Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principals of Consolidation. The Company’s consolidated financial statements include the accounts of: Aytu Therapeutics, LLC, Innovus Pharmaceuticals, Inc. and Neos Therapeutics, Inc. and their respective wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation. The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

Use of estimates. The preparation of financial statements and footnotes requires the use of management estimates, judgments and assumptions. Actual results may differ from estimates. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation; revenue recognition, determination of variable consideration for accruals of chargebacks, administrative fees and rebates, government rebates, returns and other allowances; allowance for doubtful accounts; inventory impairment; determination of right-of-use assets and lease liabilities; valuation of financial instruments, derivative warrant liabilities, intangible assets, long-lived assets, and goodwill; purchase price allocations, and the depreciable lives of long-lived assets; accruals for contingent liabilities; and determination of the income tax provision, deferred taxes and valuation allowance.

Prior Period Reclassification. Certain prior year amounts in the consolidated statements of operations and statements of cash flows have been reclassified to conform to the current year presentation, including a reclassification made in the presentation of amortization of intellectual property, and a reclassification of fair value adjustment from contingent consideration. Amortization of intellectual property was previously included in research and development expenses and is currently recorded in amortization of intangible assets expenses on the consolidated statements of operations. Gain or loss from the fair value of contingent consideration was previously included in Other expense, net, and is currently recorded in operating expenses on the consolidated statements of operations. These reclassifications did not impact operating results or cash flows for the fiscal years ended June 30, 2023 and 2022 or its financial position as of June 30, 2023 or June 30, 2022.

Previously Reported Financial Statements. The classification of certain of the Company’s warrants was previously recorded as equity. These warrants according to U.S. GAAP should have been classified as derivative warrant liabilities at fair value and marked to market at each reporting period, with changes in fair value recorded in earnings. The affected filing periods include the audited financial statements as of June 30, 2022.

SEC Staff Accounting Bulletin No. 99, “Materiality,” and the Financial Accounting Standards Board (“FASB”), Statement of Financial Accounting Concepts No. 2 “Qualitative Characteristics of Accounting Information” indicate that quantifying and aggregating adjustments is only the beginning of an analysis of materiality and that both quantitative and qualitative factors must be considered in determining whether individual adjustments are material. The Company evaluated the adjustments and determined that the impact was not material to the consolidated financial statements as of and for the fiscal year ended June 30, 2022. As a result, adjustments for the immaterial adjustments were applied to this period for comparative purposes. The adjustments did not change the Company’s reported total assets, cash and cash equivalents, operating expenses, operating losses or cash flows from operations.

The consolidated financial statements as of and for the fiscal year ended June 30, 2022 have been adjusted as shown in the following tables.

	As of June 30, 2022
	As Previously
	Reported		Adjustment		As Adjusted
	(in thousands)
Balance Sheet data
Derivative warrant liabilities	$	-	$	1,796	$	1,796
Total liabilities	$	91,531	$	1,784	$	93,315
Additional paid-in capital	$	334,560	$	(3,174)	$	331,386
Accumulated deficit	$	(288,472)	$	1,394	$	(287,078)
Total stockholders’ equity	$	46,092	$	(1,784)	$	44,308

	Twelve Months Ended
	June 30, 2022
	As Previously
	Reported		Adjustment		As Adjusted
	(in thousands)
Statement of Operation data
Gain on derivative warrant liability	$	211	$	1,394	$	1,605
Total other income, net (1)	$	1,278	$	(261)	$	1,017
Loss before income tax	$	(110,283)	$	1,394	$	(108,889)
Net loss	$	(110,173)	$	1,394	$	(108,779)
Basic and diluted net loss per common share	$	(75.00)	$	0.99	$	(74.01)
Statement of Stockholders' Equity data
Issuance of common stock, net of issuance cost	$	11,652	$	(2,798)	$	8,854
Statement of Cash Flow data
Net loss	$	(110,173)	$	1,394	$	(108,779)
Gain on derivative warrant liability	$	(211)	$	(1,394)	$	(1,605)

1) Includes reclassification of gain or loss from the fair value of contingent consideration. See Prior Period Reclassification in Note 2 – Summary of Significant Accounting Policies.

