UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q~~10-Q/A

Amendment No. 1

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

For the Quarterly Period Ended ~~December 31, 2021~~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 ~~February 7,~~November 9, 2022, there were ~~30,318,168~~3,121,471 shares of the registrant’s common stock outstanding.

Table of Contents

AYTU BIOPHARMA, INC. FOR THE QUARTER ENDED ~~DECEMBER 31, 2021~~SEPTEMBER 30, 2022

INDEX

PART I—FINANCIAL INFORMATION

	Page
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of ~~December 31, 2021~~September 30, 2022 (unaudited) and June 30, ~~2021~~2022	46
Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~	57
Condensed Consolidated Statement of Stockholders’ Equity for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~	68
Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~	79
Notes to Condensed Consolidated Financial Statements	811

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3338

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4745

Item 4. Controls and Procedures	4745

PART II—OTHER INFORMATION
Item 1. Legal Proceedings	4846

Item 1A. Risk Factors	4846

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4847

Item 3. Defaults Upon Senior Securities	4847

Item 4. Mine Safety Disclosures	48

Item 5. Other Information	48

Item 6. Exhibits	49

SIGNATURES	50

Table of Contents

EXPLANATORY NOTE

Aytu BioPharam, Inc. ("Aytu”, “Company”, “we”, “us”, “our”) is filing this Amendment No. 1 (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the “Original Filing”), originally filed on November 14, 2022. With the exception of adjusting the shares to represent the reverse stock split on January 6, 2023 (as described below), this Amendment is presented as of the filing date of the Original Filing and does not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect the restatements as described below. Accordingly, this Amendment should be read in conjunction with our filings with the U.S. Securities and Exchange Commission (“SEC”) subsequent to the date on which we filed the Original Filing.

This Amendment to the Original Filing amends our classification of certain warrants that were previously recorded as equity. These warrants according to generally accepted accounting principles in the United States (“GAAP”) should have been classified as derivative warrant liabilities at fair value and marked to market at each reporting period, with changes in fair value recorded in earnings. The affected filing periods are the quarterly unaudited financial statements as of March 31, 2022 and September 30, 2022, and the audited financial statements as of June 30, 2022.

This Amendment includes the accounting impact in the periods as of and for the three months ended September 30, 2022, and as of June 30, 2022.

The change in accounting for the warrants did not have any impact on our liquidity, cash flows, revenues or costs of operating in the affected periods.

On January 6, 2023, the Company effected a reverse stock split in which each common stockholder received one share of common stock for every twenty shares held (“Reverse Stock Split”). All share and per share amounts in this Amendment have been adjusted to reflect the effect of the Reverse Stock Split.

We are filing this Amendment to amend and restate the Original Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:

Part I, Item 1. Consolidated Financial Statements

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

Part I, Item 4. Controls and Procedures

Part II, Item 1A. Risk Factors

Part II, Item 6. Exhibits

Refer to Note 2 - Previously Reported Financial Statements to the condensed consolidated financial statements included in this Amendment for additional information and for the summary of the accounting impacts of these adjustments to the Company’s financial statements as of and for the period ended September 30, 2022, and as of June 30, 2022.

Table of Contents

After re-evaluation, the Company’s management has concluded that in light of the errors described above, a material weakness existed in the Company’s internal control over financial reporting during the affected periods and that the Company’s disclosure controls and procedures were not effective. The Company’s remediation plan with respect to such material weakness is described in more detail in Item 4 Part 1 of this filing.

In accordance with applicable SEC rules, this Amendment includes an updated signature page and certification of our Chief Executive Officer as required by Rule 12b-15.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form ~~10-Q~~10-Q/A 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; our anticipated future cash position; our plan to acquire additional assets;~~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 plans to acquire additional assets, anticipated increases to operating ~~expenses, research and development~~ expenses, and selling, general, and administrative expenses; and future events under our current and potential future collaborations.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including without limitation the risks described in “Risk Factors” in Part II Item 1A of our most recent Annual Report on Form 10- K, and in the reports we file with the Securities and Exchange Commission. These risks are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements should not be relied upon as predictions of future events. We can provide no assurance that the events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. We assume no obligation to update or supplement forward-looking statements, except as may be required under applicable law.

This Quarterly Report on Form ~~10-Q~~10-Q/A refers to trademarks, such as Adzenys, Aytu, ~~Aytu BioPharma, Apeaz,~~ Cotempla, ~~Diabasens,~~ FlutiCare, Innovus Pharma, Neos, ~~OmepraCare,~~ Poly-Vi-Flor, ~~Regoxidine,~~ Tri-Vi-Flor, Tuzistra, ~~Urivarx, Zestra,~~ and ZolpiMist which are protected under applicable intellectual property laws and are our property or the property of our subsidiaries. This Form ~~10-Q~~10-Q/A 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~~10-Q/A 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)



					September 30,		June 30,
	(Unaudited) December 31,		June 30,		2022		2022
	2021		2021		(As Restated)
Assets
Current assets
Cash and cash equivalents	$	35,277	$	49,649	$	23,811	$	19,360
Restricted cash		—		252
Accounts receivable, net		22,989		28,176		27,924		21,712
Inventory, net		16,558		16,339		12,871		10,849
Prepaid expenses		11,298		9,780		9,024		7,375
Other current assets		1,418		1,038		785		633
Total current assets		87,540		105,234		74,415		59,929
Property and equipment, net		4,294		5,140		2,672		3,025
Operating lease right-of-use asset		3,845		3,563		2,976		3,271
Intangible assets, net		81,339		85,464		69,108		70,632
Goodwill		46,349		65,802
Other non-current assets		457		465		829		766
Total non-current assets		136,284		160,434		75,585		77,694
Total assets	$	223,824	$	265,668	$	150,000	$	137,623

Liabilities
Current liabilities
Accounts payable and other	$	15,604	$	19,255	$	14,667	$	10,987
Accrued liabilities		50,685		51,295		41,431		44,187
Accrued compensation		5,041		5,939
Short-term line of credit		7,209		7,934		8,087		3,813
Current portion of debt		16,343		16,668		925		96
Current portion of operating lease liabilities		1,173		940
Current portion of fixed payment arrangements		3,310		3,134
Current portion of CVR liabilities		—		218
Current portion of contingent consideration		1,206		4,055
Other current liabilities						8,094		5,359
Total current liabilities		100,571		109,438		73,204		64,442
Debt, net of current portion		129		180		13,560		14,279
Operating lease liabilities, net of current portion		2,716		2,624
Fixed payment arrangements, net of current portion		4,623		6,324
CVR liabilities, net of current portion		1,392		1,177
Contingent consideration, net of current portion		8,297		8,002
Derivative warrant liabilities						5,558		1,796
Other non-current liabilities		560		355		9,330		12,798
Total liabilities		118,288		128,100		101,652		93,315
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred Stock, par value $.0001; 50,000,000 shares authorized; 0 shares issued or outstanding as of December 31, 2021 and June 30, 2021		—		—
Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding 30,010,468 and 27,490,412, respectively, as of December 31, 2021 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 3,121,471 and 1,928,941, respectively, as of September 30, 2022 and June 30, 2022						—		—
Additional paid-in capital		323,231		315,864		336,127		331,386
Accumulated deficit		(217,698)		(178,299)		(287,779)		(287,078)
Total stockholders’ equity		105,536		137,568		48,348		44,308
Total liabilities and stockholders’ equity	$	223,824	$	265,668	$	150,000	$	137,623

See the accompanying Notes to the Condensed Consolidated Financial Statements

Table of Contents

AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except shares and per-share)

(Unaudited)


									Three Months Ended
									September 30,
	Three Months Ended				Six Months Ended				2022		2021
	December 31,				December 31,				(As Restated)
	2021		2020		2021		2020
Product revenue, net	$	23,125	$	15,147	$	45,022	$	28,667	$	27,655	$	21,897
Cost of sales		10,826		6,251		20,267		10,314		9,623		9,441
Gross profit		12,299		8,896		24,755		18,353		18,032		12,456

Operating expenses
Research and development		4,920		286		7,016		469		1,064		1,652
Selling and marketing		9,660		5,705		18,957		11,531		10,102		9,297
General and administrative		7,953		5,584		16,169		11,004		7,322		8,216
Acquisition related costs		—		1,312		—		1,312
Impairment of goodwill		—		—		19,453		—
Impairment expense										—		19,453
Amortization of intangible assets		1,060		1,584		2,153		3,169		1,197		1,537
Total operating expenses		23,593		14,471		63,748		27,485		19,685		40,155
Loss from operations		(11,294)		(5,575)		(38,993)		(9,132)		(1,653)		(27,699)
Other income (expense)
Other income/(expense), net		20		(379)		(20)		(1,130)
Other Income (expense)
Other expense, net										(1,111)		(40)
Loss from contingent consideration		(277)		(3,313)		(496)		(3,311)		(128)		(219)
Loss on extinguishment of debt		—		(258)		—		(258)
Total other expense		(257)		(3,950)		(516)		(4,699)
Gain on derivative warrant liabilities										2,191		—
Total other income (expense)										952		(259)
Loss before income tax		(11,551)		(9,525)		(39,509)		(13,831)		(701)		(27,958)
Income tax benefit		(3)		—		(110)		—		—		(107)
Net loss	$	(11,548)	$	(9,525)	$	(39,399)	$	(13,831)	$	(701)	$	(27,851)
Weighted average number of common shares outstanding		26,412,473		13,281,904		26,003,026		12,717,180		2,517,906		1,279,865
Basic and diluted net loss per common share	$	(0.44)	$	(0.72)	$	(1.52)	$	(1.09)	$	(0.28)	$	(21.76)

See the accompanying Notes to the Condensed Consolidated Financial Statements.

Table of Contents

AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

(Unaudited)

Three Months Ended December 31,

2021

2020


Shares

Amount

Shares

Amount
Preferred Stock

Balance beginning of period

—

$
—

—

$
—
Balance end of period

—

—

—

—
Common Stock

Balance beginning of period

27,771,912

3

12,583,736

1
Stock-based compensation

76,972

—

—

—
Issuance of common stock, net of issuance cost

2,161,584

—

5,169,076

1
Issuance of common stock related to debt conversion

—

—

130,081

—
Balance end of period

30,010,468

3

17,882,893

2
Additional Paid-In Capital

Balance beginning of period

—

317,647

—

215,378
Stock-based compensation

—

1,229

—

508
Issuance of common stock, net of issuance cost

—

4,355

—

29,588
Issuance of common stock related to debt conversion

—

—

—

1,058
Balance end of period

—

323,231

—

246,532
Accumulated Deficit

Balance beginning of period

—

(206,150)

—

(124,316)
Net loss

—

(11,548)

—

(9,525)
Balance end of period

—

(217,698)

—

(133,841)
Total stockholders' equity

30,010,468

$
105,536

17,882,893

$
112,693

Six Months Ended December 31,

2021

2020


Shares

Amount

Shares

Amount
Preferred Stock

Balance beginning of period

—

$
—

—

$
—
Balance end of period

—

—

—

—
Common Stock

Balance beginning of period

27,490,412

3

12,583,736

1
Stock-based compensation

296,972

—

—

—
Issuance of common stock, net of issuance cost

2,223,084

—

5,169,076

1
Issuance of common stock related to debt conversion

130,081

—
Balance end of period

30,010,468

3

17,882,893

2
Additional Paid-In Capital

Balance beginning of period

—

315,864

—

215,024
Stock-based compensation

—

2,748

—

963
Issuance of common stock, net of issuance cost

—

4,625

—

29,487
Issuance of common stock related to debt conversion

—

—

—

1,058
Tax withholding for stock-based compensation

—

(6)

—

—
Balance end of period

—

323,231

—

246,532
Accumulated Deficit

Balance beginning of period

—

(178,299)

—

(120,010)
Net loss

—

(39,399)

—

(13,831)
Balance end of period

—

(217,698)

—

(133,841)
Total stockholders' equity

30,010,468

$
105,536

17,882,893

$
112,693


	Three Months Ended September 30,
								Additional				Total
		Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
		Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance, July 1, 2022		—	$	—	1,928,941	$	—	$	331,386	$	(287,078)	$	44,308

Stock-based compensation		—		—	(1,666)		—		1,177		—		1,177
Issuance of common stock, net of issuance cost		—		—	1,194,196		—		3,564		—		3,564
Net loss (As Restated)		—		—	—		—		—		(701)		(701)
Balance, September 30, 2022 (As Restated)		—	$	—	3,121,471	$	—	$	336,127	$	(287,779)	$	48,348

Balance, July 1, 2021		—	$	—	1,374,520	$	—	$	315,867	$	(178,299)	$	137,568

Stock-based compensation		—		—	11,000		—		1,519		—		1,519
Issuance of common stock, net of issuance cost		—		—	3,075		—		270		—		270
Tax withholding for stock-based compensation		—		—	—		—		(6)		—		(6)
Net loss		—		—	—		—		—		(27,851)		(27,851)
Balance, September 30, 2021		—	$	—	1,388,595	$	—	$	317,650	$	(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)


	Three Months Ended
	September 30,
	2022		2021
	(As Restated)
Operating Activities
Net loss	$	(701)	$	(27,851)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, amortization and accretion		2,328		2,677
Impairment expense		—		19,453
Stock-based compensation expense		1,177		1,519
Loss from contingent consideration		128		219
Amortization of senior debt (premium) discount		145		(161)
(Gain) on sale of equipment		(42)		—
Inventory write-down		82		203
Gain on derivative warrant liabilities		(2,191)		—
Other noncash adjustments		9		(61)
Changes in operating assets and liabilities:
Accounts receivable		(6,212)		6,525
Inventory		(2,104)		(178)
Prepaid expenses and other current assets		(1,801)		279
Accounts payable and other		3,587		(9,888)
Accrued liabilities		(3,481)		3,326
Other operating assets and liabilities, net		(72)		147
Net cash used in operating activities		(9,148)		(3,791)
Investing Activities
Contingent consideration payment		—		(50)
Other investing activities		42		(36)
Net cash provided by (used in) investing activities		42		(86)
Financing Activities
Proceeds from issuance of stock and warrants		10,416		307
Payment of stock issuance costs		(793)		(21)
Payment made to fixed payment arrangement		(301)		(2,305)
Proceeds from short-term line of credit		34,791		42,212
Payments made on short-term line of credit		(30,517)		(45,626)
Payments made to borrowings		(26)		(25)
Other financing activities		(13)		(6)
Net cash provided by (used in) financing activities		13,557		(5,464)
Net change in cash, restricted cash and cash equivalents		4,451		(9,341)
Cash, cash equivalents and restricted cash at beginning of period		19,360		49,901
Cash, cash equivalents and restricted cash at end of period	$	23,811	$	40,560
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents	$	23,811	$	40,308
Restricted cash		—		252
Total cash, cash equivalents and restricted cash	$	23,811	$	40,560

See the accompanying Notes to the Condensed Consolidated Financial Statements.

Table of Contents

AYTU BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT’D

(In thousands)

(Unaudited)

Six Months Ended

December 31,


2021

2020
Operating Activities




Net loss

$
(39,399)

$
(13,831)
Adjustments to reconcile net loss to cash used in operating activities:




Depreciation, amortization and accretion

5,352

3,905
Impairment of goodwill

19,453

—
Stock-based compensation expense

2,748

963
Loss from contingent considerations

496

3,311
Amortization of senior debt (premium) discount

(326)

132
(Gain) loss on sale of equipment

(50)

112
Gain on termination of lease

—

(343)
Loss on debt extinguishment

—

258
Inventory write-down

349

99
Other noncash adjustments

(86)

148
Changes in operating assets and liabilities:

Accounts receivable

5,186

(1,973)
Inventory

(568)

(3,616)
Prepaid expenses and other current assets

(1,896)

1,817
Accounts payable and other

(3,307)

(3,136)
Accrued liabilities

(616)

1,271
Other operating assets and liabilities, net

51

(24)
Net cash used in operating activities

(12,613)

(10,907)
Investing Activities




Contingent consideration payment

(3,109)

(43)
Other investing activities

(28)

4
Net cash used in investing activities

(3,137)

(39)
Financing Activities




Proceeds from issuance of stock

4,825

32,250
Payment of stock issuance costs

(172)

(4,293)
Payment made to fixed payment arrangement

(2,746)

(2,786)
Payments made to borrowings

(89,632)

(273)
Proceeds from borrowings

88,857

—
Other financing activities

(6)

—
Net cash provided by financing activities

1,126

24,898
Net change in cash, restricted cash and cash equivalents

(14,624)

13,952
Cash, cash equivalents and restricted cash at beginning of period

49,901

48,333
Cash, cash equivalents and restricted cash at end of period

$
35,277

$
62,285
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets

Cash and cash equivalents

$
35,277

$
62,033
Restricted cash

—

252
Total cash, cash equivalents and restricted cash

$
35,277

$
62,285
Supplemental cash flow data

Cash paid for interest

$
2,356

$
307
Non-cash investing and financing activities:

Fixed payment arrangements included in accrued liabilities

$
—

$
1,050
Issuance of common stock for note conversion

$
—

$
1,058
Other noncash investing and financing activities

$
29

$
43
Warrants issued

$
—

$
356


	Three Months Ended
	September 30,
	2022		2021
Supplemental cash flow data
Cash paid for interest	$	565	$	1,688
Non-cash investing and financing activities:
Fair value of warrants at issuance, net	$	5,953	$	—
Other noncash investing and financing activities	$	146	$	16
Fixed payment arrangements included in accrued liabilities	$	—	$	525

See the accompanying Notes to the Condensed Consolidated Financial Statements.

