deferred income taxes arise from
temporary differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax
effects of significant temporary differences which comprise the deferred tax assets and liabilities are as follows for the respective
periods:



|                                               |  | 2017 |             |   | 2016 |  
|---------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Deferred tax assets (liabilities):             |  |      |             |   |      |  
|Deferred revenue                               |  | $    | -           |   |      | $
|Deferred rent                                  |  |      | 3,000       |   |      |  
|Accrued expenses                               |  |      | 127,000     |   |      |  
|Net operating loss carry forward               |  |      | 15,435,000  |   |      |  
|Intangibles                                    |  |      | 1,559,000   |   |      |  
|Share-based coompensation                      |  |      | 1,362,000   |   |      |  
|Fixed assets                                   |  |      | 191,000     |   |      |  
|Unrealized loss on investment                  |  |      | -           |   |      |  
|Capital loss carry forward                     |  |      | 385,000     |   |      |  
|Contribution carry forward                     |  |      | 41,000      |   |      |  
|Warrant liability                              |  |      | 75,000      |   |      |  
|Inventory                                      |  |      | 174,000     |   |      |  
|Allowance for doubtful
    accounts            |  |      | 17,000      |   |      |  
|Total deferred income tax assets (liabilities) |  |      | 19,369,000  |   |      |  
|Less: Valuation allowance                      |  |      | (19,369,000 | ) |      |  
|Total deferred income tax assets (liabilities) |  | $    | -           |   |      | $



In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income, carry back opportunities and tax planning
strategies in making the assessment. The Company believes it is more likely than not it will realize the benefits of these deductible
differences, net of the valuation allowance provided.The Company
has federal net operating losses of approximately $42.3 million and $24.8 million as of June 30, 2017 and June 30, 2016, respectively
that, subject to limitation, may be available in future tax years to offset taxable income. The available federal net operating
losses, if not utilized to offset taxable income in future periods, will begin to expire in 2031 through 2036. The Company has
state net operating losses of approximately $32.8 million and $17.3 million as of June 30, 2017 and June 30, 2016, respectively
that, subject to limitation, may be available in future tax years to offset taxable income. The available state net operating
losses, if not utilized to offset taxable income in future periods, will begin to expire in 2025 through 2036. Under the provisions
of the Internal Revenue Code, substantial changes in the Company's ownership may result in limitations on the amount of NOL carryforwards
that can be utilized in future years. Net operating loss carryforwards are subject to examination in the year they are utilized
regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance
is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such NOLs are
utilized.



F-22







As of June 30, 2017 and 2016,
the Company has no liability for gross unrecognized tax benefits or related interest and penalties.



Aytu has made its best estimates
of certain income tax amounts included in the financial statements. Application of the Company's accounting policies and estimates,
however, involves the exercise of judgement and use of assumptions as to future uncertainties and, as a result, could differ from
these estimates. In arriving at its estimates, factors the Company considers include how accurate the estimates or assumptions
have been in the past, how much the estimates or assumptions have changed and how reasonably likely such changes may have a material
impact. Aytu has been historically included in the Ampio consolidated tax return. Under the general statute of limitations, the
Company would not be subject to federal or Colorado income tax examinations for tax years prior to 2013 and 2012, respectively.
However, given the net operating losses generated since inception, all tax years since inception are subject to examination.



Note 7 – Commitments
and Contingencies



Commitments and contingencies
are described below and summarized by the following table as of June 30, 2017:



|                                           |  | Total |            |  | 2018 |   |         | 2019 |  |   | 2020    |  |  | 2021 |           |  | 2022 |   |           | Thereafter | 
|------------------------------------------ |  | ----- | ---------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | --------- |  | ---- | - | --------- | ---------- | 
|Prescription database                      |  | $     | 1,342,000  |  |      | $ | 769,000 |      |  | $ | 573,000 |  |  | $    | -         |  |      | $ | -         |            | 
|Natesto                                    |  |       | 15,000,000 |  |      |   | -       |      |  |   | -       |  |  |      | 2,500,000 |  |      |   | 5,000,000 |            | 
|Manufacturing/commercial supply agreements |  |       | -          |  |      |   | -       |      |  |   | -       |  |  |      | -         |  |      |   | -         |            | 
|Office lease                               |  |       | 175,000    |  |      |   | 145,000 |      |  |   | 30,000  |  |  |      | -         |  |      |   | -         |            | 
|                                           |  | $     | 16,517,000 |  |      | $ | 914,000 |      |  | $ | 603,000 |  |  | $    | 2,500,000 |  |      | $ | 5,000,000 |            | 



Prescription Database



In May 2016, Aytu entered into
an agreement with a company that will provide Aytu with prescription database information, whereby Aytu agreed to pay approximately
$1.9 million over three years for access to the database of prescriptions written for Natesto. The payments have been broken down
into quarterly payments, the first of which was made in November 2016, the second payment was made in January 2017 and the third
payment was made in April 2017.



