Fair Value Considerations

6 Months Ended

Dec. 31, 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 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, 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 condensed consolidated balance sheets. The remaining financial instruments and derivative warrant liabilities 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 December 31, 2022 and June 30, 2022, by level within the fair value hierarchy.

			Fair Value Measurements at December 31, 2022
	Fair Value at December 31,
	2022		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Liabilities:
Contingent consideration	$	389	$	—	$	—	$	389
CVR liability		810		—		—		810
Derivative warrant liabilities		4,155		—		—		4,155
Total	$	5,354	$	—	$	—	$	5,354

			Fair Value Measurements at June 30, 2022
	Fair Value at June 30,
	2022		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Liabilities:
Contingent consideration	$	396	$	—	$	—	$	396
CVR liability		578		—		—		578
Derivative warrant liabilities		1,796		—		—		1,796
Total	$	2,770	$	—	$	—	$	2,770

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 six months ended December 31, 2022:

	CVR		Contingent			Derivative		Fixed Payment
	Liability		Consideration			Warrant Liabilities		Arrangement
	(In thousands)
Balance as of June 30, 2022	$	578	$	396	$	1,796	$	13,051
Included in earnings		232		(2)		(3,594)		880
Purchases, issues, sales and settlements:
Issues		—		—		5,953		—
Settlements		—		(5)		—		(2,050)
Balance as of December 31, 2022	$	810	$	389	$	4,155	$	11,881

Significant Assumptions

Significant assumptions used in valuing CVRs were as follows:

	December 31,
	2022
Leveraged Beta	0.81
Market risk premium	6.22	%
Risk-free interest rate	5.00	%
Discount	21.25	%
Company specific discount	10.00	%

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

	August 9,
	2022
Expected volatility	89.89	%
Equivalent term (years)	4.11
Risk-free rate	3.09	%
Dividend yield	0.00	%

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

	December 31,
	2022
Expected volatility	96.62	%
Equivalent term (years)	4.09 - 4.69
Risk-free rate	4.02 - 4.11	%
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.