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,~~September 30, 2022

☐ 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

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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 (§232.405 of this chapter) 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 ☒

As of ~~May~~November 9, 2022, there were ~~38,574,875~~62,429,445 shares of the registrant’s common stock outstanding.

Table of Contents

AYTU BIOPHARMA, INC. FOR THE QUARTER ENDED ~~MARCH 31,~~SEPTEMBER 30, 2022

INDEX

PART I—FINANCIAL INFORMATION

	Page
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2022 (unaudited) and June 30, ~~2021~~2022	4
Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021	5
Condensed Consolidated Statement of Stockholders’ Equity for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021	6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021	7
Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3532

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4938

Item 4. Controls and Procedures	4938

PART II—OTHER INFORMATION
Item 1. Legal Proceedings	5040

Item 1A. Risk Factors	5040

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5040

Item 3. Defaults Upon Senior Securities	5040

Item 4. Mine Safety Disclosures	5040

Item 5. Other Information	5040

Item 6. Exhibits	5141

SIGNATURES	5242

Table of Contents

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: our anticipated future cash position; the planned expanded commercialization of our products and the potential future commercialization of our product candidates; our planned product candidate development strategy and research and development expenses; our anticipated future growth rates; anticipated sales increases; anticipated net revenue increases; amounts of certain future expenses and costs of goods sold; our ~~plan~~plans to acquire additional assets, anticipated increases to operating 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-~~Q10-Q refers to trademarks, such as Adzenys, Aytu, ~~Aytu BioPharma,~~ Cotempla, FlutiCare, Innovus Pharma, Neos, Poly-Vi-Flor, Tri-Vi-Flor, Tuzistra, and ZolpiMist which are protected under applicable intellectual property laws and are our property or the property of our subsidiaries. This Form 10-Q also contains trademarks, service marks, copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.

Table of Contents

AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except shares and per-share)


	(Unaudited)				(Unaudited)
	March 31,		June 30,		September 30,		June 30,
	2022		2021		2022		2022
Assets
Current assets
Cash and cash equivalents	$	27,613	$	49,649	$	23,811	$	19,360
Restricted cash		—		252
Accounts receivable, net		27,613		28,176		27,924		21,712
Inventory, net		13,891		16,339		12,871		10,849
Prepaid expenses		7,942		9,780		9,024		7,375
Other current assets		888		1,038		785		633
Total current assets		77,947		105,234		74,415		59,929
Property and equipment, net		3,479		5,140		2,672		3,025
Operating lease right-of-use asset		3,561		3,563		2,976		3,271
Intangible assets, net		74,428		85,464		69,108		70,632
Goodwill		8,637		65,802
Other non-current assets		774		465		829		766
Total non-current assets		90,879		160,434		75,585		77,694
Total assets	$	168,826	$	265,668	$	150,000	$	137,623

Liabilities
Current liabilities
Accounts payable and other	$	11,130	$	19,255	$	14,667	$	10,987
Accrued liabilities		53,470		51,295		41,431		44,187
Accrued compensation		5,258		5,939
Short-term line of credit		3,385		7,934		8,087		3,813
Current portion of debt		100		16,668		925		96
Current portion of operating lease liabilities		1,203		940
Current portion of fixed payment arrangements		2,903		3,134
Current portion of CVR liabilities		156		218
Current portion of contingent consideration		—		4,055
Other current liabilities		2,755		—		8,094		5,359
Total current liabilities		80,360		109,438		73,204		64,442
Debt, net of current portion		14,167		180		13,560		14,279
Operating lease liabilities, net of current portion		2,406		2,624
Fixed payment arrangements, net of current portion		4,237		6,324
CVR liabilities, net of current portion		564		1,177
Contingent consideration, net of current portion		371		8,002
Other non-current liabilities		5,577		355		9,330		12,810
Total liabilities		107,682		128,100		96,094		91,531
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred Stock, par value $.0001; 50,000,000 shares authorized; 0 shares issued or outstanding as of March 31, 2022 and June 30, 2021		—		—
Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding 33,355,935 and 27,490,412, respectively, as of March 31, 2022 and June 30, 2021		3		3
Preferred Stock, par value $.0001; 50,000,000 shares authorized; no shares issued or outstanding as of September 30, 2022 and June 30, 2022						—		—
Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding 62,429,445 and 38,578,825, respectively, as of September 30, 2022 and June 30, 2022						6		4
Additional paid-in capital		331,912		315,864		345,253		334,560
Accumulated deficit		(270,771)		(178,299)		(291,353)		(288,472)
Total stockholders’ equity		61,144		137,568		53,906		46,092
Total liabilities and stockholders’ equity	$	168,826	$	265,668	$	150,000	$	137,623

See the accompanying Notes to the Condensed Consolidated Financial Statements

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AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except shares and per-share)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021
Product revenue, net	$	24,199	$	13,483	$	69,221	$	42,150	$	27,655	$	21,897
Cost of sales		11,513		13,935		31,780		24,249		9,623		9,441
Gross profit		12,686		(452)		37,441		17,901		18,032		12,456

Operating expenses
Research and development		3,726		390		10,742		859		1,064		1,652
Selling and marketing		9,743		6,597		28,700		18,128		10,102		9,297
General and administrative		7,615		6,001		23,784		16,948		7,322		8,216
Acquisition related costs		—		1,537		—		2,849
Restructuring costs		—		4,818		—		4,875
Impairment expense		45,196		4,286		64,649		4,286		—		19,453
Amortization of intangible assets		1,061		1,585		3,214		4,754		1,197		1,537
Total operating expenses		67,341		25,214		131,089		52,699		19,685		40,155
Loss from operations		(54,655)		(25,666)		(93,648)		(34,798)		(1,653)		(27,699)
Other income (expense)
Other income/(expense), net		(55)		(425)		(75)		(1,555)
Gain (loss) from contingent consideration		1,257		631		761		(2,680)
Gain (loss) on extinguishment of debt		169		—		169		(258)
Gain on derivative warrant liability		211		—		211		—
Other expense
Other expense, net										(1,100)		(40)
Loss from contingent consideration										(128)		(219)
Total other expense		1,582		206		1,066		(4,493)		(1,228)		(259)
Loss before income tax		(53,073)		(25,460)		(92,582)		(39,291)		(2,881)		(27,958)
Income tax benefit		—		—		(110)		—		—		(107)
Net loss	$	(53,073)	$	(25,460)	$	(92,472)	$	(39,291)	$	(2,881)	$	(27,851)
Weighted average number of common shares outstanding		29,689,856		18,092,465		27,211,708		14,490,219		50,358,134		25,597,319
Basic and diluted net loss per common share	$	(1.79)	$	(1.41)	$	(3.40)	$	(2.71)	$	(0.06)	$	(1.09)

See the accompanying Notes to the Condensed Consolidated Financial Statements.

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AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

(Unaudited)

Three Months Ended March 31,

Additional

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Stockholders’


Shares

Amount

Shares

Amount

Capital

Deficit

Equity (Deficit)
Balance, December 31, 2021

—

$
—

30,010,468

$
3

$
323,231

$
(217,698)

$
105,536

Stock-based compensation

—

—

107,767

—

1,270

—

1,270
Issuance of common stock, net of issuance cost

—

—

3,237,700

—

7,034

—

7,034
Tax withholding for stock-based compensation

—

—

—

—

(2)

—

(2)
Warrants issued with debt refinance

—

—

—

—

379

—

379
Net loss

—

—

—

—

—

(53,073)

(53,073)
Balance, March 31, 2022

—

$
—

33,355,935

$
3

$
331,912

$
(270,771)

$
61,144

Balance, December 31, 2020

—

$
—

17,882,893

$
2

$
246,532

$
(133,841)

$
112,693

Stock-based compensation

—

—

—

—

1,382

—

1,382
Issuance of common stock for business acquisition, net of issuance costs

—

—

5,471,804

1

53,102

—

53,103
Estimated fair value of replacement equity awards

—

—

—

—

432

—

432
Contingent Value Rights payouts

—

—

103,190

—

1,000

—

1,000
Net loss

—

—

—

—

—

(25,460)

(25,460)
Balance, March 31, 2021

—

$
—

23,457,887

$
3

$
302,448

$
(159,301)

$
143,150


	Nine Months Ended March 31,													Three Months Ended September 30,
								Additional				Total									Additional				Total
		Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’			Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
		Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)			Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance, June 30, 2021		—	$	—	27,490,412	$	3	$	315,864	$	(178,299)	$	137,568
Balance July 1, 2022															—	$	—	38,578,825	$	4	$	334,560	$	(288,472)	$	46,092

Stock-based compensation															—		—	(33,332)		—		1,177		—		1,177
Issuance of common stock, net of issuance cost															—		—	23,883,952		2		9,516		—		9,518
Net loss															—		—	—		—		—		(2,881)		(2,881)
Balance, September 30, 2022															—	$	—	62,429,445	$	6	$	345,253	$	(291,353)	$	53,906

Balance July 1, 2021															—	$	—	27,490,412	$	3	$	315,864	$	(178,299)	$	137,568

Stock-based compensation		—		—	404,739		—		4,018		—		4,018		—		—	220,000		—		1,519		—		1,519
Issuance of common stock, net of issuance cost		—		—	5,460,784		—		11,659		—		11,659		—		—	61,500		—		270		—		270
Tax withholding for stock-based compensation		��		—	—		—		(8)		—		(8)		—		—	—		—		(6)		—		(6)
Warrants issued with debt refinance		—		—	—		—		379		—		379
Net loss		—		—	—		—		—		(92,472)		(92,472)		—		—	—		—		—		(27,851)		(27,851)
Balance, March 31, 2022		—	$	—	33,355,935	$	3	$	331,912	$	(270,771)	$	61,144

Balance, June 30, 2020		—	$	—	12,583,736	$	1	$	215,024	$	(120,010)	$	95,015

Stock-based compensation		—		—	—		—		2,345		—		2,345
Issuance of common stock, net of issuance cost		—		—	5,169,076		1		29,487		—		29,488
Issuance of common stock for business acquisition, net of issuance costs		—		—	5,471,804		1		53,102		—		53,103
Issuance of common stock related to debt conversion		—		—	130,081		—		1,058		—		1,058
Estimated fair value of replacement equity awards		—		—	—		—		432		—		432
Contingent Value Rights payouts		—		—	103,190		—		1,000		—		1,000
Net loss		—		—	—		—		—		(39,291)		(39,291)
Balance, March 31, 2021		—	$	—	23,457,887	$	3	$	302,448	$	(159,301)	$	143,150
Balance, September 30, 2021															—	$	—	27,771,912	$	3	$	317,647	$	(206,150)	$	111,500

See the accompanying Notes to the Condensed Consolidated Financial Statements

Table of Contents

AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended				Three Months Ended
	March 31,				September 30,
	2022		2021		2022		2021
Operating Activities
Net loss	$	(92,472)	$	(39,291)	$	(2,881)	$	(27,851)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, amortization and accretion		8,005		5,878		2,328		2,677
Impairment expense		64,649		4,286		—		19,453
Stock-based compensation expense		4,018		2,485		1,177		1,519
(Gain) loss from contingent considerations		(761)		2,680
Loss from contingent consideration						128		219
Amortization of senior debt (premium) discount		(268)		115		145		(161)
(Gain) loss on sale of equipment		(44)		112
Gain on termination of lease		—		(343)
(Gain) loss on debt extinguishment		(193)		258
(Gain) on sale of equipment						(42)		—
Inventory write-down		352		7,227		82		203
Gain on derivative warrant liability		(211)		—
Other noncash adjustments		(152)		335		(2)		(61)
Changes in operating assets and liabilities:
Accounts receivable		647		1,764		(6,212)		6,525
Inventory		91		(4,390)		(2,104)		(178)
Prepaid expenses and other current assets		1,406		7,673		(1,801)		279
Accounts payable and other		(8,099)		(6,156)		3,587		(9,888)
Accrued liabilities		1,252		(2,293)		(3,481)		3,326
Other operating assets and liabilities, net		52		(27)		(72)		147
Net cash used in operating activities		(21,728)		(19,687)		(9,148)		(3,791)
Investing Activities
Contingent consideration payment		(3,138)		(683)		—		(50)
Cash received from acquisition		—		15,722
Cash payment for business acquisition		—		(15,399)
Other investing activities		(69)		4		42		(36)
Net cash used in investing activities		(3,207)		(356)
Net cash provided by (used in) investing activities						42		(86)
Financing Activities
Proceeds from issuance of stock		12,700		32,250		10,416		307
Payment of stock issuance costs		(782)		(4,430)		(793)		(21)
Payment made to fixed payment arrangement		(3,277)		(3,034)		(301)		(2,305)
Proceeds from short-term line of credit		112,463		—		34,791		42,212
Payments made on short-term line of credit		(117,012)		(5,968)		(30,517)		(45,626)
Payments made to borrowings		(16,075)		(318)		(26)		(25)
Proceeds from borrowings		15,000		—
Payment for debt issuance costs		(363)		—
Other financing activities		(7)		—		(13)		(6)
Net cash provided by financing activities		2,647		18,500
Net cash provided by (used in) financing activities						13,557		(5,464)
Net change in cash, restricted cash and cash equivalents		(22,288)		(1,543)		4,451		(9,341)
Cash, cash equivalents and restricted cash at beginning of period		49,901		48,333		19,360		49,901
Cash, cash equivalents and restricted cash at end of period	$	27,613	$	46,790	$	23,811	$	40,560
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents	$	27,613	$	46,538	$	23,811	$	40,308
Restricted cash		—		252		—		252
Total cash, cash equivalents and restricted cash	$	27,613	$	46,790	$	23,811	$	40,560

See the accompanying Notes to the Condensed Consolidated Financial Statements.

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AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT’D

(In thousands)

(Unaudited)


	Nine Months Ended				Three Months Ended
	March 31,				September 30,
	2022		2021		2022		2021
Supplemental cash flow data
Cash paid for interest	$	3,080	$	449	$	565	$	1,688
Non-cash investing and financing activities:
Warrants issued	$	3,177	$	1,628	$	3,023	$	—
Other noncash investing and financing activities	$	473	$	66	$	146	$	16
Fixed payment arrangements included in accrued liabilities	$	—	$	1,575	$	—	$	525
Issuance of common stock for note conversion	$	—	$	1,058
Contingent value rights payout	$	—	$	1,000
Issuance related to acquisition of Neos	$	—	$	53,241
Fair value of non-cash assets acquired	$	—	$	104,322
Fair value of liabilities assumed	$	—	$	88,700
Estimated fair value of replacement equity awards	$	—	$	432

See the accompanying Notes to the Condensed Consolidated Financial Statements.

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AYTU BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Aytu BioPharma, Inc. (“Aytu”, the “Company” or “we”), is a pharmaceutical company focused on commercializing novel therapeutics and consumer health ~~products and developing therapeutics for rare pediatric-onset or difficult-to-treat diseases.~~products. The Company operates through two business segments (i) the ~~BioPharma~~Rx segment, consisting of prescription pharmaceutical products ~~(the “Rx Portfolio”)~~ and (ii) the Consumer Health segment, which consists of various consumer healthcare products (the “Consumer Health Portfolio”). The Company also has two product candidates in development, AR101 (enzastaurin) for the treatment of vascular Ehlers-Danlos Syndrome (“VEDS”) and Healight (endotracheal ultraviolet light catheter) for the treatment of severe, difficult-to-treat respiratory infections. The Company was originally incorporated as Rosewind Corporation on August 9, 2002 in the State of Colorado and was re-incorporated as Aytu BioScience, Inc in the state of Delaware on June 8, 2015. Following the acquisition of Neos Therapeutics, Inc. (“Neos”) in March 2021, (the “Neos Acquisition”) the Company changed its name to Aytu BioPharma, Inc.

The Rx ~~Portfolio~~segment primarily consists of two product portfolios: (i) Adzenys XR-ODT (amphetamine) extended-release orally disintegrating tablets and Cotempla XR-ODT (methylphenidate) extended-release orally disintegrating tablets for the treatment of attention deficit hyperactivity disorder (“ADHD”) together the “ADHD Portfolio”), ~~(ii)~~and the “Pediatric Portfolio” consisting of 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, and ~~(iii)~~ Karbinal ER, an extended-release antihistamine suspension containing carbinoxamine indicated to treat numerous allergic conditions.

The Consumer Health Portfolio consists of over 20twenty consumer health products competing in large healthcare categories, including allergy, hair regrowth, diabetes ~~management, pain management,~~support, digestive health, sexual and urological health and general wellness, commercialized through direct-to-consumer and e-commerce marketing channels.

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, while also developing~~markets. As a ~~therapeutic pipeline focused~~result of focusing on ~~rare pediatric-onset conditions~~building the portfolio of revenue-generating products, the Company has indefinitely suspended active development of its clinical development programs including AR101 (enzastaurin) and ~~difficult-to-treat diseases.~~Healight.

As of ~~March 31,~~September 30, 2022, the Company had approximately ~~$27.6~~$23.8 million of cash and cash ~~equivalents.~~equivalents and approximately $27.9 million in accounts receivable. The Company’s operations have historically consumed cash and are expected to continue to consume cash. The Company incurred a net loss of approximately ~~$53.1~~$2.9 million and ~~$25.5~~$27.9 million during the three months ended ~~March 31, 2022 and 2021, respectively, and $92.5 million and $39.3 million for the nine months ended March 31,~~September 30, 2022 and 2021, respectively. The Company had an accumulated deficit of ~~$270.8~~$291.4 million and ~~$178.3~~$288.5 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. Cash used in operations was ~~$21.7~~$9.1 million and ~~$19.7~~$3.8 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, respectively.

In August 2022, the Company completed an underwritten public offering of (i) 21,505,814 shares of its common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 1,750,000 shares of its common stock, and (ii) accompanying warrants (the "Common Warrants") to purchase 23,255,814 shares of its common stock (the "Offering") resulting in gross and net proceeds of $10.0 million and $9.1 million, respectively, assuming none of the accompanying Common Warrants issued in the Offering are exercised. The pre-funded warrants were exercised in full in August 2022. The Company intends to use the net proceeds from the Offering for growth of the Company’s commercial business, and for working capital and general corporate purposes.

As the Company does not have sufficient cash and cash equivalents as of ~~March 31,~~September 30, 2022 to cover its cash needs for the twelve months following the filing date of this Quarterly Report on Form 10-Q, there exists substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include adjustments that might be necessary if the Company is unable to continue as a going concern.

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Management plans to mitigate the conditions that raise substantial doubt about its ability to continue as a going concern are primarily focused on increasing revenue, reducing expenses associated with research and development and raising additional capital through public or private equity or debt offerings or monetizing assets in order to meet its obligations. Management believes that the Company has access to capital resources, however, the Company cannot provide any assurance that it will be able to raise additional capital, monetize assets or obtain new financing on commercially acceptable terms. If the Company is unable to secure additional capital, it may be required to curtail its operations or delay the execution of its business plan. Alternatively, any efforts by the Company to reduce its expenses may adversely impact its ability to sustain revenue-generating activities and delay the progress of its developmental product candidates or otherwise operate its business. As a result, there can be no assurance

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that the Company will be successful in implementing its plans to alleviate this substantial doubt about its ability to continue as a going concern.

Basis of Presentation. The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q represent the financial statements of the Company and its wholly owned subsidiaries. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2021,~~2022, which included all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, these unaudited condensed 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,~~September 30, 2022 are not necessarily indicative of expected operating results for the full year or any future year.