Natesto



In April 2016, the Company entered
into an agreement with Acerus whereby Aytu agreed to pay $8.0 million for the exclusive U.S. rights to Natesto (see Note 1). The
first payment totaling $2.0 million was paid in April, the second installment payment was paid in October 2016. The final payment
totaling $4.0 million was paid in January 2017. Additionally, Aytu is required to make the first milestone payment of $2.5 million
even if the milestone is not reached and anticipates making the second milestone payment of $5.0 million along with the third
milestone payment of $7.5 million.



Manufacturing/Commercial
Supply Agreements



In October 2015, Aytu entered
into a Master Services Agreement with Biovest International, Inc. (“Biovest”). The agreement provides that Aytu may
engage Biovest from time to time to provide services in accordance with mutually agreed upon project addendums and purchase orders.
Aytu expects to use the agreement from time to time for manufacturing services, including without limitation, the manufacturing,
processing, quality control testing, release or storage of its products for the ProstaScint product. In September 2016, Aytu entered
into a Commercial Supply Agreement with Grand River Aseptic Manufacturing, Inc. (“GRAM”). The agreement provides that
Aytu may engage GRAM from time to time to provide services in accordance with mutually agreed upon work orders. As of June 30,
2017, both contracts were on hold as the Company evaluates its strategic options for the ProstaScint product. If the contracts
are not restarted, Aytu does not anticipate any future liability related to either contract.



Office Lease



In June 2015, Aytu entered into
a 37 month operating lease for a space in Raleigh, North Carolina. This lease has initial base rent of $3,000 a month, with total
base rent over the term of the lease of approximately $112,000. In September 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. The Company recognizes rental expense of the facilities on a straight-line basis over the term
of the lease. Differences between the straight-line net expenses on rent payments are classified as liabilities between current
deferred rent and long-term deferred rent. Rent expense for the respective periods is as follows:



F-23







|             |  | Year Ended June 30, |        
|------------ |  | ------------------- | -------
|             |  | 2017                |        
|             |  |                     |        
|Rent expense |  | $                   | 139,000



Note 8 – Convertible
Promissory Notes



During July and August 2015, Aytu closed on note purchase agreements with institutional and high net worth
individual investors for the purchase and sale of convertible promissory notes (“Notes”) with an aggregate principal
amount of $5.2 million. The sale of the Notes was pursuant to a private placement. Debt issuance costs totaled $401,000, which
included the $103,000 fair value of the placement agent warrants.



The Notes were an unsecured obligation.
Aytu did not have the right to prepay the Notes prior to the maturity date. Interest accrued on the Notes in the following amounts:
(i) 8% simple interest per annum for the first six months and (ii) 12% simple interest per annum thereafter if not converted
during the first nine months. Interest accrued, was payable with the principal upon maturity, conversion or acceleration of the
Notes and could have been paid in kind or in cash, in Aytu’s sole discretion.



Placement agents for the offering
sold the institutional portion of the offering of the Notes. Aytu sold the balance of the Notes to individuals and entities with
whom Aytu had an established relationship. For Notes sold by the placement agent, Aytu paid the placement agent 8% of the gross
proceeds of Notes sold by the placement agents and was obligated to issue warrants for an amount of shares equal to 8% of the
gross number of shares of the Company stock issuable upon conversion of the Notes issued to investors introduced to the Company
by the private placement agents in the private placement, in addition to a previously paid non-refundable retainer fee of $20,000.
The placement agent warrants have a term of five years from the date of issuance of the related notes in July and August 2015,
an exercise price equal to the conversion price per share at which the Notes are converted into common stock. Change in fair value
is recorded in earnings. Fair value at the grant date was recorded as a debt discount and amortized over the term of the debt.



The warrants were recorded at
fair value as long-term liabilities on the Balance Sheet and upon conversion were moved to equity classification.



Upon Aytu’s adoption of
ASU 2015-3, the issuance costs associated with the Notes were recorded as a long–term liability and were presented in the
Balance Sheet as a direct reduction of the carrying amount of the Notes on their inception date.