Previously Reported Segment Information. During the year ended June 30, 2023, the Company identified an omission regarding the disclosure of certain key metrics of its reportable segments under ASC 280 related to the year ended June 30, 2022. During the year ended June 30, 2022, the Company inappropriately reported the net income of each of its two segments as opposed to operating income which more closely aligns with the adjusted EBITDA metric that is utilized by its chief operating decision maker. The impact on June 30, 2022 was that $92.4 million and $17.5 million of operating loss relating to the Rx Segment and Consumer Health segment, respectively, should have been reported as a separate line. The Company assessed the materiality of this omission on the previously issued interim and annual consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the omission was not material to any of the previously issued consolidated financial statements and began reporting operating results by segment in accordance with ASC 280 on a prospective basis starting with the year ended June 30, 2023

Cash and Cash Equivalents. The Company’s primary objectives for investment of available cash are the preservation of capital and the maintenance of liquidity. The Company invests its available cash balances in bank deposits and money market funds. The cash balances in bank deposits are subject to FDIC (the “Federal Deposit Insurance Corporation”) insurance limits, and cash balances in the money market funds are not FDIC insured. The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable, net. Accounts receivable represent amounts due from customers less allowances for doubtful accounts, discounts and pricing chargebacks. An allowance for doubtful accounts, when needed, is based upon the financial condition and payment history of customers; collections experience on other accounts; and economic factors or events expected to affect future collections. The allowance for doubtful accounts was zero for both years ended June 30, 2023 and 2022. The allowance for discounts was $1.8 million and $1.3 million for the years ended June 30, 2023 and 2022, respectively. The allowance for chargebacks was $1.2 million for both years ended June 30, 2023 and 2022.

The table below presents the opening and closing balances of receivables from customers.

		Accounts Receivable, gross
		(in thousands)
Opening balance, June 30, 2022	$	24,219
Closing balance, June 30, 2023		31,927
Increase	$	7,708
Opening balance, June 30, 2021	$	30,325
Closing balance, June 30, 2022		24,219
Decrease	$	(6,106)

The table below details the change in allowance for discount, and allowance for chargeback for the periods presented.

		Allowance for Discount		Allowance for Chargeback		Total Allowance
		(in thousands)
Balance, June 30, 2021	$	1,133	$	1,016	$	2,149
Charges to expense		6,760		4,598		11,358
Payments		(6,592)		(4,408)		(11,000)
Balance, June 30, 2022	$	1,301	$	1,206	$	2,507
Charges to expense		9,074		4,554		13,628
Payments		(8,597)		(4,548)		(13,145)
Balance, June 30, 2023	$	1,778	$	1,212	$	2,990

Inventories. Inventories consist of raw materials, work in process and finished goods and are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Prior to regulatory approval, before economic benefit is probable, pre-launch inventories are expensed as research and development.

The Company periodically reviews the composition of its inventories in order to identify obsolete, slow-moving or otherwise unsaleable items. If evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period the impairment is identified.

Going Concern Determination. In connection with the preparation for each annual and interim financial reporting period, management evaluates whether there are events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued. The evaluation is based on relevant conditions and events that are known and reasonably knowable within one year after the date that the financial statements are issued. Recurring operating losses or year over year negative cash flows from operating activities are considered negative trends.

Property and equipment, net. Property and equipment are recorded at cost less accumulated depreciation. Furniture and equipment are depreciated on a straight-line basis over their estimated useful lives which are generally two to seven years. Leasehold improvements are amortized over the shorter of the estimated useful life or remaining lease term. The Company begins depreciating assets when they are placed into service. Maintenance and repairs are expensed as incurred.

Leases. At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease. Lease classification, recognition and measurement are determined at the lease commencement date. Lease liabilities and right-of-use (“ROU”) assets are recorded based on the present value of lease payments over the expected lease term, including options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. In determining the present value of the lease payments, the Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the lease commencement date.

Fixed lease payments, or in substance fixed, are recognized over the expected term of the lease using the effective interest method. Variable lease payments are expensed as incurred. Fixed and variable lease expenses on operating leases are recognized within cost of sales and operating expenses in the Company’s consolidated statements of operations. ROU asset amortization and interest costs on financing leases are recorded within cost of sales and interest expense, respectively, in the Company’s consolidated statements of operations. The Company has elected to account for payments on short-term leases as lease expense on a straight-line basis over lease terms of 12 months or less.

Operating leases are included in other liabilities in the Company’s consolidated balance sheets. Financing leases are included in property and equipment, net, current portion of long-term debt and long-term debt, net of current portion in the Company’s consolidated balance sheets.

