Acquisitions

The Pediatric Portfolio

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.

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%

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

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

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)

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”).

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

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

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.