Prior Period Reclassification. Certain prior year amounts in the condensed statements of earnings and statements of cash flows have been reclassified to conform to the current year presentation, including a reclassification made in the presentation of amortization of intellectual property. This was previously included in research and development expenses and is currently recorded in general and administrative expense on the condensed consolidated statements of operations. These reclassifications did not impact operating results or cash flows for the three months ended September 30, 2022 and 2021 or its financial position as of September 30, 2022 or June 30, 2022.

2. Significant Accounting Policies

Use of Estimates

Management uses estimates and assumptions relating to reporting amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for doubtful accounts, determination of variable consideration for accruals of chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, fair value of long-lived assets, the value of goodwill, income tax provision, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, ~~and~~ the depreciable lives of long-lived ~~assets.~~assets and classification of warrants equity versus liability. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates estimates used in the preparation of the financial statements for reasonableness.

~~Prior Period Reclassification~~

Certain prior year amounts in the consolidated balance sheets, statements of earnings and statements of cash flows have been reclassified to conform to the current year presentation, including a reclassification made in the presentation of the U.S. Food and Drug Administration (the “FDA”) fees for commercialized products. This was previously included in general and administrative expenses and is currently recorded as a component of cost of sales on the condensed consolidated statements of operations. These reclassifications did not impact operating results or cash flows for the three and nine months ended March 31, 2022 and 2021 or its financial position as of March 31, 2022 or June 30, 2021.

Income Taxes

The Company calculates its quarterly income tax provision based on estimated annual effective tax rates applied to ordinary income (or loss) and other known items computed and recognized when they occur. There have been no changes in tax law affecting the tax provision during the ~~nine months ended March 31, 2022. The impairment of goodwill during the~~ three months ended September 30, ~~2021 decreased~~2022.

An ownership change (generally a 50% change in equity ownership over a three-year period) could limit the Company’s ability to offset, post-change, U.S. federal taxable income. Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change net operating loss carryforwards and certain recognized built-in losses. The Company believes that previous acquisitions,

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financing transactions, and equity ownership changes in the past five years may have caused an ownership change results in a limitation of its ability to use the pre-acquisition net operating loss carryovers. The ownership change scenario could result in increased future tax liability. The company is in the process of analyzing the impact of any possible ownership change the result of which may be a change to the Company’s net deferred tax asset or liability position.

Impairment of Other Intangibles Assets

Acquired in-process research and development (“IPR&D) is an intangible asset classified as an indefinite-lived asset until the completion or abandonment of the associated research and development (“R&D”) effort. In periods after the acquired IPR&D, the Company may (1) continue internal R&D efforts associated with the acquired assets or collaborate with another party in R&D efforts; (2) dispose of the assets through sale; (3) outlicense the assets; (4) decide to temporarily postpone further development; or (5) abandon R&D efforts. IPR&D asset may be subject to different subsequent accounting treatment depending on the course of action chosen by ~~$0.1 million resulting in an income tax benefit of $0.1 million during~~ the ~~three months ended September 30, 2021. The income tax provision did not impact~~Company with respect to the ~~amount of deferred taxes due~~asset. If the Company changes strategies related to ~~a full valuation allowance and~~ the ~~goodwill being recorded as a deferred tax liability.~~IPR&D the asset could potentially be impaired.

Recent Adopted Accounting Pronouncements

Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be

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discontinued if contract modifications are made on or before December 31, 2022. The Company adopted the guidance effective ~~March 31,~~July 1, 2022 for the accounting of its LIBOR indexed revolving loans by prospectively applying the interest rate. The Company elected not to reassess the discount rate of its leases. The ~~Company does not expect the~~ adoption of this standard todid not have a material impact on the Company’s condensed consolidated financial position and results of operations.

Earnings Per Share. In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. The amendments in ASU 2021-04 provide guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 and related updates did not have a material impact on its condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Debt—Debt with Conversion and Other Options. In June 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)— “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The amendments in this update are effective for public entities that are smaller reporting companies, as defined by the Securities and Exchange Commission (”SEC”), for the fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted through a modified retrospective or full retrospective method. The Company will adopt the guidance on July 1, ~~2022,~~2023 and does not expect the adoption of the standard to have any material impact on the Company’s condensed consolidated financial position and results of operations.

Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” requiring 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 ASU 2016-13 is to provide additional information about the expected credit losses on financial instruments and other

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commitments to extend credit. 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. The Company will adopt ASU 2016-13 for the fiscal year ended June 30, 2024. The Company is evaluating the impact of adoption of this standard and does not anticipate the application of ASU 2016-13 will have a material impact on the Company’s condensed consolidated financial position and results of operations.

For a complete set of the Company’s significant accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022. There have been no significant changes to the Company’s significant accounting policies during the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

~~3. Acquisitions~~

~~Neos Acquisition~~

On March 19, 2021, the Company acquired Neos, a commercial-stage pharmaceutical company. Neos merged into, a subsidiary of the Company with and all outstanding Neos common stock was exchanged for approximately 5,472,000 shares of the Company’s common stock (“the Neos Acquisition”). The Company incurred (i) approximately $2.9 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.

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~~The following table summarizes the fair value of assets acquired and liabilities assumed;~~

March 19, 2021

(In thousands, except share and per-share)
Considerations:

Fair Value of Aytu Common Stock

Total shares issued at close

5,471,804
Fair value per share of Aytu common stock

$
9.73
Fair value of equity consideration transferred

$
53,241
Cash

15,383
Estimated fair value of replacement equity awards

432
Total consideration transferred

$
69,056

March 19, 2021

(In thousands)
Total consideration transferred

$
69,056
Recognized amounts of identified assets acquired and liabilities assumed

Cash and cash equivalents

$
15,722
Accounts receivable

24,696
Inventory

10,984
Prepaid expenses and other current assets

2,929
Operating leases right-to-use assets

3,515
Property, plant and equipment

5,519
Intangible assets

56,530
Other long-term assets

149
Accounts payable and accrued expenses

(56,718)
Short-term line of credit

(10,707)
Long-term debt, including current portion

(17,678)
Operating lease liabilities

(3,515)
Other long-term liabilities

(82)
Total identifiable net assets

31,344
Goodwill

$
37,712

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

March 19, 2021

(In thousands)
Identified intangible assets acquired:

Developed technology right

$
30,200
Developed products technology

22,700
In-process R&D

2,600
RxConnect

630
Trade name

400
Total intangible assets acquired

$
56,530

The fair value of the Neos trade name, in-process R&D and developed product technology, which is the proprietary technology for the development of Adzenys XR-ODT, Adzenys ER, Cotempla XR-ODT and generic Tussionex, were determined using the relief3. Revenues 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 was determined using cost to recreate method. The finite-lived intangible assets are being amortized over a range of between 1 to 17 years.

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~~Unaudited Pro Forma Information~~

~~The following supplemental unaudited proforma financial information presents the Company’s results as if the Neos Acquisition had occurred on July 1, 2020.~~

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, 2020, or of future results of operations:

Nine Months Ended

March 31,


2022

2021

Pro forma

Unaudited

Unaudited

(In thousands)
Total revenues, net

$
69,221

$
74,582
Net loss

$
(92,472)

$
(55,712)

~~Rumpus Acquisition~~

~~On April 12, 2021, the Company entered into an asset purchase agreement~~Contracts with Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, Rumpus Vascular, LLC (together “Rumpus”) pursuant to which the Company acquired commercial global licenses, relating primarily to the pediatric-onset rare disease development asset enzastaurin, or AR101. AR101 is initially being studied for the treatment of VEDS. This asset was acquired for an up-front fee of $1.5 million in cash and payment of aggregated fees of $0.6 million. Upon the achievement of certain regulatory and commercial milestones, the Company is obliged to pay up to $67.5 million in earn-out payments, which are payable in cash or shares of common stock, generally at the Company’s option. AR101 is an orally available investigational small molecule, serine/threonine kinase inhibitor of the PKC beta, PI3K and AKT pathways (see Note 13 – Commitments and Contingencies).

~~4. Revenue Recognition~~Customers

Contract Balances. Contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, contract liabilities of $0.1 million and ~~$0.2~~$0.4 million, respectively were included in accrued liabilities in the consolidated balance sheet.

The Company disaggregates its revenue into 3 product portfolios. The primary care portfolio is composed of ZolpiMist and Tuzistra. The pediatric portfolio is composed of Adzenys XR-ODT, Cotempla XR-ODT Poly-Vi-Flor, Tri-Vi-Flor, Karbinal ER and a generic Tussionex. The Consumer Health portfolio is composed of over 20 consumer health products competing in large healthcare categories.

As part of the realization of post-acquisition synergies and product prioritization, the Company has implemented a portfolio rationalization plan whereby it will discontinue or divest non-core products including Cefaclor, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist, effectively eliminating the primary care portfolio. These products, collectively, contributed $1.7 million in net revenue and $0.6 million in gross loss during the nine months ended March 31, 2022 (see Note 8 – Goodwill and Other Intangible Assets).

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Revenues by Product Portfolio. Net revenue disaggregated by significant product portfolio for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021 were as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021

					(In thousands)
Primary care portfolio	$	272	$	1,209	$	889	$	8,339
Pediatric portfolio		13,590		3,918		41,499		9,752
Consumer Health portfolio		10,337		8,356		26,833		24,059
ADHD Portfolio									$	11,585	$	9,327
Pediatric Portfolio										6,558		3,798
Consumer Health Portfolio										9,003		8,014
Other										509		758
Consolidated revenue	$	24,199	$	13,483	$	69,221	$	42,150	$	27,655	$	21,897

Other consists of non-core products identified to be discontinued or divested including Cefaclor, Flexichamber, generic Tussionex, Tuzistra XR, and ZolpiMist. (see Note 7 – Goodwill and Other Intangible Assets).

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				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021

					(In thousands)				(In thousands)
U.S.	$	23,755	$	12,344	$	67,408	$	38,245	$	27,476	$	21,106
International		444		1,139		1,813		3,905		179		791
Total net revenue	$	24,199	$	13,483	$	69,221	$	42,150	$	27,655	$	21,897

5.4. 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. The Company 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, the Company will record a charge to reduce the value of the inventory to net realizable value in the period that the impairment is first recognized. The Company incurred charges of ~~$2.0~~$0.1 million and ~~$7.0~~$0.2 million to reduce the carrying value of inventory to net realizable value during the three months ended ~~March 31,~~September 30, 2022 and 2021, ~~respectively, and $2.4 million and $7.2 million during the nine months ended March 31, 2022 and 2021,~~ respectively. ~~In the three and nine months ended March 31, 2022, the inventory charge~~

Table of $2.0 million was related to the decision to discontinue or divest certain non-core products (see Note 4 – Revenue Recognition and Note 8 – Goodwill and Other Intangible Assets). The write-down for each of the three and nine months ended March 31, 2021 was primarily due to the changing market conditions for the Company’s Covid-19 test kits.Contents

Inventory balances consist of the following:


		March 31,		June 30,			September 30,		June 30,
		2022		2021			2022		2022

	(In thousands)					(In thousands)
Raw materials		$	1,796	$	2,269		$	2,113	$	1,814
Work in process			2,222		3,346			2,374		1,838
Finished goods			9,873		10,724			8,384		7,197
Inventory, net		$	13,891	$	16,339		$	12,871	$	10,849

5. Property and Equipment

Properties and equipment are recorded at cost and depreciated on a straight-line basis over the assets estimated economic life. Leasehold improvements are amortized over the shorter of the estimated economic life or remaining lease term.

~~Table~~Property and equipment consist of ~~Contents~~the following:



	September 30,		June 30,
	2022		2022

	(In thousands)
Manufacturing equipment	$	2,449	$	2,487
Leasehold improvements		999		999
Office equipment, furniture and other		1,128		1,128
Lab equipment		832		832
Property and equipment, gross		5,408		5,446
Less accumulated depreciation and amortization		(2,736)		(2,421)
Property and equipment, net	$	2,672	$	3,025

Depreciation and amortization expense was $0.3 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively.

~~Property and equipment consist of the following:~~

March 31,

June 30,

2022

2021

(In thousands)
Manufacturing equipment

$
2,139

$
3,070
Leasehold improvements

999

959
Office equipment, furniture and other

1,120

1,093
Lab equipment

832

832
Assets under construction

129

198
Property and equipment, gross

5,219

6,152
Less accumulated depreciation and amortization

(1,740)

(1,012)
Property and equipment, net

$
3,479

$
5,140

Depreciation and amortization expense was $0.5 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively, and $1.3 million and $0.1 million for the nine months ended March 31, 2022 and 2021, respectively. During the nine months ended March 31, 2022 and 2021, the Company recognized a gain of $44,000 and a loss of $0.1 million on the disposal of equipment, respectively.

During the three and nine months ended March 31, 2022, in connection with the decision to divest Tussionex, the Company recorded a $0.2 million impairment charge related to manufacturing equipment associated with this product. There was 0 such impairment expense during the three and nine months ended March 31, 2021.

7.6. Leases

The Company has entered into various operating lease agreements for certain of its offices, manufacturing facilities and equipment, and finance lease agreements for certain equipment. These leases have original lease periods expiring between 2022 and ~~2024.~~2027. Most leases include one or more options to renew, and the exercise of a lease renewal option typically occurs at the discretion of both parties. Certain leases also include options to purchase the leased property. ~~For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease until it is reasonably certain that the Company will exercise that option.~~ The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

~~In connection with the Neos Acquisition, Aytu assumed an operating~~The components of lease ~~ROU asset and~~ ~~lease liability~~ ~~of $3.5 million, which represented the present value of the remaining lease payments~~expenses are as of the acquisition date, for the office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, a borrowing rate of 6.7% to determine the present value of future lease payments. The finance leases are related to equipment finance leases with fixed contract terms and an implicit interest rate of approximately 5.9%.follows:

In May 2021, the Company entered into a commercial lease agreement for 6,352 square feet of office in Berwyn, Pennsylvania that was to commence on December 1, 2021 and end on January 31, 2025. On July 19, 2021, the Company and the lessor amended the agreement to move the commencement date from December 1, 2021 to September 1, 2021. The Company recorded an operating lease ROU asset and lease ~~liabilities~~ ~~of $0.5 million in the consolidated balance sheet representing the present value of minimum lease payments using an estimated borrowing rate of 6.25%.~~


	Three Months Ended
	September 30,
	2022		2021		Statement of Operations Classification

	(In thousands)
Lease cost:
Operating lease cost	$	222	$	296	Operating expenses
Short-term lease cost		160		39	Operating expenses
Finance lease cost:
Amortization of leased assets		18		18	Cost of sales
Interest on lease liabilities		3		4	Other (expense), net
Total net lease cost	$	403	$	357

In October 2021, the Company’s Innovus subsidiary entered into a commercial lease agreement for 6,580 square feet of warehouse in Oceanside, California that commenced on December 1, 2021 and ends on December 31, 2026. The Company recorded an operating lease ROU asset and lease ~~liabilities~~ ~~of $0.3 million in the consolidated balance sheet representing the present value of minimum lease payments using Innovus’ estimated borrowing rate of 18.0%.~~

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~~The components of lease expenses are as follows:~~

Three Months Ended

Nine Months Ended

March 31,

March 31,


2022

2021

2022

2021

Statement of Operations Classification

(In thousands)

Lease cost:

Operating lease cost

$
316

$
70

$
942

$
195

Operating expenses
Short-term lease cost

65

9

130

14

Operating expenses
Finance lease cost:

Amortization of leased assets

18

19

55

19

Cost of sales
Interest on lease liabilities

3

1

11

1

Other (expense), net
Total net lease cost

$
402

$
99

$
1,138

$
229

Supplemental balance sheet information related to leases is as follows:


	March 31,		June 30,		Balance Sheet Classification	September 30,		June 30,		Balance Sheet Classification
	2022		2021			2022		2022

	(In thousands)					(In thousands)
Assets:
Operating lease assets	$	3,561	$	3,563	Operating lease right-of-use asset	$	2,976	$	3,271	Operating lease right-of-use asset
Finance lease assets		274		329	Property and equipment, net, net		238		256	Property and equipment, net
Total leased assets	$	3,835	$	3,892		$	3,214	$	3,527
Liabilities:
Current:
Operating leases	$	1,203	$	940	Current portion of operating lease liabilities	$	1,252	$	1,227	Other current liabilities
Finance leases		100		102	Current portion of debt		92		96	Current portion of debt
Non-current
Operating leases		2,406		2,624	Operating lease liabilities, net of current portion		1,768		2,090	Other non-current liabilities
Finance leases		106		180	Debt, net of current portion		62		84	Debt, net of current portion
Total lease liabilities	$	3,815	$	3,846		$	3,174	$	3,497

Remaining lease term and discount rate used are as follows:


	March 31,			June 30,			September 30,			June 30,
	2022			2021			2022			2022
Weighted-Average Remaining Lease Term (years)
Operating lease assets		2.86			3.42			2.39			2.63
Finance lease assets		1.98			2.72			1.48			1.73
Weighted-Average Discount Rate
Operating lease assets		7.44	%		6.62	%		7.54	%		7.48	%
Finance lease assets		6.43	%		6.41	%		6.43	%		6.43	%

Supplemental cash flow information related to lease is as follows:


	Nine Months Ended				Three Months Ended
	March 31,				September 30,
	2022		2021		2022		2021

	(In thousands)				(In thousands)
Cash flow classification of lease payments:
Operating cash flows from operating leases	$	942	$	195	$	357	$	282
Operating cash flows from finance leases	$	12	$	1	$	3	$	4
Financing cash flows from finance leases	$	76	$	3	$	27	$	25

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As of ~~March 31,~~September 30, 2022, the maturities of the Company’s future minimum lease payments were as follows:


	Operating		Finance		Operating		Finance

	(In thousands)				(In thousands)
2022 (remaining 3 months)	$	357	$	29
2023		1,436		104
2023 (remaining 9 months)					$	1,079	$	75
2024		1,379		87		1,379		87
2025		749		—		749		—
2026		90		—		90		—
2027		46		—		46		—
Total lease payments		4,057		220		3,343		162
Less: Imputed interest		(448)		(14)		(323)		(8)
Lease liabilities	$	3,609	$	206	$	3,020	$	154

~~8. Goodwill and Other Intangible Assets~~

During fiscal 2022, the Company’s market capitalization has significantly declined. During the three months ended September 30, 2021, the decline was considered a qualitative factor that led management to assess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. The Company determined the fair value of the reporting unit utilizing the discounted cash flow model. As of September 30, 2021, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. The Company recognized an impairment loss of $19.5 million in the BioPharma segment related to the goodwill associated with the Cerecor Inc. acquisition. As of September 30, 2021, a quantitative test indicated there was no impairment to the Consumer Health reporting unit as it resulted in an implied fair value of $5.9 million compared with the $0.5 million carrying value.

During the three months ended March 31, 2022, the continued decline of the Company’s market capitalization was considered a qualitative factor that led management to reassess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. The Company determined the fair value of the reporting unit utilizing the discounted cash flow model. As of March 31, 2022, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. The Company recognized an impairment loss of $37.7 million in the BioPharma segment related to the goodwill associated with the Neos Acquisition.

The Consumer Health segment, which has $8.6 million goodwill from the February 2020 acquisition of Innovus Pharmaceuticals, Inc. (the “Innovus Acquisition”), reported $2.2 million negative carrying value as of March 31, 2022, and as such there was 0 goodwill impairment during the three months ended March 31, 2022.

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~~The change in carrying amount~~7. Goodwill and Other Intangible Assets

There were no impairments of ~~goodwill by reportable segment is as follows:~~intangible assets during the three months ended September 30, 2022.

