10-Q 1 aytu20210329_10q.htm FORM 10-Q aytu20201219_10q.htm
 
 

Table of Contents



UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the Quarterly Period Ended: March 31, 2021 or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                                to              

 

 

Commission File No. 001-38247

 

 

 

AYTU BIOPHARMA, INC.

(www.aytubio.com)

 

Delaware 

47-0883144

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

373 Inverness Parkway, Suite 206

 

Englewood, Colorado 80112

 

(Address of principal executive offices, including zip code)

 

(720) 437-6580

 

(Registrants telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

AYTU

 

The NASDAQ Stock Market LLC

 

As of May 10, 2021, there were 25,170,596 shares of Common Stock outstanding.

 



 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES FOR THE QUARTER ENDED March 31, 2021

 

 

INDEX 

 

PART IFINANCIAL INFORMATION

 

 

Page

Item 1. Consolidated Financial Statements

 

Condensed Consolidated Balance Sheets as of  March 31, 2021 (unaudited) and June 30, 2020 (audited)

4

Condensed Consolidated Statements of Operations for the three and nine-months ended March 31, 2021 (unaudited) and March 31, 2020 (unaudited)

6

Condensed Consolidated Statement of Stockholders’ Equity for the year-to-date interim periods ended March 31, 2021 (unaudited) and March 31, 2020 (unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2021 (unaudited) and the nine months ended March 31, 2020 (unaudited)

8

Notes to Condensed Consolidated Financial Statements (unaudited)

10

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

 

 

Item 4. Controls and Procedures

39

 

 

PART IIOTHER INFORMATION

 

Item 1. Legal Proceedings

40

 

 

Item 1A. Risk Factors

41

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

Item 3. Defaults Upon Senior Securities

52

 

 

Item 4. Mine Safety Disclosures

52

 

 

Item 5. Other Information

52

 

 

Item 6. Exhibits

53

 

 

SIGNATURES

56

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q 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 Quarterly 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: the planned expanded commercialization of our products and the potential future commercialization of our product candidates; our planned product candidate development strategy; our anticipated future cash position; our plan to acquire additional assets; our anticipated future growth rates; anticipated sales increases; anticipated net revenue increases; amounts of certain future expenses and costs of goods sold; anticipated increases to operating expenses, research and development expenses, and selling, general, and administrative expenses; 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 II Item 1A of our most recent Annual Report on Form 10- K, and in the reports we file with the Securities and Exchange Commission. These risks are not exhaustive. 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. Forward-looking statements should not be relied upon as predictions of future events. We can provide no assurance 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, except as may be required under applicable law.

 

This Quarterly Report on Form 10-Q includes trademarks, such as Aytu, Karbinal®, Poly-Vi-Flor®, Tuzistra®, and ZolpiMist®, consumer health products such as DiabaSens®, FlutiCare®, UriVarx® and Vesele®, as well as Beyond Human®, a specialty marketing platform, and the recently acquired ADHD products such as Adzenys XR-ODT®, Cotempla XR-ODT® and Adzenys ER®, which are protected under applicable intellectual property laws and we own or have the rights to. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q 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 trade names.

 

 

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

   

March 31,

   

June 30,

 
   

2021

   

2020

 
   

(Unaudited)

         

Assets

 

Current assets

               

Cash and cash equivalents

  $ 46,537,958     $ 48,081,715  

Restricted cash

    251,995       251,592  

Accounts receivable, net

    28,228,434       5,632,717  

Inventory

    16,575,757       9,999,441  

Prepaid expenses

    6,803,583       5,715,089  

Other current assets

    1,615,024       5,742,011  

Total current assets

    100,012,751       75,422,565  
                 

Fixed assets, net

    5,557,727       258,516  

Operating lease right-of-use asset

    3,781,737       634,093  

Intangible assets, net

    96,236,796       48,854,561  

Goodwill

    65,802,636       28,090,407  

Other long-term assets

    164,954       32,981  

Total long-term assets

    171,543,850       77,870,558  

Total assets

  $ 271,556,601     $ 153,293,123  

 

See the accompanying Notes to the Condensed Consolidated Financial Statements

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets, contd

 

   

March 31,

   

June 30,

 
   

2021

   

2020

 
   

(Unaudited)

         

Liabilities

 

Current liabilities

               

Accounts payable and other

  $ 16,528,646     $ 11,824,560  

Accrued liabilities

    43,181,920       8,645,984  

Accrued compensation

    10,510,228       3,117,177  
Notes payable           982,076  
Short-term line of credit     4,738,825        

Current portion of debt

    725,357        

Current portion of operating lease liabilities

    910,885       300,426  

Current portion of fixed payment arrangements

    1,998,012       2,340,166  

Current portion of CVR liabilities

    911,826       839,734  

Current portion of contingent consideration

    4,177,282       713,251  

Total current liabilities

    83,682,981       28,763,374  
                 
Long-term debt, net of current portion     16,930,682        

Long-term operating lease liability, net of current portion

    2,871,845       725,374  

Long-term fixed payment arrangements, net of current portion

    9,422,768       11,171,491  

Long-term CVR liabilities, net of current portion

    4,679,227       4,731,866  

Long-term contingent consideration, net of current portion

    10,726,691       12,874,351  

Other long-term liabilities

    92,894       11,371  

Total liabilities

    128,407,088       58,277,827  
                 

Commitments and contingencies (Note 10)

               
                 

Stockholders' equity

               

Preferred Stock, par value $.0001; 50,000,000 shares authorized; shares issued and outstanding 0 and 0, respectively as of March 31, 2021 and June 30, 2020, respectively.

           

Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding 23,457,887 and 12,583,736, respectively as of March 31, 2021 and June 30, 2020.

    2,346       1,259  

Additional paid-in capital

    302,448,362       215,024,216  

Accumulated deficit

    (159,301,195 )     (120,010,179 )

Total stockholders' equity

    143,149,513       95,015,296  

Total liabilities and stockholders' equity

  $ 271,556,601     $ 153,293,123  

 

See accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Operations

(unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 
   

2021

   

2020

   

2021

   

2020

 

Revenues

                               

Product revenue, net

  $ 13,482,282     $ 8,156,173     $ 42,149,561     $ 12,771,235  
                                 

Operating expenses

                               

Cost of sales

    13,682,297       1,998,659       23,499,842       2,980,425  

Research and development

    389,262       78,502       858,698       223,197  

Selling, general and administrative

    12,851,087       9,190,386       35,825,175       19,494,368  
Acquisition related costs     1,536,800       311,083       2,849,037       1,533,723  
Restructuring costs     4,818,064             4,874,723       135,981  

Amortization and impairment of intangible assets

    5,870,436       1,370,986       9,039,597       2,899,553  

Total operating expenses

    39,147,946       12,949,616       76,947,072       27,267,247  

Loss from operations

    (25,665,664 )     (4,793,443 )     (34,797,511 )     (14,496,012 )

Other (expense) income

                               

Other (expense), net

    (425,425 )     (538,862 )     (1,555,924 )     (1,181,206 )

Gain / (Loss) from change in fair value of contingent consideration

    631,298             (2,680,022 )      
Gain from derecognition of contingent consideration                       5,199,806  

Gain from warrant derivative liability

                      1,830  

Loss on debt exchange

                (257,559 )      

Total other (expense) income

    205,873       (538,862 )     (4,493,505 )     4,020,430  

Net loss

  $ (25,459,791 )   $ (5,332,305 )   $ (39,291,016 )   $ (10,475,582 )

Weighted average number of common shares outstanding

    18,092,465       3,527,530       14,490,219       2,261,697  

Basic and diluted net loss per common share

  $ (1.41 )   $ (1.51 )   $ (2.71 )   $ (4.63 )

 

See the accompanying Notes to the Condensed Consolidated Financial Statements.

