Aytu BioPharma(AYTU) - 2023 Q1 - Quarterly Report

FORM 10-Q Filing Information AYTU BIOPHARMA, INC. filed its Form 10-Q for the quarterly period ended September 30, 2022, as a non-accelerated and smaller reporting company Registrant Information AYTU BIOPHARMA, INC. filed its Form 10-Q for the quarterly period ended September 30, 2022. The company is a non-accelerated filer and a smaller reporting company, with 62,429,445 shares of common stock outstanding as of November 9, 2022 - AYTU BIOPHARMA, INC. is a non-accelerated filer and a smaller reporting company[2] Common Stock Information | Metric | Value | | :----------------------- | :----------- | | Common Stock Outstanding | 62,429,445 | | As of Date | Nov 9, 2022 | Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties, with actual results potentially differing materially Forward-Looking Statements and Risks This report contains forward-looking statements regarding future clinical and regulatory events, financial position, business strategy, and operational plans. These statements are subject to various risks, uncertainties, and assumptions, including those detailed in the company's Annual Report on Form 10-K, and actual results may differ materially - Forward-looking statements cover anticipated future clinical and regulatory events, financial position, business strategy, and operational plans[6] - Such statements are subject to risks, uncertainties, and assumptions, including those described in 'Risk Factors' in Part II Item 1A of the most recent Annual Report on Form 10-K[7] PART I—FINANCIAL INFORMATION This section details the company's financial performance and position through consolidated statements and comprehensive notes Item 1. Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Aytu BioPharma, Inc., including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with comprehensive notes detailing the company's financial position, performance, and significant accounting policies for the periods presented Condensed Consolidated Balance Sheets The balance sheets provide a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets | Metric (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :------------------------- | :----------- | :----------- | | Assets | | | | Cash and cash equivalents | $23,811 | $19,360 | | Accounts receivable, net | $27,924 | $21,712 | | Inventory, net | $12,871 | $10,849 | | Total current assets | $74,415 | $59,929 | | Total non-current assets | $75,585 | $77,694 | | Total assets | $150,000 | $137,623 | | Liabilities | | | | Accounts payable and other | $14,667 | $10,987 | | Accrued liabilities | $41,431 | $44,187 | | Short-term line of credit | $8,087 | $3,813 | | Total current liabilities | $73,204 | $64,442 | | Total liabilities | $96,094 | $91,531 | | Stockholders' Equity | | | | Total stockholders' equity | $53,906 | $46,092 | | Total liabilities and stockholders' equity | $150,000 | $137,623 | Condensed Consolidated Statements of Operations The statements of operations detail the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Product revenue, net | $27,655 | $21,897 | | Cost of sales | $9,623 | $9,441 | | Gross profit | $18,032 | $12,456 | | Research and development | $1,064 | $1,652 | | Selling and marketing | $10,102 | $9,297 | | General and administrative | $7,322 | $8,216 | | Impairment expense | — | $19,453 | | Amortization of intangible assets | $1,197 | $1,537 | | Total operating expenses | $19,685 | $40,155 | | Loss from operations | $(1,653) | $(27,699) | | Net loss | $(2,881) | $(27,851) | | Basic and diluted net loss per common share | $(0.06) | $(1.09) | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands, except shares) | Balance July 1, 2022 | Balance Sep 30, 2022 | | :----------------------------------- | :------------------- | :------------------- | | Common Shares Outstanding | 38,578,825 | 62,429,445 | | Common Stock Amount | $4 | $6 | | Additional Paid-in Capital | $334,560 | $345,253 | | Accumulated Deficit | $(288,472) | $(291,353) | | Total Stockholders' Equity | $46,092 | $53,906 | Key Changes (Three Months Ended September 30, 2022) * Stock-based compensation: $1,177 thousand * Issuance of common stock, net of issuance cost: $9,518 thousand * Net loss: $(2,881) thousand Condensed Consolidated Statements of Cash Flows The cash flow statements categorize cash movements into operating, investing, and financing activities for the reporting periods Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(9,148) | $(3,791) | | Net cash provided by (used in) investing activities | $42 | $(86) | | Net cash provided by (used in) financing activities | $13,557 | $(5,464) | | Net change in cash, restricted cash and cash equivalents | $4,451 | $(9,341) | | Cash, cash equivalents and restricted cash at end of period | $23,811 | $40,560 | Supplemental Cash Flow Data * Cash paid for interest: $565 thousand vs $1,688 thousand * Warrants issued (non-cash): $3,023 thousand vs $0 thousand Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Nature of Business, Financial