BioPharma

Consumer Health

Consolidated

(In thousands)
Balance as of June 30, 2021

$
57,165

$
8,637

$
65,802
Goodwill impairment

(19,453)

—

(19,453)
Balance as of September 30, 2021

37,712

8,637

46,349
Goodwill impairment

—

—

—
Balance as of December 31, 2021

37,712

8,637

46,349
Goodwill impairment

(37,712)

—

(37,712)
Balance as of March 31, 2022

$
—

$
8,637

$
8,637

~~The Company currently holds~~During the ~~following intangible asset portfolios as of March 31, 2022: (i) Product technology rights, acquired from~~three months ended September 30, 2021, the November 1, 2019 acquisition of a line of prescription pediatric products (“Pediatric Portfolio”) from Cerecor, Inc. and the Neos Acquisition in March 2021; (ii) Proprietary modified-release drug delivery technology right asCompany’s market capitalization significantly declined. As a result of the ~~Neos Acquisition; (iii) Acquired product distribution rights~~decline in market capitalization and ~~commercial technology consisting~~qualitative and quantitative analysis the Company recognized an impairment of ~~RxConnect and trade names as a result~~goodwill of the Neos Acquisition, and patents, trade names and the acquired customer lists from the Innovus Acquisition; (iv) Acquired in-process R&D from the Neos Acquisition related to the NT0502 product candidate for the treatment of sialorrhea.$19.5 million.

The following table provides the summary of the Company’s intangible assets as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.


	March 31, 2022									September 30, 2022
									Weighted-									Weighted-
	Gross						Net		Average	Gross						Net		Average
	Carrying		Accumulated				Carrying		Remaining	Carrying		Accumulated				Carrying		Remaining
	Amount		Amortization		Impairment		Amount		Life (in years)	Amount		Amortization		Impairment		Amount		Life (in years)

	(In thousands)									(In thousands)
Licensed assets	$	3,246	$	(1,778)	$	(1,468)	$	—	—
Acquired product technology right		45,400		(6,864)		(3,224)		35,312	12.21
Definite-lived intangibles:
Acquired product technology rights											45,400		(8,471)		(3,224)		33,705	12.04
Acquired technology right		30,200		(1,834)		—		28,366	16.00		30,200		(2,722)		—		27,478	15.50
Acquired product distribution rights		11,354		(3,204)		—		8,150	7.85		11,354		(3,857)		(2,172)		5,325	7.35
											86,954		(15,050)		(5,396)		66,508	13.10
Indefinite-lived intangibles:
Acquired in-process R&D		2,600		—		—		2,600	Indefinite-lived		2,600		—		—		2,600	Indefinite-lived
Acquired commercial technology		630		(630)		—		—	—
Acquired trade name		400		(206)		(194)		—	—
Acquired customer lists		390		(390)		—		—	—
											2,600		—		—		2,600
Total	$	94,220	$	(14,906)	$	(4,886)	$	74,428	13.21	$	89,554	$	(15,050)	$	(5,396)	$	69,108	13.10


	June 30, 2021							June 30, 2022
							Weighted-									Weighted-
	Gross						Average	Gross						Net		Average
	Carrying		Accumulated			Net Carrying	Remaining	Carrying		Accumulated				Carrying		Remaining
	Amount		Amortization		Amount		Life (in years)	Amount		Amortization		Impairment		Amount		Life (in years)

	(In thousands)							(In thousands)
Licensed assets	$	3,246	$	(1,430)	$	1,816	3.92
Acquired product technology right		45,400		(4,160)		41,240	12.88
Definite-lived intangibles:
Acquired product technology rights								$	45,400	$	(7,667)	$	(3,224)	$	34,509	12.33
Acquired technology right		30,200		(501)		29,699	16.75		30,200		(2,278)		—		27,922	15.75
Acquired product distribution rights		11,354		(2,073)		9,281	8.57		11,354		(3,581)		(2,172)		5,601	7.60
Other intangible assets									4,666		(3,004)		(1,662)		—	—
									91,620		(16,530)		(7,058)		68,032	13.35
Indefinite-lived intangibles:
Acquired in-process R&D		2,600		—		2,600	Indefinite-lived		2,600		—		—		2,600	Indefinite-lived
Acquired commercial technology		630		(178)		452	0.75
Acquired trade name		400		(56)		344	1.75
Acquired customer lists		390		(358)		32	0.01
									2,600		—		—		2,600
Total	$	94,220	$	(8,756)	$	85,464	13.47	$	94,220	$	(16,530)	$	(7,058)	$	70,632	13.35

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


	March 31,		September 30,
	(In thousands)		(In thousands)
2022 (remaining 3 months)	$	1,624
2023		6,490
2023 (remaining 9 months)			$	4,563
2024		6,477		6,074
2025		6,282		5,934
2026		5,938		5,683
2027		5,908		5,652
2028				5,552
Thereafter		39,109		33,050
Total future amortization expense	$	71,828	$	66,508

Product Technology Rights

The acquired product technology rights are related to the rights to production, supply and distribution agreements of various products pursuant to the acquisitions of the Pediatric Portfolio in November 2019 and the Neos Acquisition in March 2021.

Karbinal® ER. The Company acquired and assumed all rights and obligations pursuant to the Supply and Distribution Agreement, as Amended, with Tris for the exclusive rights to commercialize Karbinal® ER in the United States (the “Tris Karbinal Agreement”). The Tris Karbinal Agreement’s initial term terminates in August of 2033, with an optional initial 20-year extension.

Poly-Vi-Flor and Tri-Vi-Flor. The Company acquired and assumed all rights and obligations pursuant to a Supply and License Agreement and various assignment and release agreements, including a previously agreed to Settlement and License Agreements (the “Poly-Tri Agreements”) for the exclusive rights to commercialize Poly-Vi-Flor and Tri-Vi-Flor in the United States.

ADHD Portfolio. As part of the Neos Acquisition, the Company acquired developed product technology for the production and sale of Adzenys XR-ODT and Cotempla XR-ODT. The formulations for the ADHD products are protected by patented technology. The estimated economic life of these proprietary technologies is 17 years.

Developed Technology Right

TRRP Technology. As part of the Neos Acquisition, the Company acquired Time Release Resin Particle (“TRRP”) proprietary technology, which is a proprietary drug delivery technology protected by the Company as a trade secret that allows the Company to modify the drug release characteristics of each of its respective products. The TRRP technology underlines each of Neos’ core products and can potentially be used in future product development initiatives as well.

Product Distribution Rights and Customer List

In connection with the Innovus Acquisition, the Company obtained 35 products with a combination of over 300 registered trademarks and/or patent rights and customer lists. As of June 30, 2022, the customer list intangible asset was fully amortized.

In-Process R&D

IPR&D – NT0502. As part of the Neos Acquisition, the Company acquired in-process research and development associated with NT0502, a new chemical entity that is for the treatment of sialorrhea, which is excessive salivation or drooling. As this is an indefinite-lived intangible asset, this acquired asset remains an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. If a product using this technology is eventually approved for commercial sale, at that time, the in-process research and development will begin amortizing on a straight-line over the life of the product.

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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 ~~$2.0 million and $1.7~~$1.5 million for the three months ended ~~March 31,~~September 2022 and $2.1 million during the three months ended September 30, 2021, ~~respectively, and $6.1 million and $4.9 million~~respectively.

8. Accrued liabilities

Accrued liabilities consist of the following:


	September 30,		June 30,
	2022		2022

	(In thousands)
Accrued savings offers	$	11,801	$	12,711
Accrued program liabilities		8,080		9,468
Product return reserve		5,826		5,770
Accrued employee compensation		5,679		4,765
Accrued customer and product related fees		6,832		7,817
Other accrued liabilities		3,213		3,656
Total accrued liabilities	$	41,431	$	44,187

Savings offers represent programs for the ~~nine months ended March 31, 2022~~Company’s patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted.

Customer and ~~2021, respectively.~~product related fees include accrued expenses and deductions for rebates, wholesaler chargebacks and fees, and other product-related fees and deductions.

~~During the three~~

Other accrued liabilities consist of accrued license fees, legal settlements, professional fees, credit card liabilities, taxes payable, and nine months ended March 31, 2022, in connection with the decision to discontinue commercializing or divesting certain products within the BioPharma segment that have minimal revenue and gross margin contribution, the Company recorded $4.9 million impairmentsamples expense for the write-down of intangible assets consisting of (i) $2.6 million for AcipHex, (ii) $1.4 million for ZolpiMist, (iii) $0.5 million for Tussionex, (iv) $0.2 million for Cefaclor and (v) $0.2 million for the Neos tradename.

During the three and nine months ended March 31, 2021, in connection with the divestiture of Natesto, the Company recorded $4.3 million impairment expense as a result of the impairment of the associated licensed intangible asset..

9. ~~Accrued liabilities~~

~~Accrued liabilities consist of the following:~~Other Liabilities

March 31,

June 30,

2022

2021

(In thousands)
Accrued program liabilities

$
12,058

$
8,689
Accrued product-related fees

1,997

2,501
Accrued savings offers

17,853

20,148
Accrued distributor fees

5,303

2,710
Accrued liabilities for trade partners

2,003

5,421
Accrued option exercise and milestone fees

3,257

600
Medicaid liabilities

1,487

1,714
Return reserve

5,969

6,367
Other accrued liabilities*

3,543

3,145
Total accrued liabilities

$
53,470

$
51,295


	September 30,		June 30,
	2022		2022

	(In thousands)

Fixed payment arrangements	$	12,472	$	13,051
Contingent value rights		706		578
Contingent consideration		423		396
Operating lease liabilities		3,020		3,317
Other		803		827
Total other liabilities		17,424		18,169
Less: current portion		(8,094)		(5,359)
Total other liabilities, noncurrent	$	9,330	$	12,810

*Other accrued liabilities consist of credit card liabilities, taxes payable, accounting fee, samples expense and consultants’ fees, none of which individually represent greater than five percent of total current liabilities.

Fixed Payment Arrangements.

Fixed payment arrangements represent obligations to an investor assumed as part of the acquisition of products from Cerecor, Inc. in 2019, including fixed and variable payments. These obligations included fixed monthly payments equal to $0.1 million from November 2019 through January 2021 plus $15.0 million due in January 2021, of which $15.0 million was paid down early in June 2021. Monthly variable payments due to the same investor are equal to 15.0% of net revenue generated from a subset of the Pediatric Portfolio, subject to an aggregate monthly minimum of

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$0.1 million, except for January 2021, when a one-time payment of $0.2 million was due and paid. The variable payment obligation was to continue until the earlier of (i) aggregate variable payments of approximately $9.3 million have been made or (ii) February 12, 2026. In addition, the Company assumed fixed, product minimums royalties of approximately $2.1 million per annum through February 2023.

On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $2.8 million to the investor in early satisfaction of the fixed obligation. The Company agreed to pay the remaining fixed obligation of $3.0 million in six equal quarterly payments of $0.5 million each over six quarters beginning September 30, 2021. The Company accounted the Waiver, Release and Consent as a debt and remeasured the related liabilities using a discounted cash flow model. As of September 30, 2022, the fixed payment arrangement was $1.0 million on our condensed consolidated balance sheet.

In addition, the Company acquired a Supply and Distribution Agreement with 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.

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 Karbinal Agreement make-whole payment is capped at $2.1 million each year. 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.

On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to such termination, the Company agreed to pay Tris a total of approximately $6.0 million to $9.0 million, which reduced our total liability for minimum payments by approximately $8.0 million from the original License Agreement. The settlement payment will be paid in three installments from December 2022 through July 2024. As of September 30, 2022, the balance was $6.9 million on the condensed consolidated balance sheet.

Contingent Value Rights.

Contingent value rights (“CVRs”) represent contingent consideration related to the Company’s 2020 acquisition of Innovus of up to $16.0 million payable upon attainment of future performance milestones. 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. As of September 30, 2022, up to $5.0 million of future milestone payments potentially remain. As of September 30, 2022 and June 30, 2022, the CVRs were revalued at $0.7 million and $0.6 million, respectively. During the three months ended September 30, 2022 and 2021, the Company recognized a loss of $0.1 million and a gain of $0.1 million, respectively, in the condensed consolidated statements of operations related to the changes in fair values of CVRs.

Contingent Consideration.

Contingent consideration represents the fair value of potential future payments in connection with acquisitions that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on the acquisition date. Subsequent changes in the fair value of contingent consideration obligations are recognized in the condensed consolidated statements of income.

As of September 30, 2022, the Company’s contingent consideration liabilities consist primarily of obligations related to the Company’s 2020 acquisition of Innovus. In connection with the acquisition, the Company assumed a license agreement for patents and technology under which Innovus will pay a total milestone payment of $50,000 every other year beginning on July 1, 2021 for a total payment of $0.2 million. The fair value was based on a discounted value of the future contingent payment using a 26% discount rate based on the estimated risk that the milestones would be achieved.

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In addition, Innovus recognized approximately $0.2 million in product related contingent consideration. The fair value was based on a discounted value of the future contingent payment using a 30% discount rate based on the estimated risk that the milestones are achieved. As of September 30, 2022 and June 30, 2022, the contingent consideration balance was $0.4 million and $0.4 million, respectively.

Prior to September 30, 2022, the Company’s contingent consideration liabilities included obligations under licensing arrangements for Tuzistra XR. The royalty and make-whole milestone payments related to licensing agreements with Tris for Tuzistra XR were being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing Tuzistra and the settlement agreement with Tris, the Company concluded that the product milestone payments underlying the contingent consideration liability ceased to exist. The Company reversed the remaining contingent consideration liabilities of $8.5 million and recorded a liability of $7.6 million related to the settlement payments payable to Tris for termination of the Tuzistra licensing agreement. The settlement payments are included in fixed payment arrangements at their present value using the Company’s estimated borrowing rate.

Prior to March 31, 2022, the royalty payments related to licensing agreements with Magna Pharmaceuticals, Inc. (“Magna”) for ZolpiMist were being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing ZolpiMist, the Company concluded that the royalty-based product milestone payments underlying the contingent consideration liability ceased to exist. As of March 31, 2022, the Company reversed the remaining contingent consideration liabilities of $0.6 million and recorded the $50,000 payment due for termination of the Manga licensing agreements in other current liabilities.

During the three months ended September 30, 2022 and 2021, the Company recognized a net a loss of $0 million and $0.2 million, respectively, from the changes in fair values of contingent considerations. The total accretion expense related to these contingent considerations was approximately $0.1 million for both the three months ended September 30, 2022 and 2021.

Other.

Other consist of taxes payable and deferred cost related to our technology transfer.

10. Line of Credit

Upon closing of the Neos Acquisition in March 2021, the Company assumed obligations under the secured credit agreement that Neos had entered into with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders (the “Eclipse Loan Agreement”). Under the Eclipse Loan Agreement, Eclipse extended up to $25.0 million in secured revolving loans to Neos (the “Revolving Loans”), of which up to $2.5 million was available for short-term swingline loans, against 85% of eligible accounts receivable. The Revolving Loans thereunder accrued at variable interest through maturity at the one-month ~~London Interbank Offered~~Secure Overnight Financing Rate (“~~LIBOR”~~SOFR”), plus 4.50%. The Eclipse Loan Agreement included an unused line fee of 0.50% of the average unused portion of the maximum revolving facility amount during the immediately preceding month. Interest is payable monthly in arrears. The original maturity date under the Eclipse Loan Agreement was May 11, 2022.

In connection with the Avenue Capital Agreement, described in Note 1111— Long-term debt below, the Company entered into a Consent, Waiver and Second Amendment to Eclipse Loan Agreement, dated as of January 26, 2022 (together, the “Eclipse Second Amendment”). Pursuant to the Eclipse Second Amendment, Eclipse (i) consented to Aytu and certain of its subsidiaries joining as obligors to the Revolving Loans provided by the Eclipse Loan Agreement, (ii) consented to the Company entering into the Avenue Capital Agreement, (iii) extended the maturity date of the Eclipse Loan Agreement to January 26, 2025, (iv) removed the requirement for the Company to comply with the ongoing fixed charge coverage ratio financial covenant applicable to the borrowers under the Eclipse Loan Agreement, (v) consented to the first priority lien granted by Aytu in favor of the Avenue Capital Agent, (vi) reduced the maximum availability under the Revolving Loans from $25.0 million to $12.5 million minus a $3.5 million availability block, (vii) increased the availability block from $1.0 million to $3.5 million, (viii) consented to the full repayment under the Deerfield Facility, defined below, and (ix) made certain other modifications to conform to the Avenue Capital

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Agreement and to reflect the consummation of the transactions thereof, in each case subject to the terms and conditions of the Eclipse Second Amendment.

The Company incurred $0.1 million in legal and other fees related to the Eclipse Second Amendment, all of which were recorded as deferred financing costs and are being amortized on a straight-line basis over the remaining term of the Eclipse Loan Agreement as interest expense. The unamortized cost of $0.1 million as of March 31, 2022 was included in other noncurrent assets in the condensed consolidated balance sheets.

In the event that, for any reason, all or any portion of the Eclipse Loan Agreement is terminated prior to the scheduled maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, the Company is required to pay a fee equal to (i) 2.0% of the Revolving Loans commitment if such event occurs on or before January 26, 2023, (ii) 1.0% of the Revolving Loans commitment if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 0.5% of the Revolving Loans commitment if such event occurs after January 26, 2024 but on or before January 26, 2025. The Company may permanently terminate the Eclipse Loan Agreement at any time with at least five business days prior notice to Eclipse.

The Eclipse Loan Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restrict the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales without the prior written consent of Eclipse. A failure to comply with these covenants could permit Eclipse to declare the Company’s obligations under the Eclipse Loan Agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of ~~March 31,~~September 30, 2022, the Company was in compliance with the covenants under the Eclipse Loan Agreement as amended.

The Company’s obligations under the Eclipse Loan Agreement are secured by substantially all of the Company’s assets, with a first priority lien in favor of Eclipse on the ABL Priority Collateral, and a second priority lien in favor of Eclipse on the Term Loan Priority Collateral, as each is defined in the Replacement Term Loan Intercreditor Agreement, as defined in the Eclipse Loan Agreement, as amended by the Eclipse Second Amendment.

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Total interest expense on the Revolving Loans, including amortization of deferred financing costs, was $0.1 million ~~and $0.4 million~~ for both the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 ~~respectively. Interest expense was $28,000 for the period beginning March 19, 2021, the date the Neos Acquisition was closed, through March 31,~~and 2021. As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the outstanding Revolving Loans under the Eclipse Loan Agreement, as amended, were ~~$3.4~~$8.1 million and ~~$7.9~~$3.8 million, respectively.

11. Long-term Debt

~~Deerfield Debt.~~ Upon closing of the Neos Acquisition, the Company assumed a senior secured term credit facility (the “Deerfield Facility”) with Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P. (collectively, “Deerfield”) with an outstanding balance of $16.6 million.

The Company evaluated and determined that the fair value of the remaining outstanding debt was $17.4 million as of the March 19, 2021 acquisition date. Accordingly, the Company recorded a premium of $0.8 million, which was the difference between carrying amount and the fair value of the debt and was being amortized into interest expense using the effective interest method over the remaining term of the debt.

On January 26, 2022, the Company repaid the remaining principal outstanding in full, plus exit fees and accrued interest under the Deerfield Facility. The Company recognized a gain of $0.2 million during the three months ended March 31, 2022 related to the extinguishment of the Deerfield Facility. Total interest expense on the facility, net of premium amortization, was $0.8 million for the period from July 1, 2021 through full repayment on January 26, 2022.