 

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statement of Stockholders Equity

(unaudited unless indicated otherwise)

 

   

Preferred Stock

   

Common Stock

   

Additional paid-in

   

Accumulated

   

Total Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

Deficit

   

Equity

 

BALANCE - June 30, 2019 (audited)

    3,594,981     $ 359       1,753,808     $ 176     $ 113,476,783     $ (106,389,500 )   $ 7,087,818  

Stock-based compensation

                            165,171             165,171  

Preferred stock converted in common stock

    (443,833 )     (44 )     44,384       5       39              

Net loss

                                  (4,929,030 )     (4,929,030 )
BALANCE - September 30, 2019     3,151,148     $ 315       1,798,192     $ 181     $ 113,641,993     $ (111,318,530 )   $ 2,323,959  
                                                         
Stock-based compensation         $           $     $ 162,264     $     $ 162,264  
Issuance of Series F preferred stock from October 2019 private placement financing, net of $741,650 issuance costs     10,000       1                   5,249,483             5,249,484  
Warrants issued in connection with the private placement                             4,008,866             4,008,866  
Issuance of Series G preferred stock due to acquisition of the Cerecor portfolio of pediatrics therapeutics     9,805,845       981                   5,558,933             5,559,914  
Preferred stock converted in common stock     (2,751,148 )     (275 )     275,115       28       247              
Net loss                             -       (214,247 )     (214,247 )

BALANCE - December 30, 2019

    10,215,845     $ 1,022       2,073,307     $ 209     $ 128,621,786     $ (111,532,777 )   $ 17,090,240  
                                                         
Stock-based compensation         $       106,792     $ 11     $ 263,380     $     $ 263,391  
Cashless warrant exercise                 791,577       80       (80 )            
Issuance of Series H preferred stock and common stock due to acquisition of Innovus     1,997,902       200       380,972       39       4,405,945             4,406,184  
Preferred stock converted in common stock     (2,407,902 )     (241 )     1,239,791       124       92,997             92,880  
Warrant exercises                 1,708,300       171       22,989,495             22,989,666  
Issuance of common stock, net of $4,523,884 in cash issuance costs                 3,636,528       364       33,278,392             33,278,756  
Warrants issued in connection with the registered offering                             9,723,161             9,723,161  
Warrants issued in connection with the registered offering to the placement agents, non-cash issuance costs                             1,458,973             1,458,973  
CVR payouts                 123,777       13       1,732,857             1,732,870  
Net loss                                   (5,332,305 )     (5,332,305 )
BALANCE - March 31, 2020     9,805,845     $ 981       10,061,044     $ 1,011     $ 202,566,906     $ (116,865,082 )   $ 85,703,816  

 

   

Preferred Stock

   

Common Stock

   

Additional paid-in

   

Accumulated

   

Total Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

Deficit

   

Equity

 

BALANCE - June 30, 2020 (audited)

        $       12,583,736     $ 1,259     $ 215,024,216     $ (120,010,179 )   $ 95,015,296  

Stock-based compensation

                            454,918             454,918  

Issuance costs

                            (101,537 )           (101,537 )

Net loss

                                  (4,305,931 )     (4,305,931 )
BALANCE - September 30, 2020         $       12,583,736     $ 1,259     $ 215,377,597     $ (124,316,110 )   $ 91,062,746  
                                                         
Stock-based compensation         $           $     $ 508,059     $     $ 508,059  
Exchange of debt for common stock                 130,081       13       1,057,546             1,057,559  
Issuance of common stock, net of issue costs and warrants                 5,169,076       516       28,316,928             28,317,444  
Warrants issued in connection with common stock offering                             1,272,154             1,272,154  
Net loss                                   (9,525,294 )     (9,525,294 )

BALANCE - December 31, 2020

        $       17,882,893     $ 1,788     $ 246,532,284     $ (133,841,404 )   $ 112,692,668  
                                                         
Stock-based compensation         $           $     $ 1,381,429     $     $ 1,381,429  
Issuance of common stock due to acquisition, net of $137,735 in costs                 5,471,804       548       53,102,370             53,102,918  
Estimated fair value of replacement equity awards                             432,289             432,289  
CVR payouts                 103,190       10       999,990             1,000,000  
Net loss                                   (25,459,791 )     (25,459,791 )
BALANCE - March 31, 2021         $       23,457,887     $ 2,346     $ 302,448,362     $ (159,301,195 )   $ 143,149,513  

 

See the accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   

Nine Months Ended

 
   

March 31,

 
   

2021

   

2020

 
                 

Operating Activities

               

Net loss

  $ (39,291,016 )   $ (10,475,582 )

Adjustments to reconcile net loss to cash used in operating activities:

               

Depreciation, amortization and accretion

    10,301,150       3,780,310  

Stock-based compensation expense

    2,485,330       590,826  
Loss from change in fair value of contingent consideration     2,680,022        

Inventory write-down

    7,227,230        

(Gain) from derecognition of contingent consideration

          (5,199,806 )
(Gain) on the change in fair value of CVR payout           (267,130 )
Amortization of senior debt issuance costs and discounts     (21,916 )      

Loss on sale of equipment

    112,110        

(Gain) on termination of lease

    (343,185 )      
Loss on debt exchange     257,559        

Changes in allowance for bad debt

    335,036        

Derivative income

          (1,830 )

Changes in operating assets and liabilities:

               

Accounts receivable

    1,772,274       (8,183,810 )
Inventory     (4,390,470 )     (345,452 )

Prepaid expenses

    1,607,170       (1,611,681 )

Other current assets

    6,065,996       (358,022 )

Accounts payable and other

    (6,155,583 )     (4,912,245 )

Accrued liabilities

    (5,556,614 )     6,761,319  

Accrued compensation

    3,263,723       271,560  
Fixed payment arrangements           (657,655 )

Operating lease liabilities

    (26,648 )      

Net cash used in operating activities

    (19,677,832 )     (20,609,198 )
                 

Investing Activities

               

Deposit

    (3,923 )      

Contingent consideration payment

    (683,241 )     (151,648 )
Cash received from acquisition     15,721,797       390,916  
Cash payment for business acquisition     (15,398,727 )     (5,850,000 )

Net cash used in investing activities

    (364,094 )     (5,610,732 )
                 

Financing Activities

               
Issuance of preferred, common stock and warrants     32,249,652       58,999,666  

Issuance cost related to registered offering

    (4,430,516 )     (5,280,426 )
Payments made on short-term line of credit     (5,968,290 )      
Warrant exercises           22,989,666  
Preferred stock converted in common stock           92,880  
Issuance of note payable           640,000  

Debt payment

    (318,181 )      

Payments made to fixed payment arrangements

    (3,034,093 )      

Net cash provided by financing activities

    18,498,572       77,441,786  
                 

Net change in cash, restricted cash and cash equivalents

    (1,543,354 )     51,221,856  

Cash, restricted cash and cash equivalents at beginning of period

    48,333,307       11,294,227  

Cash, restricted cash and cash equivalents at end of period

  $ 46,789,953     $ 62,516,083  

 

See the accompanying Notes to the Condensed Consolidated Financial Statements.

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows, contd

(unaudited)

 

   

Nine Months Ended

 
   

March 31,

 

Supplemental disclosures of cash and non-cash investing and financing transactions

 

2021

   

2020

 

Warrants issued to underwriters

  $ 1,628,293     $ -  

Cash paid for interest

    448,603       392,641  

Fair value of right-to-use asset and related lease liability

    66,182       354,929  
Issuance of Series G preferred stock due to acquisition of the Cerecor portfolio of pediatrics therapeutics           5,559,914  
Issuance of Series H preferred stock due to acquisition of the Innovus           12,805,263  
Issuance related to acquisition of Neos     53,240,653        
Fair value of non-cash assets acquired     104,321,912        
Fair value of liabilities assumed     88,699,892        
Estimated fair value of replacement equity awards     432,289          
Inventory payment included in accounts payable           460,416  
Return deductions received by Cerecor           2,000,000  
Contingent value rights payout     1,000,000        

Contingent consideration included in accounts payable

          27,571  
Issuance of restricted stock           107  
Cashless warrant exercises           792  
Debt exchange     1,057,559        

Fixed payment arrangements included in accrued liabilities

    1,575,000       501,766  

Exchange of convertible preferred stock into common stock

  $  –     $ 1,559  

 

See the accompanying Notes to the Condensed Consolidated Financial Statements

 

 

AYTU BIOPHARMA, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

 

 

 1. Nature of Business, Financial Condition, Basis of Presentation

 

Nature of Business. Aytu BioPharma, Inc. (“Aytu”, the “Company” or “we”) is a commercial-stage specialty pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare products. The Company currently operates the Aytu BioPharma business, consisting of the prescription pharmaceutical products (the “Rx Portfolio”), and Aytu consumer healthcare products business (the “Consumer Health Portfolio”). The Rx Portfolio is focused on commercializing prescription pharmaceutical products for the treatment of attention deficit hyperactivity disorder ("ADHD"), allergies, insomnia, and various pediatric conditions. The Aytu consumer health business is focused on commercializing consumer healthcare products. The Company was incorporated as Rosewind Corporation on August 9, 2002 in the State of Colorado and was re-incorporated in the state of Delaware on June 8, 2015.

 

The Rx Portfolio consists of (i) Adzenys XR-ODT (amphetamine) extended-release orally disintegrating tablets, Cotempla XR-ODT (methylphenidate) extended-release orally disintegrating tablets and Adzenys-ER (amphetamine) extended-release oral suspension for the treatment of attention deficit hyperactivity disorder (ii) Poly-Vi-Flor and Tri-Vi-Flor, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiency, (iii) Karbinal ER, an extended-release carbinoxamine (antihistamine) suspension indicated to treat numerous allergic conditions, (iv) ZolpiMist, the only FDA-approved oral spray prescription sleep aid, (v) Tuzistra XR, the only FDA-approved 12-hour codeine-based antitussive syrup and (vi) a generic Tussionex (hydrocodone and chlorpheniramine) (“generic Tussionex”), extended-release oral suspension for the treatment of cough and upper respiratory symptoms of a cold.

 

The Consumer Health Portfolio consists of over twenty consumer health products competing in large healthcare categories including diabetes, men's health, sexual wellness and respiratory health commercialized through direct-to-consumer marketing channels utilizing the Company's proprietary Beyond Human marketing and sales platform and on e-commerce platforms.

