Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission File Number: 001-36304

 

 

Phio Pharmaceuticals Corp.

(Exact name of registrant as specified in its charter)

 

 

Delaware   45-3215903
(State of incorporation)  

(I.R.S. Employer

Identification No.)

 

257 Simarano Drive, Suite 101, Marlborough, MA 01752

(Address of principal executive office) (Zip code)

 

Registrant’s telephone number: (508) 767-3861

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value, $0.0001 per share PHIO The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit such files).    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer  
       
Non-accelerated filer   x     Smaller reporting company   x
       
        Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

As of November 8, 2019, Phio Pharmaceuticals Corp. had 26,404,670 shares of common stock, $0.0001 par value, outstanding.

 

     
 

 

PHIO PHARMACEUTICALS CORP.

FORM 10-Q — QUARTER ENDED SEPTEMBER 30, 2019

 

INDEX

 

Part No.

  Item No.   Description   Page
No.
 
       
I       FINANCIAL INFORMATION        
       
    1     Financial Statements (Unaudited)     3  
        Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018     3  
        Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018     4  
        Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018     5  
        Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018     6  
        Notes to Condensed Consolidated Financial Statements     7  
    2     Management’s Discussion and Analysis of Financial Condition and Results of Operations     14  
    3     Quantitative and Qualitative Disclosures about Market Risk     19
    4     Controls and Procedures     19  
       
II       OTHER INFORMATION     20  
       
    1     Legal Proceedings     20  
    1A   Risk Factors     20  
    2     Unregistered Sales of Equity Securities and Use of Proceeds     20  
    3     Defaults Upon Senior Securities     20  
    4     Mine Safety Disclosures     20  
    5     Other Information     20  
    6     Exhibits     21  
   
   
Signatures     22  

 

 

 

 

 

 

 

 

  2  
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

PHIO PHARMACEUTICALS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

   

September 30,

2019

    December 31,
2018
 
ASSETS                
Current assets:                
Cash   $ 8,709     $ 14,879  
Restricted cash     50       50  
Prepaid expenses and other current assets     533       221  
Total current assets     9,292       15,150  
Right of use asset     538        
Property and equipment, net     231       172  
Other assets     18        
Total assets   $ 10,079     $ 15,322  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 856     $ 550  
Accrued expenses and other current liabilities     1,076       1,194  
Lease liability     104        
Total current liabilities     2,036       1,744  
Lease liability, net of current portion     438        
Total liabilities     2,474       1,744  
Commitments and contingencies                
Stockholders’ equity:                
Preferred stock, $0.0001 par value, 10,000,000 shares authorized            
Common stock, $0.0001 par value, 100,000,000 shares authorized; 25,654,670 and 18,841,814 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively     3       2  
Additional paid-in capital     99,761       99,487  
Accumulated deficit     (92,159 )     (85,911 )
Total stockholders’ equity     7,605       13,578  
Total liabilities and stockholders’ equity   $ 10,079     $ 15,322  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

  3  
 

 

 

PHIO PHARMACEUTICALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2019     2018     2019     2018  
Revenues   $     $ 57     $ 21     $ 138  
Operating expenses:                                
Research and development     1,042       838       3,277       3,382  
General and administrative     1,071       711       3,062       2,386  
Total operating expenses     2,113       1,549       6,339       5,768  
Operating loss     (2,113 )     (1,492 )     (6,318 )     (5,630 )
Total other income (expense), net     19       (1 )     70       (3 )
Net loss   $ (2,094 )   $ (1,493 )   $ (6,248 )   $ (5,633 )
Net loss per share:                                
Basic and diluted   $ (0.08 )   $ (0.34 )   $ (0.27 )   $ (1.54 )
Weighted average shares: basic and diluted     25,409,428       4,371,259       23,370,073       3,662,924  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

  4  
 

 

PHIO PHARMACEUTICALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)

 

For the Three and Nine Months Ended September 30, 2019

   

Common Stock

   

Additional
Paid-in

   

Accumulated

     
   

Shares

   

Amount

    Capital     Deficit    

Total

 
Balance at December 31, 2018     18,841,814     $ 2     $ 99,487     $ (85,911 )   $ 13,578  
Issuance of common stock upon the exercise of pre-funded warrants     4,304,286             43             43  
Issuance of restricted stock     243,032                          
Stock-based compensation expense                 160             160  
Net loss                       (2,119 )     (2,119 )
Balance at March 31, 2019     23,389,132       2     $ 99,690       (88,030 )     11,662  
Issuance of common stock upon the exercise of pre-funded warrants     1,700,000       1       16             17  
Issuance of common stock under the employee stock purchase plan     2,065             1             1  
Stock-based compensation expense                 62             62  
Net loss                       (2,035 )     (2,035 )
Balance at June 30, 2019     25,091,197       3       99,769       (90,065 )     9,707  
Stock-based compensation expense                 47             47  
Issuance of common stock under Lincoln Park Capital, LLC purchase agreement, net of offering costs of $52     500,000             (52 )           (52 )
Issuance of common stock upon vesting of restricted stock units     63,473             (3 )           (3 )
Net loss                       (2,094 )     (2,094 )
Balance at September 30, 2019     25,654,670     $ 3     $ 99,761     $ (92,159 )   $ 7,605  

