Note 12 - Fair Value Considerations

9 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 12 - Fair Value Considerations

The Company determines 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 determine 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 financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, derivative warrant liabilities, fixed payment arrangements, and 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 the unaudited consolidated balance sheets. The remaining financial instruments and derivative warrant liabilities are reported on the unaudited consolidated balance sheets at amounts that approximate current fair values. The Company’s policy is to recognize transfers in and/or out of fair value hierarchy as of the date on which the event or change in circumstances caused the transfer. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

Recurring Fair Value Measurements

The Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of  March 31, 2024, and June 30, 2023, by level within the fair value hierarchy as follows:

			Fair Value Measurements at March 31, 2024
	Fair Value at March 31,
	2024		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Liabilities:
Current portion of derivative warrant liabilities	$	3,261	$	—	$	—	$	3,261
Derivative warrant liabilities		8,609		—		—		8,609
Total	$	11,870	$	—	$	—	$	11,870

			Fair Value Measurements at June 30, 2023
	Fair Value at June 30,
	2023		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Liabilities:
Current portion of derivative warrant liabilities	$	—	$	—	$	—	$	—
Derivative warrant liabilities		6,403		—		—		6,403
Total	$	6,403	$	—	$	—	$	6,403

Summary of Level 3 Input Changes

A summary of changes to those fair value measures using Level 3 inputs for the nine months ended March 31, 2024, is as follows:

	Derivative
	Warrant Liabilities
	(in thousands)
Balance as of June 30, 2023	$	6,403
Included in earnings		5,467
Balance as of March 31, 2024	$	11,870

Significant Assumptions

The valuation methodologies and key assumptions used for the mark to market fair value measurements of derivative warrant liabilities as of March 31, 2024, are as follows:

	June 2023 Warrants	Warrants
	Tranche A & B	Other *
	Monte Carlo Simulation
	& Black-Scholes	Black-Scholes
Aytu closing stock price	$ 3.04	$ 3.04
Equivalent term (years)	0.21-4.19	2.84-3.44
Expected volatility	97.02%	97.02%
Risk-free rate	4.28%-5.46%	4.36%-4.41%
Dividend yield	0.00%	0.00%

* Includes August 2022 Warrants, March 2022 Warrants and Avenue Capital Warrants.

The Black-Scholes option pricing model is used to value all warrants with significant Level 3 inputs. The Monte Carlo Simulation is used to simulate the exit price and EBITDA forecast; average warrant value per share is from 100,000 Monte Carlo Simulations. The Monte Carlo Simulation is based on significant inputs including financial projections provided by the Company’s management used primarily to forecast future results not observable in the market, and thus, represents a Level 3 measure.