Avenue Capital Loan: On January 26, 2022 (“Closing Date”), the Company entered into a Loan and Security Agreement (the “Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P.(“Avenue”) and Avenue Venture Opportunities Fund II, L.P. (Avenue 2”) as lenders (the “Avenue Capital Lenders”), and Avenue Capital Management II, L.P. as administrative agent (the “Avenue Capital Agent”), collectively (“Avenue Capital”), pursuant to which the Avenue Capital Lenders provided the Company and certain of its subsidiaries with a secured $15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of the Deerfield Facility.

Pursuant to the Avenue Capital Agreement, the Company will make interest only payments for the first 18 months following the Closing Date (“Interest-only Period”). The Interest-only Period could be extended automatically without any action by any party for six months provided, as of the last day of the Interest-only Period then in effect, the Company received, prior to June 15, 2023, a specified amount of net proceeds from the sale and issuance of its equity securities (“Interest-only Milestone 1”). The Interest-only Period could further be extended automatically without any action by any party for an additional ~~six~~twelve months provided, the Company has achieved, prior to December 31, 2023, (i) Interest-only Milestone 1 and (ii) a specified amount of trailing 12 months revenue (“Interest-only Milestone 2”) as of the date of determination. See Note 20 Subsequent Events for further detail on extension of interest only period.

In the event the Company prepays the outstanding principal prior to the maturity date, the Company will pay Avenue Capital a fee equal to (i) 3.0% of the loan if such event occurs on or before January 26, 2023, (ii) 2.0% of the

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loan if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 1.0% of the loan if such event occurs after January 26, 2024 but before January 26, 2025. In addition, upon the payment in full of the obligations, the Company shall pay to Avenue Capital a fee in the amount of $0.6 million (“Final Payment”). ~~The Company accounted for the Final Payment as additional obligations on the debt, with the corresponding debit being recorded as debt discount.~~

The Company’s obligations under Avenue Capital Agreement are secured by substantially all of the Company’s assets, with a first priority lien in favor of the Avenue Capital Agent on the Term Loan Priority Collateral, and a second priority lien in favor of the Avenue Capital Agent on the ABL Priority Collateral, as each is defined in the Intercreditor Agreement, as defined in the Avenue Capital Agreement.

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The Avenue Capital Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restricts the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales without the prior written consent of the Avenue Capital Lenders. A failure to comply with these covenants could permit the Avenue Capital Lenders to declare the Company’s obligations under the agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of ~~March 31,~~September 30, 2022, the Company was in compliance with the covenants under the Avenue Capital Agreement.

On January 26, 2022 (“Issuance Date”), as consideration for entering into the Avenue Capital Agreement, the Company issued warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $1.21 per share (the “Avenue Capital Warrants”). The Avenue Capital Warrants provided that in the event the Company were to engage in an equity offering at a price lower than $1.21 prior to June 30, 2022, the exercise price would be adjusted to the effective price of such equity offering and the number of shares of common stock to be issued under the Avenue Capital Warrants would be adjusted as set forth in the agreement. The Avenue Capital Warrants were immediately exercisable and expire on January 31, 2027. At inception and through the reclassification to equity on March 7, 2022, the Company accounted for the Avenue Capital Warrants as a liability as the number of warrants was not fixed at the Issuance Date. ~~The fair value of the Avenue Capital Warrants was $0.6 million on January 26, 2022, with the corresponding debit being recorded as debt discount.~~

On March 7, 2022, the Company closed on an equity offering of shares of common stock and warrants, as described in Note 14 – Capital Structure, at an offering price of $1.25 per share. As this offering ~~precludes~~precluded the Company from pursuing any equity financing prior to July 7, 2022 and the effective price of the March 7, 2022 offering was more than the exercise price of the Avenue Capital Warrants, the number of shares of common stock issuable upon exercise of the Avenue Capital Warrants were set to 867,769 at an exercise price of $1.21. As a result, on March 7, 2022, the Company reclassified the Avenue Capital Warrants from a liability to ~~equity and recorded the $0.4 million fair value as additional paid in capital in stockholders’ equity in the Company’s financial statements.~~equity.

In addition to the debt discounts discussed above, the Company also incurred $0.4 million loan origination, legal and other fees. The debt discount and issuance costs are being amortized over the term of the loan, using the effective interest method resulting in an effective rate of 15.37%. Total interest expense ~~on the Avenue Capital loan, including~~includes debt discount amortization, was ~~$0.4~~$0.6 million and $0 million for the three months ended ~~March 31, 2022.~~September 30, 2022 and 2021, respectively.

Long-term debt consists of the following:


	March 31,		September 30,
	2022		2022
	(In thousands)		(In thousands)
Long-term debt, due on January 26, 2025	$	15,000	$	15,000
Long-term, final payment fee		638		638
Unamortized discount and issuance costs		(1,577)		(1,306)
Financing leases, maturing through May 2024		206		154
Total debt		14,267		14,485
Less: current portion		(100)		(925)
Non-current portion of debt	$	14,167	$	13,560

2221

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Future principal payments of long-term debt, including financing leases, are as follows:


	March 31,		September 30,
	(In thousands)		(In thousands)
2022	$	100
2023		5,924	$	92
2024		9,820		8,395
2025				7,304
Future principal payments		15,844		15,791
Less unamortized discount and issuance costs		(1,577)		(1,306)
Less current portion		(100)		(925)
Non-current portion of debt	$	14,167	$	13,560

12. Fair Value Considerations

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to fair value 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 ~~asset and liability classified~~ financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant derivative liability, contingent consideration liabilities, and ~~contingent consideration.~~short-term and long-term debt. The carrying amounts of certain short-term 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. Short-term and long-term debt are reported at their amortized costs on our consolidated balance sheets. The remaining financial instruments are reported on our consolidated balance sheets at amounts that approximate current 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 are measured at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.values. 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. ~~The Company has consistently applied~~There were no transfers between Level 1, Level 2 and Level 3 in the ~~valuation techniques discussed below in all~~ periods presented.

Recurring Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2022 and June 30, 2022, by level within the fair value hierarchy.

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~~Recurring Fair Value Measurements~~

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2022 and June 30, 2021, by level within the fair value hierarchy.

Fair Value Measurements at March 31, 2022


Fair Value at March 31,






2022

(Level 1)

(Level 2)

(Level 3)

(In thousands)
Assets:

Cash and cash equivalents

$
27,613

$
27,613

$
—

$
—
Total

$
27,613

$
27,613

$
—

$
—
Liabilities:

Contingent consideration

$
371

$
—

$
—

$
371
CVR liability

720

—

—

720
Total

$
1,091

$
—

$
—

$
1,091

Fair Value Measurements at June 30, 2021


Fair Value at June 30,






2021

(Level 1)

(Level 2)

(Level 3)

(In thousands)
Assets:

Cash and cash equivalents

$
49,649

$
49,649

$
—

$
—
Total

$
49,649

$
49,649

$
—

$
—
Liabilities:

Contingent consideration

$
12,057

$
—

$
—

$
12,057
CVR liability

1,395

—

—

1,395
Total

$
13,452

$
—

$
—

$
13,452

~~Contingent Consideration.~~ ~~The Company classifies its contingent consideration liabilities within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity.~~

~~Tuzistra~~

The royalty and make-whole milestone payments related to the licensing agreements with TRIS Pharma, Inc. (“Tris”) for Tuzistra XR was being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing Tuzistra (see Note 4 – Revenue Recognition), and ongoing negotiations with Tris, the Company has concluded that, as of March 31, 2022, the product milestone payments underlying the contingent consideration liability ceased to exist. As of March 31, 2022, the Company reversed the remaining contingent considerations liabilities of $8.5 million and recorded a liability of $7.6 million related to the settlement payments payable to Tris (see Note 20 – Subsequent Events) for termination of the Tuzistra licensing agreement. The amount is included in other current and noncurrent liabilities in the consolidated balance sheets, and represents the present value of future payments discounted using the Company’s borrowing rate. The Company deferred recognition of $0.9 million net gain from reversal of contingent consideration liability and the settlement payments until the termination of the original agreement and signing of the settlement agreement in May 2022, and was included in accrued liabilities in the consolidated balance sheets as of March 31, 2022.

~~ZolpiMist~~

The royalty payments related to the licensing agreements with Magna Pharmaceuticals, Inc. (“Magna”) for ZolpiMist were being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing ZolpiMist, the Company has concluded that, as of March 31, 2022, the royalty-based product milestone payments underlying the contingent consideration liability ceased to exist. As of March 31, 2022, the Company reversed the remaining contingent consideration liabilities of $0.6 million and recorded the $50,000 payment

~~Table of Contents~~

due for termination of the Manga licensing agreements in other current liability in the consolidated balance sheets. The Company recognized $0.6 million gain from reversal of contingent consideration liability and the termination payment in the consolidated statements of operations for the three and nine months ended March 31, 2022.

On February 14, 2020, the Company recognized approximately $0.2 million in product related contingent consideration as a result of the February 14, 2020 Innovus Acquisition. The fair value was based on a discounted value of the future contingent payment using a 30% discount rate based on the estimated risk that the milestones are achieved. As of March 31, 2022 and June 30, 2021, the contingent consideration balance was $0.3 million.

In June 2017, Innovus entered into the Exclusive License Agreement with University of Iowa Research Foundation (“UIRD”) (the “UIRD Agreement”) for the use of patent and technology know-how as defined in the agreement. Pursuant to the agreement, Innovus will pay UIRD a milestone payment of $50,000 every other year beginning on July 1, 2021 for a total payments of $0.2 million. The fair value was determined as the discounted value of the future contingent payment using a 26% discount rate based on the estimated risk that the milestones would be achieved. The discounted value as of March 31, 2022 and June 30, 2021, was approximately $0.1 million.

As a result of the reversal of contingent consideration liabilities, there was no gain or loss from the change in fair value of contingent consideration during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company recognized a net gain of $0.7 million from the changes in fair values of contingent considerations. During the nine months ended March 31, 2022 and 2021, the Company recognized a loss of $0.5 million and $1.7 million, respectively, from the changes in fair values of contingent considerations. The total accretion expense related to these contingent considerations was approximately $23,000 and $15,000 during the three months ended March 31, 2022 and 2021, respectively, and $0.1 million and $0.3 million during the nine months ended March 31, 2022 and 2021, respectively.

~~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 Acquisition. 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 123,820 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 103,190 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 $1.0 million 2021 milestones, which relate to the Innovus achievement of $40.0 million in revenues during the 2021 calendar year and $1.0 million for achieving profitability were not met. As of March 31, 2022 and June 30, 2021, the CVRs were revalued at $0.7 million and $1.4 million, respectively, using the same Monte Carlo model. During the three months ended March 31, 2022 and 2021, the Company recognized a gain of $0.7 million and a loss of $0.1 million, respectively, and a gain of $0.7 million and a loss of $1.0 million during the nine months ended March 31, 2022 and 2021, respectively, in the consolidated statements of operations related to the changes in fair values of CVRs.

~~Warrants.~~ On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued the Avenue Capital Warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $1.21 per share. The Avenue Capital Warrants provided that in the event the Company were to engage in an equity offering at a price lower than $1.21 prior to June 30, 2021, the exercise price would be adjusted to the effective price of such equity offering and the number of shares of common stock to be issued under the Avenue Capital Warrants would be adjusted as set forth in the agreement. At inception and through the reclassification to equity on March 7, 2022, the Company accounted for the Avenue Capital Warrants as a liability as the number of shares was not fixed at the Issuance Date. The fair value of the Avenue Capital Warrants was $0.6 million on January 26, 2022 with hybrid approach using a combination of Black-Scholes and Monte Carlo simulation. On March 7, 2022, the Company reclassified the Avenue Capital Warrants from a liability to equity. During the three months ended March 31, 2022, the Company recognized a gain of $0.2 million in the consolidated statements of operations from changes in fair values of warrants (see Note 11 – Long-term Debt).

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			Fair Value Measurements at September 30, 2022
	Fair Value at September 30,
	2022		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Assets:
Cash and cash equivalents	$	23,811	$	23,811	$	—	$	—
Total	$	23,811	$	23,811	$	—	$	—
Liabilities:
Contingent consideration	$	423	$	—	$	—	$	423
CVR liability		706		—		—		706
Total	$	1,129	$	—	$	—	$	1,129


			Fair Value Measurements at June 30, 2022
	Fair Value at June 30,
	2022		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Assets:
Cash and cash equivalents	$	19,360	$	19,360	$	—	$	—
Total	$	19,360	$	19,360	$	—	$	—
Liabilities:
Contingent consideration	$	396	$	—	$	—	$	396
CVR liability		578		—		—		578
Total	$	974	$	—	$	—	$	974

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 three months ended ~~March 31,~~September 30, 2022:


	CVR		Contingent			Warrant	CVR		Contingent			Fixed Payment
	Liability		Consideration			Liability	Liability		Consideration			Arrangement

	(In thousands)						(In thousands)
Balance as of June 30, 2021	$	1,395	$	12,057	$	—
Balance as of June 30, 2022							$	578	$	396	$	13,051
Included in earnings		(675)		579		(211)		128		27		446
Purchases, issues, sales and settlements:
Issues		—		—		590
Settlements^*		—		(12,265)		(379)
Balance as of March 31, 2022	$	720	$	371	$	—
Settlements								—		—		(1,025)
Balance as of September 30, 2022							$	706	$	423	$	12,472

* Including ~~$9.1~~ ~~million reversal of contingent consideration liabilities and~~ ~~$0.4~~ ~~million liability warrants reclassified to equity~~.

Significant Assumptions

Significant assumptions used in valuing CVRs were as follows:


	~~March 31,~~September 30,
	2022
Leveraged Beta	~~0.79~~0.84
Market risk premium	6.22	%
Risk-free interest rate	~~2.12~~4.09	%
Discount	~~19.50~~21.50	%
Company specific discount	10.00	%

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Significant assumptions used in valuing the warrants were as follows:


	~~January 26,~~August 9,
	2022
Expected volatility	~~56.75~~62.71	%
Equivalent term (years)	5.00
Risk-free rate	~~1.66~~2.97	%
Dividend yield	0.00	%

The fixed payment arrangements are recognized at their amortized cost basis using market appropriate discount rates and are accreted up to their ultimate face value over time. Significant assumptions used in valuing the Fixed Payment Arrangements were as follows:

13. Commitments and Contingencies

Pediatric Portfolio Fixed Payments and Product Milestone

The Company has two fixed, periodic payment obligations to an investor (the “Fixed Obligation”). Under the first fixed obligation, the Company was to pay monthly payment of ~~$86,400~~$0.1 million beginning November 1, 2019 through January 2021, with a balloon payment of $15.0 million that was to be due in January 2021 (“Balloon Payment Obligation”). A second fixed obligation requires the Company pay a minimum of ~~$100,000~~$0.1 monthly through February 2026, except for ~~$210,767~~$0.2 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 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 remained due and payable pursuant to the terms of the

~~Table of Contents~~

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. The first fixed obligation was fully paid as of January 2021.

On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $2.8 million to the investor in satisfaction of the second fixed obligation. The Company agreed to pay the remaining fixed obligation of $3.0 million in six equal quarterly payments of $0.5 million over the six quarters commencing September 30, 2021.

Product Contingent Liability

In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the acquisition, Innovus is obligated to make 5five additional payments of $0.5 million each when certain levels of FlutiCare sales are achieved. ~~The discounted value as~~

Table of ~~March 31, 2022, is approximately $0.3 million.~~Contents

Pursuant to the UIRD Agreement, Innovus will pay to UIRD a total milestone payment of $50,000 every other year beginning on July 1, 2021 for a total payment of $0.2 million. The discounted value as of ~~March 31,~~September 30, 2022, is approximately $0.1 million. ~~The first milestone cash payment of $50,000 was made in July 2021.~~

Rumpus Earn Out Payments

On April 12, 2021, the Company acquired substantially all of the assets of Rumpus, pursuant to which the Company acquired certain rights and other assets, including key commercial global licenses with Denovo Biopharma LLC (“Denovo”) and Johns Hopkins University (“JHU”), relating to AR101. Upon the achievement of certain regulatory and commercial milestones, up to $67.5 million in earn-out payments, which are payable in cash or shares of common stock, generally at the Company’s option, are payable to Rumpus. Under the license agreement with Denovo, the Company assumed the responsibility for paying annual maintenance fees of $25,000, a license option fee of $0.6 million payable in April 2022, and upon the achievement of certain regulatory and commercial milestones, up to $101.7 million, and escalating royalties based on net product sales ranging in percentage from the low teens to the high teens. Finally, under the license agreement with ~~JHU,~~Johns Hopkins, the Company assumed the responsibility for paying minimum annual royalties escalating from $5,000 to $20,000 beginning in calendar year 2022, royalties of 3.0% of net product sales, and upon the achievement of certain regulatory and commercial milestones, up to $1.6 million.

On December 7, 2021, upon receiving Orphan Drug Designation (“ODD”) from the FDA for AR101, a milestone payment of $2.5 million is due and payable to Rumpus in cash or in shares of the Company’s common stock. The $2.5 million milestone payment is included in our accrued liabilities in the condensed consolidated balance sheets as of March 31, 2022, and was paid in full on April 1, 2022.

14. 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. As of ~~March 31,~~September 30, 2022 and June 30,

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~~2021,~~ 2022, the Company had ~~33,355,935~~62,429,445 and ~~27,490,412~~38,578,825 common shares outstanding, respectively, and 0zero preferred shares outstanding, respectively.

Included in the common stock outstanding are ~~2,241,089~~1,463,482 shares of unvested restricted stock issued to executives, directors and employees.

On June 8, 2020, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on June 17, 2020. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2020 Shelf”). As of ~~March 31,~~September 30, 2022, approximately $43.0 million remains available under the 2020 Shelf.

On June 4, 2021, the Company entered into a sales agreement with a sales agent, to provide for the offering, issuance and sale by the Company of up to $30.0 million of its common stock from time to time in “at-the-market” offerings under the 2020 Shelf (the “ATM Sales Agreement”). During the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022, the Company issued an additional ~~2,430,784~~628,138 shares of common stock under the ATM Sales Agreement, with total ~~gross~~net proceeds of approximately ~~$5.1 million before deducting underwriting discounts, commissions, and other offering expenses of $0.2~~$0.4 million. As of ~~March 31,~~September 30, 2022, approximately ~~$12.2~~$11.8 million of the Company’s common stock remained available to be sold pursuant to the ATM Sales Agreement.

On September 28, 2021, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of ~~March 31,~~September 30, 2022, approximately ~~$92.4~~$82.4 million ~~remain~~remained available under the 2021 Shelf.

On ~~March 7,~~August 11, 2022, the Company closed on an underwritten public offering ~~utilizing the 2021 Shelf,~~(the “August 2022 Offering”), pursuant to which ~~the Company~~we sold an aggregate of (i) ~~3,030,000~~21,505,814 shares of ~~the Company’s~~its common stock, (ii) and, in lieu of common stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded Warrants”) to purchase ~~up to 3,030,000~~1,750,000 shares of its common stock, and (iii) ~~common stock purchase~~accompanying warrants (the ~~“Common Warrants”~~"Common Warrants") to purchase ~~up to 6,666,000~~23,255,814 shares of its common ~~stock (the “March 2022 Offering”).~~stock. The shares of common stock and the Pre-Funded Warrants were each sold in combination with corresponding Common Warrants, with one Common Warrant to purchase ~~1.1 shares~~one share of common stock for each share of common stock or each Pre-Funded Warrant sold. The ~~Pre-Funded Warrants have an exercise~~combined public offering price ~~of $0.0001 per~~for each share of common stock and

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accompanying Common Warrant was $0.43, and the combined offering price for each Pre-Funded Warrant and accompanying Common Warrant was $0.429, which equated to the public offering price per share of the common stock and accompanying Common Warrant, less the $0.001 per share exercise price of each Pre-Funded Warrant. The Pre-Funded Warrants were exercised in full in ~~April~~August 2022. The Common Warrants have an exercise price of ~~$1.30~~$0.43 per share of common stock and are exercisable ~~six months after the date of issuance and have~~for a ~~term~~period of five years from ~~the date of exercisability.~~issuance. The Company raised $10.0 million in gross proceeds ~~of $7.6 million~~ through the ~~March~~August 2022 Offering before ~~commission~~underwriting fees and other ~~costs~~expenses of ~~$0.8~~$0.9 million. The Pre-Funded and Common Warrants have a combined fair value of approximately ~~$6.3~~$3.3 million and are classified as additional paid in capital in stockholders’ equity in the Company’s financial ~~statements (see~~statements. (See Note 16 -– Warrants).