 

For the Three and Nine Months Ended September 30, 2018

   

Common Stock

   

Additional
Paid-in

   

Accumulated

       
   

Shares

   

Amount

    Capital     Deficit    

Total

 
Balance at December 31, 2017     2,429,993     $     $ 80,384     $ (78,551 )   $ 1,833  
Cash paid in lieu of fractional shares for 1:10 reverse stock split     (31 )                        
Issuance of common stock under Lincoln Park Capital, LLC purchase agreement     270,000             932             932  
Stock-based compensation expense                 41             41  
Net loss                       (2,239 )     (2,239 )
Balance at March 31, 2018     2,699,962             81,357       (80,790 )     567  
Issuance of common stock and warrants in connection with registered direct offering and private placement, net of offering costs of $690     1,510,604             4,210             4,210  
Issuance of common stock under Lincoln Park Capital, LLC purchase agreement     150,000             359             359  
Stock-based compensation expense                 37             37  
Net loss                       (1,901 )     (1,901 )
Balance at June 30, 2018     4,360,566             85,963       (82,691 )     3,272  
Issuance of common stock under Lincoln Park Capital, LLC purchase agreement     15,000             21             21  
Issuance of common stock under the employee stock purchase plan     756             1             1  
Issuance of common stock, pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs of $90                 (90 )           (90 )
Issuance of unvested, restricted stock     73,587                          
Stock-based compensation expense                 39             39  
Net loss                       (1,493 )     (1,493 )
Balance at September 30, 2018     4,449,909     $     $ 85,934     $ (84,184 )   $ 1,750  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  5  
 

 

PHIO PHARMACEUTICALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)
(Unaudited)

 

   

Nine Months Ended

September 30,

 
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (6,248 )   $ (5,633 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     51       61  
Non-cash lease expense     82        
Non-cash stock-based compensation     269       117  
Changes in operating assets and liabilities:                
Prepaid expenses and other assets     (330 )     (113 )
Accounts payable     306       (20 )
Accrued expenses and other liabilities     (151 )     (186 )
Lease liability     (78 )      
Net cash used in operating activities     (6,099 )     (5,774 )
Cash flows from investing activities:                
Cash paid for purchase of property and equipment     (77 )      
Net cash used in investing activities     (77 )      
Cash flows from financing activities:                
Net proceeds from the issuance of common stock and/or warrants           5,432  
Financing costs from the issuance of common stock under Lincoln Park Capital, LLC purchase agreement     (52 )      
Payment of taxes for net share settled restricted stock unit issuances     (3 )      
Proceeds from the exercise of pre-funded warrants     60        
Proceeds from the issuance of common stock in connection with the employee stock purchase plan     1       1  
Net cash provided by financing activities     6       5,433  
Net decrease in cash and restricted cash     (6,170 )     (341 )
Cash and restricted cash at the beginning of period     14,929       3,631  
Cash and restricted cash at the end of period   $ 8,759     $ 3,290  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Right of use asset   $ 620     $  
Purchase of equipment through short-term financing lease included in accrued expenses and other current liabilities   $ 33     $  

 

 

   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  6  
 

 

PHIO PHARMACEUTICALS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Nature of Operations

 

Phio Pharmaceuticals Corp. (“Phio,” “we,” “our” or the “Company”) is a biotechnology company developing the next generation of immuno-oncology therapeutics based on its self-delivering RNAi (“INTASYL™”) therapeutic platform. The Company's efforts are focused on silencing tumor-induced suppression of the immune system through its proprietary INTASYL™ platform with utility in immune cells and/or the tumor micro-environment. The Company’s goal is to develop powerful INTASYL™ therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby providing patients a powerful new treatment option that goes beyond current treatment modalities.

 

2. Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures included in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Interim results are not necessarily indicative of results for a full year.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Phio and its wholly-owned subsidiary, MirImmune, LLC. All material intercompany accounts have been eliminated in consolidation.

 

Uses of Estimates in Preparation of Financial Statements

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

 

Restricted Cash

 

Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards.

 

Leases

 

The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“ASC 842”). At the inception of a contract, the Company determines whether the contract is or contains a lease based on all relevant facts and circumstances. For contracts that contain a lease, the Company identifies the lease and non-lease components, determines the consideration in the contract and recognizes the classification of the lease as operating or financing. At the commencement date of the lease, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The Company has elected not to recognize leases with a term less than one year on the balance sheet.

 

Lease liabilities and the corresponding right of use assets are recorded based on the present value of lease payments to be made over the lease term. The discount rate used to calculate the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental borrowing rate. The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right of use asset may be required for items such as initial direct costs or incentives received. Lease payments on operating leases are recognized on a straight-line basis over the expected term of the lease. Lease payments on financing leases are recognized using the effective interest method.

