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Note 6 - Leases

12 Months Ended

Jun. 30, 2024

Note 6 - Leases

The Company’s operating leases are for its offices, manufacturing facilities and equipment, and its finance leases were for equipment. These leases have original lease periods expiring between 2022 and 2030. Most leases include option provisions under which the parties may extend the lease term. Certain non-real estate leases also include options to purchase the leased property. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. The Company had no remaining finance leases recorded as of June 30, 2024.

In connection with the Neos Acquisition, Aytu assumed an 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 the office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, a borrowing rate of 6.7% was used to determine the present value of future lease payments.

During the fourth quarter of fiscal 2024, as part of the previously announced wind down of the Consumer Health Segment and the closure of the Grand Prairie, Texas manufacturing site, the Company ceased using the Oceanside, California warehouse and the Grand Prairie, Texas manufacturing facility. As a result, the Company wrote off the remaining related operating lease ROU assets. The lease for the Oceanside, California warehouse and the Grand Prairie, Texas manufacturing site are set to expire on December 31, 2026, and on December 31, 2024, respectively.

In June 2024, the Company entered into a forward-starting operating lease agreement to lease office space in Berwyn, Pennsylvania from the owner of the office space that the Company is currently renting under a sublease arrangement. The Company has determined that it is an operating lease, and that lease commencement occurred in July 2024. The initial lease termination date is July 31, 2030, and under the lease agreement the Company has one five-year renewal option to extend the lease through July 2035. Undiscounted minimum monthly rent payments average approximately $13,000 over the initial term of the lease. The Company has elected to utilize the practical expedient to not separate lease and non-lease components upon recognition and variable lease payments will be expensed as incurred. The Company will record an operating lease ROU asset of $0.5 million and a lease liability of $0.5 million at lease commencement in July 2024. The ROU asset and lease liability will be recorded at present value using an incremental borrowing rate of 12.3%.

In May 2023, the Company entered into a lease agreement to relocate its principal office. The space was made available to the Company in September 2023 (lease commencement) with an initial term of five and a half years. The Company recorded an operating lease ROU asset of $0.8 million and a lease liability of $0.8 million at lease commencement. The ROU asset and lease liability were recorded at present value using an incremental borrowing rate of 10.3%. The Company utilized the practical expedient to not separate lease and non-lease components upon recognition. See Note 18 – Commitments and Contingencies for further detail.

The components of lease expenses are as follows:

	*Year Ended*
	*June 30,*
	*2024*		*2023*		*Statement of Operations Classification*
	(in thousands)
Lease cost:
Operating lease cost	$	2,247	$	1,402	Operating expenses
Short-term lease cost		94		97	Operating expenses
Finance lease cost:
Amortization of leased assets		53		66	Cost of sales
Interest on lease liabilities		3		9	Interest expense
Total lease cost	$	2,397	$	1,574

Supplemental balance sheet information related to leases is as follows:

	*June 30,*
	*2024*		*2023*		*Balance Sheet Classification*
	(in thousands)
Assets:
Operating lease assets	$	829	$	2,054	Operating lease right-of-use assets
Finance lease assets		—		159	Property and equipment, net
Total lease assets	$	829	$	2,213

Liabilities:
Current:
Operating leases	$	712	$	1,258	Other current liabilities
Finance leases		—		85	Current portion of debt
Non-current:
Operating leases		577		832	Other liabilities
Total lease liabilities	$	1,289	$	2,175

The remaining weighted-average lease term and discount rate used are as follows:

	*June 30,*
	*2024*			*2023*
Weighted-average remaining lease term (years):
Operating lease assets		2.7			1.7
Finance lease assets		—			0.9
Weighted-average discount rate:
Operating lease assets		10.0	%		7.8	%
Finance lease assets		—	%		6.5	%

Supplemental cash flow information related to leases is as follows:

	Year Ended
	June 30,
	2024		2023
	(in thousands)
Cash flow classification of lease payments:
Operating cash flows from operating leases	$	1,812	$	1,436
Operating cash flows from finance leases	$	3	$	9
Financing cash flows from finance leases	$	85	$	96

As of June 30, 2024, the Company did not have any remaining finance leases. As of June 30, 2024, the Company’s future minimum operating lease payments, including the new forward-starting operating lease agreement to lease office space in Berwyn, Pennsylvania were as follows:

	*Operating*
	(in thousands)
2025	$	970
2026		399
2027		377
2028		386
2029		359
Thereafter		249
Total lease payments		2,740
Less: imputed interest		(555	)
Lease liabilities	$	2,185