 

On March 31, 2021, the Company and Acerus Pharmaceuticals Corporation (“Acerus”) entered into a termination and transition agreement (the “Termination Agreement”) to terminate the License and Supply Agreement previously entered into on July 29, 2019 related to Natesto®. Pursuant to the Termination Agreement, the Company ceased all sales, marketing and promotion of Natesto, and Acerus agreed to pay the Company an aggregate amount of $7.5 million, payable in equal monthly installment payments of $250,000 for a period of 30 consecutive months. 

 

On March 19, 2021, the Company acquired Neos Therapeutics, Inc. (“Neos”), a commercial-stage pharmaceutical company developing and manufacturing central nervous system-focused products (the “Neos Merger”). Neos commercializes Adzenys XR-ODT, Cotempla XR-ODT and Adzenys-ER in the United States using Neos’ internal commercial organization. These commercial products are extended-release (“XR”) medications in patient-friendly, orally disintegrating tablet (“ODT”) or oral suspension dosage forms that utilize Neos' microparticle modified-release drug delivery technology platform. Neos received approval from the U.S. Food and Drug Administration (“FDA”) for these three products. In addition, Neos manufactures and sells a generic Tussionex.

 

In April of 2020, the Company entered into a licensing agreement with Cedars-Sinai Medical Center to secure worldwide rights to various potential esophageal and nasopharyngeal uses of Healight, an investigational medical device platform technology. Healight has demonstrated safety and efficacy in a proof-of-concept clinical study in SARS-CoV-2 patients, and the Company plans to advance this technology to further assess its safety and efficacy in additional randomized, controlled human studies, initially focused on SARS-CoV-2 patients.

 

The Company’s strategy is to continue building its portfolio of revenue-generating products, leveraging its commercial team’s expertise to build leading brands within large therapeutic markets.

 

Financial Condition. As of March 31, 2021, the Company had approximately $46.8 million of cash, cash equivalents and restricted cash. The Company’s operations have historically consumed cash and are expected to continue to consume cash.

 

Revenues for the three- and nine-months ended March 31, 2021 were $13.5 million and $42.1 million, compared to $8.2 million and $12.8 million for the same periods ended March 31, 2020, an increase of approximately 65% and 230%, respectively. Revenue is expected to increase over time, which will allow the Company to rely less on the Company's existing cash balance and proceeds from financing transactions. Cash used by operations during the nine-months ended March 31, 2021 was $19.7 million compared to $20.6 million for the nine-months ended March 31, 2020. The decrease is due primarily to a decrease in working capital and pay down of other liabilities.

 

 

As of the date of this Report, the Company expects its costs for operations to increase as the Company integrates the Neos acquisition, invests in new product development, continues to focus on revenue growth through increasing product sales and additional acquisitions. The Company’s current assets totaling approximately $100.0 million as of March 31, 2021 plus the proceeds expected from ongoing product sales will be used to fund existing operations. The Company may continue to access the capital markets from time-to-time when market conditions are favorable. The timing and amount of capital that may be raised is dependent on the terms and conditions upon which investors would require to provide such capital. There is no guarantee that capital will be available on terms favorable to the Company and its stockholders, or at all. Upon closing of the Neos merger, on March 19, 2021, the Company paid down $15.4 million of Neos' senior secured long-term debt, including accrued interest and $5.5 million of merger costs incurred by Neos. The Company did not issue any common stock under the Company's at-the-market offering program during the three months ended March 31, 2021. As of the date of this report, the Company has adequate capital resources to complete its near-term operating objectives. 

 

Since the Company has sufficient cash on-hand as of March 31, 2021 to cover potential net cash outflows for the twelve months following the filing date of this Quarterly Report, the Company reports that there exists no indication of substantial doubt about its ability to continue as a going concern.

 

If the Company is unable to raise adequate capital in the future when it is required, the Company's management can adjust its operating plans to reduce the magnitude of the Company's capital need under its existing operating plan. Some of the adjustments that could be made include delays of and reductions to commercial programs, reductions in headcount, narrowing the scope of the Company’s commercial plans, or reductions or delays to its research and development programs. Without sufficient operating capital, the Company could be required to relinquish rights to products or renegotiate to maintain such rights on less favorable terms than it would otherwise choose. This may lead to impairment or other charges, which could materially affect the Company’s balance sheet and operating results.

 

Basis of Presentation. The unaudited condensed consolidated financial statements contained in this report represent the financial statements of the Company and its wholly-owned subsidiaries, Innovus Pharmaceuticals, Inc., Aytu Therapeutics, LLC and Neos Therapeutics, Inc. The unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2020, which included all disclosures required by generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, these unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company and the results of operations and cash flows for the interim periods presented. The results of operations for the period ended March 31, 2021 are not necessarily indicative of expected operating results for the full year. The information presented throughout this report, as of March 31, 2021 and for the three and nine months ended March 31, 2021, and 2020, is unaudited. 

 

On December 8, 2020, the Company effected a reverse stock split in which each common stockholder received one share of common stock for every 10 shares held (herein referred to collectively as the “Reverse Stock Split”). All share and per share amounts in this report have been adjusted to reflect the effect of the Reverse Stock Split.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent consideration, contingent value rights ("CVRs"), and fixed payment obligations at the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the determination of the fair value of equity awards, the fair value of identified assets and liabilities acquired in business combinations, net realizable value of inventory, the useful lives of property and equipment, intangible assets, impairment of long-lived and intangible assets, including goodwill, provisions for doubtful accounts receivable, certain accrued expenses, and the discount rate used in measuring lease liabilities. These estimates and assumptions are based on the Company’s historical results and management’s future expectations. Actual results could differ from those estimates.

 

Reclassification

 

The Company historically presented accrued distributor fees as a reduction to accounts receivable. However, beginning this quarterly report and for the comparative periods presented, accrued distributors fees will be presented in accrued liabilities instead of accounts receivable. As of June 30, 2020, accrued distributor fees included in accounts receivable, net on the balance sheet was $457,000. This reclassification will have no impact on the Company's statements of operation and cash flows presented in this quarterly report.

 

 

Significant Accounting Policies

 

The Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Annual Report. There have been no significant changes to these policies that have had a material impact on the Company’s unaudited condensed consolidated financial statements and related notes during the three and nine months ended March 31, 2021.

 

Adoption of New Accounting Pronouncements

 

Fair Value Measurements (ASU 2018-13). In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in the standard apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820, Fair Value Measurement. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

 

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this as of July 1, 2020, the beginning of the Company’s fiscal year-ended June 30, 2021. The most relevant component of ASU 2018-13 to the Company’s financial statements relates to the need to disclose the range and weighted-average of significant unobservable inputs used in Level 3 fair value measurements. However, the Company discloses on a discrete basis all significant inputs for all Level 3 Fair Value measurements.

 

Recent Accounting Pronouncements

 

Financial Instruments Credit Losses (ASU 2016-13). In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard was effective for interim and annual reporting periods beginning after December 15, 2019. However, in October 2019, the FASB approved deferral of the adoption date for smaller reporting companies for fiscal periods beginning after December 15, 2022. Accordingly, the Company’s fiscal year of adoption will be the fiscal year ended June 30, 2024. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018, but the Company did not elect to early adopt. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements, but no conclusion has been reached.

 

This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.

 

 

2. Acquisitions

 

The Pediatric Portfolio

 

On October 10, 2019, the Company entered into the Purchase Agreement with Cerecor, Inc. (“Cerecor”) to acquire a line of prescription pediatric products, (the "Pediatric Portfolio"), which closed on November 1, 2019. At closing, the Pediatric Portfolio consisted of four main prescription products (i) Cefaclor™ for Oral Suspension, (ii) Karbinal® ER (iii) Poly-Vi-Flor®, and (iv) Tri-Vi-Flor™. Total consideration transferred to Cerecor consisted of $4.5 million cash and approximately 980,000 shares of Series G Convertible Preferred Stock. The Company also assumed certain of Cerecor’s financial and royalty obligations, and not more than $2.7 million of Medicaid rebates and up to $0.8 million of product returns, of which all $3.5 million has been incurred. The Company also hired the majority of Cerecor’s commercial workforce.

 

In addition, the Company assumed Cerecor obligations due to an investor that include fixed and variable payments aggregating to $25.6 million. The Company assumed fixed monthly payments equal to $0.1 million from November 2019 through January 2021 plus $15.0 million due in January 2021. Monthly variable payments due to the same investor are equal to 15% of net revenue generated from a subset of the Pediatric Portfolio, subject to an aggregate monthly minimum of $0.1 million, except for January 2020, when a one-time payment of $0.2 million was paid to the investor. The variable payment obligation continues until the earlier of: (i) aggregate variable payments of approximately $9.5 million have been made, or (ii) February 12, 2026. In June 2020, the Company paid down a $15.0 million balloon payment originally owed in January 2021 to reduce the fixed liability.

 

Further, certain of the products in the Pediatric Portfolio require royalty payments ranging from 12% to 15% of net revenue. One of the products in the Product Portfolio requires the Company to generate minimum annual sales sufficient to represent annual royalties of approximately $2.1 million, in the event the minimum sales volume is not satisfied.

