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Note 2 - Acquisitions | 6 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 2. Acquisitions The Pediatric Portfolio On October 10, 2019, the Company entered into the Purchase Agreement with Cerecor, Inc. (“Cerecor”) to acquire the Pediatric Portfolio, which closed on November 1, 2019. The Pediatric Portfolio consists of four main prescription products (i) Cefaclor™ for Oral Suspension, (iii) Karbinal® ER (iii) Poly-Vi-Flor®, and (iv) Tri-Vi-Flor™. Total consideration transferred to Cerecor consisted of $4.5 million cash and approximately 980 thousand shares of Series G Convertible Preferred Stock. The Company also assumed certain of Cerecor's financial and royalty obligations, and not more than $2.7 million of Medicaid rebates and up to $0.8 million of product returns, of which $3.5 million has been incurred. The Company also hired 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 Pediatric 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. In June 2020, the Company paid down a $15 million balloon payment originally owed in January 2021 to reduce the fixed liability. Further, certain of the products in the Pediatric 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 remainder of the aggregate 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. The following table summarized the fair value of assets acquired and liabilities assumed at the date of acquisition.
|  | 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 |  | $ | 459,123 |
Prepaid assets |  |  | 1,743,555 |
Other current assets |  |  | 2,525,886 |
Intangible assets - product marketing rights |  |  | 22,700,000 |
Accrued liabilities |  |  | (300,000 | )
Accrued product program liabilities |  |  | (6,683,932 | )
Assumed fixed payment obligations |  | $ | (29,837,853 | )
Total identifiable net assets |  |  | (9,393,221 | )
Goodwill |  | $ | 19,453,135 |
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 9 ). The fair value of the net identifiable asset acquired was determined to be $22.7 million, which is being amortized over ten years. 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, a subsidiary of the Company merged with and into Innovus, and all outstanding Innovus common stock was exchanged for approximately 380 thousand 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 200 thousand shares of Series H Convertible Preferred stock of the Company and retired. The remaining Innovus warrants outstanding, those without ‘cash- out' rights, 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 is now a 100% wholly-owned subsidiary of the Company, (“Aytu Consumer Health”). On March 31, 2020, the Company paid out the first CVR Milestone in the form of approximately 120 thousand 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 $2.2 million was converted into approximately 180 thousand shares of the Company's common stock since February 14, 2020. Approximately $41 thousand remained outstanding as of December 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 liabilities, and therefore, are subject to revisions that may result in adjustments to the values presented below:
|  | 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 |
|  | As of |
|  | February 14, 2020 |
Total consideration transferred |  | $ | 12,805,263 |
Recognized amounts of identified assets acquired and liabilities assumed |  |  |  |
Cash and cash equivalents |  | $ | 390,916 |
Accounts receivable |  |  | 278,826 |
Inventory |  |  | 1,149,625 |
Prepaid expenses and other current assets |  |  | 1,692,133 |
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 |  |  | (7,202,309 | )
Other current liabilities |  |  | (629,601 | )
Notes payable |  |  | (3,056,361 | )
Lease liability |  |  | (754,822 | )
Total identifiable assets |  | $ | 4,167,991 |
Goodwill |  | $ | 8,637,272 |
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 CVRs were valued using a Monte-Carlo model. The Company believes the assumptions are representative of those a market participant would use in estimating fair value (see Note 10 ). 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. Unaudited Pro Forma Information The following supplemental unaudited proforma financial information presents the Company's results as if the following acquisitions had occurred on July 1, 2019:
| ● | Acquisition of the Pediatric Portfolio, effective November 1, 2019;
| ● | Merger with Innovus effective February 14, 2020.
The unaudited pro forma results have been prepared based on estimates and assumptions, which management believes are reasonable, however, the results are not necessarily indicative of the consolidated results of operations had the acquisition occurred on July 1, 2019, or of future results of operations:
|  | Three Months Ended |  |  | Six Months Ended |
|  | December 31, 2020 |  |  | December 31, 2019 |  |  | December 31, 2020 |  |  | December 31, 2019 |
|  | Actual |  |  | Pro forma |  |  | Actual |  |  | Pro forma |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Total revenues, net |  | $ | 15,147,034 |  |  | $ | 8,929,802 |  |  | $ | 28,667,280 |  |  | $ | 20,541,401 |
Net (loss) |  |  | (9,525,294 | ) |  |  | (2,450,247 | ) |  |  | (13,831,224 | ) |  |  | (11,255,247 | )
Net (loss) per share (aa) |  | $ | (0.72 | ) |  | $ | (1.40 | ) |  | $ | (1.09 | ) |  | $ | (6.85 | )
(aa) 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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