On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued the Avenue Capital Warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $1.21 per share. The Avenue Capital Warrants are immediately exercisable and expire on January 31, 2027. On March 7, 2022, the Company closed on an equity offering of shares of common stock and warrants, as described above, at an offering price of $1.25 per share. As this offering precluded the Company from pursuing any equity financing prior to July 7, 2022 and the effective price of the March 7, 2022 offering was more than the exercise price of the Avenue Capital Warrants, the number of common stock issuable upon exercise of the Avenue Capital Warrants were set to 867,769 shares at an exercise price of $1.21. As a result, on March 7, 2022, the Company reclassified the Avenue Capital Warrants from a liability to equity and recorded the $0.4 million fair value as additional paid in capital in stockholders’ equity in the Company’s financial statements (see Note 11 – Long-term Debt and Note 12 – Fair Value Considerations).

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15. Equity Incentive Plans

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. Stock options granted under this plan have contractual terms of 10 years from the grant date and a vesting period ranging from 3 to 4 years. The restricted stock awards have a vesting period ranging from 4 to 10 years, whereas the restricted stock units have a vesting period of 4 years. As of ~~March 31,~~September 30, 2022, the Company had ~~2,401,186~~2,416,643 shares that are available for grant under the Aytu 2015 Plan.

Neos 2015 Plan. Pursuant to the Neos ~~Acquisition,~~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. In addition to the 105,449 registered shares to cover the assumed awards, the remaining 1,255,310 shares available under the legacy Neos plan was added back to the new Neos 2015 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. Stock options granted under this plan have contractual terms of 10 years from the grant date and a vesting period ranging from 1 to 4 years. As of ~~March 31,~~September 30, 2022, the Company had ~~43,151~~47,185 shares that are available for grant under the Neos 2015 Plan.

Stock Options

Stock option activity is as follows:


				Weighted				Weighted
				Average				Average
		Weighted		Remaining		Weighted		Remaining
	Number of	Average		Contractual	Number of	Average		Contractual
	Options	Exercise Price		Life in Years	Options	Exercise Price		Life in Years
Outstanding June 30, 2021	109,588	$	14.52	8.07
Outstanding June 30, 2022					80,377	$	16.61	7.77
Forfeited/Cancelled	(15,132)		8.03		(1,600)		6.34
Expired	(10,599)		9.16		(541)		7.89
Outstanding at March 31, 2022	83,857	$	16.37	7.79
Outstanding at September 30, 2022					78,236	$	16.88	7.42

Exercisable at March 31, 2022	55,611	$	20.51	7.68
Exercisable at September 30, 2022					54,856	$	20.61	7.38

As of March 31, 2022, there was $0.2 million total unrecognized compensation costs adjusted for estimated forfeitures, related to non-vested stock options granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.8 years.

~~Restricted Stock~~

~~During the nine months ended March 31, 2022, the Company granted~~ ~~a total of 295,000 shares of restricted stock, with certain accelerated vesting conditions, to~~ ~~members of its management team~~ ~~pursuant to the Aytu 2015 Plan, of which~~ ~~1/3~~ ~~vest on the grant date and~~ ~~1/12~~ on ~~thefirstday~~ of ~~eachquarterthereafter~~, ~~subject~~ ~~to continuing employment with the Company through each vesting date. These restricted stock grants have a grant date fair value ranging from $2.65 per-share to $4.02 per-share.~~

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As of September 30, 2022, there was $0.1 million total unrecognized compensation costs related to non-vested stock options granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.4 years.

Restricted Stock

Restricted stock activity under the Aytu 2015 Plan is as follows:


		Weighted			Weighted
		Average Grant			Average Grant
	Number of	Date Fair		Number of	Date Fair
	Shares	Value		Shares	Value
Unvested at June 30, 2021	1,955,268	$	7.83
Unvested at June 30, 2022				1,607,572	$	7.47
Granted	295,000		3.67	6,500		0.67
Vested	(112,787)		8.03	(210,916)		5.78
Unvested at March 31, 2022	2,137,481	$	7.25
Forfeited/Cancelled				(39,832)		7.47
Unvested at September 30, 2022				1,363,324	$	7.70

As of ~~March 31,~~September 30, 2022, there was ~~$10.8~~$8.4 million total unrecognized compensation costs ~~adjusted for estimated forfeitures,~~ related to non-vested restricted stock granted under the Company’s equity incentive plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of ~~2.9~~2.6 years.

The Company previously issued 158 shares of restricted stock outside the Aytu 2015 Plan, which vest in July 2026. On January 17, 2022, the Company granted 100,000 shares of restricted stock to a member of its management team outside of the Aytu 2015 ~~Plan, of which~~ ~~1/3~~ ~~vest on January 17, 2023 and~~ ~~1/12eachquarterthereafter~~, ~~subject~~to~~continuing~~ ~~employment with the Company through each vesting date until January 17, 2025. This restricted stock grant has a grant date fair value of $1.35 per-share.~~Plan. As of ~~March 31,~~September 30, 2022, there was $~~1.0~~0.8 million total unrecognized costs ~~adjusted for estimated forfeitures,~~ related to non-vested restricted stock outside of the Company’s equity incentive plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of ~~4.1~~3.8 years.

Restricted Stock Units

~~During the nine months ended March 31, 2022,~~ ~~the Company granted~~ ~~a total of 150,000 shares of restricted stock units (“RSUs”), to~~ ~~members of its management~~ ~~pursuant team to the Aytu 2015 Plan, of which~~ ~~1/3~~ ~~vest on the grant date and~~ ~~1/12~~on~~thefirstday~~of~~eachquarter~~ ~~thereafter, subject to continuing employment with the Company through each vesting date. These RSUs have a grant date fair value ranging from $1.08 per-share to $1.86 per-share.~~

RSUs activity is as follows:



		Weighted			Weighted
		Average Grant			Average Grant
	Number of	Date Fair		Number of	Date Fair
	Shares	Value		Shares	Value
Unvested at June 30, 2021	78,318	$	7.20
Unvested at June 30, 2022				170,000	$	1.29
Granted	150,000		1.33	—		—
Vested	(10,908)		6.50	—		—
Forfeited	(62,922)		7.44	—		—
Unvested at March 31, 2022	154,488	$	1.45
Unvested at September 30, 2022				170,000	$	1.29

As of ~~March 31,~~September 30, 2022, there was $0.2 million total unrecognized compensation costs ~~adjusted for any estimated forfeitures,~~ related to non-vested RSUs granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of ~~2.8~~2.37 years.

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021

					(In thousands)					(in thousands)

Cost of sales	$	7	$	9	$	24	$	9	$	5	$	9
Research and development		73		3		467		3		9		319
Selling and marketing		23		5		51		5		3		9
General and Administrative		1,167		1,505		3,476		2,468		1,160		1,182
Total stock-based compensation expense	$	1,270	$	1,522	$	4,018	$	2,485	$	1,177	$	1,519

16. Warrants

Equity Classified Warrants

On ~~March 7,~~August 11, 2022, the Company closed on ~~an underwriting agreement,~~the August 2022 Offering, pursuant to which, the Company ~~sold, (i) 3,030,000 shares of the Company’s common stock, (ii)~~issued Pre-Funded Warrants to purchase ~~up to 3,030,000~~1,750,000 shares of its common stock and ~~(iii)~~ Common Warrants to purchase ~~up to 6,666,000~~23,255,814 shares of its common stock. The shares of common stock and the Pre-Funded Warrants were each sold in combination with corresponding Common Warrants, ~~with~~which one Common Warrant to purchase ~~1.1 shares~~one share of common stock for each share of common stock or each Pre-Funded Warrant sold. The Pre-Funded Warrants have an exercise price of ~~$0.0001~~$0.001 per share of common stock and were exercised in full in ~~April~~August 2022. The Common Warrants have an exercise price of ~~$1.30~~$0.43 per share of common stock and are exercisable ~~six months after the date of issuance and have~~for a ~~term~~period of five years from issuance. The Common Warrants provide that if there occurs any a stock split, stock dividend stock recapitalization, or similar event (a “Stock Combination Event”), then the ~~date~~warrant exercise price will be adjusted to the greater of ~~exercisability~~the quotient determined by dividing (x) the sum of the VWAP of the Common Stock for each of the five lowest trading days during the 20 consecutive trading day period ending immediately preceding the 16th trading day after such Stock Combination Event, divided by (y) five; or $0.116 and the number of shares of common stock to be issued would be adjusted proportionately as set forth in the agreement limited to a maximum of 46,511,628 shares. The Common Warrants also provide that in the event the Company were to engage in an equity offering at a common stock price lower than the warrant exercise price prior to the second anniversary of a Stock Combination Event, the exercise price would be adjusted to the greater of the effective price of such equity offering or $0.116. (see Note 12 – Fair Value Considerations and Note 14 – Capital Structure).

On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued Avenue Capital Warrants to the Avenue Capital Lenders to purchase 867,769 shares of common stock at an exercise price of $1.21 per share, subject to adjustment. The Avenue Capital Warrants were immediately exercisable and expire on January 31, 2027. On March 7, 2022, the Company closed on an equity offering of shares of common stock and warrants at an offering price of $1.25 per share. As this offering precluded the Company from pursuing any equity financing prior to July 7, 2022 and the effective price of the March 7, 2022 offering was more than the exercise price of the Avenue Capital Warrants, the number of common stock issuable upon exercise of the Avenue Capital Warrants were set to 867,769 shares at an exercise price of $1.21. As a result, on March 7, 2022, the Company reclassified the Avenue Capital Warrants from a liability to equity (see Note 11 – Long-term Debt, Note 12 – Fair Value Considerations and Note 14 – Capital Structure).

~~Significant assumptions used in valuing these warrants were as follows:~~


	~~March 7,~~
	~~2022~~
~~Valuation method~~	~~Black-Scholes~~
~~Expected volatility~~	~~54.45~~	%
~~Equivalent term (years)~~	~~4.89 - 5.00~~
~~Risk-free rate~~	~~1.71~~	%
~~Dividend yield~~	~~0.00~~	%

On July 1, 2020, 92,302 warrants previously issued to a placement agent with a weighted average exercise price of $15.99 per warrant expired. In addition, during the nine months ended March 31, 2022, 31,925 various other warrants with a weighted average exercise price of $483.75 per warrant to purchase the Company’s shares of common stock expired.

~~Table of Contents~~

A summary of equity-based warrants is as follows:


				Weighted				Weighted
				Average				Average
		Weighted		Remaining		Weighted		Remaining
	Number of	Average		Contractual	Number of	Average		Contractual
	Warrants	Exercise Price		Life in Years	Warrants	Exercise Price		Life in Years
Outstanding June 30, 2021	1,254,952	$	35.85	2.83
Outstanding June 30, 2022					8,664,471	$	4.63	4.73
Warrants issued	10,563,769		0.92	5.37	25,005,814		0.43	5.00
Warrants exercised					(1,750,000)		0.43	5.00
Warrants expired	(124,250)		124.69	—	—		—	—
Outstanding March 31, 2022	11,694,471	$	3.43	4.98
Outstanding September 30, 2022					31,920,285	$	1.55	4.76

~~Liability Classified Warrants~~

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Table of ~~March 31, 2022, the Company had 24,105 liability warrants outstanding with a weighted-average exercise price of $720.0 per share. These warrants expire on August 25, 2022.~~Contents

17. Net Loss per Common Share

Basic income (loss) per common share is calculated by dividing the net income (loss) available to the common shareholders by the weighted average number of common shares outstanding during that period. Diluted net loss per share reflects the potential of securities that could share in the net loss of the Company. The 3,030,000 Pre-Funded Warrants with an exercise price of $0.0001 per share of common stock were considered economically equivalent to common stock and were included in the weighted average number of common stock outstanding for calculation of basic income (loss) per share.

The following table sets-forth securities that are considered anti-dilutive, and therefore excluded from the calculation of diluted earnings per share.


		March 31,			September 30,
		2022	2021		2022	2021
Warrants to purchase common stock - liability classified	(Note 16)	24,105	24,105	(Note 16)	—	24,105
Warrant to purchase common stock - equity classified	(Note 16)	8,664,471	1,257,525	(Note 16)	31,920,285	1,160,445
Employee stock options	(Note 15)	83,857	136,254	(Note 15)	78,236	95,866
Employee unvested restricted stock	(Note 15)	2,137,481	274,635	(Note 15)	1,363,324	2,105,678
Employee unvested restricted stock units	(Note 15)	154,488	87,362	(Note 15)	170,000	77,162
Total		11,064,402	1,779,881		33,531,845	3,463,256

18. License Agreements

Healight

In April 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.

The agreement with Cedars-Sinai grants the Company a license to all patent and development related technology rights for the intra-corporeal therapeutic use of ultraviolet light in the field of endotracheal and nasopharyngeal applications. The term of the agreement is on a country-by-country basis and will expire on the latest of the date upon which the last to expire valid claim shall expire, ten years after the first bona fide commercial sale of such licensed product in a country, or the expiration of any market exclusivity period granted by a regulatory agency. Pursuant to the terms of the agreement, the Company paid an initial $0.3 million license fee and approximately $0.1 million in earlier patent prosecution fees.

~~Table of Contents~~

NeuRx

In October 2018, Neos entered into an Exclusive License Agreement (“NeuRx License”) with NeuRx Pharmaceuticals LLC (“NeuRx”), pursuant to which NeuRx granted Neos an exclusive, worldwide, royalty-bearing license to research, develop, manufacture, and commercialize certain pharmaceutical products containing NeuRx’s proprietary compound designated as NRX-101, referred to as NT0502. NT0502 is a new chemical entity that is being developed for the treatment of sialorrhea, which is excessive salivation or drooling. The Company may be required to make certain development and milestone payments and royalties based on annual net sales, as defined in the NeuRx License. Royalties are to be paid on a country-by-country and licensed product-by-licensed product basis, during the period of time beginning on the first commercial sale of such licensed product in such country and continuing until the later of: (i) the expiration of the last-to-expire valid claim in any licensed patent in such country that covers such licensed product in such country; and/or (ii) expiration of regulatory exclusivity of such licensed product in such country.

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Teva

On December 21, 2018, Neos and Teva Pharmaceuticals USA, Inc. (“Teva”) entered into an agreement granting Teva a non-exclusive license to certain patents owned by Neos by which Teva has the right to manufacture and market its generic version of Cotempla XR-ODT under an Abbreviated New Drug Application (“ANDA”) filed by Teva beginning on July 1, 2026, or earlier under certain circumstances.

Actavis

On October 17, 2017, Neos entered into an agreement granting Actavis a non-exclusive license to certain patents owned by Neos by which Actavis has the right to manufacture and market its generic version of Adzenys XR-ODT under its ANDA beginning on September 1, 2025, or earlier under certain circumstances.

Shire

In July 2014, Neos entered into a Settlement Agreement and an associated License Agreement (the “2014 License Agreement”) with Shire LLC (“Shire”) for a non-exclusive license to certain patents for certain activities with respect to Neos’ New Drug Application (the “NDA”) No. 204326 for an extended-release orally disintegrating amphetamine polistirex tablet. In accordance with the terms of the 2014 License Agreement, following the receipt of the approval from the FDA for Adzenys XR-ODT, Neos paid an up-front, non-refundable license fee of an amount less than $1.0 million in February 2016. Neos is paying a single digit royalty on net sales of Adzenys XR-ODT during the life of the patents.

In March 2017, Neos entered into a License Agreement (the “2017 License Agreement”) with Shire, pursuant to which Shire granted Neos a non-exclusive license to certain patents owned by Shire for certain activities with respect to Neos’ NDA No. 204325 for an extended-release amphetamine oral suspension. In accordance with the terms of the 2017 License Agreement, following the receipt of the approval from the FDA for Adzenys ER, Neos paid an up-front, non-refundable license fee of an amount less than $1.0 million in October 2017. Neos iswas paying a single digit royalty on net sales of Adzenys ER during the life of the patents. Adzenys ER was discontinued as of September 30, 2021.

The royalties are recorded as cost of goods sold in the same period as the net sales upon which they are calculated.

Additionally, each of the 2014 and 2017 License Agreements contains a covenant from Shire not to file a patent infringement suit against Neos alleging that Adzenys XR-ODT or Adzenys ER, respectively, infringes the Shire patents.

19. Segment Reporting

The Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, allocates resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented for each reportable segment for purposes of making operating decisions and assessing financial performance.

The Company manages and aggregates its operational and financial information in accordance with two reportable segments: Rx and Consumer Health. The Rx segment consists of the Company’s prescription products. The Consumer Health segment contains the Company’s consumer healthcare products.

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~~financial information presented for each reportable segment for purposes of making operating decisions and assessing financial performance.~~

The Company manages and aggregates its operational and financial information in accordance with 2 reportable segments: BioPharma and Consumer Health. The BioPharma segment consists of the Company’s prescription products. The Consumer Health segment contains the Company’s consumer healthcare products.

Select financial information for these segments is as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021

	(In thousands)				(In thousands)				(In thousands)
Consolidated revenue:
BioPharma	$	13,862	$	5,127	$	42,388	$	18,091
Consumer Health		10,337		8,356		26,833		24,059
Rx Segment									$	18,652	$	13,883
Consumer Health Segment										9,003		8,014
Consolidated revenue	$	24,199	$	13,483	$	69,221	$	42,150	$	27,655	$	21,897


Consolidated net loss:
BioPharma	$	(52,311)	$	(23,570)	$	(88,359)	$	(34,788)
Consumer Health		(762)		(1,890)		(4,113)		(4,503)
Rx Segment									$	(2,054)	$	(26,457)
Consumer Health Segment										(827)		(1,394)
Consolidated net loss	$	(53,073)	$	(25,460)	$	(92,472)	$	(39,291)	$	(2,881)	$	(27,851)

March 31,

June 30,

2022

2021

(In thousands)
Total assets:

BioPharma

$
139,127

$
236,449
Consumer Health

29,699

29,219
Consolidated assets

$
168,826

$
265,668


	September 30,		June 30,
	2022		2022

	(In thousands)
Total assets:
Rx Segment	$	134,067	$	121,377
Consumer Health Segment		15,933		16,246
Consolidated assets	$	150,000	$	137,623

20. Subsequent Events

On April 14, 2022, upon receiving Fast Track designation from the FDA for AR101, a milestone payment of $1.5 million is due and payable to Rumpus in cash or in shares of the Company’s common stock. In May 2022, the Company issued 2,188,940 shares of common stock and $75,000 in cash for the full repayment of the amount due under the Fast Track designation milestone.

