Phio Pharmaceuticals Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS PHIO PHARMACEUTICALS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) (Unaudited) September 30, 2021 December 31, 2020 ASSETS Current assets: Cash $ 26,529 $ 14,244 Restricted cash 50 50 Prepaid expenses and other current assets 871 870 Total current assets 27,450 15,164 Right of use asset, net 313 400 Property and equipment, net 153 157 Other assets 27 18 Total assets $ 27,943 $ 15,739 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 322 $ 728 Accrued expenses and other current liabilities 2,061 1,352 Lease liability 112 116 Total current liabilities 2,495 2,196 Lease liability, net of current portion 202 295 Long-term debt – 231 Total liabilities 2,697 2,722 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; 13,534,692 and 5,780,973 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in capital 138,694 116,629 Accumulated deficit ( 113,449 ) ( 103,613 ) Total stockholders’ equity 25,246 13,017 Total liabilities and stockholders’ equity $ 27,943 $ 15,739 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, 2021 2020 2021 2020 Operating expenses: Research and development $ 2,807 $ 1,256 $ 7,091 $ 3,253 General and administrative 932 1,050 2,970 3,078 Total operating expenses 3,739 2,306 10,061 6,331 Operating loss ( 3,739 ) ( 2,306 ) ( 10,061 ) ( 6,331 ) Other (expense) income Gain on extinguishment of debt – – 233 – Interest (expense) income, net ( 3 ) ( 3 ) ( 8 ) ( 1 ) Total other (expense) income ( 3 ) ( 3 ) 225 ( 1 ) Net loss $ ( 3,742 ) $ ( 2,309 ) $ ( 9,836 ) $ ( 6,332 ) Net loss per share: Basic and diluted $ ( 0.28 ) $ ( 0.40 ) $ ( 0.78 ) $ ( 1.51 ) Weighted average number of common shares outstanding Basic and diluted 13,534,560 5,780,386 12,593,569 4,181,862 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, 2021 Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2020 5,780,973 $ 1 $ 116,629 $ ( 103,613 ) $ 13,017 Issuance of common stock, pre-funded warrants and warrants in connection with private placement, net of offering costs 4,420,863 – 12,669 – 12,669 Issuance of common stock under employee stock purchase plan – – – Cash in lieu of fractional shares for 1:55 reverse stock split – – – Issuance of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs – – – Issuance of common stock, pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs – – – Issuance of common stock in registered direct offering, net of offering costs 2,246,784 – 6,908 – 6,908 Issuance of common stock upon the exercise of warrants 1,083,321 – 2,146 – 2,146 Issuance of common stock upon vesting of restricted stock units 2,448 – – – – Stock-based compensation expense – – 67 – 67 Net loss – – – ( 3,407 ) ( 3,407 ) Balance at March 31, 2021 13,534,389 1 138,419 ( 107,020 ) 31,400 Stock-based compensation expense – – 132 – 132 Net loss – – – ( 2,687 ) ( 2,687 ) Balance at June 30, 2021 13,534,389 1 138,551 ( 109,707 ) 28,845 Offering costs related to the exercise of warrants – – Issuance of common stock upon vesting of restricted stock units 303 – – – – Stock-based compensation expense – – 143 – 143 Net loss – – – ( 3,742 ) ( 3,742 ) Balance at September 30, 2021 13,534,692 $ 1 $ 138,694 $ ( 113,449 ) $ 25,246 For the Three and Nine Months Ended September 30, 2020 Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2019 669,433 $ 1 $ 100,566 $ ( 94,819 ) $ 5,748 Issuance of common stock under employee stock purchase plan 153 – 1 – 1 Cash in lieu of fractional shares for 1:55 reverse stock split ( 1,364 ) – ( 15 ) – ( 15 ) Issuance of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs 197,056 – 1,467 – 1,467 Issuance of common stock, pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs 993,633 – 7,093 – 7,093 Issuance of common stock upon the exercise of warrants 1,006,367 – 1 – 1 Issuance of common stock upon vesting of restricted stock units 2,573 – ( 2 ) – ( 2 ) Stock-based compensation expense – – 43 – 43 Net loss – – – ( 2,351 ) ( 2,351 ) Balance at March 31, 2020 2,867,851 1 109,154 ( 97,170 ) 11,985 Issuance of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs 1,713,064 – 3,527 – 3,527 Issuance of common stock upon the exercise of warrants 1,199,296 – 3,863 – 3,863 Issuance of common stock upon vesting of restricted stock units 15 – – – – Stock-based compensation expense – – 30 – 30 Net loss – – – ( 1,672 ) ( 1,672 ) Balance at June 30, 2020 5,780,226 1 116,574 ( 98,842 ) 17,733 Offering costs related to the exercise of warrants – – ( 8 ) – ( 8 ) Issuance of common stock upon vesting of restricted stock units 307 – – – – Stock-based compensation expense – – 37 – 37 Net loss – – – ( 2,309 ) ( 2,309 ) Balance at September 30, 2020 5,780,533 $ 1 $ 116,603 $ ( 101,151 ) $ 15,453 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, 2021 2020 Cash flows from operating activities: Net loss $ ( 9,836 ) $ ( 6,332 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 55 55 Non-cash lease expense 87 83 Non-cash stock-based compensation 342 110 Forgiveness of debt ( 233 ) – Changes in operating assets and liabilities: Prepaid expenses and other assets ( 10 ) ( 386 ) Accounts payable ( 406 ) ( 67 ) Accrued expenses and other liabilities 711 438 Lease liability ( 97 ) ( 80 ) Net cash used in operating activities ( 9,387 ) ( 6,179 ) Cash flows from investing activities: Cash paid for purchase of property and equipment ( 51 ) ( 18 ) Net cash used in investing activities ( 51 ) ( 18 ) Cash flows from financing activities: Net proceeds from the issuance of common stock and warrants 19,577 12,088 Net proceeds from the exercise of warrants 2,146 3,856 Proceeds from debt – 231 Cash paid in lieu of fractional shares for 1:55 reverse stock split – ( 15 ) Payments of taxes for net share settled restricted stock unit issuances – ( 2 ) Payments of capital lease obligations less than one year – ( 27 ) Net cash provided by financing activities 21,723 16,131 Net increase in cash and restricted cash 12,285 9,934 Cash and restricted cash at the beginning of period 14,294 6,984 Cash and restricted cash at the end of period $ 26,579 $ 16,918 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 the tumor microenvironment. The Company’s goal is to develop powerful INTASYL therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby potentially providing patients with a powerful new treatment option that goes beyond current treatment modalities. In December 2019, a novel strain of coronavirus that causes COVID-19 was reported to have surfaced in Wuhan, China and has since spread to other parts of the world, including the United States. In March 2020, the World Health Organization (the “ WHO ”) declared the outbreak a pandemic. Our operations are being conducted in accordance with federal, state, WHO and the Center for Disease Control’s guidelines, including the implementation of safety measures such as working remotely and flexible scheduling. As a result of the coronavirus pandemic, certain of our third-party suppliers and service providers on which we rely have seen impacts to their operations. The Company has undertaken efforts to mitigate potential future impacts by identifying and engaging alternative third-party service providers and suppliers, and because of that, the Company had been able to limit the impact of delays from our third-party service providers to our program’s anticipated timelines. However, the continued impacts to our third-party service providers, including, for example, limited availability of certain services and supplies, began to significantly affect our operations in the second quarter of 2021, resulting in delays to certain of our clinical program timelines. If measures to overcome the pandemic are insufficient, it could further reduce or delay the availability of supplies and services that we purchase and rely on, which may in turn further slow or delay our preclinical and clinical activities. We believe that the coronavirus pandemic has not had a significant impact on our financial condition to date; however a variety of factors such as those described above, may further impact our operations and slow or diminish our research and development activities, which in turn may impact our financial condition in the future. The extent to which the coronavirus pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted. 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “ SEC ”). 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 condensed 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. The areas subject to significant estimates and judgement include, among others, those related to the fair value of equity awards, accruals for research and development expenses, useful lives of property and equipment, income taxes, and our valuation allowance on our deferred tax assets. On an ongoing basis we evaluate our estimates and base our estimates on historical experience and other relevant assumptions that we believe are reasonable under the circumstances, including as a result of new information that may emerge concerning the coronavirus pandemic. We have made estimates of the impact of the coronavirus pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results could differ materially from these estimates. 7 Restricted Cash Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards. 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. Leases 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. For leases with a term greater than one year, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term at the commencement date of the lease. 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. Debt On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “ CARES Act ”) in response to the coronavirus pandemic. The CARES Act is an emergency economic stimulus package passed in response to the coronavirus outbreak that includes, but is not limited to, provisions providing aid to small businesses in the form of loans and grants and numerous tax provisions including, certain payroll tax benefits, changes to the net operating loss rules and changes to the business interest expense deduction rules. On May 11, 2020, the Company received loan proceeds pursuant to the Paycheck Protection Program (the “ PPP ”) offered under the CARES Act, and the loan was subsequently forgiven in February 2021. Outside of the PPP, the Company has not utilized the other CARES Act loan programs and tax provisions, such as certain payroll tax benefits. The Company followed the guidance under the Financial Accounting Standards Board (the “ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 470, “ Debt ” (“ ASC 470 ”) in assessing the accounting for the PPP loan proceeds. Per ASC 470, the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and accrued interest over the term of the loan. Upon loan forgiveness, the Company recognized the extinguishment of the liability in the condensed consolidated statement of operations as a gain on extinguishment of debt. Derivative Financial Instruments 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. 