Condition, Basis of Presentation This note describes the company's business segments, financial condition, and the basis for preparing the financial statements - Aytu BioPharma, Inc. is a pharmaceutical company with two segments: Rx (prescription products like ADHD and Pediatric portfolios) and Consumer Health (over twenty consumer health products)[25][26][27] - The company's strategy focuses on commercializing revenue-generating products, leading to the indefinite suspension of clinical development programs AR101 and Healight[27] Selected Financial Metrics | Financial Metric (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $23,811 | $19,360 | | Accounts receivable | $27,924 | $21,712 | | Net loss (3 months ended Sep 30) | $(2,881) | $(27,851) | | Accumulated deficit | $(291,353) | $(288,472) | | Cash used in operations (3 months ended Sep 30) | $(9,148) | $(3,791) | - The company completed an underwritten public offering in August 2022, raising $9.1 million net proceeds for commercial growth, working capital, and general corporate purposes[29] - There is substantial doubt about the company's ability to continue as a going concern due to insufficient cash to cover needs for the next twelve months, with management planning to increase revenue, reduce R&D expenses, and raise additional capital[30][32] Note 2. Significant Accounting Policies This note outlines the key accounting principles, estimates, and recently adopted pronouncements used in preparing the financial statements - Management uses estimates for various financial reporting items, including stock-based compensation, revenue recognition, allowances, asset valuations, and income tax provisions[34] - An ownership change could limit the company's ability to use net operating loss carryforwards, potentially increasing future tax liability[35][38] - Recently adopted accounting pronouncements (ASU 2020-04 on Reference Rate Reform and ASU 2021-04 on Earnings Per Share) did not have a material impact on the financial statements[40][41] Note 3. Revenues from Contracts with Customers This note details the company's revenue recognition policies and disaggregates revenue by product portfolio and geographic location Product Portfolio Revenue | Product Portfolio (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($ thousands) | Change (%) | | :------------------------------- | :------------------------------ | :------------------------------ | :------------------- | :--------- | | ADHD Portfolio | $11,585 | $9,327 | $2,258 | 24.2% | | Pediatric Portfolio | $6,558 | $3,798 | $2,760 | 72.7% | | Consumer Health Portfolio | $9,003 | $8,014 | $989 | 12.3% | | Other | $509 | $758 | $(249) | -32.9% | | Consolidated revenue | $27,655 | $21,897 | $5,758 | 26.3% | Revenue by Geographic Location | Geographic Location (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--------------------------------- | :------------------------------ | :------------------------------ | | U.S. | $27,476 | $21,106 | | International | $179 | $791 | | Total net revenue | $27,655 | $21,897 | Note 4. Inventories This note provides a breakdown of inventory balances and details any inventory write-downs recognized during the period Inventory Balances | Inventory Balances (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :-------------------------------- | :----------- | :----------- | | Raw materials | $2,113 | $1,814 | | Work in process | $2,374 | $1,838 | | Finished goods | $8,384 | $7,197 | | Inventory, net | $12,871 | $10,849 | - The company recorded inventory write-downs of $0.1 million for the three months ended September 30, 2022, compared to $0.2 million in the prior year period[49] Note 5. Property and Equipment This note presents the net carrying amount of property and equipment and the associated depreciation and amortization expenses Property and Equipment, Net | Property and Equipment (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :------------------------------------ | :----------- | :----------- | | Manufacturing equipment | $2,449 | $2,487 | | Leasehold improvements | $999 | $999 | | Office equipment, furniture and other | $1,128 | $1,128 | | Lab equipment | $832 | $832 | | Property and equipment, gross | $5,408 | $5,446 | | Less accumulated depreciation and amortization | $(2,736) | $(2,421) | | Property and equipment, net | $2,672 | $3,025 | - Depreciation and amortization expense for property and equipment decreased to $0.3 million for the three months ended September 30, 2022, from $0.4 million in the prior year period[52] Note 6. Leases This note details the company's lease costs, liabilities, and key terms for both operating and finance leases Lease Cost | Lease Cost (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :------------------------ | :------------------------------ | :------------------------------ | | Operating lease cost | $222 | $296 | | Short-term lease cost | $160 | $39 | | Finance lease cost | $21 | $22 | | Total net lease cost | $403 | $357 | Lease Liabilities | Lease Liabilities (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :------------------------------- | :----------- | :----------- | | Current operating leases | $1,252 | $1,227 | | Current finance leases | $92 | $96 | | Non-current operating leases | $1,768 | $2,090 | | Non-current finance leases | $62 | $84 | | Total lease liabilities | $3,174 | $3,497 | Lease Term and Discount Rate (Sep 30, 2022) | Lease Term & Rate (Sep 30, 2022) | Operating Lease Assets | Finance Lease Assets | | :------------------------------- | :--------------------- | :------------------- | | Weighted-Average Remaining Lease Term (years) | 2.39 | 1.48 | | Weighted-Average Discount Rate | 7.54% | 6.43% | Note 7. Goodwill and Other Intangible Assets This note provides information on goodwill and other intangible assets, including their net carrying amounts and amortization schedules - No impairment of intangible assets was recognized during the three months ended September 30, 2022. In contrast, the company recognized a goodwill impairment of $19.5 million during the three months ended September 30, 2021, due to a significant decline in market capitalization[59] Intangible Assets Net Carrying Amount | Intangible Assets (in thousands) | Sep 30, 2022 Net Carrying Amount | Jun 30, 2022 Net Carrying Amount | | :------------------------------- | :------------------------------- | :------------------------------- | | Acquired product technology rights | $33,705 | $34,509 | | Acquired technology right | $27,478 | $27,922 | | Acquired product distribution rights | $5,325 | $5,601 | | Acquired in-process R&D | $2,600 | $2,600 | | Total | $69,108 | $70,632 | Estimated Future Amortization Expense | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | 2023 (remaining 9 months) | $4,563 | | 2024 | $6,074 | | 2025 | $5,934 | | 2026 | $5,683 | | 2027 | $5,652 | | 2028 | $5,552 | | Thereafter | $33,050 | | Total future amortization expense | $66,508 | - Amortization expense of intangible assets decreased to $1.5 million for the three months ended September 30, 2022, from $2.1 million in the prior year period[69] Note 8. Accrued liabilities This note presents a detailed breakdown of the company's accrued liabilities at the end of the reporting periods Accrued Liabilities | Accrued Liabilities (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :--------------------------------- | :----------- | :----------- | | Accrued savings offers | $11,801 | $12,711 | | Accrued program liabilities | $8,080 | $9,468 | | Product return reserve | $5,826 | $5,770 | | Accrued employee compensation | $5,679 | $4,765 | | Accrued customer and product related fees | $6,832 | $7,817 | | Other accrued liabilities | $3,213 | $3,656 | | Total accrued liabilities | $41,431 | $44,187 | Note 9. Other Liabilities This note details other non-current liabilities, including fixed payment arrangements, contingent value rights, and contingent consideration Other Liabilities | Other Liabilities (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :------------------------------- | :----------- | :----------- | | Fixed payment arrangements | $12,472 | $13,051 | | Contingent value rights | $706 | $578 | | Contingent consideration | $423 | $396 | | Operating lease liabilities | $3,020 | $3,317 | | Other | $803 | $827 | | Total other liabilities | $17,424 | $18,169 | | Less: current portion | $(8,094) | $(5,359) | | Total other liabilities, noncurrent | $9,330 | $12,810 | - Fixed payment arrangements include a remaining $1.0 million as of September 30, 2022, for a fixed obligation, and a $6.9 million balance for the termination of a License Agreement with Tris[75][77] - Contingent Value Rights (CVRs) were revalued at $0.7 million as of September 30, 2022, with up to $5.0 million of future milestone payments potentially remaining[78] - The company reversed $8.5 million and $0.6 million in contingent consideration liabilities related to the discontinuation of commercializing Tuzistra XR and ZolpiMist, respectively[83][84] Note 10. Line of Credit This note describes the terms of the company's secured revolving line of credit and its outstanding balance - The Eclipse Loan Agreement provides up to $12.5 million in secured revolving loans, bearing interest at SOFR plus 4.50%, with a maturity date of January 26, 2025[88] Outstanding Revolving Loans | Metric (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :-------------------------- | :----------- | :----------- | | Outstanding Revolving Loans | $8,087 | $3,813 | - Total interest expense on the Revolving Loans was $0.1 million for both the three months ended September 30, 2022, and 2021[92] Note 11. Long-term Debt This note provides details on the company's long-term debt, including terms, outstanding balances, and future principal payments - The company entered into a $15.0 million secured loan with Avenue Capital, with an interest rate of the greater of prime rate and 3.25% plus 7.4%, maturing on January 26, 2025[93] - The loan includes an initial 18-month interest-only period, extendable by six or twelve months upon achieving