 

 

 

 

  7  
 

 

Derivative Financial Instruments

 

The Company follows the provisions of the FASB ASC Topic 815, “Derivatives and Hedging.” Financial instruments that meet the definition of a derivative are classified as an asset or liability and measured at fair value on the issuance date and are revalued on each subsequent balance sheet date. The changes in fair value are recognized as current period income or loss. Financial instruments that do not meet the definition of a derivative are classified as equity and measured at fair value and recorded as additional paid in capital in stockholders’ equity at the date of issuance. No further adjustments to their valuation are made.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the balance sheet for restricted cash, accounts payable and accrued expenses approximate their fair values due to their short-term nature.

 

Research and Development Expenses

 

Research and development costs relate to compensation and benefits for research and development personnel, facility-related expenses, supplies, external services, costs to acquire technology licenses, expenses associated with preclinical and clinical development activities and other operating costs. Research and development expenses are charged to expense as incurred. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses and expensed when the service has been performed or when the goods have been received. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed the Company with respect to services provided and/or materials that it has received.

 

The Company contracts with third parties to perform various preclinical and clinical activities on its behalf for the continued development of its product candidates. Accruals and expenses are recorded during the period incurred based on such estimates and assumptions as expected cost, passage of time, the achievement of milestones and other information available to us and are assessed on a quarterly basis. Actual results may differ from these estimates and could have a material impact on the Company’s reported results. The Company’s historical accrual estimates have not been materially different from its actual costs.

 

Stock-based Compensation

 

The Company follows the provisions of the FASB ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards. Stock compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is recognized as an expense over the requisite service period.

 

Comprehensive Loss

 

The Company’s comprehensive loss is equal to its net loss for all periods presented.

 

Net Loss per Share

 

The Company accounts for and discloses net loss per share in accordance with the FASB ASC Topic 260, “Earnings per Share.” Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares.

 

 

 

 

  8  
 

 

3. Liquidity and Going Concern

 

The Company has reported recurring losses from operations since inception and expects that the Company will continue to have negative cash flows from operations for the foreseeable future. Historically, the Company’s primary source of funding has been the sale of its securities. The Company’s ability to continue to fund its operation dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, or strategic opportunities, in order to maintain our operations. This is dependent on a number of factors, including the market demand or liquidity of the Company’s common stock. There is no guarantee that debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or to seek to merge with or to be acquired by another company.

 

The Company believes that its existing cash and the funds available under its purchase agreements with Lincoln Park Capital Fund, LLC (“LPC”), should be sufficient to fund operations for at least the next 12 months.

 

4. Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“Topic 842”), which requires lessees to recognize a right of use asset and lease liability on the balance sheet for most leases that do not meet the definition of a short-term lease and to disclose key information about leasing arrangements. Leases will continue to be classified as either operating or financing. The Company adopted Topic 842 on January 1, 2019 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the date of adoption. The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

 

Upon adoption of Topic 842 on January 1, 2019, the Company recorded a right of use asset of $28,000 and an operating lease liability of $28,000. Comparative periods have not been restated. For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note 5.

 

In November 2018, the FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808)” (“Topic 808”), which clarifies the interaction between Topic 808 and ASC Topic 606, “Revenue from Customers.” The update provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under ASC Topic 606 and provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. This will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. The Company does not expect the adoption of Topic 808 to have a material impact on its financial statements.

 

5. Leases

 

The Company adopted Topic 842 on January 1, 2019 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the date of adoption. The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components. With the adoption of Topic 842, the Company’s balance sheet now contains line items for right of use asset, current lease liability and noncurrent lease liability.

 

The Company determined that it held an operating lease for its office and laboratory space as of January 1, 2019. The Company held no other lease agreements. The Company leases 7,581 square feet of office and laboratory space for its corporate headquarters and primary research facility in Marlborough, Massachusetts. On January 1, 2019, the Company recorded a right of use asset and corresponding lease liability of $28,000.

 

 

 

 

  9  
 

 

On January 22, 2019, the Company amended the lease for its office and laboratory space to extend the term by five years, such that the lease will expire on March 31, 2024. With the amendment, the Company also has the option to terminate the lease after two or three years by providing advance written notice. Due to the extension of the lease agreement, the Company increased the right of use asset and corresponding lease liability by $592,000.

 

Additionally, the lease agreements did not contain information to determine the rate implicit in the lease. The Company calculated its incremental borrowing rate based on what the Company would have to pay to borrow on a collateralized basis over the lease term for an amount equal to the remaining lease payments. At September 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the Company’s operating lease was 4.62% and 4.44 years, respectively.

 

As of September 30, 2019, the right of use asset and liability arising from the Company’s operating lease was $538,000 and $542,000, respectively. During the three months ended September 30, 2019, cash paid for the amounts included in the measurement of liabilities was $31,000 and the Company recorded operating lease expense of $33,000, which was included in operating expenses on the statement of operations. During the nine months ended September 30, 2019, cash paid for the amounts included in the measurement of liabilities was $90,000 and the Company recorded operating lease expense of $94,000.

