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Note 12 - Fair Value Considerations

6 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 12 - Fair Value Considerations

The Company determines 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:

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Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to Aytu for identical assets or liabilities;

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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

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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, fixed payment arrangements, 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 the unaudited consolidated balance sheets. The remaining financial instruments and derivative warrant liabilities are reported on the unaudited 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, 2023 and June 30, 2023, by level within the fair value hierarchy.

						*Fair Value Measurements at December 31, 2023*
		*Fair Value at December 31,*
		*2023*				*(Level 1)*				*(Level 2)*				*(Level 3)*
		(in thousands)
Liabilities:
Derivative warrant liabilities			12,887				—				—				12,887
Total		$	12,887			$	—			$	—			$	12,887

						*Fair Value Measurements at June 30, 2023*
		*Fair Value at June 30,*
		*2023*				*(Level 1)*				*(Level 2)*				*(Level 3)*
		(in thousands)
Liabilities:
Derivative warrant liabilities			6,403				—				—				6,403
Total		$	6,403			$	—			$	—			$	6,403

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, 2023.

		*Derivative*
		*Warrant Liabilities*
		(in thousands)
Balance as of June 30, 2023		$	6,403
Included in earnings			6,484
Balance as of December 31, 2023		$	12,887

Significant Assumptions

The following table presents the valuation methodologies and key assumptions used for the marked to market fair value measurements of derivative warrant liabilities as of December 31, 2023.

		*June 2023 Warrants*			*Warrants*
		*Tranche A & B*			Other *
		Monte Carlo Simulation
		& Black-Scholes			Black-Scholes
Equivalent term (years)		4.44			3.09-3.69
Expected volatility		96.15%			96.15%
Risk-free rate		3.88%			3.95-4.01%
Dividend yield		0.00%			0.00%

* Includes August 2022 Warrants, March 2022 Warrants, and Avenue Capital Warrants.

The Black-Scholes option pricing model is used to value all warrants with significant Level 3 inputs. The Monte Carlo Simulation is used to simulate the exit price and EBITDA forecast; average warrant value per share is from 100,000 Monte Carlo simulations. The Monte Carlo is based on significant inputs including financial projections provided by the Company’s management used primarily to forecast future results not observable in the market, and thus, represents a Level 3 measure.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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