specified equity issuance and revenue milestones[94] Long-term Debt | Long-term Debt (in thousands) | Sep 30, 2022 | | :---------------------------- | :----------- | | Long-term debt, due on January 26, 2025 | $15,000 | | Long-term, final payment fee | $638 | | Unamortized discount and issuance costs | $(1,306) | | Financing leases | $154 | | Total debt | $14,485 | | Less: current portion | $(925) | | Non-current portion of debt | $13,560 | Future Principal Payments of Long-term Debt | Future Principal Payments of Long-term Debt (in thousands) | | :----------------------------------------- | | 2023 | $92 | | 2024 | $8,395 | | 2025 | $7,304 | | Future principal payments | $15,791 | Note 12. Fair Value Considerations This note explains the fair value hierarchy used for financial instruments and provides valuation details for specific liabilities - The company classifies financial instruments using a fair value hierarchy (Level 1, 2, 3), with no transfers between levels during the periods presented[106][107] Financial Instruments at Fair Value | Financial Instruments at Fair Value (in thousands) | Sep 30, 2022 | Jun 30, 2022 | | :--------------------------------- | :----------- | :----------- | | Cash and cash equivalents (Level 1) | $23,811 | $19,360 | | Contingent consideration (Level 3) | $423 | $396 | | CVR liability (Level 3) | $706 | $578 | | Total Liabilities | $1,129 | $974 | - Significant assumptions for valuing CVRs include a leveraged beta of 0.84, market risk premium of 6.22%, risk-free interest rate of 4.09%, and a discount rate of 21.50%[114] Note 13. Commitments and Contingencies This note outlines the company's various contractual obligations, royalty agreements, and potential contingent liabilities - The company has fixed payment obligations for its Pediatric Portfolio, including $3.0 million remaining in six equal quarterly payments of $0.5 million[119] - The Karbinal Agreement includes a 23.5% royalty on net sales and minimum unit sales commitments of 70,000 units annually through 2025, with a make-whole payment capped at $2.1 million per year[120] - Contingent liabilities include up to $5.0 million in CVR milestone payments from the Innovus Acquisition and up to $67.5 million in earn-out payments for Rumpus assets upon achievement of regulatory and commercial milestones[121][123] Note 14. Capital Structure This note details the company's common stock outstanding, available shelf registrations, and recent equity offerings Common Stock Outstanding | Stock Information | Sep 30, 2022 | Jun 30, 2022 | | :---------------- | :----------- | :----------- | | Common Shares Outstanding | 62,429,445 | 38,578,825 | - The company has $43.0 million available under its 2020 Shelf registration and $82.4 million under its 2021 Shelf registration for future offerings[124][126] - An August 2022 public offering generated $9.1 million in net proceeds from the sale of common stock and warrants[127][129] Note 15. Equity Incentive Plans This note provides information on stock options, restricted stock, and restricted stock units, including unrecognized compensation costs Equity Incentive Plan Activity (Sep 30, 2022) | Equity Incentive Plan Activity (Sep 30, 2022) | Number of Options/Shares | Weighted Average Exercise Price/Fair Value | | :-------------------------------------------- | :----------------------- | :----------------------------------------- | | Stock Options Outstanding | 78,236 | $16.88 | | Unvested Restricted Stock | 1,363,324 | $7.70 | | Unvested Restricted Stock Units | 170,000 | $1.29 | - Total unrecognized compensation costs for stock options, restricted stock, and RSUs are $0.1 million, $8.4 million, and $0.2 million, respectively, to be recognized over weighted average periods of 1.4, 2.6, and 2.37 years[133][135][137] Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | | Cost of sales | $5 | $9 | | Research and development | $9 | $319 | | Selling and marketing | $3 | $9 | | General and Administrative | $1,160 | $1,182 | | Total stock-based compensation expense | $1,177 | $1,519 | Note 16. Warrants This note details the issuance and activity of equity-classified warrants, including their exercise prices and outstanding balances - In August 2022, the company issued 25,005,814 equity-classified warrants (including pre-funded and common warrants) as part of a public offering, with common warrants having an exercise price of $0.43 per share[140] - Avenue Capital Warrants to purchase 867,769 shares of common stock were issued with an exercise price of $1.21 per share, expiring on January 31, 2027[141] Equity-based Warrants Activity | Equity-based Warrants Activity | Number of Warrants (Sep 30, 2022) | Weighted Average Exercise Price (Sep 30, 2022) | | :----------------------------- | :-------------------------------- | :--------------------------------------------- | | Outstanding June 30, 2022 | 8,664,471 | $4.63 | | Warrants issued | 25,005,814 | $0.43 | | Warrants exercised | (1,750,000) | $0.43 | | Outstanding September 30, 2022 | 31,920,285 | $1.55 | Note 