 

Future lease payments for non-cancellable operating leases as of September 30, 2019 were as follows, in thousands:

 

2019 (remaining)   $ 31  
2020     128  
2021     132  
2022     135  
2023     139  
Thereafter     35  
Total undiscounted lease payments     600  
Less: Effects of discounting     (58 )
Total operating lease liabilities   $ 542  

 

6. Stockholders’ Equity

 

Lincoln Park Capital Fund, LLC – On August 8, 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) and a registration rights agreement with LPC, pursuant to which the Company has the right to sell to LPC up to $15,000,000 in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the 2017 Purchase Agreement.

 

No shares of common stock were sold to LPC under the 2017 Purchase Agreement during the three or nine months ended September 30, 2019. During the three months ended September 30, 2018, the Company sold 15,000 shares of common stock to LPC under the 2017 Purchase Agreement for net proceeds of $21,000. During the nine months ended September 30, 2018, the Company sold 435,000 shares of common stock to LPC under the 2017 Purchase Agreement for net proceeds of $1,312,000.

 

On August 7, 2019, the Company entered into a purchase agreement (the “2019 Purchase Agreement”) and a registration rights agreement with LPC, pursuant to which the Company has the right to sell to LPC up to $10,000,000 in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the 2019 Purchase Agreement. As a commitment fee for entering into the 2019 Purchase Agreement, the Company issued 500,000 shares of the Company’s common stock to LPC at a value per share of $0.3767, which was recorded as a cost of capital. No shares of common stock were sold to LPC under the 2019 Purchase Agreement during the three or nine months ended September 30, 2019.

 

 

 

 

  10  
 

 

Warrants — The following table summarizes the Company’s outstanding equity-classified warrants at September 30, 2019:

 

 

Summary of Warrants

 

Exercise prices

   

Number of Shares
Underlying Warrants

   

Expiration

June 2015 Warrants   $ 52.00       130,007     June 2, 2020
December 2016 Warrants   $ 9.00       1,277,793     December 21, 2021
April 2018 Warrants   $ 3.15       1,132,953     May 31, 2023
Placement Agent Warrants   $ 4.0546       75,530     April 9, 2023
Pre-Funded Warrants   $ 0.01       1,164,286     No expiration
October 2018 Warrants   $ 0.70       21,428,572     October 3, 2025
Underwriter Warrants   $ 0.875       1,607,143     October 1, 2023
Total warrants outstanding       26,816,284      

 

There were no warrants exercised during the three months ended September 30, 2019. During the nine months ended September 30, 2019, the Company received proceeds of $60,000 from the exercise of Pre-Funded Warrants for a total of 6,004,286 shares of common stock. There were no warrant exercises during the three or nine months ended September 30, 2018.

 

7. Net Loss per Share

 

The following table sets forth the potential common shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive:

 

    September 30,  
    2019     2018  
Options to purchase common stock     145,777       157,514  
Unvested, restricted stock           73,587  
Restricted stock units     517,241       151,250  
Warrants to purchase common stock     26,816,284       2,616,283  
Total     27,479,302       2,998,634  

 

8. Stock-based Compensation

 

Stock Options

 

The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. For valuing options granted during the three and nine months ended September 30, 2019 and 2018, the following assumptions were used:

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2019     2018     2019     2018  
Risk-free interest rate     N/A       2.93%       1.85 – 2.58%       2.70 – 2.93%  
Expected volatility     N/A       161.45%       97.67 – 98.87%       91.28 – 161.45%  
Expected lives (in years)     N/A       6.25       5.31       5.50 – 10.00  
Expected dividend yield     N/A       0.00%       0.00%       0.00%  

 

There were no options granted during the three months ended September 30, 2019. The weighted average fair value of options granted during the three months ended September 30, 2018 was $1.72. The weighted average fair value of options granted during the nine months ended September 30, 2019 and 2018 was $0.30 and $1.75, respectively.

 

 


  11  
 

 

The risk-free interest rate used for each grant is based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option. The Company’s expected stock price volatility assumption is based upon the Company’s own implied volatility. The expected life assumption for option grants is based upon the simplified method provided for under ASC 718. The dividend yield assumption is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

 

The following table summarizes the activity of the Company’s stock options for the nine months ended September 30, 2019:

 

    Number
of Shares
    Weighted-
Average
Exercise
Price
Per Share
    Aggregate
Intrinsic
Value
 
Balance at December 31, 2018     141,677     $ 66.29        
Granted     15,000       0.40        
Exercised                  
Cancelled     (10,900 )     60.62        
Balance at September 30, 2019     145,777     $ 59.93     $  
Exercisable at September 30, 2019     69,454     $ 123.52     $  

 

Stock-based compensation expense related to stock options for the three months ended September 30, 2019 and 2018 was $16,000 and $17,000, respectively. Stock-based compensation expense related to stock options for the nine months ended September 30, 2019 and 2018 was $53,000 and $95,000, respectively.

 

Restricted Stock Units

 

Restricted stock units (“RSUs”) are issued under the Company’s 2012 Long Term Incentive Plan (the “Plan”) or as inducement grants granted outside of the Plan to new employees. RSUs are generally subject to graded vesting and the satisfaction of service requirements, similar to our stock options. Upon vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock. RSU recipients may elect to net share settle upon vesting, in which case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of equal value. The fair value of the RSUs awarded are based on the Company’s closing stock price at the grant date and are expensed over the requisite service period.