710

Table of Contents

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 ~~commercial-stage~~ pharmaceutical company focused on commercializing novel therapeutics and consumer ~~healthcare~~health products. The Company ~~currently~~ operates through two business segments (i) the ~~Aytu BioPharma business,~~Rx segment, consisting of ~~the Company’s~~ prescription pharmaceutical products ~~(the “Rx Portfolio”),~~ and (ii) the ~~Aytu~~Consumer Health segment, which consists of various consumer healthcare products ~~business~~ (the “Consumer Health Portfolio”). The core Rx Portfolio commercial products consists primarily of prescription pharmaceutical products for the treatment of attention deficit hyperactivity disorder ("ADHD"), allergies and vitamin and fluoride deficiency. The Aytu consumer health business is focused on commercializing consumer healthcare products. 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.

On January 6, 2023, the Company effected a reverse stock split in which each common stockholder received one share of common stock for every twenty shares held (“Reverse Stock Split”). All share and per share amounts in this amended quarterly report have been adjusted to reflect the effect of the Reverse Stock Split.

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 ~~and Adzenys ER (amphetamine) extended-release oral suspension~~ for the treatment of ~~ADHD, (ii)~~attention deficit hyperactivity disorder (“ADHD”) together the “ADHD Portfolio”), 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, ~~(iii)~~and Karbinal ER, an extended-release antihistamine suspension containing carbinoxamine ~~(antihistamine) suspension~~ indicated to treat numerous allergic conditions, (iv) ZolpiMist, the only U.S. Food & Drug Administration (“FDA”) approved oral spray prescription sleep aid, (v) Tuzistra XR, the only FDA-approved 12-hour codeine-based antitussive syrup and (vi) a generic Tussionex (hydrocodone and chlorpheniramine) (“generic Tussionex”), extended-release oral suspension for the treatment of cough and upper respiratory symptoms of a cold. Adzenys ER was discontinued as of September 30, 2021.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 utilizing the Company's proprietary Beyond Human marketing and sales platform and on e-commerce platforms.~~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 ~~late-stage pipeline focused~~result of focusing on ~~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 ~~December 31, 2021,~~September 30, 2022, the Company had approximately ~~$35.3~~$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 ~~$11.5~~$0.7 million and ~~$9.5~~$27.9 million during the three months ended ~~December 31,~~September 30, 2022 and 2021, ~~and 2020, respectively, and $39.4 million and $13.8 million for the six months ended December 31, 2021 and 2020,~~ respectively. The Company had an accumulated deficit of ~~approximately $217.7~~$287.8 million and ~~$178.3~~$287.1 million as of ~~December 31, 2021~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. Cash used in operations was ~~approximately $12.6~~$9.1 million and ~~$10.9~~$3.8 million during the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021, ~~and 2020,~~ respectively.

In August 2022, the Company completed an underwritten public offering of (i) 1,075,290 shares of its common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 87,500 shares of its common stock, and (ii) accompanying warrants (the "Common Warrants") to purchase 1,265,547 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 September 30, 2022 to cover its cash needs for the twelve months following the filing date of this Quarterly Report on Form 10-Q/A, there exists substantial

Table of Contents

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.

Management plans to ~~focus~~mitigate the conditions that raise substantial doubt about its ability to continue as a going concern are primarily focused on ~~executing on its business plan or otherwise~~increasing revenue, reducing ~~its~~ expenses ~~renegotiating its debt facilities, or~~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, ~~through possible public or private equity offerings, debt financings, or other means;~~ 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.

~~As of the date of this Report,~~ Alternatively, any efforts by the Company ~~expects~~to reduce its ~~costs for operations~~expenses may adversely impact its ability to ~~increase as~~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 that the Company integrates the Neos acquisition, invests in new product development, and continues to focus on revenue growth through increasing product sales and making additional acquisitions. The Company’s current assets totaling approximately $87.5 million as of December 31, 2021 and the proceeds expected from ongoing product sales will be ~~used to fund existing~~

~~Table of Contents~~

operations. The Company may continue to access the capital markets from time-to-time. The timing and amount of capital that may be raised is dependent on the terms and conditions upon which investors would require to provide such capital. There is no guarantee that capital will be available on terms favorable to the Company andsuccessful in implementing its ~~stockholders, or at all.~~

~~The Company believes it has sufficient cash on-hand as of December 31, 2021 to cover potential net cash outflows for at least the twelve months following the filing date of this Quarterly Report.~~

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

Basis of Presentation. The unaudited condensed consolidated financial statements contained in this ~~report~~Quarterly Report on Form 10-Q/A represent the financial statements of the Company and its wholly owned ~~subsidiaries, Innovus Pharmaceuticals, Inc., Aytu Therapeutics, LLC and Neos Therapeutics, Inc.~~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 ~~December 31, 2021~~September 30, 2022 are not necessarily indicative of expected operating results for the full year or any future year. ~~The information presented throughout this report,~~

Also see Note 2 – Previously Reported Financial Statements relating to the immaterial correction of an error in the condensed consolidated balance sheet and the condensed consolidated statement of stockholders’ equity for as of ~~December 31, 2021~~June 30, 2022.

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 ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020, is unaudited.~~or its financial position as of September 30, 2022 or June 30, 2022.

Table of Contents

2. Significant Accounting Policies

Use of Estimates

~~The preparation of financial statements in conformity with U.S. GAAP requires management to make~~Management uses estimates and assumptions ~~that affect the reported~~relating to reporting amounts of assets and liabilities, ~~and~~ 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, ~~impairment,~~ 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, classification of warrants equity versus liability, and valuation of derivative warrant 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~~Previously Reported Financial Statements

~~Certain prior year amounts~~The classification of certain of the Company’s warrants were previously recorded as equity. These warrants according to GAAP should have been classified as derivative warrant liabilities at fair value and marked to market at each reporting period, with changes in fair value recorded in earnings. The affected filing periods are the quarterly unaudited financial statements as of March 31, 2022 and September 30, 2022, and the audited financial statements as of June 30, 2022.

SEC Staff Accounting Bulletin No. 99, “Materiality,” and FASB, Statement of Financial Accounting Concepts No. 2 “Qualitative Characteristics of Accounting Information” indicate that quantifying and aggregating errors is only the beginning of an analysis of materiality and that both quantitative and qualitative factors must be considered in determining whether individual errors are material. The Company evaluated the corrections and have determined that the impact was not material for the periods ended March 31, 2022 and June 30, 2022, but is material for the period ended September 30, 2022. The assessment resulted in the ~~consolidated balance sheets,~~amendment of the previously reported financial statements ~~of earnings and statements of cashflows have been reclassified to conform to the current year presentation, including a reclassification made~~reported in the ~~presentation~~Company’s first quarter of ~~FDA fees for commercialized product. This was previously~~2023 Form 10-Q. The balance sheet as at June 30, 2022 included in ~~general and administrative expenses and now is recorded as a component~~this amended Form 10-Q/A has been adjusted for the immaterial correction of ~~cost of sales on the consolidated statements of earnings. These reclassifications did not affect operating earnings or other consolidated~~this error. In addition, financial statements for the ~~three~~period ended March 31, 2022 and ~~six months ended December 31, 2021 and 2020.~~

~~Table of Contents~~

~~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 six months ended December 31, 2021. The impairment of the Aytu BioPharma segment book goodwill changed the net deferred tax liability of $0.2 million recorded as of June 30, 2021 fiscal year end into a net deferred tax liability of $0.1 million as of December 31, 2021. As a result, the Company recognized an income tax benefit of $0.1 million during the six months ended December 31, 2021. There was 0 income tax expense or benefit during the three and six months ended December 31, 2020.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~Financial Instruments~~ – ~~Credit Losses (~~“~~ASU 2016-13~~”). In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard was effective for interim and annual reporting periods beginning after December 15, 2019. However, in October 2019, the FASB approved deferral of the adoption date for smaller reporting companies for fiscal periods beginning after December 15, 2022. Accordingly, the Company’s fiscal year of adoption will be the fiscal year ended June 30, 2024. The Company is assessing the impact that ASU 2016-13 will have on its consolidated financial statements.

~~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. There~~2022 will be adjusted at the time of their reissuance.

The condensed consolidated financial statements and certain of the notes to the condensed consolidated financial statements as of and for the three months ended September 30, 2022 have been ~~no significant changes~~restated to reflect the corrections. The impact of the restatement for the period ended September 30, 2022 is shown in the tables below and did not change the Company’s ~~significant accounting policies during the six months ended December 31, 2021.~~reported total assets, cash and cash equivalents, operating expenses, operating losses or cash flows from operations.


	As of September 30, 2022
	As Previously
	Reported		Adjustment		As Restated

	(in thousands)
Derivative warrant liability	$	—	$	5,558	$	5,558
Total liabilities		96,094		5,558		101,652
Additional paid-in capital		345,253		(9,126)		336,127
Accumulated deficit		(291,353)		3,574		(287,779)
Total stockholders’ equity		53,906		(5,558)		48,348

~~3. Acquisitions~~

~~Neos Merger~~

On March 19, 2021, the Company acquired Neos Therapeutics, Inc. (“Neos”), a commercial-stage pharmaceutical company developing and manufacturing central nervous system-focused products (the “Neos Merger”) after approval by the stockholders of Neos on March 18, 2021 and the approval of the consideration to be delivered by the Company in connection with the merger by the shareholders of Aytu, also on March 18, 2021. Upon the effectiveness of the Neos Merger, a subsidiary of the Company merged with and into Neos, and all outstanding Neos common stock was exchanged for approximately 5,472,000 shares of the Company’s common stock. The Company pursued the acquisition of Neos in order to gain scale in the industry, expand its product portfolio and as an opportunity to potentially accelerate the pathway to breakeven. The Company incurred in relation to the Neos Merger (i) approximately $2.9 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.

~~Table of Contents~~

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

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
Estimated fair value per share of Aytu common stock

$
9.73
Estimated 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 values of intangible assets were determined using variations of the cost approach, excess earnings method and the relief-from-royalties method. The fair value of Neos trade name, in-process R&D and developed product technology, which is the proprietary technology for the development of Adzenys XR-ODT, Adzenys ER, Cotempla XR-ODT and generic Tussionex, were determined using the relief from royalty method. The fair value of developed technology right, which is a proprietary modified-release drug delivery technology, was determined using multi-period excess earnings method. The fair value of RxConnect, which is a developed technology for the Neos-sponsored patient support program that offers affordable and predictable copays to all commercially insured patients, was determined using cost to recreate method. The finite-lived intangible assets are being amortized over a range of between 1 to 18 years.

~~Table of Contents~~

~~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

~~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:

Six Months Ended

December 31,


2021

2020

Pro forma

Unaudited

Unaudited

(In thousands)
Total revenues, net

$
45,022

$
52,331
Net loss

$
(39,399)

$
(23,037)

~~Rumpus Acquisition~~

On April 12, 2021, the Company entered into an asset purchase agreement with Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, Rumpus Vascular, LLC (together with Rumpus VEDS, LLC and Rumpus Therapeutics LLC, “Rumpus”) pursuant to which the Company acquired certain rights and other assets, including key commercial global licenses, relating primarily to the pediatric-onset rare disease development asset enzastaurin (now referred to as AR101), which is a pivotal study-ready therapeutic being studied for the treatment of vascular Ehlers-Danlos Syndrome (“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, 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. AR101 (enzastaurin) is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor of the PKC beta, PI3K and AKT pathways (see Note 12 and Note 17).

~~4. Revenue Recognition~~

~~Contract Balances~~. Contract assets primarily relate to the Company’s right to consideration in exchange for products transferred to a customer in which that right to consideration is dependent upon the customer selling these products. There was 0 contract asset as of December 31, 2021. As of June 30, 2021, contract assets of $21,000 was included in other current assets in the condensed consolidated balance sheet. Contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. As of December 31, 2021 and June 30, 2021, contract liabilities of $0.2 million were included in accrued liabilities in the consolidated balance sheet.

1213

Table of Contents


	Three Months Ended
	September 30, 2022
	As Previously
	Reported		Adjustment		As Restated

	(in thousands)
Statement of Operation data
Gain on derivative warrant liabilities	$	—	$	2,191	$	2,191
Total other (expense) income		(1,228)		2,180		952
Loss before income tax		(2,881)		2,180		(701)
Net loss		(2,881)		2,180		(701)
Basic and diluted net loss per common share		(1.14)		0.86		(0.28)


Statement of Cash Flow data
Net loss	$	(2,881)	$	2,180	$	(701)
Gain on derivative warrant liabilities		—		2,191		2,191

Net loss by segment
Rx Segment	$	(2,054)	$	2,180	$	126
Consumer Health Segment		(827)		—		(827)
Consolidated net loss		(2,881)		2,180		(701)

The condensed consolidated balance sheet and the condensed consolidated statement of stockholders’ equity as of June 30, 2022 have been adjusted for comparative purposes. The impact of the immaterial correction of an error for as of June 30, 2022 is shown in the table below.


	As of June 30, 2022
	As Previously
	Reported		Adjustment		As Adjusted

	(in thousands)
Derivative warrant liability	$	—	$	1,796	$	1,796
Total liabilities		91,531		1,784		93,315
Additional paid-in capital		334,560		(3,174)		331,386
Accumulated deficit		(288,472)		1,394		(287,078)
Total stockholders’ equity		46,092		(1,784)		44,308

Warrants

The Company ~~disaggregated~~accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Liability and equity classified warrants are valued using either a Black-Scholes option model or Monte Carlo simulation model at issuance and for each reporting period when applicable.

Table of Contents

Income Taxes

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, 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 the Company with respect to the asset. If the Company changes strategies related to the 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 discontinued if contract modifications are made on or before December 31, 2022. The Company adopted the guidance effective 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 adoption of this standard did 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

Table of Contents

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, 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 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, 2022. There have been no significant changes to the Company’s significant accounting policies during the three months ended September 30, 2022.

3. Revenues from Contracts with Customers

Contract Balances. Contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue ~~into 3 product portfolios. The primary care portfolio~~ is ~~composed~~recognized. As of ~~ZolpiMist~~September 30, 2022 and ~~Tuzistra. The pediatric portfolio is composed~~June 30, 2022, contract liabilities of ~~Adzenys XR-ODT, Cotempla XR-ODT Poly-Vi-Flor, Tri-Vi-Flor, Karbinal ER~~$0.1 million and ~~a generic Tussionex. The Consumer Health portfolio is composed of consists of over 20 consumer health products competing~~$0.4 million, respectively were included in ~~large healthcare categories.~~accrued liabilities in the consolidated balance sheet.