17. Net Loss per Common Share This note explains the calculation of basic and diluted net loss per common share and lists anti-dilutive securities - Basic income (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding[143] Anti-Dilutive Securities Excluded from Diluted EPS | Anti-Dilutive Securities Excluded from Diluted EPS | Sep 30, 2022 | Sep 30, 2021 | | :------------------------------------------------- | :----------- | :----------- | | Warrants to purchase common stock - equity classified | 31,920,285 | 1,160,445 | | Employee stock options | 78,236 | 95,866 | | Employee unvested restricted stock | 1,363,324 | 2,105,678 | | Employee unvested restricted stock units | 170,000 | 77,162 | | Total | 33,531,845 | 3,463,256 | Note 18. License Agreements This note describes the company's various license agreements for investigational devices and commercial products - The company holds a worldwide license with Cedars-Sinai Medical Center for Healight, an investigational medical device platform[144] - An exclusive worldwide license with NeuRx Pharmaceuticals LLC covers NT0502 for sialorrhea treatment, involving potential development, milestone payments, and royalties[145] - Non-exclusive licenses grant Teva and Actavis rights to manufacture and market generic versions of Cotempla XR-ODT (from July 1, 2026) and Adzenys XR-ODT (from September 1, 2025), respectively[148] Note 19. Segment Reporting This note provides financial information disaggregated by the company's Rx and Consumer Health operating segments - The company operates and reports financial information across two segments: Rx (prescription products) and Consumer Health (consumer healthcare products)[151] Segment Financials | Segment Financials (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Consolidated revenue: | | | | Rx Segment | $18,652 | $13,883 | | Consumer Health Segment | $9,003 | $8,014 | | Consolidated net loss: | | | | Rx Segment | $(2,054) | $(26,457) | | Consumer Health Segment | $(827) | $(1,394) | | Total assets (Sep 30, 2022 vs Jun 30, 2022): | | | | Rx Segment | $134,067 | $121,377 | | Consumer Health Segment | $15,933 | $16,246 | Note 20. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On October 25, 2022, the company extended the interest-only period of its senior secured loan facility with Avenue to January 2024, resetting the associated warrants' exercise price to $0.43 and expecting to conserve approximately $3.0 million in principal payments in calendar year 2023[154] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis provides an overview of Aytu BioPharma's financial condition and results of operations for the three months ended September 30, 2022. It highlights the company's strategic shift to focus on commercial business growth and achieving operating cash flows, the impact of the business environment, and detailed analysis of revenue, expenses, and liquidity Objective The MD&A aims to provide information relevant to assessing and understanding the company's results of operations and cash flows for the three months ended September 30, 2022, and its financial condition as of that date - The MD&A aims to provide information relevant to assessing and understanding the company's results of operations and cash flows for the three months ended September 30, 2022, and its financial condition as of that date[157] Overview This section provides a high-level summary of Aytu BioPharma's business, segments, and key financial outcomes - Aytu BioPharma is a commercial-stage pharmaceutical company with Rx and Consumer Health segments, generating revenue through third-party wholesalers and direct-to-consumer sales[158] Selected Financial Overview | Financial Metric (in millions) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :----------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(2.9) | $(27.9) | | Accumulated deficits (Sep 30, 2022) | $(291.4) | $(288.5) (Jun 30, 2022) | Significant Developments This section highlights key strategic shifts, business environment impacts, and recent financial transactions affecting the company - The company's strategy for fiscal 2023 focuses on accelerating commercial business growth and achieving operating cash flows, leading to the indefinite suspension of AR101 and Healight clinical development programs, projected to save over $20 million in future study costs[160] - The business environment continues to be impacted by the COVID-19 pandemic, inflationary pressures, and supply chain disruptions, which are expected to persist throughout fiscal year 2023[161][165] - An agreement with Avenue extended the interest-only period of the senior secured loan to January 2024, resetting warrant exercise prices and expected to conserve approximately $3.0 million in principal payments in calendar year 2023[166] - The August 2022 public offering generated net proceeds of approximately $9.1 million[167] Results of Operations This section provides a detailed analysis of the company's revenues, gross profit, and operating expenses for the reporting periods