 

The following table summarizes the activity of the Company’s RSUs for the nine months ended September 30, 2019:

 

    Number
of Shares
    Weighted-
Average
Grant Date Fair Value
 
Unvested units at December 31, 2018     137,500     $ 1.79  
Granted     477,991       0.41  
Vested     (69,750 )     1.79  
Forfeited     (28,500 )     0.79  
Unvested units at September 30, 2019     517,241     $ 0.57  

 

Stock-based compensation expense related to RSUs for the three months ended September 30, 2019 and 2018 was $31,000 and $22,000, respectively. Stock-based compensation expense related to RSUs for the nine months ended September 30, 2019 and 2018 was $110,000 and $22,000, respectively.

 

 

 

  12  
 

 

Restricted Stock

 

On August 31, 2018, and through subsequent amendments on December 19, 2018 and February 14, 2019, Geert Cauwenbergh, Dr. Med. Sc., the Company’s former Chief Executive Officer, elected the right to receive, in lieu of cash, for the period from September 15, 2018 to February 28, 2019, up to 50% of his base salary and cash bonuses, if any, (collectively, the “Compensation”) payable in the form of unvested, restricted shares of the Company’s common stock. Such restricted shares were received in the form of a series of grants made on each Company payroll date in lieu of cash payment of the Compensation. All shares issued in lieu of Compensation vested in full on June 1, 2019.

 

The fair value of the restricted stock was based on the Company’s closing stock price on the date of grant and was expensed over the vesting period. During the nine months ended September 30, 2019, the Company granted 243,032 shares of restricted stock in lieu of Compensation to Dr. Cauwenbergh and recorded $106,000 in stock-based compensation expense related to the restricted stock. There were no restricted stock issuances under this election or related stock-based compensation expense during the three months ended September 30, 2019.

 

During the three and nine months ended September 30, 2018, the Company granted 73,587 shares of restricted stock in lieu of Compensation to Dr. Cauwenbergh. There was no stock-based compensation expense recorded to related to the restricted stock during the same period.

 

Compensation Expense Related to Equity Awards

 

The following table sets forth total stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018, in thousands:

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Research and development   $ 6     $ 9     $ 25     $ 29  
General and administrative     41       30       244       88  
Total stock-based compensation   $ 47     $ 39     $ 269     $ 117  

 

9. Subsequent Events

 

Subsequent to the balance sheet date, the Company received proceeds of $7,500 from the exercise of Pre-Funded Warrants for a total of 750,000 shares of common stock.

 

 

 

 

  13  
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

In this document, “we,” “our,” “ours,” “us,” “Phio” and the “Company” refers to Phio Pharmaceuticals Corp. and our subsidiary, MirImmune, LLC and the ongoing business operations of Phio Pharmaceuticals Corp. and MirImmune, LLC, whether conducted through Phio Pharmaceuticals Corp. or MirImmune, LLC.

 

This management’s discussion and analysis of financial condition as of September 30, 2019 and results of operations for the three and nine months ended September 30, 2019 and 2018 should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2019.

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,” “suggests,” “may,” “should,” “potential,” “designed to,” “will” and similar references, although not all forward-looking statements contain these words. Forward-looking statements are neither historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements as a result of a number of important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2018 under the heading “Risk Factors” and in other filings the Company periodically makes with the SEC. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this report.

 

Overview

 

Phio Pharmaceuticals Corp. is a biotechnology company developing the next generation of immuno-oncology therapeutics based on our self-delivering RNAi (“INTASYL™”) therapeutic platform. The Company's efforts are focused on silencing tumor-induced suppression of the immune system through our proprietary INTASYL™ platform with utility in immune cells and/or the tumor micro-environment. Our goal is to develop powerful INTASYL™ therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby providing patients a powerful new treatment option that goes beyond current treatment modalities.

 

Our development efforts are based on our broadly patented INTASYL™ technology platform. Our INTASYL™ compounds do not require a delivery vehicle to penetrate into tissues and cells and are designed to “silence” or down-regulate, the expression of a specific gene which is over-expressed in cancer. We believe that our INTASYL™ platform uniquely positions the Company in the field of immuno-oncology because of this and the following reasons:

 

  · Efficient uptake of INTASYL™ to immune cells obviating the need for facilitated delivery (mechanical or formulation);

 

  · Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;

  

  · Gene silencing by INTASYL™ has been shown to have a sustained, or long-term, effect in vivo;

 

  · Favorable clinical safety profile of INTASYL™ with local administration; and

 

  · Can be readily manufactured under current good manufacturing practices.

 

 

 

 

  14  
 

 

The self-delivering nature of our compounds makes INTASYL™ ideally suited for use with adoptive cell transfer (“ACT”) treatments and direct therapeutic use. ACT consists of the infusion of immune cells with antitumor properties. These cells can be derived from unmodified (i.e. naturally occurring) immune cells, immune cells isolated from resected tumors, or genetically engineered immune cells recognizing tumor neoantigens/neoepitopes cells.