Revenues by Product Portfolio. Net revenue disaggregated by significant product portfolio for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~ were as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	December 31,				December 31,				September 30,
	2021		2020		2021		2020		2022		2021

					(In thousands)
Primary care portfolio	$	192	$	4,097	$	617	$	7,130
Pediatric portfolio		14,451		3,115		27,909		5,834
Consumer Health portfolio		8,482		7,935		16,496		15,703
ADHD Portfolio									$	11,585	$	9,327
Pediatric Portfolio										6,558		3,798
Consumer Health Portfolio										9,003		8,014
Other										509		758
Consolidated revenue	$	23,125	$	15,147	$	45,022	$	28,667	$	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				Six Months Ended				Three Months Ended
	December 31,				December 31,				September 30,
	2021		2020		2021		2020		2022		2021

					(In thousands)				(In thousands)
U.S.	$	22,547	$	13,757	$	43,653	$	25,901	$	27,476	$	21,106
International		578		1,390		1,369		2,766		179		791
Total net revenue	$	23,125	$	15,147	$	45,022	$	28,667	$	27,655	$	21,897

Table of Contents

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 ~~write-down~~charge to reduce the value of the inventory to net realizable value in the period that the impairment is first recognized. The Company ~~wrote down~~incurred charges of $0.1 million and $0.2 million to reduce the carrying value of inventory to net realizable value during the three months ended ~~December 31,~~September 30, 2022 and 2021, ~~and $0.3 million and $0.1 million during the six months ended December 31, 2021 and 2020,~~ respectively. ~~There was 0 inventory write-down during the three months ended December 31, 2020.~~

Inventory balances consist of the following:



		December 31,		June 30,			September 30,		June 30,
		2021		2021			2022		2022

	(In thousands)					(In thousands)
Raw materials		$	2,427	$	2,269		$	2,113	$	1,814
Work in process			2,173		3,346			2,374		1,838
Finished goods			11,958		10,724			8,384		7,197
Inventory, net		$	16,558	$	16,339		$	12,871	$	10,849

5. Property and Equipment

Properties and equipment are recorded at cost ~~to place into service~~ and ~~once placed in service, are~~ depreciated on a straight-line basis over the assets estimated ~~useful lives.~~economic life. Leasehold improvements are amortized over the shorter of the estimated economic life or ~~related~~remaining lease term.

Property and equipment consist of 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.

1317

Table of Contents

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

December 31,

June 30,

2021

2021

(In thousands)
Manufacturing equipment

$
3,076

$
3,070
Leasehold improvements

999

959
Office equipment, furniture and other

1,099

1,093
Lab equipment

832

832
Assets under construction

128

198
Less accumulated depreciation and amortization

(1,840)

(1,012)
Property and equipment, net

$
4,294

$
5,140

Depreciation and amortization expense was $0.4 million and $18,000 for the three months ended December 31, 2021 and 2020, respectively, and $0.8 million and $0.1 million for the six months ended December 31, 2021 and 2020, respectively. During the three and six months ended December 31, 2021, the Company recognized a gain of $0.1 million on sale of equipment. There was 0 disposal of property and equipment during the three months ended December 31, 2020. During the six months ended December 31, 2020, the Company recognized a loss of $0.1 million on sale of equipment due to termination of leases.

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.

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


	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

Supplemental balance sheet information related to leases is as follows:


	September 30,		June 30,		Balance Sheet Classification
	2022		2022

	(In thousands)
Assets:
Operating lease assets	$	2,976	$	3,271	Operating lease right-of-use asset
Finance lease assets		238		256	Property and equipment, net
Total leased assets	$	3,214	$	3,527
Liabilities:
Current:
Operating leases	$	1,252	$	1,227	Other current liabilities
Finance leases		92		96	Current portion of debt
Non-current
Operating leases		1,768		2,090	Other non-current liabilities
Finance leases		62		84	Debt, net of current portion
Total lease liabilities	$	3,174	$	3,497

Remaining lease term and discount rate used are as follows:


	September 30,			June 30,
	2022			2022
Weighted-Average Remaining Lease Term (years)
Operating lease assets		2.39			2.63
Finance lease assets		1.48			1.73
Weighted-Average Discount Rate
Operating lease assets		7.54	%		7.48	%
Finance lease assets		6.43	%		6.43	%

Table of Contents

Supplemental cash flow information related to lease is as follows:


	Three Months Ended
	September 30,
	2022		2021

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

As of September 30, 2022, the ~~closing~~maturities of the ~~Neos Merger on March 19, 2021, Neos recognized operating lease ROU asset and~~ ~~lease liability~~ of $3.5 million, which represented the present value of the remaining lease payments as of the acquisition date, for its office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, Neos used its estimated borrowing rate of 6.7% to determine the present value ofCompany’s future ~~lease payments. The finance leases are related to Neos equipment finance leases with fixed contract terms and an implicit interest rate of approximately 5.9%.~~

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 Neos’ estimated borrowing rate of 6.25%.~~were as follows:


	Operating		Finance

	(In thousands)
2023 (remaining 9 months)	$	1,079	$	75
2024		1,379		87
2025		749		—
2026		90		—
2027		46		—
Total lease payments		3,343		162
Less: Imputed interest		(323)		(8)
Lease liabilities	$	3,020	$	154

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%.~~

1419

Table of Contents

7. Goodwill and Other Intangible Assets

There were no impairments of intangible assets during the three months ended September 30, 2022.

During the three months ended September 30, 2021, the Company’s market capitalization significantly declined. As a result of the decline in market capitalization and qualitative and quantitative analysis the Company recognized an impairment of goodwill of $19.5 million.

The ~~components~~following table provides the summary of ~~lease expenses are~~the Company’s intangible assets as ~~follows:~~of September 30, 2022 and June 30, 2022, respectively.

Three Months Ended

Six Months Ended

December 31,

December 31,


2021

2020

2021

2020

Statement of Operations Classification

(In thousands)

Lease cost:

Operating lease cost

$
330

$
30

$
626

$
125

Operating expenses
Short-term lease cost

26

2

65

5

Operating expenses
Finance lease cost:

Amortization of leased assets

19

—

37

—

Cost of sales
Interest on lease liabilities

4

—

8

—

Other (expense), net
Total net lease cost

$
379

$
32

$
736

$
130


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

	(In thousands)
Definite-lived intangibles:
Acquired product technology rights		45,400		(8,471)		(3,224)		33,705	12.04
Acquired technology right		30,200		(2,722)		—		27,478	15.50
Acquired product distribution rights		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
Total	$	89,554	$	(15,050)	$	(5,396)	$	69,108	13.10


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

	(In thousands)
Definite-lived intangibles:
Acquired product technology rights	$	45,400	$	(7,667)	$	(3,224)	$	34,509	12.33
Acquired technology right		30,200		(2,278)		—		27,922	15.75
Acquired product distribution rights		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
Total	$	94,220	$	(16,530)	$	(7,058)	$	70,632	13.35

~~Supplemental balance sheet information related to leases is as follows:~~

December 31,

June 30,

Balance Sheet Classification

2021

2021

(In thousands)

Assets:

Operating lease assets

$
3,845

$
3,563

Operating lease right-of-use asset
Finance lease assets

292

329

Property and equipment, net, net
Total leased assets

$
4,137

$
3,892

Liabilities:

Current:

Operating leases

$
1,173

$
940

Current portion of operating lease liabilities
Finance leases

103

102

Current portion of debt
Non-current

Operating leases

2,716

2,624

Operating lease liabilities, net of current portion
Finance leases

129

180

Debt, net of current portion
Total lease liabilities

$
4,121

$
3,846

~~Remaining lease term and discount rate used are as follows:~~

December 31,

June 30,

2021

2021

Weighted-Average Remaining Lease Term (years)

Operating lease assets

3.09

3.42

Finance lease assets

2.23

2.72

Weighted-Average Discount Rate

Operating lease assets

7.39
%

6.62
%
Finance lease assets

6.43
%

6.41
%

~~Supplemental cash flow information related to lease is as follows:~~

Six Months Ended

December 31,

2021

2020

(In thousands)
Cash flow classification of lease payments:

Operating cash flows from operating leases

$
585

$
125
Operating cash flows from finance leases

$
8

$
—
Financing cash flows from finance leases

$
50

$
—

1520

Table of Contents

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

Operating

Finance

(In thousands)
2022 (remaining 6 months)

$
708

$
59
2023

1,436

104
2024

1,379

87
2025

749

—
2026

90

—
2027

46

—
Total lease payments

4,408

250
Less: Imputed interest

(519)

(18)
Lease liabilities

$
3,889

$
232

~~8. Goodwill and Other Intangible Assets~~

Since the June 30, 2021 annual goodwill impairment assessment, the Company’s stock price has continued to decline. During the three months ended September 30, 2021, the continued decline was considered a qualitative factor that led Management to reassess as to whether it is more likely than not that the fair value of one or more of the Company’s reporting units is greater than its carrying value. Management’s evaluation of the first step indicated that its Aytu BioPharma segment’s goodwill was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the segment and comparing it 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. Due to the decline in stock price this was an indicator of increased risk primarily increasing the discount rates in the valuation models. The Company determined the fair value of the reporting segment utilizing the discounted cash flow model. As a result of the continued decline in its stock price, the Company risk adjusted its cost of equity, which increased the over-all discount rate. As of September 30, 2021, utilizing the risk adjusted weighted-average discount rate, the fair value of Aytu BioPharma segment was less than its carrying value. As a result, the Company recognized an impairment loss of $19.5 million related to the Aytu BioPharma segment. The quantitative test indicated there was no impairment to the Aytu Consumer Health segment as it resulted in an implied fair value of $5.9 million compared with the $0.5 million carrying value. There was 0 such impairment during the three months ended December 31, 2021.

~~The Aytu Consumer Health segment, which has $8.6~~ ~~million goodwill from the March 2020 Innovus merger, reported~~ ~~$1.5 million negative carrying value as of December 31, 2021.~~

~~The change in carrying amount of goodwill by reportable segment is as follows:~~

Aytu BioPharma

Aytu 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 December 31, 2021

$
37,712

$
8,637

$
46,349

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

~~Table of Contents~~

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

December 31, 2021

Weighted-

Average

Gross

Net

Remaining

Carrying

Accumulated

Carrying

Life (in


Amount

Amortization

Amount

years)

(In thousands)
Licensed assets

$
3,246

$
(1,662)

$
1,584

3.42
Acquired product technology right

45,400

(5,963)

39,437

12.44
Acquired technology right

30,200

(1,390)

28,810

16.25
Acquired product distribution rights

11,354

(2,827)

8,527

8.09
Acquired in-process R&D

2,600

—

2,600

Indefinite-lived
Acquired commercial technology

630

(493)

137

0.25
Acquired trade name

400

(156)

244

1.25
Acquired customer lists

390

(390)

—

—
Total

$
94,220

$
(12,881)

$
81,339

13.13

June 30, 2021

Weighted-

Average

Gross

Remaining

Carrying

Accumulated


Net Carrying

Life (in


Amount

Amortization

Amount

years)

(In thousands)
Licensed assets

$
3,246

$
(1,430)

$
1,816

3.92
Acquired product technology right

45,400

(4,160)

41,240

12.88
Acquired technology right

30,200

(501)

29,699

16.75
Acquired product distribution rights

11,354

(2,073)

9,281

8.57
Acquired in-process R&D

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
Total

$
94,220

$
(8,756)

$
85,464

13.47

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


	December 31,		September 30,
	(In thousands)		(In thousands)
2022 (remaining 6 months)	$	3,914
2023		7,489
2023 (remaining 9 months)			$	4,563
2024		7,333		6,074
2025		7,099		5,934
2026		6,331		5,683
2027		6,301		5,652
2028				5,552
Thereafter		40,272		33,050
Total future amortization expense	$	78,739	$	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.

Table of Contents

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~~

~~Table of Contents~~

~~$1.6~~$1.5 million for the three months ended ~~December 31, 2021~~September 2022 and ~~2020, respectively, and $4.1~~$2.1 million ~~and $3.2 million for~~during the ~~six~~three months ended ~~December 31,~~September 30, 2021, ~~and 2020,~~ respectively.

9.8. Accrued liabilities

Accrued liabilities consist of the following:

December 31,

June 30,

2021

2021

(In thousands)
Accrued program liabilities

$
10,515

$
8,689
Accrued product-related fees

1,637

2,501
Accrued savings offers

17,995

20,148
Accrued distributor fees

3,156

2,710
Accrued liabilities for trade partners

4,120

5,421
Accrued option exercise and milestone fees

3,050

600
Medicaid liabilities

1,258

1,714
Return reserve

5,781

6,367
Other accrued liabilities*

3,173

3,145
Total accrued liabilities

$
50,685

$
51,295


	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 Company’s patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted.

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

Other accrued liabilities consist of accrued license fees, legal settlements, professional fees, credit card liabilities, taxes payable, ~~accounting fee,~~and samples expense.

9. Other Liabilities


	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		815
Total other liabilities		17,424		18,157
Less: current portion		(8,094)		(5,359)
Total other liabilities, noncurrent	$	9,330	$	12,798

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 ~~consultants’ fees, none~~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 ~~individually represent greater than five percent~~$15.0 million was paid down early in June 2021. Monthly variable payments due to the same investor are equal to 15.0% of ~~total current liabilities~~net revenue generated from a subset of the Pediatric Portfolio, subject to an aggregate monthly minimum of

Table of Contents.

$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.

~~10. Debt~~

~~The Neos Revolving Loan.~~On ~~October 2, 2019, Neos~~June 21, 2021, the Company entered into a ~~senior~~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 $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.

Table of Contents

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 ~~“Loan~~“Eclipse Loan Agreement”). Under the Eclipse Loan Agreement, Eclipse ~~will extend~~extended up to $25.0 million in secured revolving loans to Neos (the “Revolving Loans”), of which up to $2.5 million ~~may be~~was available for short-term swingline loans, against 85% of eligible accounts receivable. The Revolving Loans ~~bear~~thereunder accrued at variable interest through maturity at the one-month ~~London Interbank Offered~~Secure Overnight Financing Rate (“~~LIBOR”~~SOFR”), plus 4.50%. ~~In addition, Neos is required to pay~~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 iswas May 11, 2022.

In connection with the Avenue Capital Agreement, described in Note 11— 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

Table of Contents

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

In the event that, for any reason, all or any portion of the ~~lender’s commitment to make revolving loans~~Eclipse Loan Agreement is terminated prior to the scheduled maturity date, in addition to the payment of ~~the~~all outstanding principal ~~amount~~ and ~~all~~ unpaid accrued interest, ~~and other amounts due thereon, Neos~~the Company is required to pay ~~to the lender~~ a ~~prepayment~~ fee equal to ~~0.5%~~(i) 2.0% of the ~~revolving loan~~Revolving Loans commitment if such event occurs ~~prior to May 11, 2022. Neos~~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 ~~revolving loan facility~~Eclipse Loan Agreement at any time with at least five business days prior ~~notice.~~notice to Eclipse.

The Eclipse Loan Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the ~~Loan Agreement,~~agreement, including covenants and restrictions that, among other things, require ~~Neos~~the Company to satisfy certain capital expenditure limitations and other financial covenants, and restrict ~~Neos’~~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 Lenders.~~Eclipse. A failure to comply with these covenants could permit ~~the Lenders~~Eclipse to declare ~~Neos’~~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.

~~In connection~~ As of September 30, 2022, the Company was in compliance with the ~~closing~~covenants under the Eclipse Loan Agreement as amended.

The Company’s obligations under the Eclipse Loan Agreement are secured by substantially all of the ~~Neos Merger, Neos~~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.

Total interest expense on the Revolving Loans, including amortization of deferred financing costs, was $0.1 million for both the three months ended September 30, 2022 and 2021. As of September 30, 2022 and June 30, 2022, the outstanding Revolving Loans under the Eclipse Loan Agreement, as amended, were $8.1 million and $3.8 million, respectively.

11. Long-term Debt

Avenue Capital Loan: On January 26, 2022 (“Closing Date”), the Company entered into a ~~Consent, Waiver~~Loan and ~~First Amendment~~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 ~~Loan~~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 ~~dated as~~were used towards the repayment of ~~March 19, 2021 (the “Eclipse Consent, Waiver and Amendment”).~~ the Deerfield Facility.

Pursuant to the ~~Consent, Waiver~~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 ~~First Amendment, Eclipse~~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 twelve months provided, the Company has achieved, prior to December 31, 2023, (i) ~~irrevocably waives~~Interest-only Milestone 1 and (ii) a specified amount of trailing 12 months revenue (“Interest-only Milestone 2”) as of the ~~right to impose the default rate~~date of determination. See Note 20 Subsequent Events for further detail on extension of interest ~~solely~~only period.

In the event the Company prepays the outstanding principal prior to the ~~extent resulting from~~maturity date, the ~~inclusion~~Company will pay Avenue Capital a fee equal to (i) 3.0% of ~~a "going concern" qualification in~~ the ~~audited financial statements~~loan if such event occurs on or before January 26, 2023, (ii) 2.0% of ~~Neos on a consolidated basis for the fiscal year ending December 31, 2020 (the “Specified Default), (ii)~~ the

1825

Table of Contents

~~right to impose the Default Rate of interest under Section 3.1~~loan if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 1.0% of the ~~Loan Agreement, or to collect interest accruing at~~loan if such Default Rate that Lenders had a lawful right to collect or apply with respect to any such Specified Default, and (iii) makes certain other modifications to the Eclipse Loan Agreement to reflect the consummation of the Neos Merger and the status of Neos as a wholly-owned subsidiary of Aytu, in each case subject to the terms and conditions of the Eclipse Consent, Waiver and Amendment.

