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Acquisitions | 9 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Acquisitions | The Pediatric Portfolio On October 10, 2019, the Company entered into the Purchase Agreement with Cerecor, Inc. (“Cerecor”) to purchase and acquire Cerecor’s Pediatric Portfolio, which closed on November 1, 2019. The Pediatric Portfolio consists of six prescription products consisting of (i) AcipHex® Sprinkle™, (ii) Cefaclor for Oral Suspension, (iii) Karbinal® ER, (iv) Flexichamber™, (v) Poly-Vi-Flor® and Tri-Vi-Flor™. Total consideration transferred to Cerecor consisted of $4.5 million cash and approximately 9.8 million shares of Series G Convertible Preferred Stock. The Company also assumed certain of Cerecor’s financial and royalty obligations, and not more than $3.5 million of Medicaid rebates and products returns, of which $3.2 million has been incurred. The Company also retained the majority of Cerecor’s workforce focused on sales, commercial contracts and customer relationships. In addition, the Company assumed Cerecor obligations due to an investor that include fixed and variable payments aggregating to $25.6 million. The Company assumed fixed monthly payments equal to $0.1 million from November 2019 through January 2021 plus $15 million due in January 2021. Monthly variable payments due to the same investor are equal to 15% of net revenue generated from a subset of the Product Portfolio, subject to an aggregate monthly minimum of $0.1 million, except for January 2020, when a one-time payment of $0.2 million was paid to the investor. The variable payment obligation continues until the earlier of: (i) aggregate variable payments of approximately $9.5 million have been made, or (ii) February 12, 2026. Further, certain of the products in the Product Portfolio require royalty payments ranging from 12% to 15% of net revenue. One of the products in the Product Portfolio requires the Company to generate minimum annual sales sufficient to represent annual royalties of approximately $1.8 million, in the event the minimum sales volume is not satisfied. While no equity was acquired by the Company, the transaction was accounted for as a business combination under the acquisition method of accounting pursuant to Topic 805. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to an expanded commercial footprint and diversified product portfolio that is expected to provide revenue and cost synergies. Transaction costs of $0.00 and $0.7 million were included as general and administrative expense in the consolidated statements of operations for the three and nine months ended March 31, 2020. The following table summarized the preliminary fair value of assets acquired and liabilities assumed at the date of acquisition. These estimates are preliminary, pending final evaluation of certain assets, and therefore, are subject to revisions that may result in adjustments to the values presented below:
|  | As of |
|  | November 1, 2019 |
Consideration |  |  |
Cash and cash equivalents |  | $ | 4,500,000 |
Fair value of Series G Convertible Preferred Stock |  |  |  |
Total shares issued |  |  | 9,805,845 |
Estimated fair value per share of Aytu common stock |  | $ | 0.567 |
Estimated fair value of equity consideration transferred |  | $ | 5,559,914 |
Total consideration transferred |  | $ | 10,059,914 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |  |  |
Inventory, net |  | $ | 459,123 |
Prepaid assets |  |  | 1,743,555 |
Other current assets |  |  | 2,548,187 |
Intangible assets – product technology rights |  |  | 22,700,000 |
Accrued product program liabilities |  |  | (6,320,853 | )
Assumed fixed payment obligations |  |  | (26,457,162 | )
Total identifiable net assets |  | $ | (5,327,150 | )
Goodwill |  | $ | 15,387,064 |
The fair values of intangible assets, including product technology rights were determined using variations of the income approach. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value (see Note 10).
|  | As of November 1, 2019 |
Acquired product technology rights |  | $ | 22,700,000 |
The fair value of the net identifiable asset acquired was determined to be $22.7 million, which is being amortized over ten years. The aggregate amortization expense was $0.6 million and $0, for the three months ended March 31, 2020 and 2019 respectively. The aggregate amortization expense was $0.9 million and $0, for the nine months ended March 31, 2020 and 2019 respectively. Innovus Merger (Consumer Health Portfolio) On February 14, 2020, the Company completed the merger with Innovus Pharmaceuticals after approval by the stockholders of both companies on February 13, 2020. Upon the effectiveness of the Merger, the Company merged with and into Innovus and all outstanding Innovus common stock was exchanged for approximately 3.8 million shares of the Company’s common stock and up to $16 million of Contingent Value Rights (“CVRs”). The outstanding Innovus warrants with cash out rights were exchanged for approximately 2.0 million shares of Series H Convertible Preferred stock of the Company and retired. The remaining Innovus warrants outstanding at the time of the Merger continue to be outstanding, and upon exercise, retain the right to the merger consideration offered to Innovus stockholders, including any remaining claims represented by CVRs at the time of exercise. Innovus will continue as a subsidiary of the Company. On March 31, 2020, the Company paid out the first CVR Milestone in the form of approximately 1.2 million shares of the Company’s common stock to satisfy the $2.0 million obligation as a result of Innovus achieving the $24 million revenue milestone for the calendar year ended December 31, 2019. As a result of this, the Company recognized a gain of approximately $0.3 million. In addition, as part of the merger, the Company assumed approximately $3.1 million of notes payable, $0.8 million in lease liabilities, and other assumed liabilities associated with Innovus. Of the $3.1 million of notes payable, approximately $1.8 million was converted into approximately 1.5 million shares of the Company’s common stock on April 27, 2020. The following table summarized the preliminary fair value of assets acquired and liabilities assumed at the date of acquisition. Goodwill recorded in connection with the acquisition represents, among other things, future economic benefits expect to be recognized from the Company's expansion of products and customer base. As this was a tax-exempt transaction, goodwill is not tax deductible in future periods. These estimates are preliminary, pending final evaluation of certain assets acquired and liabilities assumed, and therefore, are subject to revisions that may result in adjustments to the values presented below. The estimates of the fair value of the assets acquired assumed at the date of the Acquisition are subject to adjustment during the measurement period (up to one year from the Acquisition date). While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired, it evaluates any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets if new information is obtained about facts and circumstances that existed as of the Acquisition date that, if known, would have resulted in the revised estimated values of those assets as of that date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings.
