Aytu BioPharma(US:AYTU)2024-11-13 22:20PART I - FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for Q1 FY2025 reflect a net income of $1.5 million, a significant turnaround from a $8.1 million net loss in the prior year, driven by a $2.9 million gain on derivative warrant liabilities and income from discontinued operations Unaudited Consolidated Balance Sheets Total assets decreased slightly to $115.8 million as of September 30, 2024, while total liabilities decreased to $86.0 million, leading to an increase in total stockholders' equity to $29.8 million Consolidated Balance Sheet Highlights | Balance Sheet Item | Sep 30, 2024 (in thousands) | Jun 30, 2024 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $60,738 | $61,891 | | Total Assets | $115,831 | $118,095 | | Total Current Liabilities | $61,252 | $62,228 | | Total Liabilities | $86,005 | $90,379 | | Total Stockholders' Equity | $29,826 | $27,716 | Unaudited Consolidated Statements of Operations The company reported a net income of $1.5 million for the quarter, a significant turnaround from a $8.1 million net loss in the prior year, despite a 7% decrease in net revenue to $16.6 million, primarily due to a $2.9 million gain on derivative warrant liabilities Quarterly Statement of Operations | Metric | Q1 FY2025 (ended Sep 30, 2024, in thousands) | Q1 FY2024 (ended Sep 30, 2023, in thousands) | | :--- | :--- | :--- | | Net Revenue | $16,574 | $17,817 | | Gross Profit | $11,985 | $13,038 | | Loss from Operations | ($930) | ($867) | | Derivative Warrant Liabilities Gain (Loss) | $2,880 | ($5,907) | | Net Income (Loss) from Continuing Operations | $1,093 | ($7,473) | | Net Income (Loss) from Discontinued Operations | $381 | ($647) | | Net Income (Loss) | $1,474 | ($8,120) | | Basic Net Income (Loss) Per Share | $0.24 | ($1.48) | Unaudited Consolidated Statements of Cash Flows Net cash used in operating activities increased to $1.2 million, while investing activities provided $0.4 million, and financing activities provided $0.9 million, primarily from the revolving credit facility Summary of Cash Flows | Cash Flow Activity | Three Months Ended Sep 30, 2024 (in thousands) | Three Months Ended Sep 30, 2023 (in thousands) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($1,190) | ($211) | | Net Cash Provided by (Used in) Investing Activities | $381 | ($76) | | Net Cash Provided by (Used in) Financing Activities | $911 | ($2,734) | | Net Change in Cash | $102 | ($3,021) | | Cash at End of Period | $20,108 | $19,964 | Notes to the Unaudited Consolidated Financial Statements Key notes detail the company's strategic shift, including the divestiture of its Consumer Health business, a $3.3 million reduction in vendor liability, new international distribution agreements for ADHD products, and debt refinancing - The company divested its Consumer Health business on July 31, 2024, now reported as a discontinued operation, generating a net income of $0.4 million for the quarter, compared to a $0.6 million loss in the prior year138140 - Net revenue for the ADHD Portfolio was positively impacted by a $3.3 million reduction in a vendor liability, following successful negotiations42 - The company is expanding internationally, signing exclusive distribution agreements for its ADHD products, Adzenys and Cotempla, in Israel, the Palestinian Authority, and Canada24 - In June 2024, the company refinanced its debt, replacing the Avenue Capital loan with a new $13.0 million term loan and a $14.5 million revolving credit facility with Eclipse Business Capital, maturing in June 20288788 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 7% decrease in quarterly net revenue to Pediatric Portfolio declines, partially offset by ADHD Portfolio stability and a $3.3 million vendor liability reduction, alongside successful cost reduction efforts and strategic divestitures Overview The company focuses on commercializing novel prescription therapeutics for childhood conditions like ADHD, divesting its Consumer Health business, suspending clinical programs, and expanding ADHD product reach internationally - The company's strategy focuses on in-licensing, acquiring, developing, and commercializing novel prescription therapeutics, primarily for childhood conditions like ADHD145 - In July 2024, the company completed the divestiture of its Consumer Health business to focus on core prescription pharmaceutical products146 - The company has entered into its first international commercial agreements to sell Adzenys and Cotempla in Israel, the Palestinian Authority, and Canada147 Results