The interest expense was $0.2 million and $0.3 million for the three and six months ended December 31, 2021, respectively. As of December 31, 2021 $7.2 million borrowing was outstanding under the Revolving Loan and Neos was in compliance with the covenants under the Loan Agreement as amended.

~~The Neos Senior Secured Credit Facility.~~ ~~On May 11, 2016, Neos entered into a $60.0 million senior secured credit facility (the “Facility”) with Deerfield Private Design Fund III, L.P. (66 2/3%~~ ~~of Facility) and Deerfield Partners, L.P. (33 1/3%~~ of Facility) (collectively, “Deerfield”). As of March 19, 2021, the date of the Neos Merger, the remaining principal on the Facility was $15.6 million, with $0.6 million due on April 11, 2021 and with a final payment of principal, interest and all other obligations under the Facility due May 11, 2022.event occurs after January 26, 2024 but before January 26, 2025. In addition, upon the payment in full of the ~~Obligations (whether voluntarily, in the connection with a Change of Control or an Event of Default and whether before, at the time of or after the Maturity Date),~~obligations, the Company shall pay to ~~Deerfield~~Avenue Capital a ~~non-refundable exit~~ fee in the amount of ~~approximately $1.0~~$0.6 million ~~which shall be due and payable in cash. Interest is due quarterly beginning in June 2021, at a rate of 12.95% per year. Borrowings~~(“Final Payment”).

The Company’s obligations under ~~the Facility~~Avenue Capital Agreement are ~~collateralized~~secured by substantially all of ~~Neos’~~the Company’s assets, ~~except assets under finance lease. If all or any~~with a first priority lien in favor of the ~~principal are prepaid or required to be prepaid prior to December 31, 2021, then~~Avenue Capital Agent on the ~~Company shall pay,~~Term Loan Priority Collateral, and a second priority lien in ~~addition to such prepayment and accrued interest thereon, a prepayment premium equal to 6.25%~~favor of the ~~amount~~Avenue Capital Agent on the ABL Priority Collateral, as each is defined in the Intercreditor Agreement, as defined in the Avenue Capital Agreement.

The Avenue Capital Agreement contains customary affirmative covenants, negative covenants and events of ~~principal prepaid. The terms of~~default, as defined in the ~~Facility~~agreement, including covenants and restrictions that, among other things, require the Company to ~~maintain cash~~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 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 $24.20 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 $24.20 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 ~~deposit~~January 31, 2027.

On March 7, 2022, the Company closed on an equity offering of ~~not less~~shares of common stock and warrants, as described in Note 14 – Capital Structure, at an offering price of $25.00 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 ~~$5.0 million.~~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 43,388 at an exercise price of $24.20 (see Note 16 – Warrants).

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 includes debt discount amortization, was $0.6 million and $0 million for the three months ended September 30, 2022 and 2021, respectively.

Long-term debt consists of the ~~following;~~following:


	December 31,		June 30,		September 30,
	2021		2021		2022

	(In thousands)				(In thousands)
Neos senior secured credit facility, due on May 11, 2022	$	15,000	$	15,000
Exit fee		1,000		1,000
Unamortized premium		240		566
Long-term debt, due on January 26, 2025					$	15,000
Long-term, final payment fee						638
Unamortized discount and issuance costs						(1,306)
Financing leases, maturing through May 2024		232		282		154
Total debt		16,472		16,848		14,485
Less: current portion		(16,343)		(16,668)		(925)
Non-current portion of debt	$	129	$	180	$	13,560

In connection with the Neos Merger, Neos and Deerfield entered into a Consent, Waiver and Sixth Amendment to the Facility, dated as of March 19, 2021 (the “Deerfield Consent, Waiver and Amendment”). Pursuant to the Consent, Waiver and Sixth Amendment, Deerfield (i) consented to certain amendments to the Eclipse loan documents, (ii) irrevocably waive the Going Concern Conditions as described in the Deerfield Consent, Waiver and Amendment and their right to impose the default rate of interest as provided for in the Facility as of May 11, 2016, or to collect interest accruing at such default rate of interest, that the Lenders had a lawful right to collect or apply with respect to any such Event of Default for failure to satisfy such Going Concern Condition, (iii) subject the Company and its subsidiaries to certain restrictive covenants including limitations on the incurrence of debt, granting of liens and transfers of assets of the Company and its subsidiaries and (iv) makes certain other modifications to the Facility to reflect the consummation of the Neos Merger and the status of Neos as a wholly-owned subsidiary of the Company. Such modifications also include the prepayment of $15.0 million by the Company of the principal of the loan that was otherwise due on May 11, 2021 plus any accrued interest thereon through March 19, 2021, plus a make-whole payment equal to the interest that would otherwise have been due on that $15.0 million for the period beginning March 19, 2021 through May 11, 2021. The Sixth Amendment also eliminated the right of Deerfield to convert outstanding amounts of the loans into conversion shares and the right of Neos to make payments to Deerfield in the form of shares of common stock. The Company is a guarantor under the Facility.

1926

Table of Contents

Pursuant to the terms of the Facility, as amended, the $15.0 million principal prepayment was paid in cash on March 19, 2021, and the carrying amount of the remaining outstanding debt was $16.6 million. As the Neos Merger was accounted for as a business combination, Neos evaluated and determined that the fair value of the remaining outstanding debt was $17.4 million as of March 20, 2021. Accordingly, Neos recorded a premium of $0.8 million, which is the difference between carrying amount and the fair value of the debt and is being amortized into interest expense using the effective interest method over the remaining term of the debt. As of December 31, 2021, the Company was in compliance with the covenants under the Facility as amended. Total interest expense on the Facility, net of premium amortization, was $0.4 million and $0.7 million for the three and six months ended December 31, 2021, respectively.

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


	December 31,		September 30,
	(In thousands)		(In thousands)
2022	$	16,104
2023		89	$	92
2024		39		8,395
2025				7,304
Future principal payments		16,232		15,791
Add unamortized premium		240
Less unamortized discount and issuance costs				(1,306)
Less current portion		(16,343)		(925)
Non-current portion of debt	$	129	$	13,560

~~11.~~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 and derivative warrant liabilities 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 which are measured at fair value on a recurring basis 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.

2027

Table of Contents

~~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 December 31, 2021 and June 30, 2021, by level within the fair value hierarchy.

Fair Value Measurements at December 31, 2021

Quoted

Priced in

Active

Markets

Significant

for

Other

Significant

Identical

Observable

Unobservable


Fair Value at December 31,

Assets

Inputs

Inputs

2021

(Level 1)

(Level 2)

(Level 3)

(In thousands)
Assets:

Cash and cash equivalents

$
35,277

$
35,277

$
—

$
—
Total

$
35,277

$
35,277

$
—

$
—
Liabilities:

Contingent consideration

$
9,503

$
—

$
—

$
9,503
CVR liability

1,392

—

—

1,392
Total

$
10,895

$
—

$
—

$
10,895

Fair Value Measurements at June 30, 2021

Quoted

Priced in

Active

Markets

Significant

for

Other

Significant

Identical

Observable

Unobservable


Fair Value at June 30,

Assets

Inputs

Inputs

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 liability in connection with the acquisition of Tuzistra XR, ZolpiMist and Innovus, within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity.

~~Tuzistra XR.~~ At the acquisition date on November 2, 2018, the contingent consideration related to Tuzistra XR, was valued at $8.8 million using a Monte Carlo simulation. As of December 31, 2021 and June 30, 2021, the contingent consideration was revalued at $8.5 million and $11.0 million, respectively, using the Scenario-Based model. During the three months ended December 31, 2021, the Company paid $3.0 million in cash upon the satisfaction of the time-based milestone. As of December 31, 2021, NaN of the remaining milestones had been achieved.

~~ZolpiMist.~~ At the acquisition date on June 11, 2018, the contingent consideration related to the ZolpiMist royalty payments was valued at $2.6 million using a Monte Carlo simulation. As of December 31, 2021 and June 30, 2021, the contingent consideration was revalued at $0.7 million, using the Monte Carlo model. As of December 31, 2021, NaN of the milestones had been achieved, and therefore, 0 milestone payment was made.

~~Table of Contents~~


			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
Derivative warrant liabilities (As Restated)		5,558		—		—		5,558
Total	$	6,687	$	—	$	—	$	6,687

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 Merger. 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 December 31, 2021 and June 30, 2021, the contingent consideration was $0.3 million.


			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
Derivative warrant liabilities		1,796		—		—		1,796
Total	$	2,770	$	—	$	—	$	2,770

In June 2017, Innovus entered into Exclusive License Agreement (“the UIRD Agreement”) with University of Iowa Research Foundation (“UIRD”) for the use of patent and technology know-how. Pursuant to the 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 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. The discounted value as of December 31, 2021 and June 30, 2021, was approximately $48,000 and $0.1 million, respectively.

During the three months ended December 31, 2021 and 2020, the Company recognized a net loss of $0.3 million and $2.4 million, respectively, in the consolidated statements of operations from changes in fair values of these contingent considerations. During the six months ended December 31, 2021 and 2020, the Company recognized a net loss of $0.5 million and $2.4 million, respectively in the consolidated statements of operations from changes in fair values of these contingent considerations. The total accretion expense included in the consolidated statements of operations related to these contingent considerations was approximately $22,000, and $0.3 million during the three months ended December 31, 2021 and 2020, respectively, and $0.1 million and $0.3 million during the six months ended December 31, 2021 and 2020, 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 Merger. Consideration can be satisfied in up to 470,000 shares of the Company’s common stock, or cash either upon the option of the Company or in the event there are insufficient shares available to satisfy such obligations. The fair value of the contingent value rights was based on a Monte Carlo model which takes into account current interest rates and expected sales potential. On March 31, 2020, the Company paid the CVR holders approximately 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 December 31, 2021 and June 30, 2021, the CVRs were revalued at $1.4 million, using the same Monte Carlo model. During the three months ended December 31, 2021 and 2020, the Company recognized a loss of $44,000 and $0.1 million, respectively, and a loss of $0.9 million during the six months ended December 31, 2020 in the consolidated statements of operations from changes in fair values of CVRs. The net gain during the six months ended December 31, 2021 was negligible.

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 ~~December 31, 2021:~~September 30, 2022:


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

	(In thousands)					(In thousands)
Balance as of June 30, 2021		$	1,395	$	12,057
Balance as of June 30, 2022						$	578	$	396	$	1,796	$	13,051
Included in earnings			(3)		555		128		27		(2,191)		446
Purchases, issues, sales and settlements:
Issues							—		—		5,953		—
Settlements			—		(3,109)		—		—		—		(1,025)
Balance as of December 31, 2021		$	1,392	$	9,503
Balance as of September 30, 2022						$	706	$	423	$	5,558	$	12,472

~~Table of Contents~~

Significant Assumptions

Significant assumptions used in valuing ~~the contingent consideration~~CVRs were as follows:


	~~December 31,~~September 30,
	~~2021~~2022
~~Tuzistra~~
~~Valuation model~~	~~Scenario-Based~~
Leveraged Beta	~~0.66~~0.84
Market risk premium	~~6.00~~6.22	%
Risk-free interest rate	~~1.80~~4.09	%
Discount	~~14.30~~21.50	%
Company specific discount	~~15.00~~10.00	%


	~~December 31,~~
	~~2021~~
~~ZolpiMist~~
~~Valuation method~~	~~Monte Carlo~~
~~Leveraged Beta~~	~~1.08~~
~~Market risk premium~~	~~6.00~~	%
~~Risk-free interest rate~~	~~1.90~~	%
~~Discount~~	~~11.50~~	%
~~Company specific discount~~	~~15.00~~	%

Table of Contents

Significant assumptions used in valuing ~~the CVRs~~ derivative warrant liabilities at issuance date were as follows:


	~~December 31,~~ August 9,
	~~2021~~2022
~~Contingent Value Rights~~Expected volatility	89.89	%
Equivalent term (years)	4.11
~~Valuation method~~Risk-free rate	~~Monte Carlo~~3.09	%
Dividend yield	0.00	%

Significant assumptions used in valuing derivative warrant liabilities were as follows:


	September 30,
	2022
Expected volatility	87.33	%
Equivalent term (years)	4.11 - 4.94
~~Leveraged Beta~~	~~0.85~~
~~Market risk premium~~	~~6.00~~	%
Risk-free ~~interest~~ rate	~~0.73~~4.06 - 4.16	%
~~Discount~~Dividend yield	~~18.00~~	%
~~Company specific discount~~	~~10.00~~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.

~~12.~~

13. Commitments and Contingencies

~~Prescription Database~~

In May 2016, the Company entered into an agreement with a vendor to provide prescription database information. The Company agreed to pay approximately $1.6 million over three years for access to the database of prescriptions for certain products. In January 2020, the Company amended the agreement and agreed to pay an additional $0.6 million to add access to the database of prescriptions written for the Pediatric Portfolio. The agreement was further amended to include all prescriptions written for the Rx Portfolio.

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.

~~Table of Contents~~

On May 29, 2020, the Company entered into an Early Payment Agreement and Escrow Instruction (the “Early Payment Agreement”) pursuant to which the Company agreed to pay $15.0 million to the investor in ~~early~~ satisfaction of the Balloon Payment Obligation. The parties to the Early Payment Agreement acknowledged and agreed that the remaining fixed payments other than the Balloon Payment Obligation remained due and payable pursuant to the terms of the Agreement, and that nothing in the Early Payment Agreement alters, amends, or waives any provisions or obligations in the Waiver or the Investor agreement other than as expressly set forth therein. 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 ~~early~~ 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 ~~next~~ six quarters commencing September 30, 2021.

Table of Contents

~~Inventory Purchase Commitment~~

On May 1, 2020, the Company’s Innovus subsidiary entered into a Settlement Agreement and Release (the “Settlement Agreement”) with Hikma Pharmaceuticals USA, Inc. (“Hikma”). Pursuant to the settlement agreement, Innovus has agreed to purchase and Hikma has agreed to manufacture a minimum amount of our branded fluticasone propionate nasal spray USP, 50 mcg per spray (FlutiCare®), under Hikma’s FDA approved ANDA No. 207957 in the U.S. The commitment requires Innovus to purchase three batches of product through fiscal year 2022. The Company has completed the purchase of the first two batches and fully paid the amount under the agreement. The remaining $0.7 million for the batch three purchase is expected to be paid in the third quarter of fiscal year 2022.

~~CVR Liability~~

Upon closing the Innovus Merger, the Company entered into a CVR Agreement. Each CVR entitles its holder to receive its pro rata share, payable in cash or stock, at the option of the Company, of certain payment amounts if the targets are met. If any of the payment amounts are earned, they are to be paid by the end of the first quarter of the calendar year following the year in which they are earned. Multiple revenue milestones can be earned in one year.

On March 20, 2021, the Company issued to the CVR holders 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 relates 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.

Product Contingent Liability

In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the ~~Merger,~~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 of December 31, 2021, is approximately $0.3 million.~~

~~Table of Contents~~

Pursuant to the ~~University of Iowa Research Foundation (the “UIRD”)~~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 ~~December 31, 2021,~~September 30, 2022, is approximately ~~$48,000. The first milestone cash payment of $50,000 was made in July 2021.~~$0.1 million.

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, which is a pivotal study-ready therapeutic 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 to Denovo and JHU.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 December 31, 2021.

~~13.~~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 ~~December 31, 2021~~September 30, 2022 and June 30, ~~2021,~~2022, the Company had ~~30,010,468~~3,121,471 and ~~27,490,412~~1,928,941 common shares outstanding, respectively, and 0zero preferred shares outstanding, respectively.

Included in the common stock outstanding are ~~2,163,040~~73,164 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 ~~December 31, 2021,~~September 30, 2022, approximately ~~$43.3~~$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 quarter ended September 30, 2022, the Company issued an additional 31,407 shares of common stock under the ATM Sales Agreement, with total net proceeds of approximately $0.4 million. As of September 30, 2022, approximately $11.8 million of the Company’s common stock remained available to be sold pursuant to the ATM Sales Agreement.

Table of Contents

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 ~~December 31, 2021, the Company has not issued any common stock, preferred stock, debt securities, warrants, rights or units~~September 30, 2022, approximately $82.4 million remained available under the 2021 Shelf.