Pursuant to the terms of the convertible promissory note agreements,
if Aytu sold equity securities at any time while the Notes were outstanding in a financing transaction that was not a Qualified
Financing (a public offering of Aytu stock resulting in gross proceeds of at least $5.0 million (excluding indebtedness converted
in such financing) prior to the maturity date of the Notes), the holders of the convertible promissory notes had the option, but
not the obligation, to convert the outstanding principal and accrued interest as of the closing of such financings into a number
of shares of Aytu capital stock in an amount equal to 120% of the number of such shares calculated by dividing the outstanding
principal and accrued interest by the lesser of (a) the lowest cash price per share paid by purchasers of shares in such financing,
or (b) $92.60. As a result of Aytu’s sale of common stock on January 20, 2016, the Company was obligated to provide notice
to the above-referenced noteholders of such stock sales. In accordance with the convertible note terms, noteholders had the option
to convert their entire balance (inclusive of accrued but unpaid interest) into a number of shares of Aytu common stock equal
to 120% of the number of shares calculated by dividing such note balance by $156.00, which was the per share purchase price paid
in the equity financing described above. On February 10, 2015, the date of the conversion, an aggregate of $4.1 million of principal
and $143,000 of accrued interest on the Notes converted into an aggregate of 32,830 shares of Aytu’s common stock under
the original terms of the agreement.



In May 2016, Aytu completed a registered public offering which was considered a Qualified Financing and
all outstanding Notes were automatically converted on the same terms as in the offering. At the insistence of the underwriters
of the offering, all outstanding noteholders had signed lockup agreements which granted them an extra 10% on the conversion, increasing
it to 130% of shares calculated by dividing such Note balance by $96.00, which was the per share purchase price in the registered
offering. On May 6, 2016, the date of conversion, an aggregate of $1.1 million of principal and $78,000 of accrued interest on
the Notes converted into an aggregate of 15,279 shares of Aytu’s common stock and 15,279 warrants.





In connection with the conversion
of the Aytu Notes, Aytu was obligated to issue to the placement agents for the convertible note offering warrants for an amount
of shares equal to 8% of the number of shares of Aytu’s common stock for the Notes sold by the placement agents issued upon
conversion of the Notes. As a result of the optional note conversion, on February 10, 2016, Aytu issued warrants to the placement
agents to purchase an aggregate of 1,113 shares of common stock at an exercise price of $156.00 per share. As a result of the
second Note conversion, on May 6, 2016, Aytu issued warrants to the placement agents to purchase an aggregate of 1,129 shares
of common stock at an exercise price of $96.00 per share. These warrants are exercisable for five years from the date of issuance
of the related Notes in July and August 2015. The warrants have a cashless exercise feature.



F-24







Also in connection with the conversion
of the Notes, Aytu recorded a beneficial conversion feature of $4.9 million which was recorded as a debt discount; this amount
represents that carrying amount of the Notes at the date of conversion. The beneficial conversion feature was expensed upon
conversion of the Notes to interest expense.



Note 9 – Common Stock



Capital Stock



At June 30, 2017 and June 30,
2016, Aytu had 824,831 and 187,098 common shares outstanding, respectively, and no preferred shares outstanding at either June
30, 2017 or June 30, 2016. The Company has 100.0 million shares of common stock authorized with a par value of $0.0001 per
share and 50.0 million shares of preferred stock authorized with a par value of $0.0001 per share.



In May 2016, Aytu raised gross
proceeds of approximately $7.5 million through a public offering of 78,125 Units. Offering costs totaled $1.2 million resulting
in net proceeds of $6.3 million. Each Unit consisted of one share of Aytu common stock and a warrant to purchase one share of
Aytu common stock. The common stock issued had a relative fair value of $4.2 million. The warrants have an exercise price of $120.00
per share and will expire five years from the date of issuance. These warrants have a relative fair value of $2.1 million. We
also granted the underwriters a 45-day option (the Over-Allotment Option) to purchase up to an additional 11,719 shares of common
stock and/or warrants. The underwriters exercised 8,542 of this over-allotment option for the warrants and paid $2.40 per over-allotment
warrant resulting in proceeds of $20,000. These warrants have the same terms as the warrants sold in the registered offering.



In July 2016, we entered into
a purchase agreement (the ‘‘Purchase Agreement’’), together with a registration rights agreement (the
‘‘Registration Rights Agreement’’), with Lincoln Park Capital Fund, LLC (‘‘Lincoln Park’’).
Upon signing the Purchase Agreement, Lincoln Park agreed to purchase 6,684 shares of our common stock for $500,000 as an initial
purchase under the agreement. We also issued as a commitment fee to Lincoln Park of 2,625 shares of common stock. Between September
2016 and June 2017, Lincoln Park purchased an additional 10,000 shares for $240,000, the issuance costs related to these purchases
totaled $91,000, resulting in net proceeds of $649,000. We terminated the Purchase Agreement effective August 16, 2017.