 

 

While no equity was acquired by the Company, the transaction was accounted for as a business combination under the acquisition method of accounting pursuant to Topic 805. Accordingly, the tangible and identifiable intangible assets acquired, and liabilities assumed were recorded at fair value as of the date of acquisition, with the remainder of the aggregate purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to an expanded commercial footprint and diversified product portfolio that is expected to provide revenue and cost synergies.

 

The following table summarized the fair value of assets acquired and liabilities assumed at the date of acquisition. 

 

   

As of

 
   

November 1, 2019

 

Consideration

       

Cash and cash equivalents

  $ 4,500,000  

Fair value of Series G Convertible Preferred Stock

       

Total shares issued

    9,805,845  

Estimated fair value per share of Aytu common stock

  $ 0.567  

Estimated fair value of equity consideration transferred

    5,559,914  

Total consideration transferred

  $ 10,059,914  

Recognized amounts of identifiable assets acquired and liabilities assumed

       

Inventory

  $ 459,123  

Prepaid assets

    1,743,555  

Other current assets

    2,525,886  

Intangible assets - product marketing rights

    22,700,000  

Accrued liabilities

    (300,000 )

Accrued product program liabilities

    (6,683,932 )

Assumed fixed payment obligations

  $ (29,837,853 )

Total identifiable net assets

    (9,393,221 )

Goodwill

  $ 19,453,135  

 

The fair values of intangible assets, including product technology rights were determined using variations of the income approach. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.

 

The fair value of the net identifiable asset acquired was determined to be $22.7 million, which is being amortized over ten years.

 

Innovus Merger (Consumer Health Portfolio)

 

On February 14, 2020, the Company completed the merger with Innovus Pharmaceuticals after approval by the stockholders of both companies on February 13, 2020 (the "Innovus Merger"). Upon the effectiveness of the Innovus Merger, a subsidiary of the Company merged with and into Innovus, and all outstanding Innovus common stock was exchanged for approximately 380,000 shares of the Company’s common stock and up to $16.0 million of Contingent Value Rights (“CVRs”). The outstanding Innovus warrants with 'cash out' rights were exchanged for approximately 200,000 shares of Series H Convertible Preferred stock of the Company over a period of time covering February 26, 2020 through March 10, 2020. The remaining Innovus warrants outstanding, those without ‘cash out’ rights, at the time of the Innovus Merger, continue to be outstanding, and upon exercise, retain the right to the merger consideration offered to Innovus stockholders, including any remaining claims represented by CVRs at the time of exercise. Innovus is now a 100% wholly-owned subsidiary of the Company, (“Aytu Consumer Health”).

 

On March 31, 2020, the Company paid out the first CVR Milestone in the form of approximately 120,000 shares of the Company’s common stock to satisfy the $2.0 million obligation as a result of Innovus achieving the $24 million revenue milestone for the calendar year ended December 31, 2019. As a result of this, the Company recognized a gain of approximately $0.3 million during the three months ended March 31, 2020. On March 20, 2021, the Company paid the CVR holders approximately 103,000 shares of the Company’s common stock to satisfy one of two $1.0 million 2020 milestones, which relates to the Innovus achievement of $30.0 million in revenues during the 2020 calendar year. As a result of this, the Company recognized a gain of approximately $0.4 million during the three months ended March 31, 2021. The $1.0 million 2020 milestone for the Aytu Consumer Health subsidiary achieving profitability was not met.

 

In addition, as part of the Innovus Merger, the Company assumed approximately $3.1 million of notes payable, $0.8 million in lease liabilities, and other assumed liabilities associated with Innovus. Of the $3.1 million of notes payable, approximately $2.2 million was converted into approximately 180,000 shares of the Company’s common stock since February 14, 2020. Approximately $41,000 remained outstanding as of March 31, 2021.

 

 

The following table summarized the fair value of assets acquired and liabilities assumed at the date of acquisition. These estimates are preliminary, pending final evaluation of certain assets and liabilities, and therefore, are subject to revisions that may result in adjustments to the values presented below:

 

   

As of

 
   

February 14, 2020

 

Consideration

       

Fair Value of Aytu Common Stock

       

Total shares issued at close

    3,810,393  

Estimated fair value per share of Aytu common stock

  $ 0.756  

Estimated fair value of equity consideration transferred

  $ 2,880,581  

Fair value of Series H Convertible Preferred Stock

       

Total shares issued

    1,997,736  

Estimated fair value per share of Aytu common stock

  $ 0.756  

Estimated fair value of equity consideration transferred

  $ 1,510,288  

Fair value of former Innovus warrants

  $ 15,315  

Fair value of Contingent Value Rights

    7,049,079  

Forgiveness of Note Payable owed to the Company

    1,350,000  

Total consideration transferred

  $ 12,805,263  

 

   

As of

 
   

February 14, 2020

 

Total consideration transferred

  $ 12,805,263  

Recognized amounts of identified assets acquired and liabilities assumed

       

Cash and cash equivalents

  $ 390,916  

Accounts receivable

    278,826  

Inventory

    1,149,625  

Prepaid expenses and other current assets

    1,692,133  

Other long-term assets

    36,781  

Right-to-use assets

    328,410  

Property, plant and equipment

    190,393  

Trademarks and patents

    11,744,000  

Accounts payable and accrued other expenses

    (7,202,309 )

Other current liabilities

    (629,601 )

Notes payable

    (3,056,361 )

Lease liability

    (754,822 )

Total identifiable net assets

  $ 4,167,991  

Goodwill

  $ 8,637,272  

 

The fair values of intangible assets, including product distribution rights were determined using variations of the income approach, specifically the relief-from-royalties method. It also includes customer lists using an income approach utilizing a discounted cash flow model. Varying discount rates were also applied to the projected net cash flows. The CVRs were valued using a Monte-Carlo model. The Company believes the assumptions are representative of those a market participant would use in estimating fair value (see Note 9).

 

The fair value of the net identifiable assets acquired was determined to be $11.7 million, which is being amortized over a range between 1.5 to 10 years.

 

 

Neos Merger (ADHD Portfolio)

 

On March 19, 2021, the Company completed the Neos Merger with Neos Therapeutics, Inc. after approval by the stockholders of Neos on March 18, 2021 and the approval of the consideration to be delivered by the Company in connection with the merger by the shareholders of Aytu, also on March 18, 2021. Upon the effectiveness of the Neos Merger, a subsidiary of the Company merged with and into Neos, and all outstanding Neos common stock was exchanged for approximately 5,472,000 shares of the Company’s common stock. Neos is now a 100% wholly-owned subsidiary of the Company. The Company pursued the acquisition of Neos in order to gain scale in the industry, expand its product portfolio and as an opportunity to potentially accelerate the pathway to breakeven. The Company incurred in relation to the Neos Merger (i) approximately $2.8 million of acquisition related costs, recognized as part of operating expense, and (ii) $0.1 million of issuance costs, recognized as a component of stockholders’ equity. 

 

The following table summarized the preliminary fair value of assets acquired and liabilities assumed at the date of acquisition. These estimates are preliminary, pending final evaluation of certain assets and liabilities, and therefore, are subject to revisions that may result in adjustments to the values presented below;

 

   

As of

 
   

March 19, 2021

 

Considerations:

       

Fair Value of Aytu Common Stock

       

Total shares issued at close

    5,471,804  

Estimated fair value per share of Aytu common stock

  $ 9.73  

Estimated fair value of equity consideration transferred

  $ 53,240,653  

Cash

    15,383,104  
Estimated fair value of replacement equity awards     432,289  

Total consideration transferred

  $ 69,056,046  

 

   

As of

 
   

March 19, 2021

 

Total consideration transferred

  $ 69,056,046  

Recognized amounts of identified assets acquired and liabilities assumed

       

Cash and cash equivalents

  $ 15,721,797  

Accounts receivable

    24,695,527  

Inventory

    10,984,055  

Prepaid expenses and other current assets

    2,929,457  

Operating leases right-to-use assets

    3,515,141  

Property, plant and equipment

    5,518,801  

Intangible assets

    56,530,000  

Other long-term assets

    148,931  

Accounts payable and accrued expenses

    (56,718,159 )

Short-term line of credit

    (10,707,115 )

Long-term debt, including current portion

    (17,677,954 )

Operating lease liabilities

    (3,515,141 )

Other long-term liabilities

    (81,523 )

Total identifiable net assets

  $ 31,343,817  

Goodwill

  $ 37,712,229  

 

The fair values of intangible assets were determined using variations of the cost approach, excess earnings method and the relief-from-royalties method. The fair value of Neos trade name, in-process R&D and developed product technology, which is the proprietary technology for the development of Adzenys, Cotempla and generic Tussionex, were determined using the relief from royalty method. The fair value of developed technology right, which is a proprietary modified-release drug delivery technology, was determined using multi-period excess earnings method. The fair value of RxConnect, which is a developed technology for Neos-sponsored patient support program that offers affordable and predictable copays to all commercially insured patients, was determined using cost to recreate method. The finite-lived intangible assets are being amortized over a range of between 1 to 18 years.

