Item 4.01. Changes in Registrant's Certifying Accountant.
(a)(1) On February 12, 2020, the Audit Committee of the Board of Directors
(the "Audit Committee") of NeuBase Therapeutics, Inc. (the "Company") approved
the dismissal of CohnReznick LLP ("CohnReznick") as the Company's independent
registered public accounting firm, effective immediately.
CohnReznick was engaged on October 2, 2019 to audit the Company's consolidated
financial statements as of and for the fiscal year ended September 30, 2019. The
audit report of CohnReznick on the Company's consolidated financial statements
for the fiscal year ended September 30, 2019 (the "Audit Report") was included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2019, filed with the Securities and Exchange Commission (the "SEC") on
January 10, 2020 (the "Form 10-K"). The Form 10-K did not identify any changes
in and disagreements with CohnReznick on the Company's accounting or financial
disclosure, nor did it contain an adverse opinion or a disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope or accounting
principles, except with respect to an explanatory paragraph indicating that
there was substantial doubt about the Company's ability to continue as a going
concern.
During the period from October 2, 2019 through the date of CohnReznick's
termination there were no disagreements (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) with CohnReznick on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures which, if not resolved to the satisfaction of CohnReznick,
would have caused CohnReznick to make reference to the subject matter of the
disagreements in connection with the Audit Report. As reported under Item 4.02
of this Current Report on Form 8-K (this "Form 8-K"), the Company has determined
to restate the unaudited interim condensed financial statements and related
disclosures as of, and for the three months ended, December 31, 2018, and as of,
and for the three and six months ended March 31, 2019, to report the following
changes: an increase in total operating expenses of approximately $0.8 million
for the three months ended December 31, 2018, a decrease in total operating
expenses of approximately $0.1 million for the three months ended March 31,
2019, an increase in total operating expenses of approximately $0.7 million for
the six months ended March 31, 2019 and a decrease in intangible assets of
approximately $1.5 million at each of December 31, 2018 and March 31, 2019.
During the period from October 2, 2019 through the date of CohnReznick's
termination, except for the material weakness in internal control over financial
reporting identified by the Company in Item 9A of the Form 10-K and discussed
below, there were no "reportable events" as defined in Item 304(a)(1)(v) of
Regulation S-K.
As previously disclosed in the Form 10-K, in connection with the preparation of
the Company's consolidated financial statements for the fiscal year ended
September 30, 2019, but prior to the issuance of such financial statements, the
Company determined the accounting treatment and valuations pertaining to the
PATrOL™ technology license acquired during the three months ended December 31,
2018 should be modified. The Form 10-K disclosed that the change in accounting
treatment and valuations resulted in an increase in total operating expenses of
approximately $0.9 million on the Company's Consolidated Statements of
Operations for the fiscal year ended September 30, 2019 and a decrease in
intangible assets of approximately $1.5 million on the Company's Consolidated
Balance Sheet as of and for the fiscal year ended September 30, 2019, as well as
a decrease in total operating expenses of approximately $0.3 million on the
Company's Consolidated Statements of Operations in connection with the
adjustment of the valuation of certain share-based awards for the fiscal year
ended September 30, 2019.
In the Form 10-K, the Company also disclosed that its management had determined
that, as of September 30, 2019, the Company's internal control over financial
reporting was not effective due to a material weakness due to a lack of
expertise in complex accounting transactions. During the fiscal year ended
September 30, 2019, the Company undertook remediation measures by hiring a
financial accounting consultant to provide accounting advisory services on
complex transactions and accounting matters. The Company is in the process of
implementing these remedial actions, but these efforts are not complete and are
ongoing and subject to ongoing management review and the oversight of the Audit
Committee.
The Company provided CohnReznick with a copy of the disclosures it is making in
this Item 4.01(a) and requested that CohnReznick furnish a letter addressed to
the SEC stating whether or not it agrees with the statements made in this Item
4.01(a). CohnReznick has not provided its letter as of the time of the filing of
this Form 8-K. Accordingly, the Company has requested that CohnReznick provide
its letter as promptly as possible so that the Company can file the letter with
the SEC within ten business days after the date of filing of this Form 8-K. The
Company will file such letter by an amendment of this Form 8-K within two
business days of receipt.