In July 2016, we issued 50,000 shares of restricted stock as compensation to certain executive officers and
directors, which vest in July 2026. This expense is included in sales, general and administrative. For the year ended June 30,
2017, the expense was $725,000. The original fair value of the restricted stock was $3.2 million. As of June 30, 2017, the remaining
unrecognized expense is $2.5 million. During fiscal 2017, one of the Company’s executive officers resigned and his restricted
stock vested in full upon this event. This resulted in the Company recognizing the remainder of the expense related to this executive’s
restricted stock grant of $430,000.



In August 2016, we issued an aggregate
of 7,123 shares of common stock as bonuses for performance in 2016 to three executive officers.



In November 2016, we raised gross
proceeds of approximately $8.6 million through a public offering of 286,749 Units. Offering costs totaled $1.0 million resulting
in net cash proceeds of $7.6 million. We also issued underwriter warrants in connection with the offering with a fair value of
$293,000, resulting in net proceeds of $7.3 million. Each Unit consisted of one share of Aytu common stock and a warrant to purchase
one share of Aytu common stock. The common stock issued had a relative fair value of $3.7 million and a fair value of $4.4 million.
The investor warrants have an exercise price of $37.20 per share and will expire five years from the date of issuance. These investor
warrants have a relative fair value of $3.5 million and a fair value of $4.2 million. We also granted the underwriters a 45-day
option (the Over-Allotment Option) to purchase up to an additional 43,013 shares of common stock and/or warrants. The underwriters
purchased 14,263 of this Over-Allotment Option for the warrants and paid $0.20 per over-allotment warrant. These warrants have
the same terms as the warrants sold in the registered offering. These warrants have a relative fair value of $173,000, a fair
value of $208,000, and proceeds of $3,000, which was the purchase price per the underwriting agreement.



In February 2017, the Company
consummated its warrant tender offer to exercise, at a temporarily reduced exercise price of $15.00 per share, (i) outstanding
warrants to purchase 86,667 shares of common stock with an exercise price of $120.00 per share, which were originally issued to
investors in the Company’s May 2016 financing (the “May 2016 Warrants”), and (ii) outstanding warrants to purchase
301,013 shares of common stock with an exercise price of $37.20 per share, which were originally issued to investors in the Company’s
October 2016 financing (the “October 2016 Warrants” and together with the May 2016 Warrants, the “Original Warrants”).
Original warrants to purchase an aggregate of 149,552 shares of common stock were tendered and exercised in the warrant tender
offer, for aggregate gross proceeds to the Company of approximately $2.2 million. Original warrants that were not tendered and
exercised remain in effect at the pre-tender offer exercise prices of $120.00 per share and $37.20 per share, respectively (see
Note 11).



F-25







In May 2017, we entered into a
Merger Agreement with Nuelle, Inc. and its stockholders, pursuant to which Nuelle would become our wholly owned subsidiary (the
“Merger”). The Merger closed on May 5, 2017. As part of the Merger, we issued to the Nuelle preferred stockholders
an aggregate of 125,000 shares of our common stock.



Note 10 – Equity Instruments



Stock Option Repricing



In March 2017, our Board of Directors
approved a common stock option repricing program whereby all previously granted and unexercised options were repriced on a one-for-one
basis to $16.40 per share which represented the closing price of our common stock as of the date of the repricing. There was no
other modification to the vesting schedule of the previously issued options. As a result, 36,864 unexercised options originally
granted to purchase common stock at prices ranging from $64.60 to $1,111.20 per share were repriced under this program.



We treated the repricing as a
modification of the original awards and calculated additional compensation costs for the difference between the fair value of
the modified award and the fair value of the original award on the modification date. The repricing resulted in an incremental
stock-based compensation expense of $34,000. The full expense was recognized during fiscal 2017.



In July 2016, our Board of Directors
approved a common stock option repricing program whereby previously granted and unexercised options held by our then current employees,
consultants and directors with exercise prices above $120.00 per share were repriced on a one-for-one basis to $64.60 per share
which represented the per share fair value of our common stock as of the date of the repricing. There was no other modification
to the vesting schedule of the previously issued options. As a result, 15,803 unexercised options originally granted to purchase
common stock at prices ranging from $134.40 to $362.40 per share were repriced under this program.



We treated the repricing as a
modification of the original awards and calculated additional compensation costs for the difference between the fair value of
the modified award and the fair value of the original award on the modification date. The repricing resulted in an incremental
stock-based compensation expense of $318,000. Expense related to vested shares was expensed on the repricing date and expense
related to unvested shares is being amortized over the remaining vesting period of such stock options.