Income from subleasing is recognized on a straight-line basis over the sublease term, subject to collectability issues which will limit the income recognized to payment received until collectability is no longer an issue. Any variable payments are recognized as incurred.

Fair Value of Financial Instruments.

Acquisitions. In an acquisition of a business or a group of assets, the Company uses the acquisition method of accounting which identifies, recognizes, and measures the identifiable assets acquired, liabilities assumed and any non-controlling interest at their acquisition date fair values. Any excess of the purchase consideration over the fair values of the net identifiable assets acquired is recorded as goodwill. If the Company determines the assets acquired do not meet the definition of a business, the transaction is accounted for as an acquisition of assets, which records the assets acquired at the purchase price and does not result in goodwill. Contingent consideration is accounted for Acquired in-process research and development with no alternative future use is charged to expense.

Warrants. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC480, and whether the warrants meet all of the requirements for equity classification under ASC 815,including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Liability classified warrants are valued using the Monte Carlo simulation model or the Black-Scholes option pricing model at issuance, and for each reporting period. Equity classified warrants are valued using the Black-Scholes model.

Revenue Recognition. The Company generates revenue from product sales through its prescription pharmaceutical products segment (“Rx Segment”) and its consumer healthcare products segment (“Consumer Health

Segment”). The Company evaluates its contracts with customers to determine revenue recognition using the following five-step model: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) a performance obligation is satisfied. There is not a recognized financing component related to product sales.

Rx Segment

Net product sales for the Rx Segment (which includes the ADHD Portfolio and the Pediatric Portfolio) consist of sales of prescription pharmaceutical products, principally to a limited number of wholesale distributors and pharmacies in the United States. Rx product revenue is recognized at the point in time that control of the product transfers to the customer in accordance with shipping terms (i.e., upon delivery), which is generally “free-on-board” destination when shipped domestically within the United States and “free-on-board” shipping point when shipped internationally consistent with the contractual terms.

Rx product revenue is recognized net of consideration paid to the Company’s customers and other adjustments to the transaction price (known as “Gross to Net” adjustments). Estimating adjustments to the transaction price and applying the constraint on variable consideration requires the use of significant management judgment and other market data. Gross to Net adjustments include provisions for product returns, wholesaler distribution fees and chargebacks for discounted pricing to participating entities, managed care rebate programs, savings programs for patients covered under commercial payor plans and other deductions.

The Company makes estimates of the net sales price, including estimates of variable consideration to be incurred on the respective product sales (known as “Gross to Net” adjustments). Estimating gross to net adjustments and applying the constraint on variable consideration requires the use of significant management judgment and other market data.

The Gross to Net adjustments include:

● Savings offers The Company offers savings programs for its patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted.

● Prompt payment discounts Prompt payment discounts are based on standard provisions of wholesalers’ services.

● Wholesale distribution fees Wholesale distribution fees are based on definitive contractual agreements for the management of the Company’s products by wholesalers.

● Rebates The Rx Portfolio products are subject to commercial managed care and government (i.e. Medicaid) programs whereby discounts and rebates are provided to participating managed care organizations and federal and/or state governments. Calculations related to rebate accruals are estimated based on historical information from third-party providers.

● Wholesaler chargebacks The Rx Portfolio products are subject to certain programs with wholesalers whereby pricing on products is discounted below wholesaler list price to participating entities. These entities purchase products through wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost and the discounted price back to the Company following the product purchases of the wholesalers’ end customers.

● Returns Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error, product ordered by customer in error, product returned due to overstock, product returned due to dating or product returned due to recall or other changes in regulatory guidelines. The return policy for expired product allows the wholesaler to return such product starting six months prior

to expiry date to twelve months post expiry date. The Company analyzes return data available from sales since inception date to determine a reliable return rate.

Savings offers, rebates and wholesaler chargebacks reflect the terms of underlying agreements, which may vary. Accordingly, actual amounts will depend on the mix of sales by product and contracting entity. Future returns may not follow historical trends. The Company’s periodic adjustments of its estimates are subject to time delays between the initial product sale and ultimate reporting and settlement of deductions. The Company continually monitors these provisions and do not believe variances between actual and estimated amounts have been material.

