Item 4.02 Non-Reliance on Previously
Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On November 14, 2016,
the Audit Committee (the “
Committee
”) of the Board of Directors of Moleculin Biotech, Inc. (the “
Company
”),
after discussion with management and its independent registered public accountants, determined that the Company’s unaudited
consolidated financial statements for the quarter ended June 30, 2016, as reported in the Company’s Quarterly Report on Form
10-Q filed on August 15, 2016 should no longer be relied upon due to an error identified therein, and that a restatement of these
financial statements is required.
In preparing the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, the Company has identified the following non-cash errors due
to an error in the accounting for the business combination of Moleculin, LLC. The Company currently estimates that, upon correction
of the error:
1 – The net loss for the three and
six months ended June 30, 2016 was overstated by approximately $256,889 due to amortization of an intangible which was recorded
in error. Upon correction, the net loss for the three and six months ended June 30, 2016 will be $738,727 and $1,070,968, respectively.
2 – A liability in the amount of
$750,000 should not have been reflected in the balance sheet as of June 30, 2016. Upon correction for this and item 1 above,
the total for Liabilities and Stockholders’ Equity will be $18,740,288.
3 – Intangibles were overstated by
$750,000 before the amortization mentioned above. Upon correction, total assets will be $18,740,288.
The analysis of the
corrections is on-going, and there can be no assurance that the final corrected amounts will not differ materially from the estimates
reflected herein or that additional errors will not be identified and corrected for.
The Company expects
to file an amended Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 after it has completed its work with respect
to the restatement.
Controls and Procedures
As a result of the
errors discussed above and resulting restatement of previously issued financial statements, management has concluded that at least
one material weakness existed in the Company’s internal control over financial reporting and that, as a result, internal
control over financial reporting and disclosure controls and procedures were not effective as of June 30, 2016, specifically as
it relates to accounting for business combinations. Management has engaged a consultant to assist with such accounting.
Management is continuing
to assess the Company’s internal control over financial reporting and disclosure controls and procedures. Since management
has not completed its evaluation of the impact of the restatement on its internal control over financial reporting, there can be
no assurance that additional control deficiencies which represent material weaknesses will not be identified.
Discussion with Independent Registered
Public Accountants
The Committee has discussed
the matters disclosed in this Current Report on Form 8-K with GBH CPAs, PC, the Company’s independent registered public accounting
firm.
Cautionary Note Regarding Forward-Looking
Statements
This Current Report
on Form 8-K includes information that constitutes forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on the Company’s current beliefs, assumptions and expectations
regarding future events, which in turn are based on information currently available to the Company. Such forward-looking statements
include statements regarding the nature of the corrected accounting methodology, the estimated impact of these corrections on both
historical and future financial results, the timing of the amended quarterly report on Form 10-Q, and management’s ongoing
evaluation of the impact of the restatement on its internal control over financial reporting and disclosure controls and procedures.
By their nature, forward-looking statements address matters that are subject to risks and uncertainties. A variety of factors could
cause actual events and results, including the Company’s expectations regarding materiality or significance, the restatement’s
quantitative effects, the effectiveness of the Company’s disclosure controls and procedures and the effectiveness of the
Company’s internal control over financial reporting, to differ materially from those expressed in or contemplated by the
forward-looking statements. These factors include, without limitation, the risk that additional information may become known prior
to the expected filing with the U.S. Securities and Exchange Commission of the amended periodic report described herein or that
other subsequent events may occur that would require the Company to make additional adjustments to its financial statements or
delay the filing of the corrected or future periodic reports with the U.S. Securities and Exchange Commission. Other risk factors
affecting the Company are discussed in detail in the Company’s filings with the U.S. Securities and Exchange Commission.
The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,
future events or otherwise, except to the extent required by applicable securities laws.