~~On April 19, 2022, the Company issued 3,030,000 shares of common stock to holders of the March 7, 2022 Pre-Funded Warrants upon exercise of these warrants at an exercise price of $0.0001.~~

~~On May 12,~~October 25, 2022, the Company entered into an agreement with ~~Tris~~Avenue Venture Opportunities Fund, L.P (“Avenue”) to ~~terminate~~extend the ~~License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant~~interest-only period of its existing senior secure loan facility held with Avenue. The amendment to ~~such termination,~~the original loan agreement, which was executed in January 2022, extends the interest-only period to January of 2024. In exchange for this extension of the interest-only period, the Company and Avenue agreed to ~~pay Tris a total~~reset the exercise price of ~~approximately $6 million to $9 million, which reduced our total liability for minimum payments by approximately $8 million from~~the warrants issued in conjunction with the original ~~License Agreement. The settlement payment will be paid in 3 installments from December 2022 through July 2024.~~loan agreement to $0.43, corresponding to the warrant exercise price associated with the Company’s latest equity financing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with Aytu BioPharma, Inc.’s Annual Report on Form 10-K for the year ended June 30, ~~2021,~~2022, filed on September ~~28, 2021.~~27, 2022. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see the risk factors included in Aytu’s Form 10-K ~~and Form 10-Q~~ filed with the Securities and Exchange Commission on September ~~28, 2021 and November 15, 2021 respectively.~~27, 2022.

Objective

The purpose of the Management Discussion and Analysis (the “MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022, and our financial condition as of ~~March 31,~~September 30, 2022. The MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and notes. ~~The MD&A is organized in the following sections:~~

●

~~Overview~~

●

~~Significant Developments.~~ ~~We discuss (i) the business environment, (ii) debt and equity financings, (iii) regulatory developments and (iv) discontinuation of certain non-core products.~~

●

~~Results of Operations.~~ We discuss changes in our statements of operations line items, including the major drivers of these changes for three and nine months ended March 31, 2022, as compared with the three and nine months ended March 31, 2021.

●

~~Liquidity and Capital Resources.~~ ~~We discuss (i) sources of our liquidity, (ii) cash flows, (iii) obligations due on our debt obligations and (iv) expected payments under contractual obligations, commitments and contingencies.~~

~~��~~

~~Critical Accounting Estimates.~~ ~~We discuss the critical accounting policies and estimates that require significant management judgment.~~

Overview

We are a commercial-stage pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare ~~products and developing therapeutics for rare pediatric-onset or difficult-to-treat diseases.~~products. We operate through two business segments (i) the ~~BioPharma~~Rx segment, consisting of ~~various~~ prescription pharmaceutical products sold through third party wholesalers ~~(the Rx Portfolio”),~~ and (ii) the Consumer Health segment, which consists of various consumer health products sold directly to consumers. We generate revenue by selling our products through third party intermediaries in our marketing channels as well as directly to our customers. We currently manufacture our products for the treatment of attention deficit hyperactivity disorder (“ADHD”) at our manufacturing facilities and use third party manufacturers for our other prescription and consumer health products. We also have ~~two~~ product candidates in development, including, AR101 (enzastaurin) for the treatment of vascular Ehlers-Danlos Syndrome (“VEDS”) and Healight (endotracheal light catheter) for the treatment the treatment of severe, difficult-to-treat respiratory infections.

We have incurred significant losses in each year since inception. Our net losses were ~~$53.1~~$2.9 million and ~~$25.5~~$27.9 million for the three months ended ~~March 31, 2022 and 2021, respectively, and $92.5 million and $39.3 million for the nine months ended March 31,~~September 30, 2022, and 2021, respectively. As of ~~March 31,~~September 30, 2022, and June 30, ~~2021,~~2022, we had an accumulated ~~deficit~~deficits of ~~approximately $270.8~~$291.4 million and ~~$178.3~~$288.5 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the integration of our ~~acquisitions~~acquisitions.

Significant Developments

Company Strategy

In the first quarter of fiscal 2023, we announced that we will focus our efforts on accelerating the growth of our commercial business and achieving operating cash flows. To achieve these goals, we have indefinitely suspended active development of our ~~product pipeline.~~

~~Table~~clinical development programs, including AR101(enzastaurin) and Healight. The suspension of ~~Contents~~these programs is expected to save over $20 million in projected future study costs over the next three fiscal years.

~~Significant Developments~~Our commercial business includes the Rx segment and the Consumer Health segment.

Business Environment

The ongoing COVID-19 pandemic continues to impact the global economy and create economic uncertainties. We believe COVID-19 has negatively impacted the market for prescription products, disrupted the reliability of the supply chain, and impacted the ability and efficiency of conducting clinical trials. The extent to which COVID-19 continues to negatively impact our business in the future will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the new variants of coronavirus, the actions taken to contain the coronavirus or treat its impact, and the continued impact of each of these items on the economies and financial markets in the United States and abroad. While states and jurisdictions have rolled back stay-at-home and quarantine orders and reopened in phases, it is difficult to predict what the lasting impact of the pandemic will be, and if we or any of the third parties with whom we

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engage were to experience additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could have a material adverse impact on our business, results of operation and financial condition. In addition, a recurrence or impact from new strains of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. We will continue to monitor developments as we deal with the disruptions and uncertainties relating to the COVID-19 pandemic.

We have continued to experience significant inflationary pressure and supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor during fiscal ~~2022.~~2022 and early 2023. While we do not have sales or operations in Russia or Ukraine, it is possible that the conflict or actions taken in response, could adversely affect some of our markets and suppliers, economic and financial markets, costs and availability of energy and materials, or cause further supply chain disruptions. We continue to closely monitor the impact of, and responses to, COVID-19 variants, including government-imposed lockdowns, on demand conditions and our supply chain. We expect that inflationary pressures and supply chain disruptions could continue to be significant across the business throughout ~~the~~our fiscal 2023 year.

Debt and Equity financing

On ~~January 26,~~October 25, 2022, wethe Company entered into ~~Loan and Security Agreement (the “Avenue Capital Agreement”)~~an agreement with Avenue Venture Opportunities Fund, ~~II, L.P. and Avenue Venture Opportunities Fund II, L.P. as lenders (the “Avenue Capital Lenders”~~L.P (“Avenue”)~~, and Avenue Capital Management II, L.P. as administrative agent (the “Avenue Capital Agent”), collectively (“Avenue Capital”), pursuant~~ to extend the interest-only period of its existing senior secure loan facility held with Avenue. The amendment to the original loan agreement, which was executed in January 2022, extends the ~~Avenue Capital Lenders provided~~interest-only period to January of 2024. In exchange for this extension of the interest-only period, the Company and ~~certain of its subsidiaries with a secured $15.0 million loan. The interest rate on~~Avenue agreed to reset the ~~loan is the greater~~exercise price of the ~~prime rate and 3.25%, plus 7.4%, payable monthly~~warrants issued in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of outstanding obligations pursuant to a senior secured term credit facility (the “Deerfield Facility”) with Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P., which was otherwise due and payable on May 11, 2022. Concurrentconjunction with the ~~Avenue Capital Agreement, we entered into a Consent, Waiver~~original loan agreement to $0.43, corresponding to the warrant exercise price associated with the Company’s latest equity financing. The Company expects to conserve cash of approximately $3.0 million related to principal payment in calendar year 2023. (See Note —11 Long-Term Debt, Note 16— Warrants, and ~~Second Amendment to Eclipse Loan Agreement, dated as of January 26, 2022 (together, the “Eclipse Second Amendment”), in which Eclipse (as defined below) extended the maturity date from the May~~Note — 20 Subsequent Events for further details).

On August 11, 2022, to January 26, 2025 and reduced the availability under the Revolving Loans from $25.0 million to $12.5 million minus a $3.5 million availability block. See Note 10 – Line of Credit and Note 11 – Long-term Debt in the accompanying unaudited consolidated financial statements for further information.

~~On March 7, 2022, upon closing of~~we closed on an underwritten public offering ~~we raised gross proceeds of $7.5 million from the issuance~~(“August 2022 Offering”), of (i) ~~3,030,000~~21,505,814 shares of our common stock ~~(ii)~~and, in lieu of common stock to certain investors, pre-funded warrants ~~(the “Pre-Funded~~(“Pre-Funded Warrants”) to purchase ~~up to 3,030,000~~1,750,000 shares of our common stock, and ~~(iii) common stock purchase~~(ii) accompanying warrants (the “Common Warrants”) to purchase ~~up to 6,666,000~~23,255,814 shares of our common ~~stock (the “March 2022 Offering”).~~stock. We received ~~$6.8~~gross proceeds of $10.0 million inand net proceeds ~~net~~ of approximately $9.1 million, after deducting underwriting ~~fees~~discounts and ~~other~~commissions and estimated offering expenses. ~~See Note 14 – Capital Structure in the accompanying unaudited consolidated financial statements for further information.~~

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~~Orange Book Listing~~RESULTS OF OPERATIONS

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Three Months Ended

September 30,


2022

2021

Change

(In thousands)
Product revenue, net

$
27,655

$
21,897

$
5,758
Cost of sales

9,623

9,441

182
Gross profit

18,032

12,456

5,576

Operating expenses






Research and development

1,064

1,652

(588)
Advertising and direct marketing

4,452

4,545

(93)
Other selling and marketing

5,650

4,752

898
General and administrative

7,322

8,216

(894)
Impairment expense

—

19,453

(19,453)
Amortization of intangible assets

1,197

1,537

(340)
Total operating expenses

19,685

40,155

(20,470)
Loss from operations

(1,653)

(27,699)

26,046
Other income (expense)






Other (expense), net

(1,100)

(40)

(1,060)
Loss from contingent consideration

(128)

(219)

91
Total other expense

(1,228)

(259)

(969)
Loss before income tax

(2,881)

(27,958)

25,077
Income tax benefit

—

(107)

107
Net loss

$
(2,881)

$
(27,851)

$
24,970

Product revenue, net

Three Months Ended

September 30,



2022

2021

Change

(in thousands)

ADHD Portfolio

$
11,585

$
9,327

$
2,258
Pediatric Portfolio

6,558

3,798

2,760
Consumer Health Portfolio

9,003

8,014

989
Other

509

758

(249)
Consolidated revenue

$
27,655

$
21,897

$
5,758

During the three months ended September 30, 2022, product revenue, net increased by $5.8 million, or 26%, compared to the three months ended September 30, 2021. The increase was primarily driven by increases in script growth of ~~newly issued Cotempla XR-ODT patent~~

~~On March 23, 2022,~~ our ~~newly issued US patent No. 11,166,947 for Cotempla XR-ODT~~ADHD and Pediatric portfolios. The increase in revenue from our Consumer Health portfolio was ~~listed~~attributable to the continued growth of the higher contribution margin in the U.S. Food and Drug Administration (the “FDA”) publication "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly known as the "Orange Book." The Cotempla XR-ODT patent covers methods of use for the effective pediatric dosing of methylphenidate for the treatment of attention deficit hyperactivity disorder. The Orange Book listing extends the exclusivity period for Cotempla XR-ODT to 2038. Pursuant to the non-exclusive license agreement between Neos Therapeutics, Inc. (“Neos”) and Teva Pharmaceuticals USA, Inc. (“Teva”) entered into on December 21, 2018, Teva has the right to manufacture and market its generic version of Cotempla XR-ODT under its Abbreviated New Drug Application (“ANDA”) beginning on July 1, 2026, or earlier under certain circumstances. See Note 18 – License Agreements in the accompanying unaudited consolidated financial statements for further information.

~~Orphan Drug Designation in Europe and Fast Track Designation granted to AR101~~

On March 2, 2022, the European Commission granted orphan designation to AR101 (enzastaurin), a PKC beta inhibitor, for the treatment of Ehlers-Danlos Syndrome, a group of rare inherited connective tissue disorders that includes the severe subtype VEDS. This designation is based on a positive opinion from the Committee for Orphan Medicinal Productse-commerce portion of the ~~European Medicines Agency (“EMA COMP”). Orphan designation in the European Union is granted~~business partially offset by the ~~European Commission (“EU”) based~~reduced focus on a positive opinion issued by the EMA COMP. To qualify, an investigational medicine must be intended to treat a seriously debilitating or life-threatening condition that affects fewer than five in 10,000 people in the EU, and there must be sufficient non-clinical or clinical data to suggest the investigational medicine may produce clinically relevant outcomes. The European Medicines Agency orphan designation affords us with certain benefits and incentives, including clinical protocol assistance, differentiated evaluation procedures for Health Technology Assessments in certain countries, access to a centralized marketing authorization procedure valid in all EU member states, reduced regulatory fees and 10 years of market exclusivity.

On April 19, 2022, we were notified by the FDA that AR101 received Fast Track designation. Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious conditions and fill an unmet medical need. Fast Track addresses a broad range of serious conditions, and the request can be initiated by a pharmaceutical company at any time during the development process. FDA reviews the request and decides based on whether or not the drug fills an unmet medical need in a serious condition. Once a drug receives Fast Track designation, early and frequent communication between the FDA and the sponsor is encouraged throughout the entire drug development and review process. Pursuant to the Asset Purchase Agreement among Aytu BioPharma and Rumpus VEDS LLC, Rumpus Therapeutics LLC and Rumpus Vascular LLC (together, “Rumpus”) entered into on April 12, 2021, the achievement of this Fast Track designation was an earn-out milestone, which resulted in our ~~obligation to pay $1.5 million to Rumpus in cash or in shares of our common stock.~~

~~AR101 is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor~~direct-to-consumer portion of the ~~PKC beta, PI3K and AKT pathways. AR101 has been studied~~business. These increases were partially offset by decreases in more than 3,300 patients across a range of solid and hematological tumor types in trials previously conducted by Eli Lilly & Company. Dr. Hal Dietz developed the first preclinical model that mimics the human condition and recapitulates VEDS, and this model serves as the basis for the plausible clinical benefit and rationale for conducting a clinical trial with AR101 in VEDS.

~~Positive results from a preclinical pilot study for Healight™~~

~~In April 2022, our preclinical pilot study showed a positive results that administration of our Healight ultraviolet light A (“UV-A”) endotracheal catheter delayed the time~~other revenues related to development of ventilator-associated pneumonia (“VAP”) in a novel porcine model. VAP has a reported mortality rate approaching 50% in some patient populations, making it one of the most difficult-to-treat and deadly infections affecting hospitalized patients. Approximately 86% of nosocomial pneumonias are associated with mechanical ventilation and result in VAP. Between 250,000 and 300,000 VAP cases per year occur in the United States alone, which is an incidence rate of 5 to 10 cases per 1,000 hospital admissions. VAP afflicts up to 15% of mechanically ventilated patients in intensive care units.discontinued products.

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Table of Contents

Healight is an investigational medical device technology employing proprietary methods of administering intermittent UV-A light via a novel respiratory medical device. This patent was issued to Cedars-Sinai Medical Center, from which we have an exclusive worldwide license for all respiratory applications of the UV-A light-based technology. Proof of concept clinical findings demonstrated significant reductions in SARS-CoV-2 viral load and improvement in clinical outcomes in a small number of mechanically ventilated COVID-19 patients.

~~Discontinued products~~

~~As part of our realization of post-acquisition synergies and~~Gross margin by product ~~prioritization, we have implemented a~~ portfolio rationalization plan whereby we will discontinue or divest five non-core products: Cefaclor Oral Suspension, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist. These products, collectively, contributed $1.7 million in net revenue and $0.6 million in gross loss during the nine months ended March 31, 2022.

~~RESULTS OF OPERATIONS~~

~~Three and nine months ended March 31, 2022 compared to the three and nine months ended March 31, 2021~~

Three Months Ended

Nine Months Ended

March 31,

March 31,


2022

2021

Change

2022

2021

Change

(In thousands)

(In thousands)
Product revenue, net

$
24,199

$
13,483

$
10,716

$
69,221

$
42,150

$
27,071
Cost of sales

11,513

13,935

(2,422)

31,780

24,249

7,531
Gross profit

12,686

(452)

13,138

37,441

17,901

19,540

Operating expenses












Research and development

3,726

390

3,336

10,742

859

9,883
Advertising and direct marketing

5,116

4,754

362

14,646

14,137

509
Other selling and marketing

4,627

1,843

2,784

14,054

3,991

10,063
General and administrative

7,615

6,001

1,614

23,784

16,948

6,836
Acquisition related costs

—

1,537

(1,537)

—

2,849

(2,849)
Restructuring costs

—

4,818

(4,818)

—

4,875

(4,875)
Impairment expense

45,196

4,286

40,910

64,649

4,286

60,363
Amortization of intangible assets

1,061

1,585

(524)

3,214

4,754

(1,540)
Total operating expenses

67,341

25,214

42,127

131,089

52,699

78,390
Loss from operations

(54,655)

(25,666)

(28,989)

(93,648)

(34,798)

(58,850)
Other income (expense)












Other income/(expense), net

(55)

(425)

370

(75)

(1,555)

1,480
Gain (loss) from contingent consideration

1,257

631

626

761

(2,680)

3,441
Gain (loss) on extinguishment of debt

169

—

169

169

(258)

427
Gain on derivative warrant liability

211

—

211

211

—

211
Total other expense

1,582

206

1,376

1,066

(4,493)

5,559
Loss before income tax

(53,073)

(25,460)

(27,613)

(92,582)

(39,291)

(53,291)
Income tax benefit

—

—

—

(110)

—

(110)
Net loss

$
(53,073)

$
(25,460)

$
(27,613)

$
(92,472)

$
(39,291)

$
(53,181)


	Three Months Ended
	September 30,
	2022		2021			Change

	(in thousands)

ADHD Portfolio	$	7,944	$	5,082	$	2,862
Pediatric Portfolio		5,265		2,949		2,316
Consumer Health Portfolio		4,682		4,649		33
Other		141		(224)		365
Consolidated revenue	$	18,032	$	12,456	$	5,576

~~Product revenue, net~~Gross margins.

InDuring the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022, ~~net product revenue~~gross margins increased by ~~$10.7~~$5.6 million, or ~~79%, and $27.1 million, or 64%~~45%, compared to the ~~three and nine months~~same period ended ~~March 31, 2021, respectively.~~September 30, 2021. The ~~increases were~~increase was primarily driven by ~~the $9.7 million and $30.5 million~~ net revenue generated from the ADHD product portfolio during the three and nine months ended March 31, 2022, respectively, which we acquired in March 2021. Revenue from our consumer health products grew by $2.0 million and $2.8 million during the three and nine months ended March 31, 2022, respectively, attributableincreases as described above. Gross margin percentage increased to ~~the launching of three ANDA products in 2020 which has resulted in increased sales.~~

~~Table of Contents~~

These increases were partially offset by decreases of $1.2 million and $6.6 million in revenue from sale of COVID-19 test kits during the three and nine months ended March 31, 2022, respectively, and reductions in revenue of $0.4 million and $1.2 million during the three and nine months ended March 31, 2022, respectively, from the divesture of our Natesto prescription product.

~~Cost of sales~~

In65% for the three months ended ~~March 31,~~September 30, 2022, ~~cost of sales decreased by $2.4 million, or 17%,~~ compared to 57% for the same period in 2021. The improvement was primarily due to improvements in gross margins in the ADHD and Pediatric portfolios, a result of cost reductions efforts and efficiencies from greater volumes.

Research and development

During the three months ended March 31, 2021 and in the nine months ended March 31, 2022 cost of sales increased by $7.5 million, or 31%, compared to the nine months ended March 31, 2021. Cost of sales in the three and nine months ended March 31, 2021 were affected by a $7.0 million write down of COVID-19 test kits as that product was discontinued. The remaining increases were a result of the increased revenue as described above. Currently, we manufacture our ADHD products and are in the process of moving production to a third-party contract manufacturer and expect to complete that process in mid-calendar 2023. We believe this change will improve the gross margins earned on these products.