Consumer Health Segment

The Consumer Health Segment revenue (consisting of the Consumer Health Portfolio) is from sales of various consumer health products through e-commerce platforms and direct-to-consumer marketing channels. Revenue is generally recognized “free-on-board” shipping point, as those are the agreed-upon contractual terms. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.

Customer Contract Costs. The Company expenses the incremental costs to obtain a contract as incurred, since they are satisfied within one year.

Concentration of Credit Risk. Financial instruments that potentially subject the Company to credit risk concentrations consist of cash, cash equivalents and accounts receivable.

The Company maintains deposits in financial institutions in excess of federally insured limits. The Company periodically monitors the credit quality of the financial institutions with which it invests and believes that the Company is not exposed to significant credit risk due to the financial position of those institutions.

The Company is also subject to credit risk from accounts receivable related to product sales. The Company’s customers, sometimes referred to as partners or customers, are primarily large wholesale distributors that resell the Company’s products to retailers. The loss of one or more of these large customers could have a material adverse effect on the Company’s business, operating results or financial condition. The Company does not charge interest or require collateral related to its accounts receivable. Credit terms are generally forty to sixty days.

The following table presents customers that contributed more than 10% of gross revenue and accounts receivable:

	Percentage of gross revenue				Percentage of accounts receivable
	June 30,
	2023		2022		2023		2022
Customer A	43	%	41	%	50	%	52	%
Customer B	18	%	20	%	19	%	25	%
Customer C	17	%	18	%	14	%	18	%

Costs of Sales. Costs of sales consists primarily of manufactured product cost, products acquired from third-party manufacturers, freight, production, and indirect manufacturing overhead costs and FDA fees for commercialized products. Certain of the Company’s sales activities depend on licensing arrangements that may require periodic milestone payments or royalty payments, which are also included in costs of sales. In addition, distribution, shipping and handling costs invoiced by the Company's third-party logistics companies are included in costs of sales.

Stock-Based Compensation. The Company accounts for share-based payments compensation expense using a fair value based model.

Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of the Company’s common stock and recognized ratably over the requisite service period.

Stock option grants are valued using the Black-Scholes option pricing model and compensation costs are recognized ratably over the period of service using the graded method. The Black-Scholes option pricing model requires the Company to estimate the expected term of the award, the expected volatility, the risk-free interest rate, and the expected dividends. The expected term is determined using the “simplified method,” which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for the expected term of the award. The Company doesn’t anticipate paying any dividends in the near future. Forfeitures are recognized as they occur.

Research and Development. Research and development costs are expensed as incurred and include salaries and benefits, facilities costs, overhead costs, raw materials, laboratory and clinical supplies, clinical trial costs, contract services, milestone payments and fees paid to regulatory authorities for review and approval of the Company’s product candidates and other related costs.

Intangible Assets. The Company records acquired intangible assets based on fair value on the date of acquisition. Finite-lived intangible assets are recorded at cost and amortized on a straight-line basis over the estimated lives of the assets. Indefinite-lived intangible assets are not subject to amortization.

Impairment of Long-lived Assets and Goodwill. The Company assesses impairment of asset groups, including intangible assets, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Long-lived assets consist of property and equipment, net, right of use assets and other intangible assets, net. Circumstances which could trigger a review include, but are not limited to: (i) changes in Company plans; (ii) competition; (iii) significant adverse changes in the business climate or legal or regulatory factors; (iv) or, expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than its carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances, including a decline in the Company’s stock price, indicate that its carrying amount is less than its fair value. If qualitative factors, such as general economic conditions, the Company’s outlook and market performance of the Company’s industry forecasted financial performance indicate that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, the Company performs a quantitative analysis of fair value. The Company determines the fair value of a reporting unit utilizing a discounted cash flow model. Significant assumptions inherent in the valuation methodologies include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in the Company’s industry.

Contingent consideration. The consideration for our acquired businesses and licenses often includes future payments that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on the acquisition date. Changes in the fair value of contingent consideration obligations are recognized in the consolidated statements of income.

Advertising Costs. Advertising costs consist of the direct marketing activities related to the Consumer Health Segment. The Company expenses all advertising costs as incurred. The Company incurred $11.1 million and $13.6 million of advertising costs for the years ended June 30, 2023 and 2022, respectively.

Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the

balance sheet date. A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not that some portion or all of its deferred tax asset will not be utilized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of to be sustained upon an examination.

The Company recognizes interest and penalties related to uncertain tax positions in Income tax (provision) benefit in the consolidated statements of operations.