of Operations Net revenue decreased 7% to $16.6 million, primarily due to a $1.3 million decline in the Pediatric Portfolio, partially offset by a $3.3 million ADHD Portfolio adjustment, while operating expenses decreased by $1.0 million, and a $2.9 million gain on derivative warrant liabilities was recognized Net Revenue by Portfolio | Portfolio | Q1 FY2025 (ended Sep 30, 2024, in thousands) | Q1 FY2024 (ended Sep 30, 2023, in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | ADHD Portfolio | $15,264 | $15,128 | $136 | | Pediatric Portfolio | $1,293 | $2,565 | ($1,272) | | Total Net Revenue | $16,574 | $17,817 | ($1,243) | - The decrease in total net revenue was primarily driven by the Pediatric Portfolio, negatively affected by payer changes impacting prescription coverage153 - General and administrative expenses decreased by $1.2 million (19%) compared to the prior-year period, attributed to cost reduction efforts and improved operational efficiencies156 - A $2.9 million unrealized gain on derivative warrant liabilities was recognized, compared to a $5.9 million loss in the prior-year period, primarily due to changes in the company's stock price161 Liquidity and Capital Resources The company's primary liquidity sources include cash from operations and its revolving credit facility; it refinanced debt in June 2024 with a new $13.0 million term loan and $14.5 million revolving credit facility, and filed a $100.0 million shelf registration in September 2024 - As of September 30, 2024, the company had $20.1 million in cash and cash equivalents1119 - In June 2024, the company entered into a new debt agreement with Eclipse, consisting of a $13.0 million term loan and a $14.5 million revolving credit facility, to refinance a previous loan167168169 - A new shelf registration statement on Form S-3 for up to $100.0 million was filed in September 2024 and became effective in October 2024, subject to 'baby shelf' limitations166 Contractual Obligations, Commitments and Contingencies The company has significant contractual obligations, including a $5.8 million accrued settlement liability for the terminated Tuzistra License Agreement and a $1.7 million accrued fixed payment for the Tris Karbinal Agreement - The company has an accrued settlement liability of $5.8 million payable to Tris related to the termination of the Tuzistra License Agreement177 - An accrued fixed payment arrangement balance of $1.7 million exists for the Tris Karbinal Agreement as of September 30, 2024178 Critical Accounting Estimates The company's critical accounting estimates are consistent with its 2024 Form 10-K, requiring management to make estimates and judgments in financial statement preparation - The discussion and analysis of financial condition are based on financial statements prepared under U.S. GAAP, requiring management to make estimates and judgments, with detailed discussion available in the 2024 Form 10-K180 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk under Rule 12b-2 of the Exchange Act - As a smaller reporting company, Aytu BioPharma is exempt from providing quantitative and qualitative disclosures about market risk182 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024182 - No material changes were made to the company's internal control over financial reporting during the quarter184 PART II - OTHER INFORMATION Legal Proceedings No new material legal proceedings were initiated or terminated during the quarter; the company agreed to settle the Witmer class-action securities litigation through corporate governance modifications and payment of attorneys' fees, pending court approval - The company agreed to settle the Witmer class-action derivative suit, alleging breaches of fiduciary duties related to past acquisitions, involving corporate governance changes and payment of attorneys' fees, subject to court approval101 - No new material legal proceedings were initiated or terminated during the reporting period184 Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended June 30, 2024 - The company reports no material changes to its risk factors from those previously reported in the 2024 Form 10-K185 Other Information During the quarter ended September 30, 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter186 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes standard exhibits such as CEO/CFO certifications (302 and 906) and XBRL data files188 Signatures - The report was duly signed by Joshua R. Disbrow, Chief Executive Officer, and Ryan J. Selhorn, Chief Financial Officer, on November 13, 2024190