~~Research and development~~

Three Months Ended

Nine Months Ended

March 31,

March 31,


2022

2021

Change

2022

2021

Change

(In thousands)

(In thousands)
Research and development:

AR101

$
2,721

$
—

$
2,721

$
7,791

$
—

$
7,791
Healight

222

201

21

791

494

297
ADHD

639

132

507

1,850

132

1,718
Others

144

57

87

310

233

77
Total Research and development

$
3,726

$
390

$
3,336

$
10,742

$
859

$
9,883

~~In the three the three and nine months ended March 31,~~September 30, 2022, research and development expense ~~increased~~decreased by ~~$3.3~~$0.6 million, or ~~855%, and $9.9 million, or 1,151%~~36%, compared to the ~~three~~same period ended 2021. Our research and ~~nine months ended March 31, 2021, respectively.~~development costs are primarily associated with AR101 ~~spending primarily consists of costs associated with~~and preparing for the PREVEnt registrational clinical trial and to a lesser extent, the ~~$2.5 million milestone payment upon receiving Orphan Drug Designation (“ODD”) in the third quarter~~development of ~~2022.~~Healight and support for our commercialized products. Spending on the ADHD product portfolio primarily consists of medical monitoring costs, and costs associated with post-marketing requirements. We expect ~~spending will be subject~~our research and development expenses to ~~material fluctuations between periods based~~decrease from current levels as we defer development of AR-101 and Healight as we focus on ~~the timing of activities, including clinical and pre-clinical trials, of each program.~~generating positive operating cash flows.

Advertising and direct marketing

In the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022, advertising and direct marketing expenses ~~increased by $0.4 million, or 8%, and $0.5 million, or 4%, compared to~~was consistent with the three ~~and nine~~ months ended ~~March 31, 2021, respectively.~~September 30, 2021. Advertising and direct marketing expenses include direct-to-consumer marketing, advertising, sales and customer support and processing fees related to our Consumer Health segment. Advertising and direct marketing can fluctuate materially between periods based on the timing of marketing campaigns.

Other selling and marketing

In the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022, other selling and marketing expense increased by ~~$2.8~~$0.9 million, or ~~151%, and $10.1 million, or 252%,~~19% compared to the ~~three and nine months~~same period ended ~~March 31, 2021, respectively.~~2021. The increases were primarily driven by inflation factors and employee costs.

General and administrative

In the ~~addition~~three months ended September 30, 2022, general and administrative expense decreased by $0.9 million, or 11% compared to the same period ended. The decrease is primarily a result of ongoing cost cutting initiatives associated with our acquisition of Neos.

Impairment expense

No impairments were identified in the ~~ADHD product portfolio in March 2021.~~three months ended September 30, 2022.

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~~General and administrative~~

InDuring the three ~~and nine~~ months ended ~~March 31, 2022, general~~September 30, 2021, as a result of the decline in our market capitalization, a qualitative and ~~administrative expense increased by $1.6 million, or 27%,~~quantitative analysis was performed on the goodwill and ~~$6.8 million or 40%, compared to the three and nine months ended March 31, 2021, respectively. The increases were primarily driven by the additional infrastructure and spending from the acquisition~~other intangible assets associated with our Rx Segment. This analysis resulted in an impairment loss of ~~Neos (“Neos Acquisition”) in March 2021, partially offset by reduced spending by our Consumer Health segment.~~

~~Acquisition related costs~~$19.5 million.

In the three and nine months ended March 31, 2021, acquisition related costs were $1.5 million and $2.8 million, respectively, which were primarily related to the Neos Acquisition in March 2021. Such costs include legal fees, due diligence expenses and financial advisory fees. There was no such cost during the three and nine months ended March 31, 2022.

~~Restructuring costs~~

In the three and nine months ended March 31, 2021, restructuring costs were $4.8 million and $4.9 million, respectively, primarily related to the Neos Acquisition, which was closed on March 19, 2021. There was no such cost during the three and nine months ended March 31, 2022.

~~Impairment expense~~Amortization of intangible assets

In the three months ended March 31, 2022, we recognized total impairment expense of $45.2 million, consisting of (i) $37.7 million in goodwill impairment, (ii) $4.9 million intangible assets write-down, (iii) $2.0 million inventory write-down, (iv) $0.4 million other assets write-down and (v) $0.2 million property and equipment write-down. In the nine months ended March 31, 2022, we recognized total impairment expense $64.6 million, consisting of (i) $57.2 million in goodwill impairment, (ii) $4.9 million intangible assets write-down, (iii) $2.0 million inventory write-down, (iv) $0.4 million other assets write-down and (v) $0.2 million property and equipment write-down. The impairment expense related to write-down of assets was due to the discontinuation of commercializing certain products in our BioPharma Segment. See Note 8 – Goodwill and Other Intangible Assets in the accompanying unaudited consolidated financial statements for further information.

In the three and nine months ended March 31, 2021, we recognized impairment expense of $4.3 million related to impairment of the Natesto licensed intangible asset, which was divested on March 31, 2021.

~~Amortization of intangible assets~~

~~In the three and nine months ended March 31,~~September 30, 2022, amortization expense of intangible assets, excluding amounts included in cost of sales and research and development, decreased by ~~$0.5~~$0.3 million, or ~~33%, and $1.5 million, or 32%,~~22% compared to the ~~three and nine months~~same period ended ~~March 31, 2021, respectively.~~2021. The decrease was primarily related to ~~licensed~~the smaller intangible asset base due to the impairments of certain intangible assets ~~that were being amortized~~ during the ~~three months ended March 31, 2021 but have subsequently been divested or discontinued.~~fiscal 2022 year.

Other ~~income/~~(expense), net

In the three and nine months ended March 31, 2022, other expense, net decreased by $0.4 million, or 87%, and $1.5 million, or 95%, compared to the three and nine months ended March 31, 2021, respectively. The decreases were primarily due to proceeds from the Natesto divestiture, partially offset by increases in interest expense from our debt.

~~Gain (loss) from contingent consideration~~

In the three and nine months ended March 31, 2022, net gain from contingent consideration increased by $0.6 million, or 99%, and $3.4 million, or 128%, compared to the three and nine months ended March 31, 2021, respectively. In each of the three and nine months ended March 31, 2022, gain from contingent consideration included a $0.6 million

~~Table of Contents~~

gain from the reversal of contingent consideration liability related to ZolpiMist. See Note 12 – Fair Value Considerations in the accompanying unaudited consolidated financial statements for further information.

~~Gain (Loss) on debt extinguishment~~

In the three and nine months ended March 31, 2022, we recognized $0.2 million gain from repayment of the Deerfield Facility. In the nine months ended March 31, 2021, we recognized $0.3 million loss from conversion of outstanding debt to our shares of common stock. There was no such loss during the three months ended March 31, 2021.

~~Gain on derivative warrant liability~~

In the three and nine months ended March 31, 2022, we recognized $0.2 million gain from change in fair value of warrants upon the reclassification from a liability to equity warrant. See Note 12 – Fair Value Considerations in the accompanying unaudited consolidated financial statements for further information.

~~Income tax benefit~~

~~The impairment of the BioPharma segment book goodwill decreased the net deferred tax liability by $0.1 million resulting in an income tax benefit of $0.1 million during~~ the three months ended September 30, 2022, other expense, net increased by $1.1 million compared to the same period ended 2021. ~~There was no income tax expense or benefit during~~The increase is primarily due to licensing agreements and an increase in the ~~three months ended March 31, 2022 and 2021.~~interest rate on our debt including amortization of our fixed term payment arrangements.

Liquidity and Capital Resources

Sources of Liquidity

We have obligations related to our loan agreements, contingent consideration related to our acquisitions, milestone payments for licensed products and manufacturing purchase commitments.

We finance our operations through a combination of sales of our common stock and warrants, borrowings under our line of credit facility and cash generated from operations.

Shelf Registrations

On September 28, 2021, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of ~~March 31,~~September 30, 2022, approximately ~~$92.4~~ $82.4 million remains available under the 2021 Shelf.

On June 8, 2020, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on June 17, 2020. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2020 Shelf”). As of ~~March 31,~~September 30, 2022, approximately $43.0 million remains available under the 2020 Shelf.

In June 2020, we initiated an at-the-market offering program ("ATM"), which allow us to sell and issue shares of our common stock from time-to-time. Since initiated in June 2020 through March 31, 2022, we issued a total of 5,524,326 shares of common stock for aggregate proceeds of $28.3 million before estimated offering costs of $2.8 million. On June 2,4, 2021, ~~we terminated our “at-the-market”~~the Company entered into a sales agreement with a sales agent, to provide for the offering, issuance and ~~on June 4, 2021, we entered into a Controlled Equity Offering~~^SM ~~Sales Agreement (the “ATM Sales Agreement”) with a sales agent, pursuant to which we agreed to sell~~sale by the Company of up to $30.0 million of ~~our~~its common stock from time to time in “at-the-market” ~~offerings.~~offerings under the 2020 Shelf (the “ATM Sales Agreement”). During the quarter ended September 30, 2022, the Company issued an additional 628,138 shares of common stock under the ATM Sales Agreement, with total net proceeds of approximately $0.4 million. As of ~~March 31,~~September 30, 2022, approximately ~~$12.2~~$11.8 million of ~~our~~the Company’s common stock remained available to be sold pursuant to the ATM Sales Agreement.

Underwriting Agreements

On ~~March 7,~~August 11, 2022, we closed on ~~the March~~an underwritten public offering (“August 2022 ~~Offering, pursuant to which, we sold~~Offering”), of (i) ~~3,030,000~~21,505,814 shares of our common stock ~~(ii) Pre-Funded Warrants to purchase up to 3,030,000 shares~~and, in lieu of common stock ~~and (iii) Common Warrants~~to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase ~~up to 6,666,000~~1,750,000 shares of ~~common stock. The shares of~~our common stock, and ~~the Pre-Funded~~(ii) accompanying warrants (the “Common Warrants”) to purchase 23,255,814 shares of our common stock. We received gross proceeds of $10.0 million and net proceeds of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.

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Warrants were each sold in combination with corresponding Common Warrants, with one Common Warrant to purchase 1.1 shares of common stock for each share of common stock or each Pre-Funded Warrant sold. The Pre-Funded Warrants have an exercise price of $0.0001 per share of common stock and were exercised in full in April 2022. The Common Warrants have an exercise price of $1.30 per share of common stock and are exercisable six months after the date of issuance and have a term of five years from the date of exercisability. We raised gross proceeds of $7.6 million through the March 2022 Offering before commission and other costs of $0.8 million. The Pre-Funded Warrants and Common Warrants have a combined fair value of approximately $5.6 million and are classified as additional paid in capital in the stockholders’ equity.

On December 10, 2020, we entered into an underwriting agreement, pursuant to which, we agreed to sell, in an upsized firm commitment offering, 4,166,667 shares of our common stock, to the underwriter at an offering price to the public of $6.00 per share, less underwriting discounts and commissions. In addition, pursuant to the underwriting agreement, we granted the underwriter 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. The underwriter exercised their over-allotment option in full, purchasing a total of 4,791,667 shares of common stock. We 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, we 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 a fair value of approximately $1.3 million and are classified as additional paid in capital in the stockholders' equity. Effective June 2, 2021, we terminated the underwriting agreement; pursuant to such termination, there will be no future sales of our common stock under this underwriting agreement.

Eclipse Loan Agreement

Upon closing of the Neos Acquisition in March 2021, we assumed the senior secured credit agreement that Neos entered into with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders (the “Eclipse Loan Agreement”). We entered into the Eclipse Second Amendment, dated as of January 26, 2022, in which Eclipse extended the maturity date from May 11, 2022 to January 26, 2025. Under the amendedThe Eclipse Loan Agreement, ~~Eclipse will from time to time extend~~as amended, provides us with up to $12.5 million in ~~secured revolving loans to us (the “Revolving Loans”),~~Revolving Loans, of which up to $2.5 million may be available for short-term swingline loans, against 85% of eligible accounts receivable. ~~See Note 10 – Line~~The Revolving Loans bore interest at LIBOR, plus 4.50% through April 2022. Beginning in May 2022 through maturity, the Revolving Loans bear interest at the Secured Overnight Financing Rate (“SOFR”) plus 4.50%. In addition, we are required to pay an unused line fee of ~~Credit~~0.50% of the average unused portion of the maximum Revolving Loans amount during the immediately preceding month. Interest is payable monthly in arrears. The maturity date under the ~~accompanying unaudited consolidated financial statements for further information.~~Eclipse Loan Agreement, as amended, is January 26, 2025.

Cash Flows

The following table shows cash flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2022, and 2021:


	Nine Months Ended March 31,				Increase		Three Months Ended September 30,				Increase
	2022		2021		(Decrease)		2022		2021		(Decrease)

	(In thousands)						(In thousands)
Net cash used in operating activities	$	(21,728)	$	(19,687)	$	(2,041)	$	(9,148)	$	(3,791)	$	(5,357)
Net cash used in investing activities	$	(3,207)	$	(356)	$	(2,851)
Net cash provided by financing activities	$	2,647	$	18,500	$	(15,853)
Net cash provide by (used in) investing activities							$	42	$	(86)	$	128
Net cash provided by (used in) financing activities							$	13,557	$	(5,464)	$	19,021

Net Cash Used in Operating Activities

Net cash used in operating activities during these periods primarily reflected our net losses, partially offset by changes in working capital and non-cash charges including inventory write-down, changes in fair values of various liabilities, stock-based compensation expense, depreciation, amortization and accretion and other charges.

During the ~~nine~~three months ended ~~March 31,~~September 30, 2022,net cash used in operating activities totaled ~~$21.7~~$9.1 million. The use of cash was primarily the result of the increase in accounts receivables, inventory and prepaid expenses, and the decrease in accrued liabilities. These were partially offset by positive cash earnings (net loss offset by non-cash depreciation, amortization and accretion in addition to stock compensation expense.

During the three months ended September 30, 2021, net cash used in operating activities cash outflows totaled $3.8 million. The use of cash was approximately ~~$70.7~~$24.1 million less than the net loss due primarily to non-cash charges of goodwill ~~and~~

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~~long-lived asset~~ impairment, depreciation, amortization and accretion, stock-based compensation, inventory write-down and loss from change in fair values of contingent consideration. These ~~non-cash~~ charges were partially offset by ~~non-cash credits of~~ amortization of debt premium and ~~gain~~gains from change in fair values of contingent value ~~rights.~~rights and amortization of debt premium. In addition, our use of cash decreased due to changes in working capital including decreases in accounts receivable and prepaid expense and other current assets, increase in accrued liabilities, offset by a decrease in accounts payable.

During the nine-months ended March 31, 2021, our operating activities used $19.7 million in cash, which was less than the net loss of $34.2 million, primarily due to a $7.2 million inventory impairment, and other non-cash adjustments such as depreciation, amortization and accretion, stock-based compensation, and loss from change in fair value of contingent consideration and contingent value rights (“CVR”), decreases in accounts receivable, prepaid expenses, other current assets and an increase in accrued compensation. These charges were offset by an increase in inventory and decreases in accounts payable and accrued liabilities.

Net Cash Used in Investing Activities

Net cash ~~used in~~flows from investing activities ~~of $3.2 million during~~were nominal in the ~~nine~~three months ended ~~March 31,~~September 30, 2022 ~~was primarily due to $3.1 million payment of contingent consideration to Tris.~~

~~Net cash used in investing activities of $0.4 million during the nine months ended March 31,~~and 2021, ~~was primarily due to $0.7 million payment of contingent consideration, partially offset by $0.3 million net cash received from the Neos Acquisition.~~respectively.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of ~~$2.6~~$13.6 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022, was primarily from ~~$15.0~~$9.1 million proceeds from ~~long-term debt~~our August equity raise and ~~$11.9~~the $4.3 million of additional net borrowing made under our short-term line of credit.

Net cash used in financing activities of $5.5 million during the three months ended September 30, 2021, was primarily from $3.4 million net ~~proceeds from issuance of our common stock, partially offset by $16.1 million full repayment of long-term debt, $4.5 million net~~ reduction ~~in our revolving loan, $3.2 million in payments of fixed payment arrangements and $0.4 million payment of debt issuance costs.~~

Net provided by financing activities in the nine-months ended March 31, 2021 was $18.6 million. This was primarily related to the December 2020 offering for gross proceeds cost of $28.8 million offset by the offering cost of $2.6 million. We also issued shares of our common stock under the ATM with gross proceeds of $3.6 million, which was offset by commission and other offering cost of $1.6 million. We paid approximately $6.0 million on our short-term line of credit ~~$3.0~~and $2.3 million ~~related to~~in payments under our fixed ~~payment obligation and $0.3 million of debt.~~

~~Capital Resources~~

~~We have obligations related to our loan and credit facilities, contingent considerations related to our acquisitions, milestone payments and purchase commitments.~~

~~Loan and Credit~~

~~Avenue Capital Agreement~~

On January 26, 2022, we entered into the Avenue Capital Agreement, pursuant to which the Company received $15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of the Deerfield Facility.

In the event we prepay the outstanding principal prior to the maturity date, we will pay Avenue Capital a fee equal to (i) 3.0% of the loan if such event occurs on or before January 26 2023, (ii) 2.0% of the loan if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 1.0% of the loan if such event occurs after January 26, 2024 but before January 26, 2025. In addition, upon the payment in full of the obligations, we shall pay to Avenue

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~~Capital~~payment arrangements. These decreases were partially offset by a ~~non-refundable fee in the amount~~$0.3 million net proceeds from issuance of ~~$0.6 million (“Final Payment”). See Note 11 – Long-term Debt in the accompanying unaudited consolidated financial statements for further information.~~

~~Eclipse Loan Agreement~~

The Eclipse Loan Agreement, as amended, provides us with up to $12.5 million in Revolving Loans, of which up to $2.5 million may be available for short-term swingline loans, against 85% of eligible accounts receivable. The Revolving Loans bear variable interest through maturity at the one-month LIBOR, plus 4.50%. In addition, we are required to pay an unused line fee of 0.50% of the average unused portion of the maximum Revolving Loans amount during the immediately preceding month. Interest is payable monthly in arrears. The maturity dateour common stock under the ~~Eclipse Loan Agreement, as amended, is January 26, 2025.~~

In event that, for any reason, all or any portion of the Eclipse Loan Agreement is terminated prior to the scheduled maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, we are required to pay a fee equal to (i) 2.0% of the Revolving Loans commitment if such event occurs on or before January 26, 2023, (ii) 1.0% of the Revolving Loans commitment if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 0.5% of the Revolving Loans commitment if such event occurs after January 26, 2024 but on or before January 26, 2025. We may permanently terminate the Eclipse Loan Agreement with at least five business days prior notice. See Note 10 – Line of Credit in the accompanying unaudited consolidated financial statements for further information.ATM.

Contractual Obligations, Commitments and Contingencies

As a result of our acquisitions and licensing agreements, we are contractually and contingently obliged to pay, when due, various fixed and contingent milestone payments. See Note 13 – Commitments and Contingencies in the accompanying ~~unaudited~~condensed consolidated financial statements for further information.

On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to such termination, the Company agreed to pay Tris a total of $6 million to $9 million, which reduced our total liability for minimum payments by approximately $8 million from the original License Agreement. The settlement payment will be paid in three installments from December 2022 through July 2024.

Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that ~~required~~require us to make fixed and product milestone ~~payments.~~payments driven off sale. As of ~~March 31,~~September 30, 2022, up to ~~$8.5~~$6.3 million of fixed and product milestone payments driven off sales remain.