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 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. 8 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. Accrued liabilities for the services provided by contract research organizations (“ CROs ”) 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. The fair value of restricted stock units is based upon the Company’s closing stock price at the grant date. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes valuation model requires the input of valuation assumptions to calculate the value of stock options, including expected volatility, expected term, risk-free interest rate and expected dividends. Stock-based compensation expense is recognized over the requisite service period, which generally represents the vesting period, and commences at the date of grant based on the fair value of the award. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest. Accordingly, we are also required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from estimates. We use historical data to estimate pre-vesting award forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Our forfeiture rate estimates are based on an analysis of our actual forfeiture experience, employee turnover behavior, and other factors. The impact of any adjustments to our forfeiture rates is recorded as a cumulative adjustment in the period of adjustment. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates are revised. Comprehensive Loss The Company’s comprehensive loss is equal to its net loss for all periods presented. Net Loss per Share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss 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 outstanding, except where such dilutive potential common shares would be anti-dilutive. Dilutive potential common shares primarily consist of warrants, restricted stock units and stock options. 3. Liquidity and Going Concern The Company has reported recurring losses from operations since its inception and expects to continue to have negative cash flows from operations for the foreseeable future. Historically, the Company’s primary source of funding has been from the sales of its securities. The Company’s ability to continue to fund its operations is 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 its 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 seek to merge with or to be acquired by another company. 9 While we believe that the coronavirus pandemic has not had a significant impact on our financial condition and results of operations at this time, the potential economic impact brought by, and the duration of, the coronavirus pandemic is difficult to assess or predict. There may be developments outside of our control that require us to adjust our operating plans and given the nature of the situation, we cannot reasonably estimate the impact of the coronavirus pandemic on our financial conditions, results of operations or cash flows in the future. The Company believes that its existing cash should be sufficient to fund operations for at least the next 12 months from the date of the release of these financial statements . 4. Recent Accounting Pronouncements In December 2019, the FASB issued Accounting Standards Update (“ ASU ”) 2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ” (“ ASU 2019-12 ”). The amendments in the update simplify the accounting for income taxes by eliminating the exceptions related to the incremental approach for intraperiod tax allocation, the recognition of a deferred tax liability for equity method investments, not recognizing a deferred tax liability for a foreign subsidiary and the general methodology for calculating income taxes in an interim period. The amendments also clarify and simplify other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective for public entities for fiscal years, and the interim periods within those fiscal years, beginning after December 20, 2020. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, “ Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) ” (“ ASU 2020-06 ”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. For convertible instruments, the accounting models for instruments issued with beneficial conversion features or cash conversion features are removed. For contracts in an entity’s own equity, ASU 2020-06 simplifies the settlement assessment by removing the requirements to (1) consider whether the contract would be settled in registered shares, (2) consider whether collateral is required to be posted, and (3) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company early adopted ASU 2020-06 on January 1, 2021. The adoption of this standard did not have an impact on the Company’s consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, “ Earnings per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) ” (“ ASU 2021-04 ”). The amendments in the updates are intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including within an interim period. The Company is evaluating the potential impact of this guidance on its consolidated financial statements and related disclosures. 5. Leases In January 2019, the Company amended the lease for its corporate headquarters and primary research facility in Marlborough, Massachusetts. The lease is for a total of 7,581 square feet of office and laboratory space and will expire on March 31, 2024 . The lease contains an option to terminate after two or three years by providing advance written notice of termination pursuant to the terms of the agreement. The exercise of this option was not determined to be reasonably certain and thus was not included in the lease liability on the Company’s balance sheet. The Company did not exercise its option to terminate in either the second or third year of the lease, and the option to terminate has expired. Additionally, the lease agreement did not contain information to determine the borrowing rate implicit in the lease. As such, 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, taking into consideration such assumptions as, but not limited to, the U.S. treasury yield rate and borrowing rates from a creditworthy financial institution using the above lease factors. 10 The lease for our corporate headquarters represents substantially all of our significant lease obligations. The amounts reported in the condensed consolidated balance sheets for operating leases in which the Company is the lessee and other supplemental balance sheet information is set forth as follows, in thousands, except the lease term (number of years) and discount rate: Schedule of lease and supplemental balance sheet information September 30, 2021 December 31, 2020 Assets Right of use asset $ 313 $ 400 Liabilities Lease liability, current $ 112 $ 116 Lease liability, non-current 202 295 Total lease liability $ 314 $ 411 Lease Term and Discount Rate Weighted average remaining lease term 2.50 3.71 Weighted average discount rate 4.70 % 4.70 % Operating lease costs included in operating expense were $ 33,000 for the three months ended September 30, 2021 and 2020. Operating lease costs included in operating expense were $ 99,000 for the nine months ended September 30, 2021 and 2020. Short-term lease costs were not material for the three and nine months ended September 30, 2021 and 2020. Cash paid for the amounts included in the measurement of the operating lease liability on the Company’s condensed consolidated balance sheets and included within changes in the lease liability in the operating activities of our condensed consolidated statements of cash flows was $ 44,200 and $ 32,200 for the three months ended September 30, 2021 and 2020, respectively. Cash paid for the nine months ended September 30, 2021 and 2020 was $ 109,500 and $ 95,600 , respectively. Future lease payments for our non-cancellable operating leases and a reconciliation to the carrying amount of the operating lease liability presented in the condensed consolidated balance sheet as of September 30, 2021 is as follows, in thousands: Schedule of future minimum lease payments 2021 (remaining) $ 22 2022 135 2023 140 2024 35 Total lease payments 332 Less: Imputed interest ( 18 ) Total operating lease liability (includes current portion) $ 314 6. Debt On May 11, 2020, the Company received loan proceeds in the amount of $ 231,252 from Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act. The PPP loan had a maturity date of May 11, 2022 , interest at a rate of 1 % per year and monthly principal and interest payments that were deferred to the date that the Small Business Administration (the “ SBA ”) remitted the borrower’s loan forgiveness amount to the lender. When applying for the PPP loan, the Company carefully assessed the requirements for application under the program and believed that the loan was necessary to support its operations. The loans under the PPP may be forgiven if used for eligible purposes, including payroll, benefits, rent and utilities. The Company followed the guidance under ASC 470 in assessing the accounting for the PPP loan proceeds. Per ASC 470, the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and accrued interest over the term of the loan. The Company believed it used the loan proceeds for eligible purposes and applied for full loan forgiveness. On February 18, 2021, the SBA approved the Company’s application for full loan forgiveness, and the full amount of the PPP loan was remitted to the lender for forgiveness. Upon loan forgiveness, the Company recognized a gain on the extinguishment of debt of $ 233,000 for the loan proceeds received and interest accrued in the condensed consolidated statements of operations for the nine months ended September 30, 2021. 