(a)(2) On February 9, 2020, CohnReznick advised the Audit Committee of
CohnReznick's resignation as the Company's independent registered public
accounting firm, to become effective immediately following the filing of the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2019
with the SEC. As noted under (a)(1) above, the Audit Committee dismissed
CohnReznick as the Company's independent registered public accounting firm on
February 12, 2020, before such resignation became effective as the Company has
not yet filed its Quarterly Report on Form 10-Q for the quarter ended December
31, 2019 with the SEC.
(b) While the Company has not engaged a new independent registered public
accounting firm, it has begun a search process to identify CohnReznick's
successor. The Company will disclose its engagement of a new independent
registered public accounting firm once the process has been completed and as
required by, and in accordance with, the SEC's rules and regulations. The
Company will not file its Quarterly Report on Form 10-Q for the quarter ended
December 31, 2019 until after the Company engages a new independent registered
public accounting firm.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
(a) On February 12, 2020, the Company, in consultation with the Audit Committee,
determined that the Company's unaudited interim condensed financial statements
and related disclosures as of, and for the three months ended, December 31,
2018, and as of, and for the three and six months ended March 31, 2019
(collectively, the "Fiscal 2019 Quarterly Financials"), which were included in
Amendment No. 3, filed with the SEC on May 22, 2019, and Amendment No. 4, filed
with the SEC on June 3, 2019, respectively, to the Company's Registration
Statement on Form S-4 and incorporated by reference from such filings into the
Company's Current Report on Form 8-K/A filed with the SEC on July 17, 2019 (the
"July 2019 Form 8-K"), should no longer be relied upon because of certain
misstatements contained in those financial statements.
As previously disclosed on July 12, 2019, Ohr Pharmaceutical, Inc., a Delaware
corporation ("Ohr"), completed a reverse merger with NeuBase Therapeutics, Inc.,
a Delaware corporation ("Legacy NeuBase"), in accordance with the terms of the
Agreement and Plan of Merger and Reorganization (as amended, the "Merger
Agreement") entered into on January 2, 2019. Pursuant to the Merger Agreement,
(i) a subsidiary of Ohr merged with and into Legacy NeuBase, with Legacy NeuBase
(renamed as "NeuBase Corporation") continuing as a wholly-owned subsidiary of
Ohr and the surviving corporation of the merger and (ii) Ohr was renamed
"NeuBase Therapeutics, Inc." (the "Merger"). For accounting purposes, the Merger
was treated as a "reverse asset acquisition" under generally accepted accounting
principles in the United States, and Legacy NeuBase was considered the
accounting acquirer. Accordingly, Legacy NeuBase's historical results of
operations replaced the Company's historical results of operations for all
periods prior to the Merger and, for all periods following the Merger, the
results of operations of the combined company are included in the Company's
consolidated financial statements. The Fiscal 2019 Quarterly Financials were
those of Legacy NeuBase, and as a result of the completion of the Merger and the
accounting treatment of the Merger, consequently are the historical consolidated
financial statements of the Company.
The Company has determined that it is appropriate to correct the misstatements
in the Fiscal 2019 Quarterly Financials. Neither the Audit Committee nor the
Company's management has discussed this assessment with CohnReznick.
Background
As previously disclosed in the Form 10-K, the Company determined that the
accounting treatment and valuations pertaining to the PATrOL™ technology license
acquired during the three months ended December 31, 2018 should be modified. The
Form 10-K disclosed that the change in accounting treatment and valuations
resulted in an increase in total operating expenses of approximately $0.9
million on the Company's consolidated statements of operations for the fiscal
year ended September 30, 2019 and a decrease in intangible assets of
approximately $1.5 million on the Company's consolidated balance sheet as of and
for the fiscal year ended September 30, 2019, as well as a decrease in total
operating expenses of approximately $0.3 million on the Company's consolidated
statements of operations in connection with the adjustment of the valuation of
certain share-based awards for the fiscal year ended September 30, 2019.
The Fiscal 2019 Quarterly Financials previously accounted for the acquisition of
the PATrOL™ technology license as the acquisition of a license and the license
was capitalized as an intangible asset. The fair value of the common stock and
warrant consideration transferred for the license was initially estimated using
the per share price observed in Legacy NeuBase's private placement commitments
entered into with prospective investors, which was approximately $1.61 per share
of Legacy NeuBase common stock. The aggregate value of the license capitalized
was approximately $1.5 million.