 

Currently, ACT therapies for the treatment of solid tumors face several hurdles. Multiple inhibitory mechanisms restrain immune cells used in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence. Furthermore, the immunosuppressive tumor micro-environment (the “TME”) can pose a formidable barrier to immune cell infiltration and function.

 

Phio has developed a product platform based on our INTASYL™ technology that allows easy, precise, rapid, and selective non-genetically modified programming of ACT cells (ex-vivo, during manufacturing) and of the TME (in vivo, by local application), resulting in improved cell-based immunotherapy.

 

Adoptive Cell Transfer

 

In ACT, immune cells are isolated from patients, donors or retrieved from allogeneic immune cell banks. The immune cells are then expanded and modified before being returned and used to treat the same patient. We believe our INTASYL™ compounds are ideally suited to be used in combination with ACT, in order to make these immune cells more effective.

 

ACT includes a number of different types of immunotherapy treatments. These treatments use immune cells, that are grown in a lab to large numbers, followed by administering them to the body to fight the cancer cells. Sometimes, immune cells that naturally recognize a tumor are used, while other times immune cells are modified or “engineered” to make them recognize and kill the cancer cells. There are several types of ACT, including: a.) non-engineered cell therapy in which immune cells are grown from the patient’s tumor or blood, such as tumor infiltrating lymphocytes (“TILs”), or from donor blood or tissue such as natural killer (“NK”) cells, dendritic cells (“DC”) and macrophages, and b.) engineered immune cells that are genetically modified to recognize specific tumor proteins and to remain in an activated state (such as TCRs, CAR T-cells, or CAR-NK cells).

 

Our approach to immunotherapy builds on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL™ compounds while they are grown in the lab and before administering them to the patient. Because our INTASYL™ compounds do not require a delivery vehicle to penetrate into the cells, we are able to enhance the function of these cells (for example, by inhibiting the expression of immune checkpoint genes) by merely adding our INTASYL™ compounds during the expansion process and without the need for genetic engineering. After enhancing these cells ex vivo, they are returned to the patient for treatment.

 

We have a number of collaborations with leading academic centers and corporate institutions. Corporate collaborators include, but are not limited to, Iovance Biotherapeutics, Inc., Glycostem Therapeutics BV and Carisma Therapeutics, Inc. Data developed in-house and with our collaborators has shown that PH-762, our lead pipeline compound, can elicit PD-1 checkpoint blockade by silencing PD-1 receptor expression resulting in enhanced T cell activation and tumor cytotoxicity. We have also shown that PH-804, our second pipeline compound, can silence the expression of TIGIT in NK cells and T cells, overcoming their exhaustion and thereby becoming “weaponized.”

 

Recent data shown by the Company and two of its collaborators, Iovance Biotherapeutics, Inc. and the Karolinska Institutet, at the 2019 Society for Immunotherapy of Cancer annual meeting further supports the application of INTASYL™ technology in immunotherapy of cancer. PH-762, our most advanced program, has shown to silence the expression of checkpoint molecule PD-1 in target human T cells in a potent and durable manner suitable for both ACT and intratumoral injection, and increases function of patient derived TILs for ACT. The application of INTASYL™ compounds to novel immuno-oncology targets was shown by the silencing of BRD4 by a BRD4 targeting INTASYL™ compound in human T cells during expansion for ACT, which has the potential to confer superior anti-tumor activity.

 

We expect to enter the clinic with PH-762 in ACT therapy for solid tumors, such as in melanoma, in the first half of 2020.

 

 

 

  15  
 

 

Tumor Micro-Environment

 

We are exploring the use of our INTASYL™ compounds directly towards TME targets, including using PH-762 and PH-804 in such applications. We are also working on other relevant compounds for TME targets. One of those is PH-790, an INTASYL™ compound targeting PD-L1, a protein found on tumor cells telling the T cells to leave them alone and not attack it. Impacting the tumor cells and/or the TME through a direct use of INTASYL™ , locally administered directly into the tumor, could potentially become an important form of (neo)adjuvant therapy. We believe that this will also show that our contributions with our INTASYL™ compounds in immuno-oncology are not limited to use with a cell therapy platform. Additionally, the Company has shown in a clinical setting that its INTASYL™ compounds are safe and well-tolerated following local administration.

 

Our collaborative research agreement with Gustave Roussy, a leading comprehensive cancer center in France, concentrates on determining the feasibility of our INTASYL™ platform to target the TME via intra-tumoral injection. Our completed in-vivo study with Gustave Roussy demonstrated that an INTASYL™ compound delivered via intra-tumoral injection showed silencing of gene expression with our INTASYL™ compounds with greater than 90% reduction of the target gene expression in a mouse model of melanoma.

 

The Company expects to move PH-762 or PH-790 for intratumoral injection into the clinical development stage in the second half of 2020.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. Other than our accounting policy for leases in connection with the adoption of Topic 842 on January 1, 2019, as described below, there have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting policies are described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2018, which we filed with the SEC on March 27, 2019.