|  | As of |
|  | February 14, 2020 |
Consideration |  |  |
Fair value of Aytu Common Stock |  |  |
Total shares issued at close |  |  | 3,810,393 |
Estimated fair value per share of Aytu common stock |  | $ | 0.756 |
Estimated fair value of equity consideration transferred |  | $ | 2,880,581 |
Fair value of Series H Convertible Preferred Stock |  |  |  |
Total shares issued |  |  | 1,997,736 |
Estimated fair value per share of Aytu common stock |  | $ | 0.756 |
Estimated fair value of equity consideration transferred |  | $ | 1,510,288 |
Fair value of former Innovus warrants |  | $ | 15,315 |
Fair value of Contingent Value Rights |  | $ | 7,049,079 |
Forgiveness of Note Payable owed to the Company |  | $ | 1,350,000 |
Total consideration transferred |  | $ | 12,805,263 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |  |
Cash and cash equivalents |  |  | 390,916 |
Accounts receivables, net |  | $ | 278,826 |
Inventory, net |  |  | 1,149,625 |
Prepaid expenses and other current assets |  |  | 1,736,796 |
Other long-term assets |  |  | 36,781 |
Right-to-use assets |  |  | 328,410 |
Property, plant and equipment |  |  | 190,393 |
Trademarks and patents |  |  | 11,744,000 |
Accounts payable and accrued other expenses |  |  | (6,983,969 | )
Other current liabilities |  |  | (446,995 | )
Notes payable |  |  | (3,056,361 | )
Lease liability |  |  | (754,822 | )
Preacquisition contingent consideration |  |  | (182,606 | )
Total identifiable net assets |  |  | 4,430,994 |
Goodwill |  | $ | 8,374,269 |
The fair values of intangible assets, including product distribution rights were determined using variations of the income approach, specifically the relief-from-royalties method. It also includes customer lists using an income approach utilizing a discounted cash flow model. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value (see Note 10).
|  | As of February 14, 2020 |
Acquired product distribution rights |  | $ | 11,354,000 |
Acquired customer lists |  |  | 390,000 |
Total intangible assets |  | $ | 11,744,000 |
The fair value of the net identifiable assets acquired was determined to be $11.7 million, which is being amortized over a range between 1.5 to 10 years. The aggregate amortization expense was $0.2 million and $0, for the three and nine months ended March 31, 2020 and 2019 respectively. Pro Forma Impact due to Business Combinations The following supplemental unaudited proforma financial information presents the Company’s results as if the following acquisitions had occurred on July 1, 2018:
| · | Acquisition of the Pediatric Portfolio, effective November 1, 2019;
| · | Merger with Innovus effective February 14, 2020.
|  | Three Months Ended March 31, |  | Nine Months Ended March 31,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | Unaudited (aa) (bb) |  | Pro forma Unaudited |  | Pro forma Unaudited (cc) |  | Pro forma Unaudited
Total revenues, net |  | $ | 10,331,629 |  |  | $ | 10,575,866 |  |  | $ | 34,276,368 |  |  | $ | 36,916,501 |
Net income (loss) |  |  | (5,850,703 | ) |  |  | (8,740,850 | ) |  |  | (18,197,902 | ) |  |  | (17,205,490 | )
Net income / (loss) per share (dd) |  | $ | (0.17 | ) |  | $ | (0.39 | ) |  | $ | (0.80 | ) |  | $ | (0.76 | )
(aa) | For the three months ended March 31, 2020, Pediatric Portfolio acquisition occurred prior to the three months ended March 31, 2020, and accordingly, the results of the Pediatric Portfolio are fully consolidated into the Company’s results for the three months ended March 31, 2020.
(bb) | Due to the absence of discrete financial information for Innovus, covering the period from February 1, 2020 through February 13, 2020, the Company did not include the impact of that stub-period for the pro forma results for the three and nine months ended March 31, 2020.
(cc) | Due to a lack of financial information covering the period from October 1, 2019 through November 1, 2019, the Company was not able to provide pro forma adjusted financial statements for the nine months ended March 31, 2020 without making estimated extrapolations that the Company did not believe would be material or useful to users of the above pro forma information.
(dd) | Pro forma net loss per share calculations excluded the impact of the issuance of the (i) Series G Convertible Preferred Stock and the, (ii) Series H Convertible Preferred Stock under the assumption those shares would continue to remain non-participatory during the periods reported above.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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