Fair Value Considerations

3 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Considerations

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 financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant derivative liability, contingent consideration liabilities, 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 our consolidated balance sheets. The remaining financial instruments are reported on our 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 in 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 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.

			Fair Value Measurements at September 30, 2022
	Fair Value at September 30,
	2022		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Assets:
Cash and cash equivalents	$	23,811	$	23,811	$	—	$	—
Total	$	23,811	$	23,811	$	—	$	—
Liabilities:
Contingent consideration	$	423	$	—	$	—	$	423
CVR liability		706		—		—		706
Total	$	1,129	$	—	$	—	$	1,129

			Fair Value Measurements at June 30, 2022
	Fair Value at June 30,
	2022		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Assets:
Cash and cash equivalents	$	19,360	$	19,360	$	—	$	—
Total	$	19,360	$	19,360	$	—	$	—
Liabilities:
Contingent consideration	$	396	$	—	$	—	$	396
CVR liability		578		—		—		578
Total	$	974	$	—	$	—	$	974

Summary of Level 3 Input Changes

The following table sets forth a summary of changes to those fair value measures using Level 3 inputs for the three months ended September 30, 2022:

	CVR		Contingent			Fixed Payment
	Liability		Consideration			Arrangement
	(In thousands)
Balance as of June 30, 2022	$	578	$	396	$	13,051
Included in earnings		128		27		446
Purchases, issues, sales and settlements:
Settlements		—		—		(1,025)
Balance as of September 30, 2022	$	706	$	423	$	12,472

Significant Assumptions

Significant assumptions used in valuing CVRs were as follows:

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

Significant assumptions used in valuing the warrants were as follows:

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

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