Consolidated Results of Operations | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($ thousands) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------- | :--------- | | Product revenue, net | $27,655 | $21,897 | $5,758 | 26% | | Gross profit | $18,032 | $12,456 | $5,576 | 45% | | Research and development | $1,064 | $1,652 | $(588) | -36% | | Selling and marketing | $10,102 | $9,297 | $805 | 8.7% | | General and administrative | $7,322 | $8,216 | $(894) | -11% | | Impairment expense | — | $19,453 | $(19,453) | -100% | | Amortization of intangible assets | $1,197 | $1,537 | $(340) | -22% | | Loss from operations | $(1,653) | $(27,699) | $26,046 | 94% | | Net loss | $(2,881) | $(27,851) | $24,970 | 89.6% | - Product revenue increased by 26% primarily due to script growth in ADHD and Pediatric portfolios and e-commerce growth in the Consumer Health portfolio[171] - Gross margin percentage improved to 65% from 57% year-over-year, driven by cost reductions and efficiencies from greater volumes in the ADHD and Pediatric portfolios[173] - Research and development expenses decreased by 36% and are expected to decrease further due to the deferral of AR-101 and Healight development[174] - General and administrative expenses decreased by 11% due to ongoing cost-cutting initiatives[177] - Other expense, net, increased by $1.1 million primarily due to licensing agreements and higher interest rates on debt[179] Liquidity and Capital Resources This section discusses the company's sources of funding, cash flow activities, and contractual obligations - The company finances operations through common stock and warrant sales, line of credit borrowings, and cash from operations, with $82.4 million and $43.0 million remaining available under its 2021 and 2020 shelf registrations, respectively[180][181] - The Eclipse Loan Agreement provides up to $12.5 million in revolving loans, bearing interest at SOFR plus 4.50%, maturing on January 26, 2025[184] Cash Flow Activities | Cash Flow Activity (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Increase (Decrease) (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------------------------------- | | Net cash used in operating activities | $(9,148) | $(3,791) | $(5,357) | | Net cash provided by (used in) investing activities | $42 | $(86) | $128 | | Net cash provided by (used in) financing activities | $13,557 | $(5,464) | $19,021 | - Net cash used in operating activities increased to $9.1 million, primarily due to increases in accounts receivables, inventory, and prepaid expenses, and a decrease in accrued liabilities[187] - Net cash provided by financing activities was $13.6 million, driven by $9.1 million from the August equity raise and $4.3 million in additional net borrowing under the short-term line of credit[190] - Contractual obligations include a $6-9 million settlement payment to Tris, $6.3 million in fixed and product milestone payments from the Cerecor acquisition, and up to $5.0 million in CVR milestone payments from the Innovus Acquisition[193][194] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Aytu BioPharma, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide information under this item[198] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[199][201] - There were no changes in internal control over financial reporting during the first quarter of 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[202] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings Two putative class-action securities litigations, Aponowicz and Paguia, challenging stock option awards granted in 2021, were agreed to be settled as of October 14, 2022, pending court approval - Putative class-action securities litigations (Aponowicz and Paguia) challenging 2021 stock option awards were agreed to be settled on October 14, 2022, subject to court approval[204] Item 1A. Risk Factors The company's business faces significant risks and uncertainties, with no material changes reported from those in its fiscal year 2022 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those reported in its fiscal year 2022 Annual Report on Form 10-K[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[205] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities to report[205] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[205] Item 5. Other Information There is no other information to report under this item - No other information to report[205] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and XBRL-formatted financial data - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1) and XBRL financial data (101, 104)[207] SIGNATURES The Quarterly Report on Form 10-Q was duly signed on behalf of AYTU BIOPHARMA, INC. by Joshua R. Disbrow, Chief Executive Officer, on November 14, 2022 Report Signatures The Quarterly Report on Form 10-Q was duly signed on behalf of AYTU BIOPHARMA, INC. by Joshua R. Disbrow, Chief Executive Officer, on November 14, 2022 - The report was signed by Joshua R. Disbrow, Chief Executive Officer, on November 14, 2022[209]