On ~~June 4, 2021,~~August 11, 2022, the Company ~~entered into a sales agreement with Cantor Fitzgerald & Co.~~closed on an underwritten public offering (the “August 2022 Offering”), ~~as sales agent,~~pursuant to ~~provide for the offering, issuance and sale by the Company~~which we sold an aggregate of ~~up to $30.0 million~~(i) 1,075,290 shares of its common stock, ~~from time~~(ii) and, in lieu of common stock to ~~time in “at-the-market” offerings under the 2020 Shelf~~certain investors that so chose, pre-funded warrants (the ~~“Cantor ATM”~~“Pre-Funded Warrants”)~~. In July 2021, the Company issued 61,500~~ to purchase 87,500 shares of its common stock, and (iii) accompanying warrants (the "Common Warrants") to purchase 1,265,547 shares of its common stock. The shares of common stock ~~under~~and the ~~Cantor ATM,~~Pre-Funded Warrants were each sold in combination with total gross proceeds of approximately $0.3 million before deducting underwriting discounts, commissions, and other offering expenses. During the three months ended December 31, 2021, the Company issued an additional 2,161,584 sharescorresponding Common Warrants, with one Common Warrant to purchase one share of common stock ~~under~~for each share of common stock or each Pre-Funded Warrant sold. The combined public offering price for each share of common stock and accompanying Common Warrant was $8.60, and the ~~Cantor ATM, with total~~combined offering price for each Pre-Funded Warrant and accompanying Common Warrant was $8.58, 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 August 2022. The Common Warrants have an exercise price of $8.60 per share of common stock and are exercisable for a period of five years from issuance. The Company raised $10.0 million in gross proceeds

~~Table~~ through the August 2022 Offering before underwriting fees and other expenses of ~~Contents~~

$0.9 million. The Pre-Funded and Common Warrants have a combined fair value of approximately ~~$4.5~~$6.0 million ~~before deducting underwriting discounts, commissions,~~at issuance and ~~other offering expenses of $0.2 million. As of December 31, 2021, approximately $12.5 million of~~are classified as derivative warrant liabilities in the Company’s ~~common stock remained available to be sold pursuant to the Cantor ATM.~~financial statements. (See Note 16 – Warrants).

~~14.~~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~~150,000 shares of common stock. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by Aytu prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2015 Plan will be added back to the shares of common stock available for issuance under the Aytu 2015 Plan. On February 13, 2020, the Company’s stockholders approved an increase to ~~5.0 million~~250,000 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 ~~December 31, 2021,~~September 30, 2022, the Company had ~~2,603,044~~120,876 shares that are available for grant under the Aytu 2015 Plan.

Neos 2015 Plan. Pursuant to the Neos Merger, the Company assumed ~~69,721~~3,486 stock options and ~~35,728~~1,786 restricted stock units (RSUs) previously granted under Neos plan. Accordingly, on April 19, 2021, the Company registered ~~105,449~~5,272 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~~5,272 registered shares to cover the assumed awards, the remaining ~~1,255,310~~62,766 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 ~~December 31, 2021,~~September 30, 2022, the Company had ~~1,218,997~~2,352 shares that are available for grant under the Neos 2015 Plan.

~~Stock Options~~

~~Stock option activity is as follows:~~

Weighted

Average

Weighted

Remaining

Number of

Average

Contractual

Options

Exercise Price

Life in Years
Outstanding June 30, 2021

109,588

$
14.52

8.07
Forfeited/Cancelled

(9,355)

6.35


Expired

(9,502)

8.10


Outstanding at December 31, 2021

90,731

$
16.03

8.22

Exercisable at December 31, 2021

47,838

$
22.99

8.17

As of December 31, 2021, there was $0.3 million of 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 2 years.

~~Restricted Stock~~

~~On August 2, 2021, the Company granted~~ ~~220,000 shares of restricted stock, with certain accelerated vesting conditions, to~~ ~~a member of its management~~ ~~pursuant to the Aytu 2015 Plan, of which~~ ~~1/3~~ ~~vest on August 2, 2022 and~~ ~~1/12~~ on

~~Table of Contents~~

~~thefirstday~~ of ~~eachquarterthereafter~~, ~~subject~~ ~~to continuing employment with the Company through each vesting date until August 2, 2024. These restricted stocks grants have a grant date fair value of $4.02 per-share.~~

On ~~October 11, 2021, the Company granted~~ ~~75,000 shares of restricted stock to~~ ~~a member of its management~~ ~~pursuant to the Neos 2015 Plan, of which~~ ~~1/3~~ ~~vest on October 11, 2022 and~~ ~~1/12~~ ~~each~~ ~~quarterthereafter~~, ~~subject~~ to ~~continuingemploymentwith~~ ~~the Company through each vesting date until October 11, 2024. These restricted stocks grants have a grant date fair value of $2.65 per-share.~~

~~Restricted stock activity is as follows:~~

Weighted

Average Grant

Number of

Date Fair

Shares

Value
Unvested at June 30, 2021

1,955,268

$
7.83
Granted

295,000

3.67
Vested

(90,836)

7.97
Unvested at December 31, 2021

2,159,432

$
7.26

~~As of December~~ 31 2021, there was $11.9 million of 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 3.1 years.

The Company previously issued 158 shares of restricted stock outside the Aytu 2015 Plan, which vest in July 2026. The unrecognized expense related to these shares was $0.9 million as of December 31, 2021 and is expected to be recognized over the weighted average period of 4.52 years.

~~Restricted Stock Unit~~

~~On December 1, 2021,~~ ~~the Company granted~~ ~~20,000 shares of restricted stock units, to~~ ~~a member of its management~~ ~~pursuant to the Aytu 2015 Plan, of which~~ ~~1/3~~ ~~vest on December 1, 2022 and~~ ~~1/12~~on~~thefirstday~~of~~each~~ ~~quarter thereafter, subject to continuing employment with the Company through each vesting date until December 1, 2024. These restricted stocks grants have a grant date fair value of $1.86 per-share.~~

~~Restricted stock unit activity is as follows:~~

Weighted

Average Grant

Number of

Date Fair

Shares

Value
Unvested at June 30, 2021

78,318

$
7.20
Granted

20,000

1.86
Vested

(1,972)

6.04
Forfeited

(62,922)

7.44
Unvested at December 31, 2021

33,424

$
3.61

As of December 31, 2021, there was $0.1 million of 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 2.0 years.

Table of Contents

Stock Options

Stock option activity is as follows:


				Weighted
				Average
		Weighted		Remaining
	Number of	Average		Contractual
	Options	Exercise Price		Life in Years
Outstanding June 30, 2022	3,899	$	209.70	7.77
Forfeited/Cancelled	(74)		126.84
Expired	(26)		157.84
Outstanding at September 30, 2022	3,799	$	211.67	7.44

Exercisable at September 30, 2022	2,666	$	231.99	7.41

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
		Average Grant
	Number of	Date Fair
	Shares	Value
Unvested at June 30, 2022	80,373	$	148.91
Granted	325		13.40
Vested	(10,545)		115.60
Forfeited/Cancelled	(1,993)		149.48
Unvested at September 30, 2022	68,160	$	153.40

As of September 30, 2022, there was $8.2 million total unrecognized compensation costs 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 2.5 years.

The Company previously issued 4 shares of restricted stock outside the Aytu 2015 Plan, which vest in July 2026. On January 17, 2022, the Company granted 5,000 shares of restricted stock to a member of its management team outside of the Aytu 2015 Plan. As of September 30, 2022, there was $0.5 million total unrecognized costs 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 3.6 years.

Table of Contents

Restricted Stock Units

RSUs activity is as follows:



		Weighted
		Average Grant
	Number of	Date Fair
	Shares	Value
Unvested at June 30, 2022	8,500	$	25.88
Granted	—		—
Vested	—		—
Forfeited	—		—
Unvested at September 30, 2022	8,500	$	25.88

As of September 30, 2022, there was $0.2 million total unrecognized compensation costs 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 2.37 years.

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				Six Months Ended				Three Months Ended
	December 31,				December 31,				September 30,
	2021		2020		2021		2020		2022		2021

					(In thousands)					(in thousands)

Cost of sales	$	8	$	—	$	17	$	—	$	5	$	9
Research and development		75		—		394		—		9		319
Selling and marketing		19		—		28		—		3		9
General and Administrative		1,127		508		2,309		963		1,160		1,182
Total stock-based compensation expense	$	1,229	$	508	$	2,748	$	963	$	1,177	$	1,519

16. Warrants

Liability Classified Warrants

On March 7, 2022, the Company closed on an underwritten public offering utilizing the 2021 Shelf, pursuant to which, the Company sold, (i) 151,500 shares of the Company’s common stock, (ii) prefunded warrants (the “Pre-Funded Warrants”) to purchase up to 151,500 shares of common stock, and (iii) common stock purchase warrants (the “Common Warrants”) to purchase up to 333,300 shares of common stock (the “March 2022 Offering”). The ~~stock-based compensation expense included~~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 of common stock for each share of common stock or each Pre-Funded Warrant sold. The Pre-Funded Warrants have an exercise price of $0.002 per share of common stock and were exercised in full in April 2022. The Common Warrants have an exercise price of $26.00 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. The Pre-Funded and Common Warrants have a combined fair value of approximately $3.2 million at issuance and are classified as derivative warrant liabilities in the ~~table above attributable~~condensed consolidated balance sheets. The derivative warrant liabilities are subsequently marked to market at each reporting period (see Note 12 – Fair Value Considerations).

On August 11, 2022, the Company closed on the August 2022 Offering, pursuant to which, the Company issued Pre-Funded Warrants to purchase 87,500 shares of its common stock ~~options was $22,000~~ and ~~$0.1 million~~Common Warrants to purchase 1,265,547 shares of its common stock. The shares of common stock and the Pre-Funded Warrants were each sold in combination with corresponding Common Warrants, which one Common Warrant to purchase one share of common stock for the three months ended December 31, 2021 and 2020, respectively, and $45,000 and $0.2 million for the six months ended December 31, 2021 and 2020, respectively. The stock-based compensation expense included in the table above attributable to restricted stock was $1.2 million and $0.4 million for the three months ended December 31, 2021 and 2020, respectively, and $2.7 million and 0.8 million for the six months ended December 31, 2021 and 2020, respectively.each

Table of Contents

~~15.~~share of common stock or each Pre-Funded Warrant sold. The Pre-Funded Warrants

~~On July 1, 2020, 92,302 warrants previously issued to a placement agent with a weighted average~~ have an exercise price of ~~$15.99~~$0.02 per ~~warrant expired. In addition, during July 2021, 2,205 various other warrants with a weighted average~~share of common stock and were exercised in full in August 2022. The Common Warrants have an exercise price of ~~$582.50~~$8.60 per share of common stock and are exercisable for a 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 warrant exercise price will be adjusted to ~~purchase~~ the ~~Company’s~~greater of 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 $2.32 and the number of shares of common stock ~~expired.~~

Asto be issued would be adjusted proportionately as set forth in the agreement limited to a maximum of ~~December 31, 2021,~~2,325,581 shares. The Common Warrants also provide that in the event the Company ~~had 24,105 liability warrants~~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 $2.32 (see Note 14 – Capital Structure). The outstanding ~~with a weighted-average~~Common Warrants are classified as derivative warrant liabilities in the condensed consolidated balance sheets and are marked to market at each reporting period (see Note 12 – Fair Value Considerations)

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 43,388 shares of common stock at an exercise price of ~~$720.0. These warrants~~$24.20 per share, subject to adjustment. The Avenue Capital Warrants were immediately exercisable and expire on ~~August 25, 2022.~~January 31, 2027.

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
Warrants expired	(95,670)		114.33	—
Outstanding December 31, 2021	1,159,282	$	29.51	2.72
Outstanding June 30, 2022					433,174	$	92.30	4.73
Warrants issued					1,353,047		3.30	5.00
Warrants exercised					(87,500)		0.02	5.00
Outstanding September 30, 2022					1,698,721	$	31.00	4.76

~~16.~~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. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. Restricted stock is considered legally issued and outstanding on the grant date, while RSUs are not considered legally issued and outstanding until the RSUs vest. Once the RSUs vest, equivalent common shares will be issued or issuable to the grantee and therefore the RSUs are not considered for inclusion in total common shares issued and outstanding until vested.

~~Table of Contents~~

The following table sets-forth securities that ~~could be potentially dilutive, but for the three and six months ended December 31, 2021 and 2020~~ are considered anti-dilutive, and therefore excluded from the calculation of diluted earnings per share.


		December 31,		September 30,
		2021	2020	2022	2021
Warrants to purchase common stock - liability classified	(Note 15)	24,105	24,105	1,642,235	1,205
Warrant to purchase common stock - equity classified	(Note 15)	1,159,282	2,379,918	56,486	58,022
Employee stock options	(Note 14)	90,731	76,594	3,799	4,793
Employee unvested restricted stock	(Note 14)	2,159,432	381,686	73,164	105,283
Employee unvested restricted stock units	(Note 14)	33,424	—	8,500	3,858
Total		3,466,974	2,862,303	1,784,184	173,161

~~17.~~

Table of Contents

18. License Agreements

~~Rumpus (AR101)~~

In April 2021, the Company acquired substantially all the assets of Rumpus. Through this transaction the Company secured exclusive global rights to AR101 from Denovo in the fields of rare genetic pediatric onset or congenital disorders outside of oncology. AR101 is a pivotal study-ready therapeutic candidate initially targeting the treatment of VEDS.

Under the terms of the transaction, the Company paid an upfront fee of $1.5 million and aggregated fees of $0.6 million to Denovo and JHU. Upon the achievement of certain regulatory and commercial milestones, the Company will pay Rumpus 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. In addition, the Company received assignments of third-party licenses from Denovo and JHU and took over royalty obligations and performance-based milestones under these licenses.

On December 7, 2021 the FDA granted ODD to AR101 for the treatment of Ehlers-Danlos Syndrome, which includes the treatment of VEDS. As a result of this designation, 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 December 31, 2021. In addition, on December 13, 2021 the FDA has cleared the IND application for AR101, enabling the Company to proceed with initiating a pivotal clinical trial for AR101 in VEDS. The PREVEnt Trial will assess the safety and efficacy of enzastaurin in COL3A1-confirmed VEDS patients.

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. Healight has demonstrated safety and efficacy in a proof-of-concept clinical study in SARS-CoV-2 patients, and the Company plans to advance this technology to further assess its safety and efficacy in additional randomized, controlled human studies, initially focused on SARS-CoV-2 patients.

The 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.

On November 23, 2021 the U.S. Patent and Trademark Office (the “USPTO”) issued a U.S. patent for the Healight ultraviolet-A light-based respiratory catheter to Cedars-Sinai Medical Center. The U.S. Patent Number

~~Table of Contents~~

11,179,575, titled “Internal Ultraviolet Therapy,” is the first issued patent protecting the Healight investigational device and covers methods of treating a patient for an infectious condition inside the patient's body through the insertion of a UV-light-emitting delivery tube inside a respiratory cavity of the patient at specific UV-A light wavelengths. The term of this patent extends to August of 2040.

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 ~~by Neos~~ as NT0502. NT0502 is a new chemical entity that is being developed ~~by Neos~~ for the treatment of sialorrhea, which is excessive salivation or drooling. Under the NeuRx License, Neos made an upfront payment of $0.2 million to NeuRx upon the execution of the agreement. Neos made a payment of $0.2 million following receipt of notice of allowance of the first Licensed Patent by the United States Patent and Trademark Office (“USPTO”), as defined in the NeuRx License. Such Licensed Patent subsequently was issued by the USPTO. In April 2020, Neos met the completion of the first Pilot PK Study milestone, as defined in the NeuRx License, triggering the cash payment of $0.3 million. NeosThe Company may ~~in the future~~ 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.

