Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On February 21, 2023, the Audit Committee (the "Audit Committee") of the Board
of Directors of Aytu BioPharma, Inc. ("Aytu"), in consultation with Aytu's
management, concluded that Aytu's interim unaudited consolidated financial
statements as of and for the fiscal quarter ended September 30, 2022 (the
"Affected Financial Statements") should be restated for the reasons described
below and, accordingly, that such previously issued financial statements should
no longer be relied upon due to the misclassification of certain of Aytu's
outstanding warrants as components of equity instead of as liabilities. As a
result of the misclassification an adjustment to increase total liabilities by
$5.6 million and decrease shareholder's equity by $3.4 million as well as a
reduction of the net loss for the three months ended September 30, 2022 by
approximately $2.2 million as the result of a gain from the fair value
adjustment of the derivative warrant liabilities. Aytu concluded that the impact
of this misclassification of outstanding warrants was not material to the Form
10-Q for the three months ended March 31, 2022 nor to the Form 10-K for the
fiscal year ended June 30, 2022.
Aytu's management expects to file an amendment on Form 10-Q/A to Aytu's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the
"Amendment"), to restate the Affected Financial Statements to reflect the
classification of the warrants as liabilities and revise related information.
Under this approach, Aytu's financial statements issued before the Affected
Financial Statements would not be amended, but financial statements presented in
future filings would be adjusted to correct the error identified and be
consistent with the presentation for the unaudited interim financial statements
reflected in the Amendment. Promptly after the filing of the Amendment, Aytu's
management expects to file Aytu's Form 10-Q for the quarter ended December 31,
2022 (the "Second Quarter 10-Q).
Aytu's management is seeking to file the Amendment and the Second Quarter Form
10-Q as soon as practicable. Going forward, unless Aytu amends the terms of its
warrant agreement, Aytu expects to continue to classify the warrants as
liabilities, which would require Aytu to incur the cost of measuring the fair
value of the warrant liabilities, and which may have an adverse effect on Aytu's
results of operations. Additionally, as a result of the identification of this
error, Aytu has concluded that a material weakness exists in its internal
control over financial reporting. Aytu is actively working to remediate the
material weakness.
Aytu's management and its Board of Directors have discussed the matters
disclosed in this Current Report on Form 8-K pursuant to this Item 4.02 with its
former independent registered public accounting firm and Plante & Moran, PLLC,
who were the auditors at the time the Form 10-Q was originally filed on November
14, 2022. Management has also discussed the matters disclosed in this Current
Report with the current independent registered accounting firm who were
appointed on December 12, 2022, and who has not performed any procedures on the
condensed consolidated financial statements referred to above for the three
months ending September 30, 2022.
Forward-Looking Statements; Risks and Uncertainties
Cautionary Note Regarding Forward Looking Statements: This Current Report on
Form 8-K contains "forward-looking statements," as that term is defined in U.S.
Federal and certain foreign securities regulations, including Aytu's
expectations regarding the anticipated restatement of Aytu's Affected Financial
Statements. Although Aytu's management believes that its expectations are based
on reasonable assumptions, these assumptions are subject to various risks and
uncertainties and thus Aytu can give no assurance that its expectations will be
attained or that actual developments and results will not materially differ from
those express or implied by the forward-looking statements. These risks and
uncertainties include, but are not limited to: (1) the effects of any potential
inquiry by the United States Securities and Exchange Commission ("SEC") with
respect to the proposed restatements or Aytu's accounting practices; (2) the
timing of Aytu's restatement of its previously issued financial statements and
the filing of Aytu's Second Quarter Form 10-Q; and (3) the additional risks and
uncertainties detailed from time to time in Aytu's Annual Report on Form 10-K
and quarterly reports on Form 10-Q, which include a list of factors that could
cause actual operational and financial results to differ from those expected,
and in Aytu's press releases and other filings under the Securities Exchange Act
of 1934. This communication should be read in conjunction with all the other
information included in our most current Annual Report on Form 10-K, in
Quarterly Reports filed on Form 10-Q, and in the other reports and documents it
files with the SEC. All documents required to be filed with the SEC are
available via on the SEC's website at www.sec.gov.
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