Options



On June 1, 2015, Aytu’s
stockholders approved the 2015 Stock Option and Incentive Plan (the “2015 Plan”), which, as amended in November 2016,
provides for the award of stock options, stock appreciation rights, restricted stock and other equity awards for up to an aggregate
of 100,000 shares of common stock. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by
Aytu prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under
the 2015 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan.



Pursuant to the 2015 Stock Plan,
100,000 shares of its common stock, are reserved for issuance. The fair value of options granted was calculated using the Black-Scholes
option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of
the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend
yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. Aytu estimates the
expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is
based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The assumptions
used for the year ended June 30, 2017 are as follows:



F-26











|                        |  | Year
    Ended June 30, |                                                       
|----------------------- |  | ----------------------- | ------------------------------------------------------
|                        |  | 2017                    |                                                       
|                        |  |                         |                                                       
|Expected volatility     |  |                         | 178%
                                         - 185%  
|Risk free interest rate |  |                         | 0.97%
                                         - 1.88%
|Expected term (years)   |  |                         | 5.0
                                         -6.5     
|Dividend yield          |  |                         | 0%                                                    









Stock option activity is as follows:



|                                     |  | Number of
    Options |        |   | Weighted
    Average Exercise Price |   |        | Weighted Average
    Remaining Contractual Life in Years | 
|------------------------------------ |  | --------------------- | ------ | - | ----------------------------------- | - | ------ | -------------------------------------------------------- | 
|Outstanding June 30, 2015            |  |                       | -      |   |                                     | $ | -      |                                                          | 
|Granted                              |  |                       | 16,340 |   |                                     | $ | 360.20 |                                                          | 
|Exercised                            |  |                       | -      |   |                                     | $ | -      |                                                          | 
|Forfeited/Cancelled                  |  |                       | (209   | ) |                                     | $ | 362.40 |                                                          | 
|Outstanding June 30, 2016            |  |                       | 16,131 |   |                                     | $ | 360.20 |                                                          | 
|Granted                              |  |                       | 23,608 |   |                                     | $ | 18.20  |                                                          | 
|Exercised                            |  |                       | -      |   |                                     | $ | -      |                                                          | 
|Forfeited                            |  |                       | (1,408 | ) |                                     | $ | 83.20  |                                                          | 
|Cancelled                            |  |                       | (68    | ) |                                     | $ | 64.60  |                                                          | 
|Outstanding June 30, 2017            |  |                       | 38,263 |   |                                     | $ | 16.31  |                                                          | 
|Exercisable at June 30, 2017         |  |                       | 19,341 |   |                                     | $ | 16.40  |                                                          | 
|Available for grant at June 30, 2017 |  |                       | 61,737 |   |                                     |   |        |                                                          | 





The following table details the
options outstanding at June 30, 2017 by range of exercise prices:







|Range of Exercise Prices |       |  | Number of Options Outstanding |  |        | Weighted Average Exercise Price |  |   | Weighted Average Remaining
    Contractual Life of Options Outstanding |  |  | Number of Options Exercisable |      |  | Weighted Average Exercise Price | 
|------------------------ | ----- |  | ----------------------------- |  | ------ | ------------------------------- |  | - | ---------------------------------------------------------------------- |  |  | ----------------------------- | ---- |  | ------------------------------- | 
|$                        | 14.00 |  |                               |  | 1,500  |                                 |  | $ | 14.00                                                                  |  |  |                               | 9.85 |  |                                 | 
|$                        | 16.40 |  |                               |  | 36,763 |                                 |  | $ | 16.40                                                                  |  |  |                               | 8.34 |  |                                 | 
|                         |       |  |                               |  | 38,263 |                                 |  | $ | 16.31                                                                  |  |  |                               | 8.40 |  |                                 | 



F-27







Stock-based compensation expense
related to the fair value of stock options was included in the statements of operations as research and development expenses and
sales, general and administrative expenses as set forth in the table below. Aytu determined the fair value as of the date of grant
using the Black-Scholes option pricing model and expenses the fair value ratably over the vesting period. The following table
summarizes stock-based compensation expense for the years ended June 30, 2017 and 2016:



|                                             |  | Year Ended June 30, |          
|-------------------------------------------- |  | ------------------- | ---------
|                                             |  | 2017                |          
|Research and development expenses            |  |                     |          
|Stock-based compensation                     |  | $                   | -        
|Selling, general and administrative expenses |  |                     |          
|Stock-based compensation                     |  |                     | 2,502,000
|                                             |  | $                   | 2,502,000
|                                             |  |                     |          
|Unrecognized expense at June 30, 2017        |  | $                   | 775,000  
|                                             |  |                     |          
|Weighted average remaining years to vest     |  |                     | 1.81     