 

The fair value of the identifiable intangible assets acquired were as follows:

 

   

As of

 
   

March 19, 2021

 

Identified intangible assets acquired:

       

Developed technology right

  $ 30,200,000  

Developed products technology

    22,700,000  

In-process R&D

    2,600,000  

RxConnect

    630,000  

Trade name

    400,000  

Total intangible assets acquired

  $ 56,530,000  

 

 

 

Unaudited Pro Forma Information

 

The following supplemental unaudited proforma financial information presents the Company’s results as if the following acquisitions had occurred on July 1, 2019:

 

 

Acquisition of the Pediatric Portfolio, effective November 1, 2019;

 

Merger with Innovus, effective February 14, 2020.

  Merger with Neos, effective March 19, 2021.

 

The unaudited pro forma results have been prepared based on estimates and assumptions, which management believes are reasonable, however, the results are not necessarily indicative of the consolidated results of operations had the acquisition occurred on July 1, 2019, or of future results of operations:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31, 2021

   

March 31, 2020

   

March 31, 2021

   

March 31, 2020

 
   

Actual

   

Pro forma

   

Actual

   

Pro forma

 
   

(Unaudited) (dd)

   

(Unaudited) (aa) (bb)

   

(Unaudited) (dd)

   

(Unaudited) (cc)

 

Total revenues, net

  $ 22,250,543     $ 24,824,477     $ 74,582,036     $ 83,141,373  

Net (loss)

  $ (32,674,710 )   $ (13,800,554 )   $ (55,711,884 )   $ (31,686,745 )

Net (loss) per share (ee)

  $ (1.41 )   $ (3.91 )   $ (2.71 )   $ (14.01 )

 

(aa) For the three months ended March 31, 2020, the Pediatric Portfolio acquisition occurred prior to the three months ended March 31, 2020, and accordingly, the results of the Pediatric Portfolio are fully consolidated into the Company’s results for the three months ended March 31, 2020.

 

(bb) Due to the absence of discrete financial information for Innovus covering the period from January 1, 2020 through February 13, 2020, the Company did not include the impact of that stub-period for the pro forma results for the three and nine months ended March 31, 2020.

 

(cc) Due to a lack of financial information covering the period from October 1, 2019 through November 1, 2019, the Company was not able to provide pro forma adjusted financial statements for the nine months ended March 31, 2020 without making estimated extrapolations that the Company did not believe would be material or useful to users of the above pro forma information.

 

(dd) Neos contributed approximately $0.9 million to net revenue and approximately $3.9 million to net loss for the period covering March 20, 2021 through March 31, 2021.

 

(ee) Pro forma net loss per share calculations excluded the impact of the issuance of the (i) Series G Convertible Preferred Stock and the, (ii) Series H Convertible Preferred Stock under the assumption those shares would continue to remain non-participatory during the periods reported above.

 

 

 

 

3. Revenue Recognition

 

Contract Balances. Contract assets primarily relate to the Company’s right to consideration in exchange for products transferred to a customer in which that right to consideration is dependent upon the customer selling these products. As of March 31, 2021, contract assets of $42,000 was included in other current assets in the consolidated balance sheet. There was no contract asset as of June 30, 2020. Contract liabilities primarily relate to advances or deposits received from the Company's customers before revenue is recognized. As of March 31, 2021 and June 30, 2020, contract liabilities of $0.2 million and $0.3 million, respectively, were included in accrued liabilities in the consolidated balance sheet.

 

Revenues by Geographic location. The following table reflects the Company's product revenues by geographic location as determined by the billing address of customers:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 
   

2021

   

2020

   

2021

   

2020

 
                         

U.S.

  $ 12,344,000     $ 7,273,000     $ 38,245,000     $ 11,582,000  

International

    1,138,000       883,000       3,905,000       1,189,000  

Total net revenue

  $ 13,482,000     $ 8,156,000     $ 42,150,000     $ 12,771,000  

 

Revenues by Product Portfolio. Net revenue disaggregated by significant product portfolio for the three and nine months ended March 31, 2021 and March 31, 2020 were as follows:

 

   

Three Months Ended March 31,

   

Nine Months Ended March 31,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Primary care and devices portfolio

  $ 1,209,000     $ 870,000     $ 8,339,000     $ 3,500,000  

Pediatric portfolio

    3,918,000       3,833,000       9,752,000       5,818,000  

Consumer Health portfolio

    8,355,000       3,453,000       24,059,000       3,453,000  

Consolidated revenue

  $ 13,482,000     $ 8,156,000     $ 42,150,000     $ 12,771,000  

 

 

 

4. 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 to identify obsolete, slow-moving or otherwise unsaleable items. In the event that such items are identified 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. The Company wrote down $7.0 million and $7.2 million of inventory during the three and nine months ended March 31, 2021, respectively, primarily as a result of changing market conditions for the Company's COVID-19 test kits. There was no inventory written down for the three and nine-months ended March 31, 2020, respectively.

 

Inventory balances consist of the following:

 

   

As of

   

As of

 
   

March 31,

   

June 30,

 
   

2021

   

2020

 

Raw materials

  $ 2,583,000     $ 397,000  
Work in process     3,181,000        

Finished goods

    10,812,000       9,603,000  
Inventory   $ 16,576,000     $ 10,000,000  

 

 

5. Fixed Assets

 

Fixed assets are recorded at cost and once placed in service, are depreciated on a straight-line basis over the estimated useful lives. Leasehold improvements are amortized over the shorter of the estimated economic life or related lease term. Fixed assets consist of the following:

 

         

As of

   

As of

 
   

Estimated

   

March 31,

   

June 30,

 
   

Useful Lives in years

   

2021

   

2020

 

Manufacturing equipment

  2 - 7     $ 3,072,000     $ 112,000  

Leasehold improvements

  3       1,259,000       229,000  

Office equipment, furniture and other

  2 - 7       966,000       312,000  

Lab equipment

  3 - 7       646,000       90,000  
Assets under construction           186,000        

Less accumulated depreciation and amortization

          (571,000 )     (484,000 )

Fixed assets, net

        $ 5,558,000     $ 259,000  

 

During the nine months ended March 31, 2021, the Company recognized a loss of $0.1 million on sale of equipment due to termination of leases. There was no such loss during the three months ended March 31, 2021.

 

        Depreciation and amortization expense totaled $68,000 and $24,000 for the three-months ended March 31, 2021 and 2020, respectively, and $119,000 and $56,000 for the nine-months ended March 31, 2021 and 2020, respectively.

 

 

 

6. Leases, Right-to-Use Assets and Related Liabilities

 

The Company previously adopted the FASB issued ASU 2016-02, “Leases (Topic 842)” as of July 1, 2019. With the adoption of ASU 2016-02, the Company recorded an operating right-of-use asset ("ROU") and an operating lease liability on its balance sheet associated with the leases of the corporate headquarters. The finance leases are related to the Company's Neos subsidiary equipment leases. The operating lease ROU asset represents the Company’s right to use the underlying asset for the lease term, and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. The operating lease ROU assets and obligations were recognized at the later of the commencement date or July 1, 2019, the date of adoption of Topic 842, based on the present value of remaining lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. Rent expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. The operating lease liabilities are classified as current or long-term operating lease liabilities on the balance sheet.

 

Upon the closing of the Neos Merger on March 19, 2021, pursuant to the guidance under ASC 805, Neos recognized operating lease ROU asset and lease liability of $3.5 million, which represented the present value of the remaining lease payments as of the acquisition date, for its office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, Neos used its borrowing rate of 6.7% to determine the present value of future lease payments. Furthermore, as of the acquisition date, no assets or liabilities of the operating leases that have a remaining lease term of less than twelve months were recognized. The finance leases are related to Neos equipment finance leases with fixed contract terms and an implicit interest rate of approximately 5.9%. The finance lease assets are included in fixed assets and the lease liabilities are included in current and long-term debt on the balance sheet.

 

On August 28, 2020, the Company’s Innovus subsidiary signed a lease termination agreement with its lessor to terminate its lease effective September 30, 2020. The original lease termination date was April 30, 2023. As part of the agreement, Innovus agreed to make a cash payment to the landlord the equivalent of two additional months’ rent aggregating to $44,306 plus $125,000 less the security deposit of $20,881. The fair value of the lease liability related to this facility lease was approximately $0.7 million as of June 30, 2020. The Company recognized a gain of approximately $343,000 during the nine months ended March 31, 2021.

       

       On October 1, 2020, the Company's Innovus subsidiary entered into a short-term lease for warehouse space in Carlsbad, CA. The lease term is for one-year with an option to terminate after six months with ninety days' notice. This lease is accounted for as a short-term lease and is not included as a component of the Company's right-to-use assets and related liability.