 

Leases

 

The Company follows the provisions of the FASB ASC 842. At the inception of a contract, the Company determines whether the contract is or contains a lease based on all relevant facts and circumstances. For contracts that contain a lease, the Company identifies the lease and non-lease components, determines the consideration in the contract and recognizes the classification of the lease as operating or financing. At the commencement date of the lease, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The Company has elected not to recognize leases with a term less than one year on the balance sheet.

 

Lease liabilities and the corresponding right of use assets are recorded based on the present value of lease payments to be made over the lease term. The discount rate used to calculate the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental borrowing rate. The Company’s incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right of use asset may be required for items such as initial direct costs or incentives received. Lease payments on operating leases are recognized on a straight-line basis over the expected term of the lease. Lease payments on financing leases are recognized using the effective interest method.

 

Results of Operations

 

The following data summarizes the results of our operations for the periods indicated, in thousands:

 

    Three Months Ended September 30,           Nine Months Ended September 30,        
Description   2019     2018    

Dollar

Change

    2019     2018    

Dollar

Change

 
Revenues   $     $ 57     $ (57 )   $ 21     $ 138     $ (117 )
Operating expenses     (2,113 )     (1,549 )     (564 )     (6,339 )     (5,768 )     (571 )
Operating loss     (2,113 )     (1,492 )     (621 )     (6,318 )     (5,630 )     (688 )
Net loss     (2,094 )     (1,493 )     (601 )     (6,248 )     (5,633 )     (615 )

 

 

 

 

  16  
 

 

Comparison of the Three and Nine Months Ended September 30, 2019 and 2018

 

Revenues

 

The following table summarizes our total revenues, for the periods indicated, in thousands:

 

    Three Months Ended September 30,           Nine Months Ended September 30,        
Description   2019     2018    

Dollar

Change

    2019     2018    

Dollar

Change

 
Revenues   $     $ 57     $ (57 )   $ 21     $ 138     $ (117 )

 

Revenues for the nine months ended September 30, 2019 and three and nine months ended September 30, 2018 related to the work performed by the Company as a sub-awardee under the government grant issued to our collaborator BioAxone Biosciences, Inc. from the National Institute of Neurological Disorders and Stroke. The grant provided funding for the development of a novel INTASYL™ compound, BA-434, that targets PTEN for the treatment of spinal cord injury. Work performed by the Company as a sub-awardee under the grant was completed during the first quarter of 2019.

 

Operating Expenses

 

The following table summarizes our total operating expenses, for the periods indicated, in thousands:

 

    Three Months Ended September 30,           Nine Months Ended September 30,        
Description   2019     2018    

Dollar

Change

    2019     2018    

Dollar

Change

 
Research and development   $ 1,042     $ 838     $ 204     $ 3,277     $ 3,382     $ (105 )
General and administrative     1,071       711       360       3,062       2,386       676  
Total operating expenses   $ 2,113     $ 1,549     $ 564     $ 6,339     $ 5,768     $ 571  

 

Research and Development Expenses

 

Research and development expenses relate to compensation and benefits for research and development personnel, facility-related expenses, supplies, external services, costs to acquire technology licenses, expenses associated with preclinical and clinical development activities and other operating costs.

 

Research and development expenses for the three months ended September 30, 2019 increased 24% as compared with the three months ended September 30, 2018, primarily due to an increase in consulting and outside professional service fees in support of preclinical research for the Company’s immuno-oncology programs.

 

Research and development expenses for the nine months ended September 30, 2019 decreased 3% as compared with the nine months ended September 30, 2018, primarily due to decreases in clinical-trial related expenses with the completion of the Company’s legacy clinical trials and payroll-related expenses from a decrease in headcount as compared to the prior year period offset by increases in consulting and outside professional service fees in support of preclinical research for the Company’s immuno-oncology programs.

 

General and Administrative Expenses

 

General and administrative expenses relate to compensation and benefits for general and administrative personnel, facility-related expenses, professional fees for legal, audit, tax and consulting services, as well as other general corporate expenses.

 

 

 

 

  17  
 

 

General and administrative expenses for the three months ended September 30, 2019 increased 51% as compared with the three months ended September 30, 2018, primarily driven by an increase in payroll-related expenses and legal fees.

 

General and administrative expenses for the nine months ended September 30, 2019 increased 28% as compared with the nine months ended September 30, 2018, primarily due to increases in professional fees for legal related expenses and recruiting fees to support employee hiring activities and increase in stock-based compensation expense related to the restricted stock issued to the Company’s former Chief Executive Officer in lieu of cash compensation as compared to the prior year period.

 

Liquidity and Capital Resources

 

Sources of Capital

 

On August 8, 2017, the Company entered into the 2017 Purchase Agreement with LPC. To date, the Company has sold a total of 495,000 shares of common stock to LPC under the 2017 Purchase Agreement for net proceeds of $1,602,000. The Company has approximately $13,300,000 remaining under the 2017 Purchase Agreement with LPC, which expires at the end of the first quarter of 2020.