Teva

On ~~October 31, 2017,~~December 21, 2018, Neos ~~received a paragraph IV certification from~~and Teva Pharmaceuticals USA, Inc. (“Teva”) advising Neos that Teva has filed an Abbreviated New Drug Application (“ANDA”) with the FDA for a generic version of Cotempla XR-ODT, in connection with seeking to market its product prior to the expiration of patents covering Cotempla XR-ODT. On December 13, 2017, Neos filed a patent infringement lawsuit in federal district court in the District of Delaware against Teva alleging that Teva infringed Neos’ Cotempla XR-ODT patents. On December 21, 2018, Neos and Teva entered into a Settlement Agreement (the “Teva Settlement Agreement”) and a Licensing Agreement (the “Teva Licensing Agreement” and collectively with the Teva Settlement Agreement, the “Teva Agreement”) that resolved all ongoing litigation involving Neos’ Cotempla XR-ODT patents and Teva’s ANDA. Under the Teva Licensing Agreement, Neos grantedan 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 ~~its ANDA~~an Abbreviated New Drug Application (“ANDA”) filed by Teva beginning on July 1, 2026, or earlier under certain circumstances. ~~The Teva Licensing Agreement has been submitted to the applicable governmental agencies.~~

Actavis

On July 25, 2016, Neos received a paragraph IV certification from Actavis Laboratories FL, Inc. (“Actavis”) advising Neos that Actavis had filed an ANDA with the FDA for a generic version of Adzenys XR-ODT. On September 1, 2016, Neos filed a patent infringement lawsuit in federal district court against Actavis alleging that Actavis infringed Neos’ Adzenys XR-ODT patents. On October 17, 2017, Neos entered into a Settlement Agreement (the “Actavis Settlement Agreement”) and a Licensing Agreement (the “Actavis Licensing Agreement” and collectively with the Actavis Settlement Agreement, the “Actavis Agreement”) with Actavis that resolved all ongoing litigation involving Neos’ Adzenys XR-ODT patents and Actavis’s ANDA. Under the Actavis Licensing Agreement, Neos grantedan 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. ~~The Actavis Licensing Agreement has been submitted to the applicable governmental agencies.~~

Shire

~~Table of Contents~~

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.

Table of Contents

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.

~~18.~~19. Segment ~~reporting~~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 2two reportable segments: ~~Aytu BioPharma~~Rx and ~~Aytu~~ Consumer Health. The ~~Aytu BioPharma~~Rx segment consists of the Company’s prescription products. The ~~Aytu~~ Consumer Health segment contains the Company’s consumer healthcare products.

Select financial information for these segments is as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	December 31,				December 31,				September 30,
	2021		2020		2021		2020		2022		2021

	(In thousands)				(In thousands)				(In thousands)
Consolidated revenue:
Aytu BioPharma	$	14,643	$	7,212	$	28,526	$	12,964
Aytu Consumer Health		8,482		7,935		16,496		15,703
Rx Segment									$	18,652	$	13,883
Consumer Health Segment										9,003		8,014
Consolidated revenue	$	23,125	$	15,147	$	45,022	$	28,667	$	27,655	$	21,897


Consolidated net loss:
Aytu BioPharma	$	(9,591)	$	(8,268)	$	(36,048)	$	(11,218)
Aytu Consumer Health		(1,957)		(1,257)		(3,351)		(2,613)
Rx Segment									$	126	$	(26,457)
Consumer Health Segment										(827)		(1,394)
Consolidated net loss	$	(11,548)	$	(9,525)	$	(39,399)	$	(13,831)	$	(701)	$	(27,851)


	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

3136

Table of Contents

20. Subsequent Events

On October 25, 2022, the Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“Avenue”) 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 interest-only period to January of 2024. In exchange for this extension of the interest-only period, the Company and Avenue agreed to reset the exercise price of the warrants issued in conjunction with the original loan agreement to $8.60, corresponding to the warrant exercise price associated with the Company’s latest equity financing.

Table of Contents

December 31,

June 30,

2021

2021

(In thousands)
Total assets:

Aytu BioPharma

$
194,419

$
236,449
Aytu Consumer Health

29,405

29,219
Consolidated assets

$
223,824

$
265,668

~~19. Subsequent Events~~

On January 26, 2022, the Company entered into a Loan and Security Agreement (the “Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P., Avenue Venture Opportunities Fund II, L.P. and Avenue Capital Management II, L.P. (collectively, “Avenue Capital”). Pursuant to the Avenue Capital Agreement, Avenue Capital (i) provided a term loan (the “Avenue Capital Loan”) in the principal amount of $15.0 million, at an interest rate of the greater of prime and 3.25%, plus 7.4%, with a three-year term, consisting of 18 monthly payments of interest only followed by equal monthly payments of principal and accrued interest (with the interest-only period being extended up to 36 months contingent upon the Obligors achieving certain milestones) and (ii) permitted the Avenue Capital Loan proceeds to be used towards the full repayment of the Neos Senior Secured Credit Facility with Deerfield.

As consideration for entering into the Avenue Capital Agreement, Aytu issued warrants to the Avenue Capital Lenders valued at $1,050,000, and exercisable to shares of the Company’s common stock at per share exercise price equal to $1.21 (subject to adjustment) (the “Warrants”). The Warrants are ~~immediately exercisable~~ ~~and expire on January 31, 2027.~~

In connection with the Avenue Capital Agreement, the Company entered into a Consent, Waiver and Second Amendment to Loan and Security Agreement, dated as of January 26, 2022 (the “Eclipse Consent, Waiver and Second Amendment”). The Eclipse Consent, Waiver and Second Amendment, among other modifications, extends the maturity date of the Loan Agreement with Eclipse to January 26, 2025 and reduces the availability under the Loan Agreement from $25.0 million to $12.5 million.

~~Table of Contents~~

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 six~~ months ended ~~December 31, 2021~~September 30, 2022, and our financial condition as of ~~December 31, 2021.~~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) impact of COVID-19 on our operations, (ii) regulatory developments and (iii) material divestitures.~~

●

~~Results of Operations.~~ We discuss changes in our statements of operations line items, including the major drivers of these changes for three and six months ended December 31, 2021, as compared with the three and six months ended December 31, 2020.

●

~~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. We operate through two business segments (i) ~~Aytu BioPharma~~the Rx segment, consisting of ~~various~~ prescription pharmaceutical products sold through third party wholesalers and (ii) ~~Aytu~~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 ~~develop and~~currently manufacture our ~~ADHD~~ 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 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 ~~$11.5~~$0.7 million and ~~$9.5~~$27.9 million for the three months ended ~~December 31,~~September 30, 2022, and 2021, ~~and 2020, respectively, and $39.4 million and $13.8 million for the six months ended December 31, 2021 and 2020,~~ respectively. As of ~~December 31, 2021~~September 30, 2022, and June 30, ~~2021,~~2022, we had an accumulated ~~deficit~~deficits of ~~approximately $217.7~~$287.8 million and ~~$178.3~~$287.1 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the integration of our ~~acquisitions and development of our product pipeline.~~acquisitions.

~~Table of Contents~~

Significant Developments

~~COVID-19~~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 clinical development programs, including AR101(enzastaurin) and Healight. The suspension of these programs is expected to save over $20 million in projected future study costs over the next three fiscal years.

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 during fiscal years 2020 and 2021. The federal government and states-imposed restrictions on travel and business operations and placed limitations on the size of public and private gatherings. However, beginning the third quarter of fiscal 2021, with the introduction of vaccines under emergency use authorizations, these restrictions began to wind down and business operating environments have improved.

uncertainties. We believe COVID-19 has negatively impacted the ~~overall~~ market for prescription ~~products.~~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

Table of Contents

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.

~~Orphan Drug Designation~~We have continued to experience significant inflationary pressure and ~~FDA clearance~~supply chain disruptions related to the sourcing of ~~IND application for AR101~~raw materials, energy, logistics and labor during fiscal 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 our fiscal 2023 year.

Debt and Equity financing

On ~~December 7, we were notified by~~October 25, 2022, the ~~U.S. Food & Drug Administration~~Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“~~FDA”~~Avenue”) ~~that AR101/Enzastaurin received Orphan Drug Designation for~~to extend the ~~treatment~~interest-only period of ~~Ehlers-Danlos Syndrome.~~its existing senior secure loan facility held with Avenue. The treatment of vascular Ehlers-Danlos Syndrome (“VEDS”) is captured within this designation. The FDA grants Orphan Drug designation status to drugs and biologics that are intended for the safe and effective treatment, diagnosis or prevention of rare diseases, or conditions that affect fewer than 200,000 people in the U.S. Orphan Drug designation affords us certain financial incentives to support clinical development and the potential for up to seven years of market exclusivity in the U.S. upon regulatory approval. Pursuantamendment to the ~~Asset Purchase Agreement among Aytu BioPharma~~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 ~~Rumpus VEDS LLC, Rumpus Therapeutics LLC~~Avenue agreed to reset the exercise price of the warrants issued in conjunction with the original loan agreement to $8.60, 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 ~~Rumpus Vascular (together with various~~Note — 20 Subsequent Events for further details).

On August 11, 2022, we closed on an underwritten public offering (“August 2022 Offering”), of ~~their affiliated persons, “Rumpus”), this achievement~~(i) 1,075,290 shares of ~~an earn-out milestone for achieving Orphan Drug designation resulted~~our common stock and, in lieu of common stock to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 87,500 shares of our ~~obligation~~common stock, and (ii) accompanying warrants (the “Common Warrants”) to ~~pay $2.5 million to Rumpus in cash or in~~purchase 1,265,547 shares of our common stock. ~~The $2.5~~We received gross proceeds of $10.0 million ~~milestone payment is included in our accrued liabilities in the condensed consolidated balance sheets as~~and net proceeds of ~~December 31, 2021. We have agreed with Rumpus that the payment will be made on the earlier to occur of ten business following our next financing or April 1, 2022.~~

On December 13, 2021 the FDA has cleared the Investigational New Drug (“IND”) application for AR101, enabling us to proceed with initiating a pivotal clinical trial for AR101 in VEDS. We plan to initiate the PREVEnt Trial in VEDS in the first half of calendar year 2022. The PREVEnt Trial will assess the safetyapproximately $9.1 million, after deducting underwriting discounts and ~~efficacy of enzastaurin in COL3A1-confirmed VEDS patients. There are currently no FDA-approved therapies for VEDS.~~

~~AR101 is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor of the PKC beta, PI3K~~commissions and AKT pathways. AR101 has been studied 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.

~~First U.S. patent for Healight™~~

On November 23, 2021 the U.S. Patent and Trademark Office (the “USPTO”) issued a U.S. patent for the Healight™ ultraviolet-A light-based respiratory catheter. U.S. Patent Number 11,179,575, titled “Internal Ultraviolet Therapy,” is the first issued patent protecting the Healight investigational device and covers methods of treating a patientestimated offering expenses.

~~Table of Contents~~

for an infectious condition inside the patient's body through the insertion of a UV-light-emitting delivery tube inside a respiratory cavity of the patient at specific UV-A light wavelengths. The term of this patent extends to August of 2040.

Healight is an investigational medical device technology employing proprietary methods of administering intermittent ultraviolet (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.

~~Divestiture of MiOXSYS~~

On July 1, 2021 we signed an Asset Purchase Agreement with UAB “Caerus Biotechnologies” (“UAB”). Pursuant to the terms and conditions of the agreement, UAB has acquired all existing intellectual property rights, technical information and know-how related to MiOXSYS as well as all existing inventory and all rights attached and related to the product and manufacturing thereof. As consideration, UAB agreed to pay us approximately $0.5 million and make royalty payments to us of five percent of global net revenue of the MiOXSYS product for five years from the closing date of the transactions contemplated in the Asset Purchase Agreement.

On September 29, 2021, we and UAB entered into an amendment to the UAB APA, pursuant to which, (i) September 30, 2021 was established as the closing date, (ii) UAB was provided with termination rights in the event that the Company is unable to complete the transfer of intellectual property assets to UAB by May 31, 2022 (“Termination Rights”), provided that the delay is not due to IP offices, foreign or domestic and (iii) the Company is required to pay 5% of the deal purchase price in the event UAB terminates the agreement as provided in the Termination Rights.

As of December 31, 2021, we received $0.1 million payments from the agreed upon consideration of $0.5 million. We deferred the $0.1 million received from UAB as income until it satisfies the provisions in the Termination Rights, which was included in accrued liabilities in the consolidated balance sheet.

3539

Table of Contents

RESULTS OF OPERATIONS

Three months ended ~~December 31, 2021~~September 30, 2022 compared to the three months ended ~~December 31, 2020~~September 30, 2021

Three Months Ended

September 30,


2022

2021

Change

(As Restated)

(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

(1,111)

(40)

(1,071)
Loss from contingent consideration

(128)

(219)

91
Gain on derivative warrant liabilities

2,191

—

2,191
Total other income (expense)

952

(259)

1,211
Loss before income tax

(701)

(27,958)

27,257
Income tax benefit

—

(107)

107
Net loss

$
(701)

$
(27,851)

$
27,150


Three Months Ended

December 31,


2021

2020

Change

%

(In thousands)

Product revenue, net

$
23,125

$
15,147

$
7,978

53
%
Cost of sales

10,826

6,251

4,575

73
%
Gross profit

12,299

8,896

3,403

38
%

Operating expenses









Research and development

4,920

286

4,634

1,620
%
Advertising and direct marketing

4,985

4,621

364

8
%
Other selling and marketing

4,675

1,084

3,591

331
%
General and administrative

7,953

5,584

2,369

42
%
Acquisition related costs

—

1,312

(1,312)

(100)
%
Amortization of intangible assets

1,060

1,584

(524)

(33)
%
Total operating expenses

23,593

14,471

9,122

63
%
Loss from operations

(11,294)

(5,575)

(5,719)

103
%
Other income (expense)









Other income/(expense), net

20

(379)

399

(105)
%
Loss from contingent consideration

(277)

(3,313)

3,036

(92)
%
Loss on extinguishment of debt

—

(258)

258

(100)
%
Total other expense

(257)

(3,950)

3,693

(93)
%
Loss before income tax

(11,551)

(9,525)

(2,026)

21
%
Income tax benefit

(3)

—

(3)

—

Net loss

$
(11,548)

$
(9,525)

$
(2,023)

21
%
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

~~Product revenue.~~ ~~Total net product revenue was $23.1 million during~~During the three months ended ~~December 31, 2021, an increase of approximately $8.0~~September 30, 2022, product revenue, net increased by $5.8 million, or ~~53%~~26%, compared to ~~$15.1 million during~~ the three months ended ~~December 31, 2020.~~September 30, 2021. The increase was primarily driven by ~~the $11.1 million net revenue generated from the~~increases in script growth of our ADHD ~~product portfolio of Neos, which we acquired in March 2021~~ and ~~$0.5 million~~Pediatric portfolios. The increase in ~~year-over-year~~ revenue from our Consumer Health portfolio was attributable to the continued growth of ~~our consumer health products,~~the higher contribution margin in the e-commerce portion of the business partially offset by the ~~$3.4 million decrease in revenue from sale of COVID-19 test kits, $0.2 million decrease in revenue resulting from the divesture of~~reduced focus on our ~~Natesto prescription product in the third fiscal quarter of 2021 and $0.2 million decrease in revenue from the divestiture of MiOXSYS on July 1, 2021.~~
~~Cost of sales~~. Total cost of sales was $10.8 million during the three months ended December 31, 2021, an increase of $4.5 million, or 73%, compared to $6.3 million during the three months ended December 31, 2020. The increase was primarily driven by the $5.5 million costs incurred for the production and saledirect-to-consumer portion of the ~~ADHD product portfolio of Neos, which we acquired in March 2021 and $1.3 million increase in cost of sales of our consumer health products,~~business. These increases were partially offset by ~~the $2.3 million decrease~~decreases in costs for COVID-19 test kits. Neos manufactures the ADHD products at its Grand Prairie, Texas facilities, and as such, allocates a significant portion of its intangible assets amortization and fixed assets depreciation into cost of sales. During the three months ended December 31, 2021, $0.7 million of depreciation and amortization expenses were included in cost of sales.
~~Research and development~~. Total research and development expense was $4.9 million during the three months ended December 31, 2021, an increase of $4.6 million, compared to $0.3 million during the three months ended December 31, 2020. The increase was due primarily to $4.0 million expensesother revenues related to AR101, which was acquired in April 2021, including a $2.5 milestone payment upon receiving ODD, and $0.6 million regulatory and medical monitoring costs associated with ADHD product portfolio that was acquired in March 2021.discontinued products.