 

The components of lease expenses are as follows:

 

   

Three Months Ended

   

Nine Months Ended

   
   

March 31,

   

March 31,

   
   

2021

   

2020

   

2021

   

2020

 

Statement of Operations Classification

Lease cost:

                                 

Operating lease cost

  $ 69,000     $ 27,000     $ 128,000     $ 72,000  

Operating expenses

Short-term lease cost     7,000             7,000         Operating expenses

Finance lease cost:

                                 
Amortization of leased assets     19,000             19,000         Cost of sales
Interest on lease liabilities     1,000             1,000         Other (expense), net

Total net lease cost

  $ 96,000     $ 27,000     $ 155,000     $ 72,000    

 

 

 

Supplemental balance sheet information related to leases is as follows:

 

   

March 31, 2021

   

June 30, 2020

 

Balance Sheet Classification

Assets:

                 
Operating lease assets   $ 3,782,000     $ 634,000   Operating lease right-of-use asset
Finance lease assets     347,000         Fixed assets, net

Total leased assets

  $ 4,129,000     $ 634,000    

Liabilities:

                 

Current:

                 

Operating leases

  $ 911,000     $ 300,000  

Current portion of operating lease liabilities

Finance leases

    100,000        

Current portion of debt

Long-term

                 

Operating leases

    2,872,000       725,000  

Long-term operating lease liabilities, net of current portion

Finance leases

    207,000       -  

Long-term debt, net of current portion

Total lease liabilities

  $ 4,090,000     $ 1,025,000    

 

Remaining lease term and discount rate used are as follows:

 

   

March 31, 2021

   

June 30, 2020

 

Weighted-Average Remaining Lease Term (years)

               

Operating lease assets

    3.67       3.33  

Finance lease assets

    2.96        

Weighted-Average Discount Rate

               

Operating lease assets

    6.62 %     8.09 %

Finance lease assets

    6.40 %      

 

Supplemental cash flow information related to lease is as follows:

 

   

Nine Months Ended

 
   

March 31,

 
   

2021

   

2020

 

Cash flow classification of lease payments:

               

Operating cash flows from operating leases

  $ 128,000     $ 72,000  

Operating cash flows from finance leases

  $ 1,000     $ -  

 

 

As of March 31, 2021, the maturities of the Company’s future minimum lease payments were as follows:

 

   

Operating

   

Finance

 

2021 (remaining 3 months)

  $ 281,000     $ 29,000  

2022

    1,154,000       117,000  

2023

    1,182,000       105,000  

2024

    1,117,000       88,000  

2025

    557,000        

Total lease payments

    4,291,000       339,000  
Less: Imputed interest     (508,000 )     (32,000 )
Lease liabilities   $ 3,783,000     $ 307,000  

 

 

 

 

7. Intangible Assets

 

The Company currently holds the following intangible asset portfolios as of March 31, 2021: (i) Licensed assets, which consist of pharmaceutical product assets that were acquired prior to July 1, 2020; (ii) Product technology rights, acquired from the November 1, 2019 acquisition of the Pediatric Portfolio from Cerecor, as a result of the Innovus Merger on February 14, 2020 and as a result of the Neos Merger on March 19, 2021, (iii) Proprietary modified-release drug delivery technology right as a result of the Neos Merger, (iv) Acquired product distribution rights and commercial technology consisting of RxConnect and trade names as a result of the Neos Merger, and patents, trade names and the acquired customer lists from the Innovus Merger, (v) Acquired in-process R&D related to NT0502 product candidate for sialorrhea from the Neos Merger.

 

On March 31, 2021, the Company and Acerus Pharmaceuticals Corporation (“Acerus”) entered into a termination and transition agreement (the “Termination Agreement”) to terminate the License and Supply Agreement previously entered into on July 29, 2019. Pursuant to the Termination Agreement, the Company ceased all sales, marketing and promotions of Natesto, and Acerus agreed to pay the Company an aggregate amount of $7.5 million, payable in equal monthly installment payments for a period of 30 consecutive months. The Company determined that none of the $7.5 million future cash payments can be recognized as of March 31, 2021, and therefore the remaining $4.3 million carrying value of the licensed intangible asset related to Natesto was impaired, and there is no remaining value as of March 31, 2021. 

 

If acquired in an asset acquisition, the Company capitalized the acquisition cost of each licensed patent or tradename, which can include a combination of both upfront consideration, as well as the estimated future contingent consideration estimated at the acquisition date. If acquired in a business combination, the Company capitalizes the estimated fair value of the intangible asset or assets acquired, based primarily on a discounted cash flow model approach or relief-from-royalties model as further described in Note 2.

 

The following table provides the summary of the Company’s intangible assets as of March 31, 2021 and June 30, 2020, respectively.

 

   

March 31, 2021

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Impairment

   

Net Carrying Amount

    Weighted-Average Remaining Life (in years)  

Licensed assets

  $ 23,649,000     $ (8,768,000 )   $ (4,286,000 )   $ 10,595,000       15.15  

Acquired product technology right

    45,400,000       (3,259,000 )           42,141,000       13.37  
Acquired technology right     30,200,000       (57,000 )           30,143,000       16.97  

Acquired product distribution rights

    11,354,000       (1,697,000 )           9,657,000       7.03  
Acquired in-process R&D     2,600,000       -             2,600,000       Indefinite-lived  
Acquired commercial technology     630,000       (20,000 )           610,000       1.97  
Acquired trade name     400,000       (6,000 )           394,000       0.97  

Acquired customer lists

    390,000       (293,000 )           97,000       0.37  
Total   $ 114,623,000     $ (14,100,000 )   $ (4,286,000 )   $ 96,237,000       13.56  

 

   

June 30, 2020

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Impairment

   

Net Carrying Amount

    Weighted-Average Remaining Life (in years)  

Licensed assets

  $ 23,649,000     $ (7,062,000 )   $     $ 16,587,000       11.88  

MiOXSYS Patent

    380,000       (185,000 )     (195,000 )            

Acquired product technology right

    22,700,000       (1,513,000 )           21,187,000       9.34  

Acquired product distribution rights

    11,354,000       (565,000 )           10,789,000       7.78  

Acquired customer lists

    390,000       (98,000 )           292,000       1.12  
Total   $ 58,473,000     $ (9,423,000 )   $ (195,000 )   $ 48,855,000       9.11  

 

 

The following table summarizes the estimated future amortization expense to be recognized over the next five years and periods thereafter:

 

   

Amortization

 

2021 (remaining 3 months)

  $ 2,234,500  

2022

    8,529,000  

2023

    7,981,000  

2024

    7,825,000  

2025

    7,591,000  

Thereafter

    59,476,500  
Total future amortization expense   $ 93,637,000  

 

Certain of the Company’s amortizable intangible assets include renewal options, extending the expected life of the asset. The renewal periods range between approximately 1 to 20 years depending on the license, patent or other agreement. Renewals are accounted for when they are reasonably assured. Intangible assets are amortized using the straight-line method over the estimated useful lives. Amortization expense of intangible assets was $1.7 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense of intangible assets was $4.9 million and $2.9 million for the nine months ended March 31, 2021 and 2020, respectively.

 

 

8. Accrued liabilities

 

Accrued liabilities consist of the following:

 

   

As of

   

As of

 
   

March 31,

   

June 30,

 
   

2021

   

2020

 

Accrued settlement expense

  $ 150,000     $ 315,000  

Accrued program liabilities

    7,836,000       959,000  

Accrued product-related fees

    2,379,000       2,471,000  
Accrued savings offers     19,218,000        
Accrued distributor fees     2,816,000       457,000  

Credit card liabilities

    657,000       510,000  

Medicaid liabilities

    1,948,000       1,842,000  

Return reserve

    5,592,000       1,329,000  

Sales taxes payable

    182,000       175,000  

Other accrued liabilities*

    2,404,000       588,000  

Total accrued liabilities

  $ 43,182,000     $ 8,646,000  

 

* Other accrued liabilities consist of franchise tax, accounting and legal fees, interest payable, merchant services charges, none of which individually represent greater than five percent of total current liabilities.

 

 

9. Fair Value Considerations

 

The Company’s asset and liability classified financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant derivative liability and contingent consideration. The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. The fair value of acquisition-related contingent consideration is based on Monte-Carlo models. The valuation policies are determined by management, and the Company’s Board of Directors is informed of any policy change.

 

 

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 the Company. Unobservable inputs are inputs that reflect the Company’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 that 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.

 

The Company’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. The Company’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.

 

Recurring Fair Value Measurements

 

The following table presents the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of March 31, 2021 and June 30, 2020, by level within the fair value hierarchy.

 

           

Fair Value Measurements at March 31, 2021

 
   

Fair Value at March 31, 2021

   

Quoted Priced in Active Markets for Identical Assets (Level 1)

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

 

Recurring:

                               

Contingent consideration

  $ 14,904,000     $     $     $ 14,904,000  

CVR liability

    5,591,000                   5,591,000  
Total   $ 20,495,000     $     $     $ 20,495,000  

 

           

Fair Value Measurements at June 30, 2020

 
   

Fair Value at June 30, 2020

   

Quoted Priced in Active Markets for Identical Assets (Level 1)

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

 

Recurring:

                               

Contingent consideration

  $ 13,588,000     $     $     $ 13,588,000  

CVR liability

    5,572,000 )                 5,572,000 )
Total   $ 19,160,000     $     $     $ 19,160,000  

 

Contingent Consideration. The Company classifies its contingent consideration liability in connection with the acquisition of Tuzistra XR, ZolpiMist and Innovus, within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The Company estimates the fair value of contingent consideration liability based on projected payment dates, discount rates, probabilities of payment and projected revenues. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow methodology.