In connection with the February 2020 acquisition of Innovus Pharmaceuticals, Inc. (the “Innovus Acquisition”), all of Innovus’s shares were converted to our common stock and CVRs, which represents contingent additional consideration of up to $16.0 million payable to satisfy future performance milestones. As of ~~March 31,~~September 30, 2022, up to ~~$10~~$5.0 million of potential CVR milestone payments remain.

In connection with our Innovus Acquisition, we assumed a contingent obligation which required us to make ~~five~~milestone payments of $0.5 million ~~between fiscal year 2026 through fiscal year 2033 to Novalere, if and when certain levels~~for each $5.0 million in net revenue of FlutiCare ~~sales are achieved.~~which has been manufactured by a specific manufacturer until net revenue aggregates to $25 million to Novalere.

In connection with our acquisition of the Rumpus assets, upon satisfaction of ~~the~~ milestones, we may be required to pay up to $67.5 million in regulatory and commercial-based earn-out payments to Rumpus. Under the licensing agreement with Denovo Biopharma LLC (“Denovo”), we are required to make a payment of $0.6 for ~~an option~~a license fee in April 2022 and upon achievement of regulatory and commercial milestones, up to $101.7 ~~million is payable to Denovo.~~million. Under the licensing agreement with ~~JHU,~~Johns Hopkins University (“JHU”), upon achievement of regulatory and commercial milestone, we may

be required to pay up to $1.6 million to ~~Johns Hopkins University (“JHU”).~~JHU. In fiscal 2022, two milestones payable to Rumpus were achieved totaling $4.0 ~~million.~~million, which were paid in 2,188,940 shares of common stock and $2.6 million in cash.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of ~~our~~ financial statements ~~requires us to make estimates and judgments that~~in conformity with GAAP affect the ~~reported~~ amounts ~~of assets~~ and ~~liabilities and the disclosure of any contingent assets and liabilities at the~~

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~~date of~~disclosures in the financial statements ~~as well as reported revenue~~ and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparentaccompanying notes. Actual results could differ from ~~other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.~~

~~While our significant accounting policies are described in more detail in Note 2 to the notes~~those estimates. There have been no material changes to our ~~audited financial statements included elsewhere~~Critical Accounting Policies and Estimates disclosed in ~~this~~our Annual Report on Form 10-K ~~we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.~~

~~Revenue recognition~~

We generate revenue from product sales through our BioPharma segment and Consumer Health segment. We recognize revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) as each performance obligation is individually satisfied.

Revenue from our BioPharma segment involves significant judgment and estimates of the net sales price, including estimates of variable consideration (e.g., savings offers, prompt payment discounts, product returns, wholesaler (distributor) fees, wholesaler chargebacks and estimated rebates) to be incurred on the respective product sales (known as “Gross to Net” adjustments), and we recognize the estimated net amount as revenue when control of the product is transferred to our customers (e.g., upon delivery). Variable consideration is determined using either an expected value or a most likely amount method. The estimate of variable consideration is also subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue (in the context of the contract) will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of significant management judgment and other market data. We provide for prompt payment discounts, wholesaler fees and wholesaler chargebacks based on customer contractual stipulations. We analyze recent product return history to determine a reliable return rate. Additionally, management analyzes historical savings offers and rebate payments based on patient prescriptions and information obtained from third party providers to determine these respective variable considerations.

~~Savings offers~~

We offer savings programs for our patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted. The amount of redeemed savings offers is recorded based on information from third-party providers against the estimated discount recorded as accrued expenses. The estimated discount is recorded as a gross to net sales adjustment at the time revenue is recognized. Historical trends of savings offers will be regularly monitored, which may result in adjustments to such estimates in the future.

~~Prompt payment discounts~~

Prompt payment discounts are based on standard programs with wholesalers and are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustment at the time revenue is recognized.

~~Wholesale distribution fees~~

~~Wholesale distribution fees are based on definitive contractual agreements~~ for the ~~management of our products by wholesalers and are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized.~~

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~~Rebates~~

The Rx Portfolio products are subject to commercial managed care and government managed Medicare and Medicaid programs whereby discounts and rebates are provided to participating managed care organizations and federal and/or state governments. Calculations related to rebate accruals are estimated based on information from third-party providers. Estimated rebates are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized. Historical trends of estimated rebates will be regularly monitored, which may result in adjustments to such estimates in the future.

~~Returns~~

Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error, product ordered by customer in error, product returned due to overstock, product returned due to dating or product returned due to recall or other changes in regulatory guidelines. The return policy for expired product allows the wholesaler to return such product starting six months prior to expiry date to twelve months post expiry date. Estimated returns are recorded as accrued expenses and as a gross to net sales adjustments at the time revenue is recognized. We analyzed return data available from sales since inception date to determine a reliable return rate.

~~Wholesaler chargebacks~~

The Rx Portfolio products are subject to certain programs with wholesalers whereby pricing on products is discounted below wholesaler list price to participating entities. These entities purchase products through wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost and the discounted price back to us. Estimated chargebacks are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustment at the time revenue is recognized based on information provided by third parties.

~~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. Until objective and persuasive evidence exists that regulatory approval has been received and future economic benefit is probable, pre-launch inventories are expensed into research and development. Post-FDA approval, manufacturing costs for the production of our products are being capitalized into inventory. We periodically review the composition of our inventories in order to identify obsolete, slow-moving, excess or otherwise unsaleable items. Unsaleable items will be written down to net realizable value in the period identified.

~~Stock-based compensation expense~~

Stock-based compensation awards, including stock options, restricted stock and restricted stock units are recognized in the statement of operations based on their fair values on the date of grant. Stock option grants are valued on the grant date using the Black-Scholes option pricing model and compensation costs are recognized ratably over the period of service using the graded method. Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of the Company’s common stock and recognized ratably over the requisite service period. Forfeitures are adjusted for as they occur.

We calculated the fair value of options using the Black-Scholes option pricing model. Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of our common stock. The Black-Scholes option pricing model requires the input of subjective assumptions, including stock price volatility and the expected life of stock options. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. We have not paid and do not anticipate paying cash dividends. Therefore, the expected dividend rate is assumed to be 0%. The expected stock price volatility for stock option awards is based on our stock price volatility in the valuation model. The risk-free rate was based on the U.S. Treasury yield curve in effect commensurate with the expected life assumption. The average expected life of stock options was determined according to the “simplified method” as described in SAB Topic 110, which is the midpoint

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between the vesting date and the end of the contractual term. The risk-free interest rate was determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are adjusted for as they occur.

There is a high degree of subjectivity involved when using option pricing models to estimate stock-based compensation. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined using an option pricing model, such a model value may not be indicative of the fair value that would be observed in a market transaction between a willing buyer and willing seller. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we have historically reported.

~~Impairment of Long-lived Assets~~

We assess impairment of long-lived assets annually and when events or changes in circumstances indicates that their carrying value amount may not be recoverable. Long-lived assets consist of property and equipment, net and goodwill and other intangible assets, net. Circumstances which could trigger a review include but are not limited to: (i) significant decreases in the market price of the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

Pursuant to the guidance under ASC 360, as of March 31, 2022, the undiscounted future cash flow did not indicated impairment of long-lived assets. However, as part of our realization of post-acquisition synergies and product prioritization, we have implemented a portfolio rationalization plan in our BioPharma segment whereby we will discontinue or divest five non-core products: Cefaclor Oral Suspension, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist. As a result of this decision, we recorded an impairment charge of $4.9 million associated with the write-down of intangible assets of these products during the three and nine monthsyear ended ~~March 31,~~June 30, 2022.

~~Goodwill~~

Goodwill is recorded as the difference between the fair value of the purchase consideration and the fair value of the net identifiable tangible and intangible assets acquired. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. We typically complete our annual impairment test for goodwill using an assessment date in the fourth quarter of each fiscal year. Pursuant to the guidance under ASC 350, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of our reporting units is greater than its carrying amount. If, after assessing events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if we conclude otherwise, then we perform a quantitative impairment test by comparing the fair value of the reporting unit with the carrying value. We also have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The fair value of the reporting unit is determined using a combination of a market multiple and a discounted cash flow approach. Determining the fair value of a reporting unit requires the use of estimates, assumptions and judgment. The principal estimates and assumptions that we use include prospective financial information (revenue growth, operating margins and capital expenditures), future market conditions, weighted average costs of capital, a terminal growth rate, comparable multiples of publicly traded companies in our industry, and the earnings metrics and multiples utilized. We believe that the estimates and assumptions used in impairment assessments are reasonable. If the fair value of the reporting unit is less than the carrying amount, an impairment charge is recorded in the amount of the difference. We have determined that we have two reporting units that require periodic review for goodwill impairment, the BioPharma segment and the Consumer Health segment.

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During fiscal 2022, our market capitalization significantly declined. During the three months ended September 30, 2021, the decline was considered a qualitative factor that led management to assess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of our reporting units within the BioPharma segment was potentially impaired. We performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. We determined the fair value of the reporting unit utilizing the discounted cash flow model. As of September 30, 2021, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. We recognized an impairment loss of $19.5 million in the BioPharma segment related to the goodwill associated with the Cerecor Inc. acquisition.

During the three months ended March 31, 2022, the continued decline of our market capitalization was considered a qualitative factor that led management to reassess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. We performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. we determined the fair value of the reporting unit utilizing the discounted cash flow model. As of March 31, 2022, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. We recognized an impairment loss of $37.7 million in the BioPharma segment related to the goodwill associated with the Neos Acquisition.

The Consumer Health segment, which has $8.6 million goodwill from the Innovus Acquisition, reported $2.2 million negative carrying value as of March 31, 2022, and as such there was no goodwill impairment related to the Consumer Health segment during the three months ended March 31, 2022.

~~Contingent considerations~~

We classify contingent consideration liabilities related to business acquisitions within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. We estimate the fair value of contingent consideration liabilities 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.

The fair value of the contingent value rights was based on a model in which each individual payout was deemed either (a) more likely than not to be paid out or (b) less likely than not to be paid out. From there, each obligation was then discounted at a 30% discount rate to reflect the overall risk to the contingent future payouts pursuant to the CVRs. This value is then re-measured for future expected payout as well as the increase in fair value due to the time value of money. These gains or losses, if any, are included as a component of operating cash flows.

Fixed payment arrangements are comprised of minimum product payment obligations relating to either make whole payments or fixed minimum royalties arising from a business acquisition. The fixed payment arrangements were recognized at their amortized cost basis using a market appropriate discount rate and are accreted up to their ultimate face value over time. The liabilities related to fixed payment arrangements are not re-measured at each reporting period, unless we determine the circumstances have changed such that the fair value of these fixed payment obligations would have changed due to changes in company specific circumstances or interest rate environments.

~~Warrants~~

Equity classified warrants are valued using a Black-Scholes model. Liability classified warrants are accounted for by recording the fair value of each instrument in its entirety and recording the fair value of the warrant derivative

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liability. The fair value of liability classified derivative financial instruments were calculated using a lattice valuation model. Changes in the fair value of liability classified derivative financial instruments in subsequent periods are recorded as derivative income or expense for the warrants and reported as a component of cash flows from operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

Item 4. Controls and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on such evaluation, the Chief Executive Officer and Chief Financial

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Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and are operating in an effective manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal ~~controls~~control over financial reporting ~~known to~~(as defined in Rule 13a-15(f) of the ~~Chief Executive Officer or the Chief Financial Officer~~Exchange Act) that occurred during the ~~period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.~~first quarter of 2023.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~There have not been any material changes~~Aponowicz and Paguia Class-Action Securities Litigations. A putative class action was filed on February 9, 2022 in the Delaware Chancery Court by Rafal Aponowicz derivatively and on behalf of all Aytu stockholders, challenging the grant in 2021 of certain stock option awards to ~~our legal proceedings from~~directors and officers. The stockholder contends those ~~reported~~awards were in ~~our fiscal year 2021 Annual Report~~amounts exceeding the shares available under the Company’s 2015 equity incentive plan and that the directors therefore breached their fiduciary duties and breached a purported contract between them and stockholders. The Complaint seeks rescission of the awards, unspecified damages to stockholders as a result of the awards, and attorneys’ fees. A second such action was filed by Paul John M. Paguia on ~~Form 10-K filed with~~March 7, 2022; Mr. Paguia asserts the ~~SEC on September 28, 2021.~~same claims and seeks the same relief. On October 14, 2022, the parties agreed to settle these matters, subject to approval by the Court of Chancery of the State of Delaware. On October 14, 2022, the parties agreed to settle these matters, subject to approval by the Court of Chancery of the State of Delaware.

Item 1A. Risk Factors.

Our business faces significant risks and ~~uncertainties, including the impact of the COVID-19 pandemic.~~uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition, and results of operations, and you should carefully consider them. There have not been any material changes to our risk factors from those reported in our fiscal year ~~2021~~2022 Annual Report on Form 10-K ~~and Quarterly Report on Form 10-Q~~ filed ~~with the SEC~~ on September ~~28, 2021 and November 15, 2021 respectively.~~27, 2022.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

On May 12, 2022 (the “Settlement Effective Date”), we entered into the Settlement and Termination of License Agreement (the “Settlement Agreement”) with Tris, which terminated the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to the Settlement Agreement, we agreed to pay Tris a total of approximately $6 million to $9 million (the “Settlement Payment”), which reduced our total liability for minimum payments by approximately $8 million from the original License Agreement. The Settlement Payment will be paid in three installments from December 2022 through July 2024. Any amount of the Settlement Payment not paid when due, shall bear interest from the date due until paid at the rate equal to the greater of (i) 2.5% per month and (ii) the maximum interest rate permitted by applicable law.

Upon execution of the Settlement Agreement, we will transfer, assign and convey to Tris, free and clear of all liens, claims, encumbrances and security interests (collectively, ”Encumbrances”), at our expense, all right title and interest to and under the intellectual property, permits and product registrations and books and records as sets forth in the Settlement Agreement (collectively, the “Transferred Assets”).

We are also responsible for discharging certain liabilities with respect to (i) Tuzistra inventories in existence in our control on the Settlement Effective Date, (ii) certain obligations and commitments in respect of defects, returns and/or credits, refunds, rebates, chargebacks, patient and co-pay coupons, off-invoice discounts or price-protection commitments sets forth in the Settlement Agreement, (iii) certain transferred assets, (iv) default of or breaches of the Settlement Agreement, and (v) all FDA fees paid in respect of Tuzistra related to any period prior to the Settlement Effective Date (collectively, “Retained Liabilities”).None

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Item 6. Exhibits.

Exhibit No.

Description

Registrant’s
Form

Date Filed

Exhibit
Number

Filed
Herewith

1.1

Underwriting Agreement, dated as of March 2, 2022, by and between Aytu BioPharma, Inc. and Canaccord Genuity LLC.

8-K

3/4/2022

1.1

3.1

Amended and Restated Bylaws of Aytu BioPharma, Inc.

8-K

5/9/2022

3.1

4.1

Form of Prefunded Common Stock Purchase Warrant.

8-K

3/4/2022

4.1

4.2

Form of Common Stock Purchase Warrant.

8-K

3/4/2022

4.2

10.1#&

Settlement and Termination of License Agreement between the Registrant and TRIS Pharma, Inc., dated May 12, 2022.

X

31.1

Certificate of the Chief Executive Officer of Aytu BioPharma, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certificate of the Chief Financial Officer of Aytu BioPharma, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1

Certificate of the Chief Executive Officer and the Chief Financial Officer of Aytu BioPharma, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101

XBRL (extensible Business Reporting Language). The following materials from Aytu BioPharma, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Stockholders’ Equity (Deficit), (iv) the Consolidated Statement of Cash Flows, and (v) the Consolidated Notes to the Financial Statements.

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.

X

Exhibit No.	Description	Registrant’s Form	Date Filed	Exhibit Number	Filed Herewith



31.1	Certificate of the Chief Executive Officer of Aytu BioPharma, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

31.2	Certificate of the Chief Financial Officer of Aytu BioPharma, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

32.1	Certificate of the Chief Executive Officer and the Chief Financial Officer of Aytu BioPharma, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

101	XBRL (extensible Business Reporting Language). The following materials from Aytu BioPharma, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Stockholders’ Equity (Deficit), (iv) the Consolidated Statement of Cash Flows, and (v) the Consolidated Notes to the Financial Statements.				X

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.				X

#	The company has requested confidential treatment of certain portions of this agreement. These portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

Pursuant to Item 601(b)(10) of Regulation S-K, portions of this exhibit (indicated by asterisks) have been omitted as the registrant has determined that (1) the omitted information is not material and (2) the omitted information would likely cause competitive harm to the registrant if publicly disclosed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	AYTU BIOPHARMA, INC.

Date: ~~May 16,~~November 14, 2022	By:	/s/ Joshua R. Disbrow
		Joshua R. Disbrow
		Chief Executive Officer

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	Three Months Ended March 31,
								Additional				Total
		Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
		Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance, December 31, 2021		—	$	—	30,010,468	$	3	$	323,231	$	(217,698)	$	105,536

Stock-based compensation		—		—	107,767		—		1,270		—		1,270
Issuance of common stock, net of issuance cost		—		—	3,237,700		—		7,034		—		7,034
Tax withholding for stock-based compensation		—		—	—		—		(2)		—		(2)
Warrants issued with debt refinance		—		—	—		—		379		—		379
Net loss		—		—	—		—		—		(53,073)		(53,073)
Balance, March 31, 2022		—	$	—	33,355,935	$	3	$	331,912	$	(270,771)	$	61,144

Balance, December 31, 2020		—	$	—	17,882,893	$	2	$	246,532	$	(133,841)	$	112,693

Stock-based compensation		—		—	—		—		1,382		—		1,382
Issuance of common stock for business acquisition, net of issuance costs		—		—	5,471,804		1		53,102		—		53,103
Estimated fair value of replacement equity awards		—		—	—		—		432		—		432
Contingent Value Rights payouts		—		—	103,190		—		1,000		—		1,000
Net loss		—		—	—		—		—		(25,460)		(25,460)
Balance, March 31, 2021		—	$	—	23,457,887	$	3	$	302,448	$	(159,301)	$	143,150


	March 19, 2021
	(In thousands, except share and per-share)
Considerations:
Fair Value of Aytu Common Stock
Total shares issued at close		5,471,804
Fair value per share of Aytu common stock	$	9.73
Fair value of equity consideration transferred	$	53,241
Cash		15,383
Estimated fair value of replacement equity awards		432
Total consideration transferred	$	69,056


	March 19, 2021
	(In thousands)
Identified intangible assets acquired:
Developed technology right	$	30,200
Developed products technology		22,700
In-process R&D		2,600
RxConnect		630
Trade name		400
Total intangible assets acquired	$	56,530


	BioPharma		Consumer Health		Consolidated

	(In thousands)
Balance as of June 30, 2021	$	57,165	$	8,637	$	65,802
Goodwill impairment		(19,453)		—		(19,453)
Balance as of September 30, 2021		37,712		8,637		46,349
Goodwill impairment		—		—		—
Balance as of December 31, 2021		37,712		8,637		46,349
Goodwill impairment		(37,712)		—		(37,712)
Balance as of March 31, 2022	$	—	$	8,637	$	8,637


			Fair Value Measurements at March 31, 2022
	Fair Value at March 31,
	2022		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Assets:
Cash and cash equivalents	$	27,613	$	27,613	$	—	$	—
Total	$	27,613	$	27,613	$	—	$	—
Liabilities:
Contingent consideration	$	371	$	—	$	—	$	371
CVR liability		720		—		—		720
Total	$	1,091	$	—	$	—	$	1,091