3640

Table of Contents

Three Months Ended

December 31,


2021

2020

Change

%

(In thousands)

Research and development:

AR101

$
4,008

$
—

$
4,008

100
%
Healight

196

193

3

2
%
ADHD

620

—

620

100
%
Others

96

93

3

3
%
Total Research and development

$
4,920

$
286

$
4,634

1,620
%
Gross margin by product portfolio

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

Gross margins.
During the three months ended September 30, 2022, gross margins increased by $5.6 million, or 45%, compared to the same period ended September 30, 2021. The increase was primarily driven by net revenue increases as described above. Gross margin percentage increased to 65% for the three months ended September 30, 2022, 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 September 30, 2022, research and development expense decreased by $0.6 million, or 36%, compared to the same period ended 2021. Our research and development costs are primarily associated with AR101 and preparing for the PREVEnt registrational clinical trial and to a lesser extent, the development of 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 our research and development expenses to decrease from current levels as we defer development of AR-101 and Healight as we focus on generating positive operating cash flows.
Advertising and direct marketing.
In the three months ended September 30, 2022, advertising and direct marketing expenses was consistent with the three months ended 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~~Consumer Health segment. ~~Total advertising~~Advertising and direct marketing ~~expense were $5.0 million for~~can fluctuate materially between periods based on the timing of marketing campaigns.
Other selling and marketing
In the three months ended ~~December 31, 2021, an increase of $0.4 million, or 8%, compared to $4.6 million during the three months ended December 31, 2020.~~
~~Other selling and marketing~~. ~~Total~~September 30, 2022, other selling and marketing expense ~~was $4.7~~increased by $0.9 million, ~~during~~or 19% compared to the same period ended 2021. The increases were primarily driven by inflation factors and employee costs.
General and administrative
In the three months ended ~~December 31, 2021, an increase of $3.6~~September 30, 2022, general and administrative expense decreased by $0.9 million, or ~~331%,~~11% compared to ~~$1.1 million during~~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 three months ended ~~December 31, 2020. The increase was primarily driven by the $4.5 million expenses associated with the commercialization~~September 30, 2022.

Table of our ADHD product portfolio, which was acquired in March 2021, partially offset by the $0.2 million decrease in selling and marketing expenses resulting from the divesture of our Natesto prescription product in the third fiscal quarter of 2021.Contents

~~General and administrative~~. ~~Total general and administrative expense was $8.0 million during~~During the three months ended ~~December 31,~~September 30, 2021, as a result of the decline in our market capitalization, a qualitative and quantitative analysis was performed on the goodwill and other intangible assets associated with our Rx Segment. This analysis resulted in an ~~increase~~impairment loss of ~~$2.4 million, or 42%, compared to $5.6 million during~~$19.5 million.

Amortization of intangible assets

In the three months ended ~~December 31, 2020. The increase was primarily driven by the $2.5 million general and administrative expenses of Neos, which was acquired in March 2021.~~

~~Acquisition related costs~~. Acquisition related costs was $1.3 million during the three months ended December 31, 2020, primarily related to the Neos Merger, which was closed on March 19, 2021. Such costs include legal fees, due diligence expenses and financial advisory fees. There was no such cost during the three months ended December 31, 2021.

~~Amortization of intangible assets~~. ~~Total~~September 30, 2022, amortization expense of intangible assets, excluding amounts included in cost of sales and research and development, decreased by $0.3 million, or 22% compared to the same period ended 2021. The decrease was ~~$1.1 million~~primarily related to the smaller intangible asset base due to the impairments of certain intangible assets during the fiscal 2022 year.

Unrealized gain or loss from derivative warrant liabilities

The fair value of derivative warrant liabilities was calculated using either the Black-Scholes option model or the Monte Carlo simulation model and are revalued at each reporting period. In the three months ended ~~December 31, 2021, a decrease~~September 30, 2022, we recognized an unrealized total gain of ~~$0.5~~$2.2 million ~~or 33%~~relating to the fair value adjustments.

Other (expense), ~~compared to $1.6 million for~~net

In the three months ended December 31, 2020. The decrease was due primarily to licensed intangible assets that were being amortized during the three months December 31, 2020 but which have subsequently been divested or written-off.

~~Other income/(expense), net~~. ~~Total other income, net during the three months ended December 31, 2021 was approximately $20,000, an increase of $0.4 million, or 105%, compared to~~September 30, 2022, other expense, net ~~of $0.4~~increased by $1.1 million ~~during~~compared to the ~~three months~~same period ended ~~December 31, 2020.~~2021. The increase ~~was~~is primarily due to licensing agreements and an increase in ~~other income of $0.8 million from partial proceeds from~~ the ~~Natesto divestiture, partially offset by an increase in~~ interest ~~expense from the~~rate on our debt ~~assumed from the Neos Merger in March 2021.~~

~~Loss from contingent consideration~~. Net loss from contingent considerations during the three months ended December 31, 2021 was $0.3 million compared to $3.3 million loss during the three months ended December 31, 2020 (see Note 10 – Fair Value Considerations).

~~Loss on debt extinguishment~~. During the three months ended December 31, 2020, 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 December 31, 2021.

~~Table of Contents~~

~~Six months ended December 31, 2021 compared to the six months ended December 31, 2020~~

Six Months Ended

December 31,


2021

2020

Change

%

(In thousands)

Product revenue, net

$
45,022

$
28,667

$
16,355

57
%
Cost of sales

20,267

10,314

9,953

96
%
Gross profit

24,755

18,353

6,402

35
%

Operating expenses









Research and development

7,016

469

6,547

1,396
%
Advertising and direct marketing

9,530

9,383

147

2
%
Other selling and marketing

9,427

2,148

7,279

339
%
General and administrative

16,169

11,004

5,165

47
%
Acquisition related costs

—

1,312

(1,312)

(100)
%
Impairment of intangible assets

19,453

—

19,453

N/A

Amortization of intangible assets

2,153

3,169

(1,016)

(32)
%
Total operating expenses

63,748

27,485

36,263

132
%
Loss from operations

(38,993)

(9,132)

(29,861)

327
%
Other income (expense)









Other income/(expense), net

(20)

(1,130)

1,110

(98)
%
Loss from contingent consideration

(496)

(3,311)

2,815

(85)
%
Loss on extinguishment of debt

—

(258)

258

(100)
%
Total other expense

(516)

(4,699)

4,183

(89)
%
Loss before income tax

(39,509)

(13,831)

(25,678)

186
%
Income tax benefit

(110)

—

(110)

—

Net loss

$
(39,399)

$
(13,831)

$
(25,568)

185
%

~~Product revenue.~~ Total net product revenue was $45.0 million during the six months ended December 31, 2021, an increase of approximately $16.3 million, or 57%, compared to $28.7 million during the six months ended December 31, 2020. The increase was primarily driven by the $20.8 million net revenue generated from the ADHD product portfolio of Neos, which we acquired in March 2021, $2.2 million increase in net revenue from Karbinal and Poly-Vi-Flor, our other products within the Pediatric portfolio and $0.8 million increase in year-over-year revenueincluding amortization of our consumer health products, partially offset by the $5.4 million decrease in revenue from sale of COVID-19 test kits, $0.9 million decrease in revenue resulting from the divesture of our Natesto prescription product in the third fiscal quarter of 2021 and $0.4 million decrease in revenue from the divestiture of MiOXSYS on July 1, 2021.
~~Cost of sales~~. Total cost of sales was $20.3 million during the six months ended December 31, 2021, an increase of $10.0 million, or 96%, compared to $10.3 million during the six months ended December 31, 2020. The increase was primarily driven by the $10.4 million costs incurred for the production and sale of the ADHD product portfolio of Neos, which we acquired in March 2021 and $2.2 million increase in cost of sales of our consumer health products, partially offset by the $2.9 million decrease in costs for COVID-19 test kits. Neos manufactures the ADHD products at its Grand Prairie, Texas facilities, and as such, allocates a significant portion of its intangible assets amortization and fixed ~~assets depreciation into cost of sales. During the six months ended December 31, 2021, $1.3 million of depreciation and amortization expenses were included in cost of sales.~~
~~Research and development~~. Total research and development expense was $7.0 million during the six months ended December 31, 2021, an increase of $6.5 million, compared to $0.5 million during the six months ended December 31, 2020. The increase was due primarily to $5.1 million expenses related to AR101, which was acquired in April 2021, including a $2.5 milestoneterm payment upon receiving ODD, $0.3 million increase in costs associated with our Healight Platform product candidate as well as $1.2 million regulatory and medical monitoring costs associated with ADHD product portfolio that we acquired in March 2021.

~~Table of Contents~~

Six Months Ended

December 31,


2021

2020

Change

%

(In thousands)

Research and development:

AR101

$
5,069

$
—

$
5,069

100
%
Healight

569

293

276

94
%
ADHD

1,211

—

1,211

100
%
Others

167

176

(9)

(5)
%
Total Research and development

$
7,016

$
469

$
6,547

1,396
%

~~Advertising and direct marketing~~. Advertising and direct marketing expenses include direct-to-consumer marketing, advertising, sales and customer support and processing fees related to our consumer health segment. Total advertising and direct marketing expense were $9.5 million for the six months ended December 31, 2021, an increase of $0.1 million, or 2%, compared to $9.4 million during the six months ended December 31, 2020.
~~Other selling and marketing~~. Total other selling and marketing expense was $9.4 million during the six months ended December 31, 2021, an increase of $7.3 million, or 339%, compared to $2.1 million during the six months ended December 31, 2020. The increase was primarily driven by $9.0 million costs associated with the commercialization of our ADHD product portfolio, which was acquired in March 2021, partially offset by $0.5 million decrease in selling and marketing expenses from the divesture of our Natesto prescription product in the third fiscal quarter of 2021.
~~General and administrative~~. Total general and administrative expense was $16.2 million during the six months ended December 31, 2021, an increase of $5.2 million, or 47%, compared to $11.0 million during the six months ended December 31, 2020. The increase was primarily driven by $5.0 million general and administrative expenses of Neos which we acquired in March 2021.
~~Acquisition related costs~~. Acquisition related costs was $1.3 million during the six months ended December 31, 2020, primarily related to the Neos Merger, which was closed on March 19, 2021. Such costs include legal fees, due diligence expenses and financial advisory fees. There was no such cost during the six months ended December 31, 2021.
~~Impairment of goodwill~~. Since the June 30, 2021 annual goodwill impairment assessment, our stock price has continued to decline. As of September 30, 2021, our market capitalization was below the carrying value of our assets, which led Management to consider whether those assets should be revalued for impairment at an interim reporting date. Pursuant to the guidance under Topic ASC 350, Management conducted impairment testing at each reporting unit level to determine the recoverability of goodwill. Based on the evaluation, during the six months ended December 31, 2021, we recognized an impairment loss of $19.5 million related to the Aytu BioPharma segment. There was no such impairment expense during the six months ended December 31, 2020 (see Note 8 – Goodwill and Other Intangible Assets).
~~Amortization of intangible assets~~. Total amortization expense of intangible assets, excluding amounts included in cost of sales, was $2.2 million during the six months ended December 31, 2021, a decrease of $1.0 million, or 32%, compared to $3.2 million for the six months ended December 31, 2020. The decrease was due primarily to licensed intangible assets that were being amortized during the six months December 31, 2020 but which have subsequently been divested or written-off.
~~Other income/(expense), net~~. Total other expense, net of other income during the three months ended December 31, 2021 was approximately $20,000, a decrease of $1.1 million, or 98%, compared to $1.1 million during the six months ended December 31, 2020. The decrease was primarily due to an increase in other income of $1.5 million from partial proceeds from the Natesto divestiture and $0.5 million decrease in interest expense from fixed payment obligations, partially offset by $0.9 million increase in interest expense from the debt assumed from the Neos Merger in March 2021.

~~Table of Contents~~

~~Loss from contingent consideration~~. Net loss from contingent considerations during the three months ended December 31, 2021 was $0.5 million compared to $3.3 million loss during the six months ended December 31, 2020 (see Note 10 – Fair Value Considerations).

~~Loss on debt extinguishment~~. During the six months ended December 31, 2020, we recognized $0.3 million loss from conversion of outstanding debt to our shares of common stock. There was no such loss during the six months ended December 31, 2021.

~~Income tax benefit~~. The impairment of the Aytu BioPharma segment book goodwill changed the net deferred tax liability of $0.2 million recorded as of June 30, 2021 fiscal year end into a net deferred tax liability of $0.1 million as of December 31, 2021. As a result, we recognized an income tax benefit of $0.1 million during the six months ended December 31, 2021. There was no income tax expense or benefit during the six months ended December 31, 2020.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, ~~the Company~~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 ~~December 31, 2021, the Company has not issued any common stock, preferred stock, debt securities, warrants, rights or units~~September 30, 2022, approximately $82.4 million remains available under the 2021 Shelf.

On June 8, 2020, ~~the Company~~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 ~~December 31, 2021,~~September 30, 2022, approximately ~~$43.3~~$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 December 31, 2021, we issued a total of 5,316,623 shares of common stock for aggregate proceeds of $28.0 million before estimated offering costs of $2.8 million. On June 2, 2021, we terminated our “at-the-market” sales agreement with Jefferies LLC. On June 4, 2021, wethe Company entered into a ~~Controlled Equity Offering~~^SM ~~Sales Agreement (the “Cantor Sales Agreement”)~~sales agreement with ~~Cantor Fitzgerald & Co. (“Cantor”), pursuant~~a sales agent, to ~~which we agreed to sell~~provide for the offering, issuance and 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 31,407 shares of common stock under the ATM Sales Agreement, with total net proceeds of approximately $0.4 million. As of ~~December 31, 2021,~~September 30, 2022, approximately ~~$12.5~~$11.8 million of ~~our~~the Company’s common stock remained available to be sold pursuant to the ~~Cantor ATM.~~

~~Underwriting Agreement~~

On December 10, 2020, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“Wainwright”) (as amended and restated, the “Underwriting Agreement”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in an upsized firm commitment offering, 4,166,667 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), to Wainwright at an offering price to the public of $6.00 per share, less underwriting discounts and commissions. In addition, pursuant to the Underwriting Agreement, the Company granted Wainwright a 30-day option to purchase up to an additional 625,000 shares of Common Stock at the same offering price to the public, less underwriting discounts and commissions. Wainwright exercised their over-allotment option in full, purchasing a total of 4,791,667 shares of Common Stock. The Company raised gross proceeds of $28.8 million through this offering. Offering costs totaled $2.6 million resulting in net cash proceeds of $26.2 million. In connection with the offering, the Company issued 311,458 underwriter warrants toATM Sales Agreement.

4042

Table of Contents

~~purchase up to 311,458~~Underwriting Agreements

On August 11, 2022, we closed on an underwritten public offering (“August 2022 Offering”), of (i) 1,075,290 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~~our common stock and, in lieu of common stock ~~sold in the offering)~~to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 87,500 shares of our common stock, and ~~the underwriter~~(ii) accompanying warrants ~~have a term~~(the “Common Warrants”) to purchase 1,265,547 shares of ~~five years from the date~~our common stock. We received gross proceeds of ~~effectiveness of the offering. The underwriter warrants are exercisable immediately. These warrants have a fair value~~$10.0 million and net proceeds of approximately ~~$1.3~~$9.1 million, after deducting underwriting discounts and are classified with the stockholders' equity. Effective June 2, 2021, the Company terminated the Underwriting Agreement with Wainwright; pursuant to such termination, there will be no future sales of the Company’s Common Stock under the Underwriting Agreement.commissions and estimated offering expenses.

~~Revolver~~Eclipse Loan Agreement

~~In October 2019, our Neos subsidiary entered into a senior secured credit agreement with~~The Eclipse ~~Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders (the “Loan Agreement”). Under the~~ Loan Agreement, ~~Eclipse will extend~~as amended, provides us with up to ~~$25.0~~$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 and Note 19)~~receivable. 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 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 Eclipse Loan Agreement, as amended, is January 26, 2025.

Cash Flows

The following table shows cash flows for the ~~six~~three months ended ~~December 31, 2021~~September 30, 2022, and ~~2020:~~2021:


	Six Months Ended December 31,				Increase		Three Months Ended September 30,				Increase
	2021		2020		(Decrease)		2022		2021		(Decrease)

	(In thousands)						(In thousands)
Net cash used in operating activities	$	(12,613)	$	(10,907)	$	(1,706)	$	(9,148)	$	(3,791)	$	(5,357)
Net cash used in investing activities	$	(3,137)	$	(39)	$	(3,098)
Net cash provided by financing activities	$	1,126	$	24,898	$	(23,772)
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 ~~six~~three months ended ~~December 31,~~September 30, 2022,net cash used in operating activities totaled $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 ~~$12.6~~$3.8 million. The use of cash was approximately ~~$26.7~~$24.1 million less than the net loss due primarily to non-cash charges of goodwill 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~~ amortization of debt premium and ~~non-cash 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 six-months ended December 31, 2020, net cash used in operating activities totaled $10.9 million. The use of cash was approximately $13.8 million less than the net loss due primarily to the non-cash depreciation, amortization and accretion, stock-based compensation, and loss from change in fair value of contingent consideration and CVR, a decrease in inventory and an increase in accrued liabilities. These charges were offset by increases in accounts receivable, prepaid expenses, and other current assets and decreases in accounts payables and accrued compensation.