Warrants



A summary of all warrants is as
follows:



|                                                                            |  | Number
    of  Warrants |          |   | Weighted
     Average  Exercise Price |   |          | Weighted
    Average  Remaining Contractual  Life in Years | 
|--------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ------------------------------------- | - | -------- | ---------------------------------------------------------- | 
|Outstanding June 30, 2015                                                   |  |                         | 444      |   |                                       | $ | 1,087.20 |                                                            | 
|Warrants issued to placement agents for convertible
    promissory notes    |  |                         | 1,115    |   |                                       | $ | 156.00   |                                                            | 
|Warrants issued to investors in connection
    with the registered offering |  |                         | 86,667   |   |                                       | $ | 120.00   |                                                            | 
|Warrants issued to placement agents for convertible
    promissory notes    |  |                         | 1,129    |   |                                       | $ | 96.00    |                                                            | 
|Warrants issued to placement agents for the
    registered offering         |  |                         | 5,474    |   |                                       | $ | 120.00   |                                                            | 
|Warrants issued to convertible note holders
    who converted May 5, 2016   |  |                         | 15,279   |   |                                       | $ | 120.00   |                                                            | 
|Outstanding June 30, 2016                                                   |  |                         | 110,108  |   |                                       | $ | 124.02   |                                                            | 
|                                                                            |  |                         |          |   |                                       |   |          |                                                            | 
|Issuance of settlement warrants to initial
    investors                    |  |                         | 4,402    |   |                                       | $ | 80.00    |                                                            | 
|Warrants issued to investors in connection
    with the registered offering |  |                         | 301,014  |   |                                       | $ | 37.20    |                                                            | 
|Warrants issued to placement agents for the
    registered offering         |  |                         | 20,077   |   |                                       | $ | 15.00    |                                                            | 
|Warrants exercised                                                          |  |                         | (149,552 | ) |                                       | $ | 15.00    |                                                            | 
|                                                                            |  |                         |          |   |                                       |   |          |                                                            | 
|Outstanding June 30, 2017                                                   |  |                         | 286,049  |   |                                       | $ | 50.29    |                                                            | 



In connection with our private
placement of approximately $5.2 million of convertible notes in July and August 2015, the Company was obligated to issue to the
placement agents’ warrants for an amount of shares equal to 8% of the number of shares of our common stock issued upon conversion
of the notes and any accrued interest. The placement agents warrants have a term of five years from the date of issuance of the
related notes in July and August 2015, an exercise price equal to 100% of the price per share at which equity securities were
sold in our next equity financing, and provide for cashless exercise.



In connection with the conversions
of the notes in February 2016 and May 2016, which were triggered by an equity financing in January 2016 and our public offering
of common stock and warrants in May 2016, respectively, we issued warrants to the placement agents to purchase an aggregate of
1,115 shares of our common stock at an exercise price of $156.00 per share, and an aggregate of 1,129 shares of our common stock
at an exercise price of $96.00 per share. These warrants have a fair value of $87,000 and $50,000, respectively.



F-28







Also in connection with the conversion
of the notes in May 2016, the noteholders that converted also received 15,279 warrants (see Note 9). These warrants have a term
of five years with an exercise price of $120.00 per share. These warrants are accounted for under equity treatment and have a
fair value of $480,000.



In connection with our May 2016
public offering, we issued warrants to purchase an aggregate of 5,474 shares of common stock at an exercise price of $120.00 and
a term of five years to the underwriters of the public offering. These warrants are accounted for under liability accounting and
are fair valued at each reporting period (see Note 6).



Also in connection with our May
2016 public offering, we issued to investors warrants to purchase an aggregate of 86,667 shares of common stock, which includes
the over-allotment warrants, at an exercise price of $120.00 with a term of five years. These warrants are accounted for under
equity treatment (see Note 10).



Included in the warrant balance
at June 30, 2016 are warrants to purchase of 5,474 shares of common stock issued to the underwriters of our May registered offering.
These warrants were accounted for under liability accounting and were fair valued at each reporting period (see Note 7). On February
28, 2017, these warrants had a fair value of $63,000. Upon the amendment to these warrant agreements, in connection with the closing
of our warrant tender offer, this value was reclassified from liability accounting to equity after we removed any provision in
the amendment that could cause this to be paid in cash.



Included in the warrant balance
at June 30, 2016 are warrants to purchase of 429 shares of common stock issued to the bankers that assisted us with our Notes
(see Note 9). In March 2017, the Company reduced the exercise price of $156.00 to $15.00. This modification resulted in an expense
of $1,500 which was recognized during the quarter ended March 31, 2017 in sales, general and administrative.