Evaluation
In November 2019, CohnReznick informed the Company that it believed the
acquisition of the PATrOL™ technology license should be accounted for as an
asset acquisition and determined the PATrOL™ technology license did not meet the
criteria to be capitalized as it had not achieved regulatory approval. In
November 2019, following the Company's further evaluation of the treatment of
the acquisition and discussions with CohnReznick, the Company determined that it
agreed with CohnReznick's assessment. The Company then engaged a third party
valuation firm to value the Legacy NeuBase common stock and warrants issued in
exchange for the license and the Company identified all components of
consideration transferred, including cash consideration of approximately $0.05
million and acquisition costs of approximately $0.04 million. The fair value of
Legacy NeuBase common stock and warrants issued in exchange for the license was
determined to be approximately $0.8 million and $0.1 million, respectively,
based upon the ultimately-determined fair value of Legacy NeuBase common stock
of $1.03 per share. The PATrOL™ technology license was the only identified asset
in the transaction and, accordingly, in the Company's consolidated financial
statements as of, and for the fiscal year ended, September 30, 2019, the Company
expensed amounts allocated to in-process research and development, which was
approximately $1.0 million in aggregate.
In connection with the valuation adjustments to the PATrOL™ technology license
consideration, the Company also determined that valuations pertaining to certain
share-based awards, due to the grants thereof being made in close proximity to
the valuation of the consideration issued in connection with the PATrOL license,
should be adjusted as the share-based awards were initially valued using the per
share price observed in Legacy NeuBase's private placement commitments entered
into with prospective investors, which was approximately $1.61 per share of
Legacy NeuBase common stock. The fair value of share-based awards granted in the
three months ended December 31, 2018 was recalculated using a per share-price of
$1.03 of Legacy NeuBase common stock and the correction resulted in a
restatement of share-based compensation expense and a net decrease of
approximately $0.2 million in share-based compensation expense for the three
months ended December 31, 2018. The fair value of share-based awards granted in
the three months ended March 31, 2019 were recalculated using a per share-price
of $1.27 per share of Legacy NeuBase, which was based upon a third party
valuation of Legacy NeuBase common stock. The correction of the valuations and
timing of recognizing the share-based awards granted in the three months ended
December 31, 2018, and March 31, 2019, resulted in a restatement of share-based
compensation expense and a net decrease of approximately $0.1 million in
share-based compensation expense for the three months ended March 31, 2019.
Collectively, these changes in accounting treatment and valuations resulted in
an increase in total operating expenses of approximately $0.8 million for the
three months ended December 31, 2018, a decrease in total operating expenses of
$0.1 million for the three months ended March 31, 2019 and an increase in total
operating expenses of $0.7 million for the six months ended March 31, 2019, and
a decrease in intangible assets of $1.5 million at each of December 31, 2018 and
March 31, 2019.
Determinations and Conclusions
Based on the foregoing, the Company reported in the Form 10-K that the
accounting treatment and valuations of Legacy NeuBase pertaining to the PATrOL™
technology license, which was acquired during the three months ended December
31, 2018, should be modified.
In connection with the preparation of the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 2019 and in consultation with the Audit
Committee, the Company concluded that the Fiscal 2019 Quarterly Financials
should no longer be relied upon because of the errors in such financial
statements. The restatement of the Fiscal 2019 Quarterly Financials will be
effective with the filing of the Company's future unaudited interim condensed
consolidated financial statements and related information in filings in
Quarterly Reports on Form 10-Q for the period ended December 31, 2019 and for
the period ending March 31, 2020. The Company also intends to file an amended
Form 8-K/A with the SEC restating the Fiscal 2019 Quarterly Financials of Legacy
NeuBase as soon as practicable hereafter. The descriptions of the foregoing
errors and restatements are qualified in their entirety by reference to the
restated financial statements to be included in an amendment to the July 2019
Form 8-K.
Other
Prior to terminating CohnReznick as the Company's independent registered public
accounting firm, the Audit Committee and management discussed the matters
disclosed in this Item 4.02(a) with CohnReznick.
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