11 7. Stockholders’ Equity January 2021 Private Placement — On January 25, 2021, the Company completed a private placement of 4,420,863 shares of the Company’s common stock at a purchase price per share of $ 3.07 , pre-funded warrants to purchase an aggregate of 140,065 shares of the Company’s common stock (the “ January 2021 Pre-Funded Warrants ”) at a purchase price per pre-funded warrant share of $ 3.069 and warrants to purchase an aggregate of 3,420,696 shares of the Company’s common stock with an exercise price of $ 3.00 per warrant share (the “ January 2021 Warrants ”) (the “ Private Placement ”). In connection with the Private Placement, the Company issued warrants to the placement agent, H.C. Wainwright & Co., LLC (“ HCW ”), to purchase a total of 342,070 shares of the Company’s common stock at an exercise price of $ 3.8375 (the “ January 2021 Placement Agent Warrants ”). Net proceeds to the Company from the Private Placement were $ 12,669,000 after deducting placement agent fees and offering expenses. February 2021 Registered Direct Offering — On February 17, 2021, the Company completed a registered direct offering of 2,246,784 shares of the Company’s common stock at a purchase price of $ 3.42 per share (the “ Offering ”). In connection with the Offering, the Company issued warrants to the placement agent, HCW, to purchase a total of 168,509 shares of the Company’s common stock at an exercise price of $ 4.275 (the “ February 2021 Placement Agent Warrants ”). Net proceeds to the Company from the Offering were $ 6,908,000 after deducting placement agent fees and offering expenses. February 2020 Registered Direct Offering and Private Placement — On February 6, 2020, the Company completed a registered direct offering (the “ February 2020 Registered Offering ”) of 197,056 shares of the Company’s common stock at a purchase price of $ 8.705 per share and in a concurrent private placement, sold warrants to purchase an aggregate of 197,056 shares of the Company’s common stock at a purchase price of $ 0.125 per underlying warrant share and with an exercise price of $ 8.71 per share (the “ February 2020 Registered Direct Warrants ”). In connection with the February 2020 Registered Offering, the Company also issued warrants to purchase a total of 14,779 shares of the Company’s common stock with an exercise price of $ 11.0375 per share (the “ February 2020 Placement Agent Warrants ”) to the placement agent, HCW. Net proceeds to the Company from the February 2020 Registered Offering were $ 1,467,000 after deducting placement agent fees and offering expenses paid by the Company. February 2020 Underwritten Public Offering — On February 13, 2020, the Company completed an underwritten public offering of 993,633 shares of the Company’s common stock at a purchase price per share of $ 4.00 , pre-funded warrants (the “ 2020 Pre-Funded Warrants ”) to purchase an aggregate of 1,006,367 shares of the Company’s common stock at a purchase price per pre-funded warrant share of $ 3.999 and warrants (the “ February 2020 Warrants ”) to purchase an aggregate of 2,000,000 shares of the Company’s common stock with an exercise price of $ 4.00 per warrant share (the “ February 2020 Underwritten Offering ”). The 2020 Pre-Funded Warrants were immediately exercisable at an exercise price per share of $ 0.001 and each share of Company common stock or 2020 Pre-Funded Warrant, as applicable, was sold with a February 2020 Warrant. In connection with the February 2020 Underwritten Offering, the Company issued warrants to purchase up to 150,000 shares of Company common stock, immediately exercisable at an exercise price of $ 5.00 per share (the “ February 2020 Underwriter Warrants ”) to HCW, as underwriter. In connection with the February 2020 Underwritten Offering, the Company also granted to the underwriter, HCW, a 30-day option to purchase up to an additional 300,000 shares of the Company’s common stock at a purchase price of $ 3.999 per such share and/or warrants to purchase up to 300,000 shares of the Company’s common stock at a purchase price of $ 0.001 per such warrant. Such warrants have the same terms as the February 2020 Warrants. On February 12, 2020, HCW exercised its option to purchase warrants to purchase an aggregate of 300,000 shares of the Company’s common stock. Net proceeds from the February 2020 Underwritten Offering were $ 7,093,000 after deducting underwriting discounts and commissions and offering expenses paid by the Company. April 2020 Registered Direct Offering and Private Placement — On April 2, 2020, the Company completed a registered direct offering (the “ April 2020 Offering ”) of 1,713,064 shares of the Company’s common stock at a purchase price of $ 2.21 per share and in a concurrent private placement, sold warrants to purchase an aggregate of 1,713,064 shares of the Company’s common stock at a purchase price of $ 0.125 per underlying warrant share and with an exercise price of $ 2.21 per share (the “ April 2020 Warrants ”). In connection with the April 2020 Offering, the Company also issued warrants to purchase a total of 128,480 shares of the Company’s common stock with an exercise price of $ 2.9188 per share (the “ April 2020 Placement Agent Warrants ”) to the placement agent, HCW. Net proceeds to the Company from the April 2020 Offering were $ 3,527,000 after deducting placement agent fees and offering expenses paid by the Company. 