During fiscal 2017, Aytu issued
warrants to purchase 4,402 shares of common stock to initial investors of the Company at an exercise price of $80.00 and a term
of five years from July 2016. These warrants generated a non-cash expense of $596,000 for the year ended June 30, 2017, which
is included in sales, general and administrative expense. These warrants are accounted for under equity treatment.



In connection with our November
2016 public offering, we issued to the underwriters of the public offering warrants to purchase an aggregate of 20,077 shares
of common stock at an exercise price of $37.20 and a term of five years. These warrants are accounted for under equity treatment.
In February, we reduced the exercise price of these warrants to $15.00.



Also in connection with our November
2016 public offering, we issued to investors warrants to purchase an aggregate of 301,014 shares of common stock, which includes
the over-allotment warrants, at an exercise price of $37.20 with a term of five years. These warrants are accounted for under
equity treatment (see Note 10).



In February 2017, the Company
consummated its warrant tender offer to exercise, at a temporarily reduced exercise price of $15.00 per share, (i) outstanding
warrants to purchase 86,667 shares of common stock with an exercise price of $120.00 per share, which were originally issued to
investors in the Company’s May 2016 financing (the “May 2016 Warrants”), and (ii) outstanding warrants to purchase
301,014 shares of common stock with an exercise price of $37.20 per share, which were originally issued to investors in the Company’s
October 2016 financing (the “October 2016 Warrants” and together with the May 2016 Warrants, the “Original Warrants”).
Original Warrants to purchase an aggregate of 149,552 shares of common stock were tendered and exercised in the warrant tender
offer, for aggregate gross proceeds to the Company of approximately $2.2 million. Original warrants that were not exercised remain
in effect at the pre-tender offer exercise prices of $120.00 per share and $37.20 per share, respectively. The incremental fair
value, which had no book impact, was $178,000.



The Company also reduced the exercise
prices of an aggregate of 25,541 warrants to purchase shares of common stock, which were originally issued as underwriters’
compensation in the May 2016 and October 2016 financings, from $120.00 per share and $37.20 per share, respectively, to $15.00
per share. The amended warrants related to the May 2016 financing adjusted the accounting for these warrants from liability classification
to equity. The incremental fair value of these warrant modifications, which had no book impact, was $23,000.



F-29







All warrants were valued using
the Black-Scholes option pricing model. In order to calculate the fair value of the warrants, certain assumptions were made regarding
components of the model, including the selling price or fair market value of the underlying common stock, risk-free interest rate,
volatility, expected dividend yield, and expected life. Changes to the assumptions could cause significant adjustments to valuation.
The Company estimated a volatility factor utilizing a weighted average of comparable published volatilities of peer companies.
The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of
similar maturity. During fiscal 2017, Aytu modified 175,522 warrants. We used the value of $15.20 per the valuation of our common
stock issued in March 2017.



Significant assumptions in valuing
the warrants issued and modified during the year ended June 30, 2017 were as follows:



|                         |  | Year
    Ended June 30, |                                                           
|------------------------ |  | ----------------------- | ----------------------------------------------------------
|                         |  | 2017                    |                                                           
|Expected volatility      |  |                         | 156.64%
                                         - 169.22%
|Risk free interest rate  |  |                         | 1.63%
                                         - 1.87%    
|Contractual term (years) |  |                         | 3.46
                                         - 4.67      
|Dividend yield           |  |                         | 0%                                                        



Note 11 – Related Party
Transactions



Services Agreement



In July 2015, Aytu entered into
an agreement with Ampio, whereby Aytu agreed to pay Ampio a set amount per month for shared overhead, which includes costs related
to the shared corporate staff and other miscellaneous overhead expenses. This agreement was amended in November 2015, April 2016,
July 2016, and again in January 2017 resulting in an amount of $12,000 per month. This agreement was terminated in June 2017.



Sponsored Research Agreement



In June 2013, Luoxis entered into
a sponsored research agreement with TRLLC, an entity controlled by Ampio’s director and Chief Scientific Officer, Dr. Bar-Or.
The agreement, which was amended in January 2015 and provided for Luoxis (now Aytu) to pay $6,000 per month to TRLLC in consideration
for services related to research and development of the Oxidation Reduction Potential platform. In March 2014, Luoxis also agreed
to pay a sum of $615,000 which was being amortized over the contractual term of 60.5 months and was divided between current and
long-term on the balance sheet; as of September 2014, this amount had been paid in full. This agreement was terminated in March
2017.