 

As of November 2, 2018, the contingent consideration related to Tuzistra XR, was valued at $8.8 million using a Monte Carlo simulation. As of March 31, 2021, the contingent consideration was revalued at $14.4 million using the same Monte Carlo simulation methodology, and based on current interest rates, expected sales potential and Aytu stock trading variables.  As of March 31, 2021, none of the milestones had been achieved, and therefore, no milestone payment was made. However, approximately $3.0 million is expected to be paid in November 2021, as this milestone will be satisfied.

 

 

The contingent consideration related to the ZolpiMist royalty payments was valued at $2.6 million using a Monte Carlo simulation, as of June 11, 2018. As of March 31, 2021, the contingent consideration was revalued at $0.3 million using the same Monte Carlo simulation methodology, and based on current interest rates, expected sales potential and Aytu stock trading variables. The Company reevaluates the contingent consideration on a quarterly basis for changes in the fair value recognized after the acquisition date, such as measurement period adjustments.  As of March 31, 2021, none of the milestones had been achieved, and therefore, no milestone payment was made.

 

The Company recognized approximately $0.2 million in product related contingent consideration as a result of the February 14, 2020 Innovus Merger. The fair value was based on a discounted value of the future contingent payment using a 30% discount rate based on the estimates risk that the milestones are achieved. The contingent consideration accretion expense for the three and nine months ended March 31, 2021 and 2020 was $15,000, and $44,000, respectively. There was no material change in this valuation as of March 31, 2021.

 

Contingent value rights. Contingent value rights (“CVRs”) represent contingent additional consideration of up to $16.0 million payable to satisfy future performance milestones related to the Innovus Merger. Consideration can be satisfied in up to 470,000 shares of the Company’s common stock, or cash either upon the option of the Company or in the event there are insufficient shares available to satisfy such obligations. The fair value of the contingent value rights was based on a Monte Carlo model which takes into account current interest rates and expected sales potential. On March 31, 2020, the Company paid the CVR holders approximately 120,000 shares of the Company’s common stock to satisfy the first $2.0 million milestone, which relates to the Innovus achievement of $24.0 million in revenues during the 2019 calendar year. On March 20, 2021, the Company paid the CVR holders approximately 103,000 shares of the Company’s common stock to satisfy one of two $1.0 million 2020 milestones, which relates to the Innovus achievement of $30.0 million in revenues during the 2020 calendar year. The $1.0 million 2020 milestone for achieving profitability was not met. The unrealized loss for the three months ended March 31, 2021 and March 31, 2020 was $0.1 million and $0.2 million, respectively. The unrealized loss for the nine months ended months ended March 31, 2021 and 2020 was $1.0 million and $0.2 million, respectively. The CVR's did not exist until after December 31, 2019. 

 

Summary of Level 3 Input Changes

 

The following table sets forth a summary of changes to those fair value measures using Level 3 inputs for the nine months ended March 31, 2021:

 

   

CVR Liability

   

Contingent Consideration

 

Balance as of June 30, 2020

  $ 5,572,000     $ 13,588,000  

Included in earnings

    1,019,000       1,999,000  

Settlements

    (1,000,000 )     (683,000 )

Balance as of March 31, 2021

  $ 5,591,000     $ 14,904,000  

 

Significant Assumptions

 

Contingent consideration. The Company estimates the fair value of the Contingent Consideration at each reporting date using management's forecast as the baseline for developing a Monte-Carlo model. The other significant assumptions used in the Monte Carlo Simulation as of March 31, 2021, were as follows: 

 

   

As of March 31, 2021

 

Contingent Consideration

       

Credit risk assumption

    20.80 %

Sales volatility

    45.00 %

Credit spread

    3.00 %

Time steps per year

    1  

Number of iterations

    500  

 

Contingent value rights. The Company estimates the fair value of the Contingent Value Rights at each reporting date using management's forecast as the baseline for developing a Monte-Carlo model. The other significant assumptions used in the Monte Carlo Simulation as of March 31, 2021 were as follows:

 

   

As of March 31, 2021

 

Contingent Value Rights

       

Credit risk assumption

    9.6 %

Time steps per year

    30.00  

Number of iterations

    10,000  

 

 

 

10. Commitments and Contingencies

 

Commitments and contingencies are described below and summarized by the following as of March 31, 2021:

 

   

Total

   

2021

   

2022

   

2023

   

2024

   

2025

   

Thereafter

 

Prescription database

  $ 1,145,000     $ 412,000     $ 733,000     $     $     $     $  

Pediatric portfolio fixed payments and product minimums

    15,000,000       825,000       3,300,000       3,300,000       3,300,000       3,300,000       975,000  

Inventory purchase commitment

    1,472,000       736,000       736,000                          

CVR liability

    12,000,000             2,000,000       5,000,000       5,000,000              

Product contingent liability

    2,500,000                                     2,500,000  

Product milestone payments

    3,000,000             3,000,000                          
                                                         
Total   $ 35,117,000     $ 1,973,000     $ 9,769,000     $ 8,300,000     $ 8,300,000     $ 3,300,000     $ 3,475,000  

 

Prescription Database

 

In May 2016, the Company entered into an agreement with a vendor that will provide it with prescription database information. The Company agreed to pay approximately $1.6 million over three years for access to the database of prescriptions written for Natesto. In January 2020, the Company amended the agreement and agreed to pay additional $0.6 million to add access to the database of prescriptions written for the Pediatric Portfolio. The payments have been broken down into quarterly payments.

 

Pediatric Portfolio Fixed Payments and Product Milestone

 

The Company assumed two fixed, periodic payment obligations to an investor (the “Fixed Obligation”). Beginning November 1, 2019 through January 2021, the Company will pay monthly payments of $86,840, with a balloon payment of $15.0 million that was to be due in January 2021. A second fixed obligation requires the Company pay a minimum of $100,000 monthly through February 2026, except for $210,767 paid in January 2020. 

 

On May 29, 2020, the Company entered into an Early Payment Agreement and Escrow Instruction (the “Early Payment Agreement”) pursuant to which the Company agreed to pay $15.0 million to the investor in early satisfaction of the Balloon Payment Obligation. The parties to the Early Payment Agreement acknowledged and agreed that the remaining fixed payments other than the Balloon Payment Obligation remain due and payable pursuant to the terms of the Agreement, and that nothing in the Early Payment Agreement alters, amends, or waives any provisions or obligations in the Waiver or the Investor agreement other than as expressly set forth therein.

 

In addition, the Company acquired a Supply and Distribution Agreement with Tris Pharma, Inc. ("TRIS"), (the “Karbinal Agreement”), under which the Company is granted the exclusive right to distribute and sell the product in the United States. The initial term of the Karbinal Agreement was 20 years. The Company will pay TRIS a royalty equal to 23.5% of net sales. A third party agreed to offset the 23.5% royalty payable by 8.5%, for a net royalty equal to 15%, in fiscal year 2018 and 2019 for net sales of Karbinal.

 

The Karbinal Agreement make-whole payment is capped at $2.1 million each year. The Karbinal Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units annually through 2025. The Company is required to pay TRIS a royalty make whole payment of $30 for each unit under the 70,000-unit annual minimum sales commitment through 2025. The annual payment is due in August of each year. The Karbinal Agreement also has multiple commercial milestone obligations that aggregate up to $3.0 million based on cumulative net sales, the first of which is triggered at $40.0 million of net revenues.

 

Inventory Purchase Commitment

 

On May 1, 2020, the Company's Innovus subsidiary entered into a Settlement Agreement and Release (the “Settlement Agreement”) with Hikma Pharmaceuticals USA, Inc. (“Hikma”). Pursuant to the settlement agreement, Innovus has agreed to purchase and Hikma has agreed to manufacture a minimum amount of the Company's branded fluticasone propionate nasal spray USP, 50 mcg per spray (FlutiCare®), under Hikma’s FDA approved ANDA No. 207957 in the U.S. The commitment requires Innovus to purchase three batches of product through fiscal year 2022 each of which amount to $1.0 million.

 

CVR Liability

 

On February 14, 2020, the Company closed on the Merger with Innovus Pharmaceuticals after approval by the stockholders of both companies on February 13, 2020. Upon closing the Merger, a subsidiary of the Company merged with and into Innovus and entered into a Contingent Value Rights Agreement (the “CVR Agreement”). Each CVR entitles its holder to receive its pro rata share, payable in cash or stock, at the option of Aytu, of certain payment amounts if the targets are met. If any of the payment amounts is earned, they are to be paid by the end of the first quarter of the calendar year following the year in which they are earned. Multiple revenue milestones can be earned in one year.