Debt issuance costs, discounts (premiums). Debt issuance costs reflect fees paid to lenders and third parties directly related to issuing debt. Debt issuance costs and discounts (premiums) related to term loans are reported as direct deductions (increases) to the outstanding debt and amortized over the term of the debt using the effective interest method as an addition (reduction) to interest expense. Debt issuance costs related to a line of credit facility are classified as assets and subsequently amortized over the term of the line of credit as additional interest expense.

Segment information. The Company’s operating segments engage in business activities from which it may earn revenues and incur expenses and for which discrete information is available and regularly reviewed by the Company’s chief operating decision maker, who is the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and to assess performance. Operating segments are aggregated for reporting purposes when the operating segments are identified as similar in accordance with the basic principles and aggregation criteria in the accounting standards. The Company’s reporting segments are based on product lines, which have different lines of management responsibility and marketing strategies. The Company has two reportable segments: the Rx Segment and the Consumer Health Segment.

Paragraph IV litigation costs. Legal costs incurred by the Company in the enforcement of the Company’s intellectual property rights are charged to expense.

Business Combination and Contingent considerations. The Company recognizes the identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of purchase price over the aggregate fair values is recorded as goodwill. The Company calculates the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed to allocate the purchase price at the acquisition date.

The consideration for our acquisitions and certain licensing agreements often includes future payments that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on the acquisition date. Management estimates the fair value of contingent consideration obligations through valuation models that incorporate probability-adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. The Company revalues its contingent consideration obligations each reporting period using Monte Carlo simulation. Changes in the fair value of contingent consideration obligations are recognized in the consolidated statements of income.

Net Loss Per Common Share. Basic income (loss) per common share is calculated by dividing the net income (loss) available to the common shareholders by the weighted average number of common shares outstanding during that period. Diluted net loss per share reflects the potential of securities that could share in the net loss of the Company. For the years ended June 30, 2023 and 2022, the Company incurred a net loss and did not include common equivalent shares in the computation of diluted net loss per share because the effect would have been anti-dilutive.

The following table sets-forth securities excluded from the calculation of diluted earnings per share.

		June 30,
		2023	2022
Warrant to purchase common stock	(Note 16)	6,538,052	434,328
Employee stock options	(Note 15)	52,762	3,899
Employee unvested restricted stock	(Note 15)	40,996	85,377
Employee unvested restricted stock units	(Note 15)	4,963	8,500
Total		6,636,773	532,104

Recently Adopted Accounting Pronouncements

Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued if contract modifications are made on or before December 31, 2022. The Company adopted the guidance effective July 1, 2022 for the accounting of its LIBOR indexed revolving loans by prospectively applying the interest rate. The Company elected not to reassess the discount rate of its leases. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

Earnings Per Share. In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. The amendments in ASU 2021-04 provide guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 and related updates did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Debt—Debt with Conversion and Other Options. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)— “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The standard also simplifies the diluted net income per share calculation in certain areas. The amendments in this update are effective for public entities that are smaller reporting companies, as defined by the Securities and Exchange Commission (”SEC”), for the fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted through a modified retrospective or full retrospective method. The Company will adopt the guidance on July 1, 2024 and does not expect the adoption of the standard to have any material impact on the Company’s consolidated financial statements.

Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” requiring the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of ASU 2016-13 is to provide additional information about the expected credit losses on financial instruments and other commitments to extend credit. The standard is effective for smaller reporting companies for fiscal periods beginning after December 15, 2022. In May 2019, the FASB issued ASU 2019-05, “Financial Instruments – Credit Losses”, to allow entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost

upon adoption of the new credit losses standard. The effective dates and transition for ASU 2019-05 aligns with those of ASU 2016-13. In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (topic 326) Troubled Debt Restructurings and Vintage Disclosures” which eliminates the accounting guidance for troubled debt restructurings by creditors and adds disclosure requirements for current period gross write-offs by year of origination for financing receivables and net investments in leases. The Company had adopted ASU 2016-13 and ASU 2019-05 for the fiscal year ended June 30, 2024. The effective dates for the amendments in ASU 2022-02 align with those of ASU 2016-13. The Company had evaluated the impact of adoption of ASUs 2016-13, 2019-05, and 2022-02 and concluded that the application of the new standards did not have a material impact on the Company’s consolidated financial statements.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.