Net Cash Used in Investing Activities

Net cash ~~used in~~flows from investing activities ~~of $3.1 million during~~were nominal in the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021, ~~was primarily due to $3.1 million payment of contingent consideration to Tris.~~respectively.

4143

Table of Contents

~~Net cash used in investing activities of approximately $39,000 during the six months ended December 31, 2020 was primarily due to payment of contingent consideration.~~

Net Cash Provided by Financing Activities

Net cash provided by financing activities of ~~$1.1~~$13.6 million during the ~~six~~three months ended ~~December 31,~~September 30, 2022, was primarily from $9.1 million proceeds from our August equity raise and 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 ~~$4.6~~$3.4 million net reduction on our short-term line of credit and $2.3 million in payments under our fixed payment arrangements. These decreases were partially offset by a $0.3 million net proceeds from issuance of our common stock under the ~~ATM, partially offset by $2.7 million in payments of fixed payment arrangements and $0.8 million net reduction in our revolving loan.~~ATM.

Net cash provided by financing activities in the six months ended December 31, 2020, was $24.9 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 completed the ATM offering with gross proceeds of $3.5 million, which was offset by the offering cost of $1.7 million, driven by a one-time payment in July 2020 of approximately $1.5 million. We paid approximately $2.8 million related to 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~~

Upon closing of the Neos Merger, we assumed $15.6 million principal and approximately $1.0 million in exit fee obligation under Neos’ credit facility with Deerfield. As of December 31, 2021, $16.0 million was outstanding under the Deerfield facility, including the exit fee. Interest is due quarterly at a rate of 12.95% per year. Payment on the Deerfield facility, including the exit fee and any unpaid interest, is due on May 11, 2022. If all or any of the principal is prepaid or required to be prepaid prior to December 31, 2021, then we shall pay, in addition to such prepayment and accrued interest thereon, a prepayment premium equal to 6.25% of the amount of principal prepaid.

Our Neos subsidiary’s Loan Agreement with Eclipse, provide us with up to $25.0 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 London Interbank Offered Rate, 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 facility amount during the immediately preceding month. Interest is payable monthly in arrears. The maturity date under the Loan Agreement is May 11, 2022.

We may permanently terminate the Loan Agreement with at least five business days prior notice and the payment of a prepayment fee equal to 0.5% of the aggregate principal amount prepaid if such prepayment occurs prior to May 11, 2022.

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~~payments. See Note 1113 – Commitments and Contingencies in the accompanying condensed consolidated financial statements for ~~additional information)~~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 ~~Pediatric Portfolio~~ acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that ~~required~~require us to make ~~a payment~~fixed and product milestone payments driven off sale. As of September 30, 2022, up to ~~$9.5 million.~~$6.3 million of fixed and product milestone payments driven off sales remain.

In connection with the February 2020 ~~upon closing~~acquisition of ~~our~~ Innovus ~~Merger,~~Pharmaceuticals, Inc. (the “Innovus Acquisition”), all of ~~Innovus~~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. ~~Depending on satisfaction~~As of ~~these conditions, we may be required to pay~~September 30, 2022, up to ~~$10 million.~~

~~Table~~$5.0 million of ~~Contents~~

~~Our Innovus subsidiary is also contractually obligated for inventory purchase commitments, for which we are expected to pay approximately $0.7 million during the fiscal year 2022.~~potential CVR milestone payments remain.

~~Assumed~~In connection with our ~~acquisition of~~ Innovus Acquisition, we ~~are~~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, 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 JHU. ~~Furthermore, as discussed above under “Significant Developments” the ODD ear-out milestone payment of $2.5 million is due and~~In fiscal 2022, two milestones payable to ~~Rumpus.~~Rumpus were achieved totaling $4.0 million, which were paid in 109,447 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 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 Aytu BioPharma segment and Aytu 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 Aytu 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.

~~Table of Contents~~

~~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.~~year ended June 30, 2022.

~~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.

Table of Contents

~~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 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.

~~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 ASC350, 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

~~Table of Contents~~

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 Aytu BioPharma segment and the Aytu Consumer Health segment.

Due to the decline in stock price during the three months ended September 30, 2021, we determined that this was an indicator of increased risk primarily increasing the discount rates in the valuation models. We determined the fair value of our reporting segments utilizing the discounted cash flow model. As a result of the continued decline in its stock price, we risk adjusted our cost of equity, which increased the over-all discount rate. As a result, we determined that the fair value of the Aytu BioPharma segment was less than its carrying value, resulting in an impairment loss of $19.5 million. The quantitative test indicated there was no impairment to the Aytu Consumer Health segment as it resulted in an implied fair value of $5.9 million compared with the $0.5 million carrying value. There was no such impairment loss during the three months ended December 31, 2020.

~~The Aytu Consumer Health segment, which has $8.6 million goodwill from the March 2020 Innovus merger, reported $1.4 million negative carrying value as of December 31, 2021.~~

~~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 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.

~~Table of Contents~~

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 ofrequired by Rules 13a-15 and 15d-15 under the ~~end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by~~Exchange Act, our ~~management, with the participation of the~~ Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation 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.~~September 30, 2022. Based on ~~such~~this evaluation, ~~the~~our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures ~~are~~were not effective, due 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.
~~In connection with the preparation of our financial statements for the period ended June 30, 2021, we concluded that we had a~~ material weakness in our internal control over financial reporting related to ~~our analysis for~~ the ~~accounting of goodwill and other intangibles and~~Company’s accounting for ~~the impairment of long-lived assets.~~complex financial instruments, specifically, with regards to warrants. As a result, ~~our management concluded that,~~we performed additional analysis as of June 30, 2021, our internal control over financial reporting is not effective (whereas we previously indicated in our Form 10-K that it is effective as of that date). In connection with the material weakness, we sought and received technical guidance from a third-party provider. This deficiency did not result in a revision of any of our previously issued financial statements. However, the deficiency may have resulted in a material misstatement in the future. In response, we have taken a number of steps, including incorporating the third-party provider review and expertise in our analysis, and we believedeemed necessary to ensure that our ~~controls are now designed properly and operating effectively.~~
~~Such measures~~financial statements were ~~implemented as of the date of the filing of this Quarterly Report and~~prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the ~~enhanced controls are operating effectively~~financial statements included in this Amendment present fairly in all material respects our financial position, results of operations and cash flows for the deficiencies that contributed to the material weakness have been remediated. We expect to continue our efforts to maintain and improve our control processes, though there can be no assurance that we will avoid potential future material weaknesses.period presented.

Changes in Internal Control over Financial Reporting
~~Other than~~Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements could not be prevented or detected on a timely basis. We identified a material weakness in controls over the accounting for complex warrant issuances and the classification of these issued warrants. This material weakness resulted in the failure to prevent material errors in accounting for the warrants as equity classification when the warrants should have been classified as liabilities, and marked to market each reporting period, resulting in restatement of our financial statements for the three months ended September 30, 2022. It also resulted in immaterial errors in our financial statements for the periods ended March 31, 2022, and June 30, 2022.
Our internal control over financial reporting did not result in the proper classification and accounting for warrants as liabilities. Due to the impact on the September 30, 2022 financial statements, we determined this to be a material weakness. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements, other literature, and consultation with third-party experts, we did not classify the warrants correctly.

Remediation Plan

Our Audit Committee is conducting an internal investigation to identify and determine a plan to remediate the material weakness ~~discussed~~described above and to enhance our overall control environment. We will not consider the material weakness remediated until our enhanced control is operational for a sufficient period of time and tested, enabling management to conclude that the enhanced controls are operating effectively. Our remediation plan includes the implementation of controls over the process of reviewing significant and complex contracts and agreements.
Changes in Internal Control Over Financial Reporting
Except for the material weakness noted above, there ~~were~~have been no changes in ~~our~~the Company’s internal ~~controls~~control over financial reporting ~~known to the Chief Executive Officer or the Chief Financial Officer~~ that occurred during the ~~period covered by this Report~~three months ended September 30, 2022 that have ~~materially affected,~~material affect, or are reasonably likely to materially affect, ~~our internal control over financial reporting.~~
~~Our assessment over changes in our internal controls over financial reporting excluded those processes or controls that exist at our Neos subsidiary, which we acquired from~~ the ~~March 19, 2021 Neos Merger. Neos’ last annual report for the year ended December 31, 2020 has been audited without any qualifications. Since the merger, there has been no significant change to its~~Company’s internal control over financial reporting.

4745

Table of Contents

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 filed on September 27, 2022 other than as described below.

We have restated our prior unaudited consolidated financial statements, which may lead to additional risks and uncertainties, including loss of investor confidence and negative impacts on our stock price. (As Restated)
As discussed in Note 1 – Nature of Business, Financial Condition, Basis of Presentation of the Notes to the Condensed Consolidated Financial Statements, we have restated our unaudited condensed consolidated financial statements as of and for the quarterly period ended September 30, 2022 (the “Restated Period”). Our Audit Committee, in consultation with and based on the recommendation of management, made the determination to restate these financial statements following the identification of errors related to the classification of certain warrants that were previously recorded as equity. Due to the errors, the Audit Committee concluded that the Company’s previously issued financial statements for the Restated Period should no longer be relied upon. In addition, we performed a re-evaluation of our internal controls over financial reporting. Based on the re-evaluation, management concluded that, as a result of the identified of material weakness, our internal controls over financial reporting were ineffective for the Restated Period. Our Quarterly Report on Form 10-Q ~~filed~~for the period ended September 30, 2022 has been amended by this Amendment No. 1 on Form 10-Q/A to, among other things, reflect the restatement of our financial statements for the Restated Period.
As a result of these events, we have become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the remediation of our ineffective disclosure controls and procedures and material weakness in internal control over financial reporting. In addition, the attention of our management team has been diverted by these efforts. We could be subject to additional stockholder, governmental, or other actions in connection with the restatement or other matters. Any such proceedings will, regardless of the outcome, consume management’s time and attention and may result in additional legal, accounting, insurance and other costs. If we do not prevail in any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the restatement and related matters could impair our reputation or could cause our counterparties to lose confidence in us. Each of these occurrences could have a material adverse effect on our business, results of operations and financial condition.

We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Table of Contents

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weakness identified through such evaluation of those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As described elsewhere in this Quarterly Report, we identified a material weakness in our internal control over financial reporting related to the accounting for complex warrant issuances and the classification of these issued warrants. As disclosed in Note 2 – Previously Reported Financial Statements, the Company incorrectly accounted for certain warrants as equity when the warrants should have been classified as liabilities and marked to market each reporting period. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of September 30, 2022. This material weakness resulted in a material misstatement and restatement of our financial statements for three months ended September 30, 2022.

To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. For a discussion of management’s consideration of the material weakness identified related to our accounting for the improper classification of the warrants, see Note 2 to the accompanying condensed financial statements, as well as Part I, Item 4: Controls and Procedures, included in this Quarterly Report.

Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our ordinary shares are listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on ~~September 28, 2021~~our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.

We can give no assurance that the measures we have taken and ~~November 15, 2021 respectively.~~plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future, those controls, and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

Item 2. Unregistered Sales of Securities and Use of Proceeds.
None.

Item 3. Defaults Upon Senior Securities.
None.

Table of Contents

Item 4. Mine Safety Disclosures.
Not Applicable.

Item 5. Other Information.
~~None.~~None

Table of Contents

Item 6. Exhibits.

Exhibit No.

Description

Registrant’s
Form

Date Filed

Exhibit
Number

Filed
Herewith

~~10.1~~†

~~Employment Agreement between Aytu BioPharma, Inc. and Mark Oki, effective January 17, 2022.~~

X

~~10.2~~†31.1

~~Restricted Stock Award Agreement between~~Certificate of the Chief Executive Officer of Aytu BioPharma, Inc. ~~and Mark Oki, effective January 17, 2022.~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

~~10.3&~~31.2

~~Loan and Security Agreement dated January 26, 2022 between~~Certificate of the ~~registrant and~~Chief Financial Officer of Aytu BioPharma, Inc. pursuant to Section 302 of the ~~Avenue Capital Lenders and Avenue Capital Agent.~~Sarbanes-Oxley Act of 2002.

X

~~10.4&~~32.1

~~Consent, Joinder~~Certificate of the Chief Executive Officer and ~~Second Amendment~~the Chief Financial Officer of Aytu BioPharma, Inc. pursuant to ~~Loan and Security Agreement dated January 26, 2022 between~~Section 906 of the ~~registrant and Eclipse Business Capital LLC.~~Sarbanes-Oxley Act of 2002.

X

~~10.5~~101

~~Registration Rights Agreement dated January 26,~~XBRL (extensible Business Reporting Language). The following materials from Aytu BioPharma, Inc.’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2022 ~~between Aytu~~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 ~~each of~~(v) the ~~warrant holders.~~Consolidated Notes to the Financial Statements.

X

~~10.6&~~

~~Form of Warrants.~~
104

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

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 December 31, 2021 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

†

~~Indicates is a management contract or compensatory plan or arrangement.~~
&
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.

Table of Contents

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: February ~~14, 2022~~21, 2023
By:
/s/ Joshua R. Disbrow

Joshua R. Disbrow

Chief Executive Officer


	Three Months Ended December 31,
	2021				2020
	Shares		Amount		Shares		Amount
Preferred Stock
Balance beginning of period		—	$	—		—	$	—
Balance end of period		—		—		—		—
Common Stock
Balance beginning of period		27,771,912		3		12,583,736		1
Stock-based compensation		76,972		—		—		—
Issuance of common stock, net of issuance cost		2,161,584		—		5,169,076		1
Issuance of common stock related to debt conversion		—		—		130,081		—
Balance end of period		30,010,468		3		17,882,893		2
Additional Paid-In Capital
Balance beginning of period		—		317,647		—		215,378
Stock-based compensation		—		1,229		—		508
Issuance of common stock, net of issuance cost		—		4,355		—		29,588
Issuance of common stock related to debt conversion		—		—		—		1,058
Balance end of period		—		323,231		—		246,532
Accumulated Deficit
Balance beginning of period		—		(206,150)		—		(124,316)
Net loss		—		(11,548)		—		(9,525)
Balance end of period		—		(217,698)		—		(133,841)
Total stockholders' equity		30,010,468	$	105,536		17,882,893	$	112,693


	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
Estimated fair value per share of Aytu common stock	$	9.73
Estimated 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


	Aytu BioPharma		Aytu 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 December 31, 2021	$	37,712	$	8,637	$	46,349


	December 31, 2021
							Weighted-
							Average
	Gross				Net		Remaining
	Carrying		Accumulated		Carrying		Life (in
	Amount		Amortization		Amount		years)

	(In thousands)
Licensed assets	$	3,246	$	(1,662)	$	1,584	3.42
Acquired product technology right		45,400		(5,963)		39,437	12.44
Acquired technology right		30,200		(1,390)		28,810	16.25
Acquired product distribution rights		11,354		(2,827)		8,527	8.09
Acquired in-process R&D		2,600		—		2,600	Indefinite-lived
Acquired commercial technology		630		(493)		137	0.25
Acquired trade name		400		(156)		244	1.25
Acquired customer lists		390		(390)		—	—
Total	$	94,220	$	(12,881)	$	81,339	13.13


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

	(In thousands)
Licensed assets	$	3,246	$	(1,430)	$	1,816	3.92
Acquired product technology right		45,400		(4,160)		41,240	12.88
Acquired technology right		30,200		(501)		29,699	16.75
Acquired product distribution rights		11,354		(2,073)		9,281	8.57
Acquired in-process R&D		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
Total	$	94,220	$	(8,756)	$	85,464	13.47


			Fair Value Measurements at December 31, 2021
			Quoted
			Priced in
			Active
			Markets		Significant
			for		Other		Significant
			Identical		Observable		Unobservable
	Fair Value at December 31,		Assets		Inputs		Inputs
	2021		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Assets:
Cash and cash equivalents	$	35,277	$	35,277	$	—	$	—
Total	$	35,277	$	35,277	$	—	$	—
Liabilities:
Contingent consideration	$	9,503	$	—	$	—	$	9,503
CVR liability		1,392		—		—		1,392
Total	$	10,895	$	—	$	—	$	10,895


	AYTU BIOPHARMA, INC.

Date: February ~~14, 2022~~21, 2023	By:	/s/ Joshua R. Disbrow
		Joshua R. Disbrow
		Chief Executive Officer