Here are the actual numbers from the Q2 ER versus my projections and the key gaps / questions:
What is contingent consideration? It is the obligation of the buyer to transfer additional assets or equity interests to the seller of the business (usually cash or shares) if future events occur or conditions are met."
The ER SEC Filing states:
Loss from change in fair value of contingent consideration. We recognized a loss of approximately $2.5 million from the change in the fair value of the ZolpiMist and Tuzistra contingent consideration liability and a loss of approximately $0.8 million from the change in fair value of the contingent value rights ("CVR's") liability related to the Innovus Merger."
What I'm struggling with is why these CC's are so large now? I suspect they are calculated based on what they expect to have to pay out at year-end and they're anticipating greater revenues for Tuzistra and Zolpimist than in previous quarters/2020 so they have to set aside/pay out more cash each quarter, which is a good sign for growth.
Here is information on two other Cost/Expense Items:
Aytu also increased cash burn by almost $2M:
"Cash used by operations during the three and six-months ended December 31, 2020 was $10.9 million compared to $9.1 million for the three and six-months ended December 31, 2019 . The increase is due primarily to an increase in working capital and pay down of other liabilities."
Another interesting item:
"We raised approximately $29.6 million, net during the three months ended December 31, 2020, from the sale of approximately 0.4 million shares using the Company’s at-the-market facility and from the issuance of approximately 4.8 million shares of our common stock and 0.3 million placement agent warrants on the December 15, 2020 offering. Finally, on December 10, 2020, we exchanged $0.8 million of debt into 0.1 million shares of our common stock, reducing the need to use cash to satisfy this obligation. Between December 31, 2020, and the filing date of this quarterly report on Form 10-Q, we have not issued any common stock under our at-the-market offering program. As of the date of this report, we have adequate capital resources to complete our near-term operating objectives."
One other interesting point but purely speculation on my part, but based on the timing of the recent SEC filings and other data points I'm pretty sure a lot of the tutes who have reported selling in November got out before the R/S (they were likely alerted discretely), grabbed a tax loss, then re-bought back in January at the $6-level. I believe this because there hasn't been much selling in Neos, only buying.
Here are what the combined NEOS-AYTU numbers would look like based on the ER yesterday and Neos' last ER in October:
After the merger, there is expected to be a flurry of activity to cut $15M of costs out of the business, which I actually believe they have started with and have incurred costs like severance for.
With the $15M reduction in debt (and reduction in interest expense), the combined entity would be approaching profitability by 2022, as they forecasted in their PR.
We can't say they aren't giving us the straight goods at least. Now it's up to investors to determine if it is a worthwhile wait.
Analyst's Disclosure: I am/we are long AYTU.
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