F-30







Note 12 – Segment Information



Aytu
manages our Company and aggregated our operational and financial information in accordance with two reportable segments: Aytu
and Aytu Women’s Health. The Aytu segment consists of our core male urology products. The Aytu Women’s Health segment
contains our women’s health platform which consists of sexual wellness platform. Select financial information for these
segments is as follows:





|                       |  | Year
    Ended June 30, |            
|---------------------- |  | ----------------------- | -----------
|                       |  | 2017                    |            
|Revenue:               |  |                         |            
|Aytu                   |  | $                       | 3,175,000  
|Aytu Women's Health    |  |                         | 47,000     
|                       |  |                         |            
|Consolidated revenue   |  | $                       | 3,222,000  
|                       |  |                         |            
|Consolidated net loss: |  |                         |            
|Aytu                   |  | $                       | (22,349,000
|Aytu Women's Health    |  |                         | (159,000   
|                       |  |                         |            
|Consolidated net loss  |  | $                       | (22,508,000
|                       |  |                         |            
|Total assets:          |  |                         |            
|Aytu                   |  | $                       | 11,779,000 
|Aytu Women's Health    |  |                         | 3,220,000  
|                       |  |                         |            
|Total assets           |  | $                       | 14,999,000 



Note 13 – Employee Benefit
Plan



Aytu has a 401(k) plan that allows
participants to contribute a portion of their salary, subject to eligibility requirements and annual IRS limits. The Company matches
50% of the first 6% contributed to the plan by employees. In fiscal 2017, the Company’s match was $99,000.



Note 14 – Subsequent
Events



In July 2017, our stockholders
approved an amendment to our 2015 Stock Option and Incentive Plan to (i) increase the number of authorized shares of common stock
reserved for issuance thereunder from 2.0 million to 3.0 million, (ii) increase the number of shares that may be issued as incentive
stock options from 2.0 million to 3.0 million, (iii) increase the maximum number of shares of common stock (A) underlying stock
options or stock appreciation rights that may be granted to any one individual during any calendar year period, and (B) granted
to any one individual that is intended to qualify as “performance-based compensation” under Section 162(m) of the
Internal Revenue Code of 1986, as amended, for any performance cycle from 1.0 million to 2.0 million, and (iv) in the event that
we effect a reverse stock split prior to November 14, 2018 (or such other date that is one year after the date of our 2018 annual
meeting of stockholders), immediately after the effective time of such reverse stock split, (A) the maximum number of shares reserved
under the Plan will be automatically increased to 3.0 million, (B) the maximum number of shares that may be issued pursuant to
any type of award will be automatically increased to 3.0 million, (C) the number of shares that may be granted to any one individual
during any one calendar year period as stock options or stock appreciation rights will be automatically increased to 2.0 million,
and (D) the number of shares that may be issued in the form of incentive stock options will be automatically increased

to 3.0 million.



F-31







In July 2017, our stockholders
also approved an amendment to our Certificate of Incorporation to effect a reverse stock split at a ratio of any whole number
up to 1-for-20, as determined by our board of directors, at any time before November 14, 2018 (or such other date that is one
year after the date of our 2018 annual meeting of stockholders), if and as determined by our board of directors.



August 11, 2017, our board of
directors approved a reverse stock split in which each common stockholder received one share of common stock for every 20 shares
outstanding, which was effected on August 25, 2017. This adjustment is reflected in this Annual Report.



On August 11, 2017, we entered into a Securities Purchase Agreement
with various investors pursuant to which we agreed to sell Class A and Class B equity units for gross proceeds of approximately
$11.8 million. Class A units consist of one (1) share of common stock and a warrant to purchase one and one-half (1.5) shares
of common stock and were sold at a negotiated price of $3.00 per unit. Class B units consist of one (1) share of our newly created
Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase one and one-half (1.5)
shares of common stock for each share of common stock into which the Series A Preferred Stock is convertible and were sold at
a negotiated price of $1,000.00 per unit to those purchasers who, together with their affiliates and certain related parties,
would beneficially own more than 9.99% of our outstanding common stock following the offering. These Series A Preferred Shares
concert into common shares at $3.00 per share, which when fully exercised will increase the common shares outstanding by 750,000
shares. The offering closed on August 15, 2017.



In the offering, we issued an aggregate of 3,196,665 shares
of our common stock, 2,250 shares of Series A Preferred Stock and warrants to purchase up to an aggregate of 5,919,998 shares of
our common stock.



We incurred certain expenses related to this transaction to
attorneys and underwriters inclusive of a 9% cash fee and warrants to purchase 10% of the aggregate number of shares issued in
the transaction.



In connection with the closing of the financing, we terminated thePurchase Agreement, dated as of July 27, 2016, by and between us and Lincoln Park Capital Fund, LLC. The termination was effective
on August 16, 2017.



F-32