 

On March 31, 2020, the Company paid the CVR holders approximately 120,000 shares of the Company’s common stock to satisfy the $2.0 million obligation as a result of Innovus achieving the $24.0 million revenue milestone for calendar year ended December 31, 2019. As a result of this, the Company recognized a gain of approximately $0.3 million during the fiscal year ended June 30, 2020. On March 20, 2021, the Company paid the CVR holders approximately 103,000 shares of the Company’s common stock to satisfy one of two $1.0 million 2020 milestones, which relates to the Innovus achievement of $30.0 million in revenues during the 2020 calendar year. As a result of this, the Company recognized a gain of approximately $0.4 million during the three months ended March 31, 2021.The $1.0 million 2020 milestone for achieving profitability was not met.

 

 

Product Contingent Liability

 

In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the merger, Innovus is obligated to make five additional payments of $0.5 million each when certain levels of FlutiCare sales are achieved. The discounted value as of March 31, 2021, is approximately $0.2 million.

 

Product Milestone Payments

 

In connection with the Company’s intangible assets, Aytu has certain milestone payments, totaling $3.0 million, payable at a future date, which are not directly tied to future sales, but are payable upon other events certain to happen. These obligations are included in the valuation of the Company’s contingent consideration (see Note 9).

 

 

11. Capital Structure

 

The Company has 200 million shares of common stock authorized with a par value of $0.0001 per share and 50 million shares of preferred stock authorized with a par value of $0.0001 per share. On March 31, 2021 and June 30, 2020, Aytu had 23,457,887 and 12,583,736 common shares outstanding, respectively, and zero preferred shares outstanding, respectively.

 

Included in the common stock outstanding are 274,635 shares of restricted stock issued to executives, directors, employees, and consultants.

 

In June 2020, the Company initiated an at-the-market offering program ("ATM"), which allows the Company to sell and issue shares of the Company's common stock from time-to-time. The company has issued 430,230 shares of common stock, with total gross proceeds of $6.8 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company of $0.2 million through June 30, 2020. The Company did not issue any shares of common stock under the ATM during the three months ended March 31, 2021, and has issued 352,912 shares of common stock under the ATM, with total gross proceeds of approximately $3.6 million before deducting underwriting discounts, commissions, and other offering expenses payable by the Company of $1.6 million during the nine months ended March 31, 2021. Since initiated in June 2020 through March 31, 2021, the total number of shares of common stock issued under the ATM was 783,142, with total gross proceeds of $10.4 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company of $1.8 million.  

 

The Company entered into three separate registered direct stock offerings on March 10, 2020, March 12, 2020 and March 19, 2020 (the “March Offerings”) in which the Company issued a combination of common stock and warrants. In July 2020, the Company paid $1.5 million issuance cost in cash related to the March Offerings and issued 92,302 warrants to purchase 92,302 shares of the Company's common stock with a weighted-average exercise price of $15.99 to an investment bank conjunction with the March 2020 offerings. The warrants have a term of one year from the issuance date. These warrants had at issuance a fair value of approximately $356,000 and were valued using a Black-Scholes model.

 

On December 10, 2020, the Company entered into an exchange agreement to exchange the $0.8 million of debt outstanding for 130,081 shares of the Company's common stock (see Note 15).

 

On December 10, 2020, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“Wainwright”) (as amended and restated, the “Underwriting Agreement”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in an upsized firm commitment offering, 4,166,667 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), to Wainwright at an offering price to the public of $6.00 per share, less underwriting discounts and commissions. In addition, pursuant to the Underwriting Agreement, the Company granted Wainwright a 30-day option to purchase up to an additional 625,000 shares of Common Stock at the same offering price to the public, less underwriting discounts and commissions. Wainwright exercised their over-allotment option in full, purchasing total common stock of 4,791,667 shares. The Company raised gross proceeds of $28.8 million through this offering. Offering costs totaled $2.6 million resulting in net cash proceeds of $26.2 million. In connection with the offering, the Company issued 311,458 underwriter warrants to purchase up to 311,458 shares of common stock. The exercise price per share of the underwriter warrants is $7.50 (equal to 125% of the public offering price per share for the shares of common stock sold in the offering) and the underwriter warrants have a term of five years from the date of effectiveness of the offering. The underwriter warrants are exercisable immediately. These warrants have fair value of approximately $1.3 million and are classified with the stockholders' equity.

 

On March 19, 2021, upon closing of the Neos Merger, the Company issued 5,447,000 shares of its common stock to acquire all the outstanding shares of common stock of Neos. In addition, pursuant to the agreement in the Neos Merger, the Company issued 24,804 shares of common stock to settle the accelerated restricted stock units of former Neos directors and officers (see Note 2).

 

On March 20, 2021, the Company paid the CVR holders approximately 103,000 shares of the Company’s common stock to satisfy one of two $1.0 million 2020 milestones, which relates to the Innovus achievement of $30.0 million in revenues during the 2020 calendar year.

 

 

12. Equity Incentive Plan

 

Aytu 2015 Plan

 

On June 1, 2015, the Company’s stockholders approved the Aytu BioPharma 2015 Stock Option and Incentive Plan (the “Aytu 2015 Plan”), which, as amended in July 2017, provides for the award of stock options, stock appreciation rights, restricted stock and other equity awards for up to an aggregate of 3.0 million 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 Aytu 2015 Plan. On February 13, 2020, the Company’s stockholders approved an increase to 5.0 million total shares of common stock in the Aytu 2015 Plan. As of March 31, 2021, the Company had 4,603,990 shares that are available for grant under the Aytu 2015 Plan.

 

Neos 2015 Plan

 

Pursuant to the Neos Merger, the Company assumed 69,721 stock options and 35,728 restricted stock units (RSUs) previously granted under Neos plan. Accordingly, on April 19, 2021, the Company registered 105,449 shares of its common stock under the Neos Therapeutics, Inc. 2015 Stock Options and Incentive Plan (the "Neos 2015 Plan") with the SEC. The terms and conditions of the assumed equity securities will stay the same as they were under the previous Neos plan. The Company allocated costs of the replacement awards attributable to pre- and post-combination service periods. The pre-combination service costs were included in the considerations transferred. The remaining costs attributable to the post-combination service period are being recognized as stock-based compensation expense over the remaining terms of the replacement awards. As of March 31, 2021, the Company had no shares that are available for grant under the Neos 2015 Plan.

 

 

Stock Options

 

Employee Stock Options:

 

The fair value of the options is 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 to estimate the fair value of the options granted under the Neos 2015 Plan were as follows:

 

   

As of March 31, 2021

 

Expected volatility

    100.0 %

Expected term (years)

    4.00  

Risk-free interest rate

    0.73 %

Dividend yield

     −  

 

Stock option activity is as follows:

 

   

Number of Options

   

Weighted Average Exercise Price

   

Weighted Average Remaining Contractual Life in Years

   

Aggregate Intrinsic Value

 
Outstanding June 30, 2020     76,614     $ 19.39       9.67     $  −  

Granted

    69,721                        

Forfeited/Cancelled

    (7,553 )                      

Expired

    (2,528 )                      

Outstanding at March 31, 2021

    136,254     $ 13.14       6.12     $  

Exercisable at March 31, 2021

    20,569     $ 87.86       8.56     $  −  

 

As of March 31, 2021, there was $0.5 million unrecognized option-based compensation expense related to non-vested stock options. The Company expects to recognize this expense over a weighted-average period of 3.3 years.

 

Restricted Stock

 

Restricted stock activity is as follows:

 

   

Number of Shares

    Weighted Average Grant Date Fair Value    

Weighted Average Remaining Contractual Life in Years

 

Unvested at June 30, 2020

    418,454     $ 14.69       6.4  

Vested

    (143,977 )                

Unvested at March 31, 2021

    274,477     $ 16.27       6.2  

 

Under the Aytu 2015 Plan, there was $4.0 million of total unrecognized stock-based compensation expense related to the non-vested restricted stock as of March 31, 2021. The Company expects to recognize this expense over a weighted-average period of 6.2 years. The Company previously issued 158 shares of restricted stock outside the Aytu 2015 Plan, which vest in July 2026. The unrecognized expense related to these shares was $1.1 million as of March 31, 2021 and is expected to be recognized over the weighted average period of 5.3 years.

 

 

Restricted Stock Unit

 

On March 31, 2021, the Company granted 55,000 restricted stock units ("RSUs") to a member of its management. One-third of the RSUs that vest on April 1, 2022, and 1/12 vest on the first day of each quarter thereafter such that all the RSUs will be fully-vested on the third anniversary of the grant. The grant date fair value of $7.60 per share.

 

Restricted stock unit activity is as follows:

 

   

Number of Shares

   

Weighted Average Grant Date Fair Value

   

Weighted Average Remaining Contractual Life in Years

 

Unvested at June 30, 2020

                       

Granted

    90,728     $ 8.35       2.21  
Vested     (2,822 )                
Forfeited     (544 )                

Unvested at March 31, 2021

    87,362     $ 8.31       2.26  

 

Under the Neos 2015 Plan, there was $0.6 million of total unrecognized stock-based compensation expense related to the non-vested restricted stock units as of March 31, 2021. The Company expects to recognize this expense over a weighted-average period of 2.2 years.

 

Stock-based compensation expense related to the fair value of stock options and restricted stock was included in the statements of operations as set forth in the table below:

 

   

Three Months Ended March 31,

   

Nine Months Ended March 31,