  

On August 7, 2019, the Company entered into the 2019 Purchase Agreement with LPC. The 2019 Purchase Agreement initially limits the Company’s issuance of shares of common stock to LPC to 19.99% of the Company’s shares outstanding on the date of the Purchase Agreement unless stockholder approval is obtained to issue more than such amount or the average price of all sales under the 2019 Purchase Agreement exceed certain amounts as set forth in the 2019 Purchase Agreement. As a commitment fee for entering into the 2019 Purchase Agreement, the Company issued 500,000 shares of the Company’s common stock to LPC. To date, no shares of common stock have been sold to LPC under the 2019 Purchase Agreement.

 

We had cash of $8,709,000 as of September 30, 2019, compared to $14,879,000 as of December 31, 2018. We have reported recurring losses from operations since inception and expect that we will continue to have negative cash flows from our operations for the foreseeable future. Historically, the Company’s primary source of funding has been the sale of its securities. In the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, or strategic opportunities, in order to maintain our operations. There is no guarantee that debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or to seek to merge with or to be acquired by another company. We believe that our existing cash should be sufficient to fund our operations for at least the next 12 months.

 

Cash Flow

 

The following table summarizes our cash flows for the periods indicated, in thousands:

 

    Nine Months Ended
September 30,
 
    2019     2018  
Net cash used in operating activities   $ (6,099 )   $ (5,774 )
Net cash used in investing activities     (77 )      
Net cash provided by financing activities     6       5,433  
Net decrease in cash and restricted cash   $ (6,170 )   $ (341 )

 

Net Cash Flow from Operating Activities

 

Net cash used in operating activities was $6,099,000 for the nine months ended September 30, 2019, as compared to $5,774,000 for the nine months ended September 30, 2018. The increase in cash used in operating activities of $325,000 was primarily attributable to an increase in net loss offset by non-cash related adjustments.

 

 

 

 

  18  
 

 

Net Cash Flow from Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2019 was $77,000. There were no net cash flows related to investing activities for the nine months ended September 30, 2018. The increase in net cash flow used in investing activities was primarily related to the purchase of office and lab equipment.

 

Net Cash Flow from Financing Activities

 

Net cash provided by financing activities was minimal for the nine months ended September 30, 2019, as compared to $5,433,000 for the nine months ended September 30, 2018. The decrease in cash provided by financing activities was primarily due to net financing costs during the period for the Company’s financing activities as compared to the net proceeds received by the Company from the April 2018 Offering during the same prior year period.

 

Off-Balance Sheet Arrangements

 

In connection with certain license agreements, we are required to indemnify the licensor for certain damages arising in connection with the intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet arrangements in accordance with ASC Topic 460, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our financial statements. See Note 5 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 27, 2019, for further discussion of these indemnification agreements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report to ensure that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

 

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, management concluded that our disclosure controls and procedures were effective as of such date.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

  19  
 

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company is party to legal proceedings. There are none deemed to be material at this time.

 

ITEM 1A. RISK FACTORS

 

Please carefully consider the information set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 27, 2019. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including these risks.

 

We may not be able to regain compliance with the continued listing requirements of The Nasdaq Capital Market.

 

On November 2, 2018, we received written notice (the “Notification Letter”) from the Nasdaq Stock Market (“Nasdaq”) notifying us that we are not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of our common stock for the 30 consecutive business days prior to the date of the Notification Letter, we no longer meet the minimum bid price requirement.

 

The Notification Letter provided an initial 180-day period to regain compliance, which was extended for a second 180-day period on May 14, 2019. As a result of the extension, we had until November 11, 2019 to regain compliance by maintaining a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. We failed to regain compliance by that date, and accordingly we expect that Nasdaq will commence delisting proceedings. We plan to appeal Nasdaq’s delisting but we may not be successful in such appeal. If we are unsuccessful in our efforts to remain listed on Nasdaq, our common stock will trade, if at all, on the over-the counter market, such as the OTC Bulletin Board or OTCQX market, which could adversely impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock; limiting our ability to issue additional securities in the future; and limiting our ability to fund our operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

In October 2019, John Barrett, Ph.D., the Company’s Chief Development Officer, resigned from his position with the Company to pursue another opportunity.

 

 

 

  20  
 

 

ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

      Incorporated by Reference Herein

Exhibit
Number

  Description Form Date
       
3.1   Amended and Restated Bylaws of Phio Pharmaceuticals Corp.*    
         
10.1   Phio Pharmaceuticals Corp. 2012 Long Term Incentive Plan*    
         
         
31.1   Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer and Chief Financial Officer. *    
       
32.1   Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer and Chief Financial Officer. *    
         
 101   The following financial information from the Quarterly Report on Form 10-Q of Phio Pharmaceuticals Corp. for the quarter ended September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (1) Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018; (2) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018; (3) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018; (4) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018; and (5) Notes to Condensed Consolidated Financial Statements (Unaudited).*    

 

  *      Furnished herewith.

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

       
  Phio Pharmaceuticals Corp.
     
  By:  

/s/ Gerrit Dispersyn

      Gerrit Dispersyn, Dr. Med. Sc.
      President and Chief Executive Officer
     
      Date: November 12, 2019

 

 

 

 

 

 

 

 

 

 

 

 

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