12 Warrants The Company first assesses the warrants it issues under the FASB ASC Topic 480, “ Distinguishing Liabilities from Equity ” (“ ASC 480 ”) to determine whether they are within the scope of ASC 480. As there were no instances outside of the Company’s control that could require cash settlement of the warrants issued in the Private Placement and Offering, as well as warrants issued in the Company’s prior financing transactions, the warrants are outside the scope of ASC 480. The Company then applies and follows the applicable accounting guidance in ASC 815. Financial instruments are accounted for as either derivative liabilities or as equity instruments depending on the specific terms of the agreement. The warrants issued in the Private Placement and the Offering do not meet the definition of a derivative instrument as they are indexed to the Company’s common stock and classified within stockholders’ equity, as are the warrants issued in the Company’s prior financing transactions. Based on this determination, the Company’s warrants are classified within stockholders’ equity. The following table summarizes the Company’s outstanding equity-classified warrants at September 30, 2021: Schedule of outstanding warrants Exercise Expiration Balance December 31, Warrants Warrants Warrants Balance September 30, Description Price Date 2020 Issued Exercised Expired 2021 December 2016 Warrants $ 495.00 12/21/2021 23,233 – – – 23,233 April 2018 Warrants $ 173.25 5/31/2023 20,599 – – – 20,599 April 2018 Placement Agent Warrants $ 223.00 4/9/2023 1,373 – – – 1,373 October 2018 Warrants $ 10.45 10/3/2025 389,610 – – – 389,610 October 2018 Underwriter Warrants $ 13.06 10/1/2023 29,220 – – – 29,220 November 2019 Placement Agent Warrants $ 6.875 11/18/2024 13,636 – – – 13,636 February 2020 Registered Direct Warrants $ 8.71 8/6/2025 197,056 – – – 197,056 February 2020 Placement Agent Warrants $ 11.0375 2/4/2025 14,779 – – – 14,779 February 2020 Warrants $ 4.00 2/13/2025 1,326,500 – – – 1,326,500 February 2020 Underwriter Warrants $ 5.00 2/11/2025 150,000 – – – 150,000 April 2020 Warrants $ 2.21 10/2/2025 1,284,798 – ( 856,532 ) – 428,266 April 2020 Placement Agent Warrants $ 2.9188 3/31/2025 128,480 – ( 86,724 ) – 41,756 January 2021 Pre-Funded Warrants $ 0.001 No expiration – 140,065 ( 140,065 ) – – January 2021 Warrants $ 3.00 7/27/2026 – 3,420,696 – – 3,420,696 January 2021 Placement Agent Warrants $ 3.8375 7/27/2026 – 342,070 – – 342,070 February 2021 Placement Agent Warrants $ 4.275 2/12/2026 – 168,509 – – 168,509 3,579,284 4,071,340 ( 1,083,321 ) – 6,567,303 No warrants were exercised during the three months ended September 30, 2021 and 2020. The Company received net proceeds of $ 2,146,000 and $ 3,856,000 from the exercise of warrants during the nine months ended September 30, 2021 and 2020, respectively. Of the warrants exercised during the nine months ended September 30, 2020, 428,266 of the Company’s April 2020 Warrants were exercised via a cashless exercise transaction and as a result a total of 225,796 shares of common stock were issued. There were no cashless exercises of warrants for the nine months ended September 30, 2021. 8. 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: Schedule of antidilutive stock September 30, 2021 2020 Options to purchase common stock 2,499 2,637 Unvested restricted stock units 367,533 10,731 Warrants to purchase common stock 6,567,303 3,579,284 Total 6,937,335 3,592,652 13 9. Stock-based Compensation Restricted Stock Units Restricted stock units (“ RSUs ”) are issued under the Company’s 2020 Long-Term Incentive Plan (the “ 2020 Plan ”) or as inducement grants issued outside of the plan to new employees. RSUs are generally subject to graded vesting and the satisfaction of service requirements. Upon vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock. Employee 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 upon 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, 2021: Schedule of RSU activity Number of Shares Weighted- Average Grant Date Fair Value Unvested units at December 31, 2020 9,699 $ 19.97 Granted 360,750 2.94 Vested ( 2,916 ) 24.97 Forfeited – – Unvested units at September 30, 2021 367,533 $ 3.22 Stock-based compensation expense related to RSUs was $ 132,000 and $ 21,000 for the three months ended September 30, 2021 and 2020, respectively. Stock-based compensation expense related to RSUs was $ 313,000 and $ 69,000 for the nine months ended September 30, 2021 and 2020, respectively. Stock Options Stock options are issued under the 2020 Plan or as inducement grants issued outside of the plan to new employees. Stock options are generally subject to graded vesting and the satisfaction of service requirements. Upon the exercise of a stock option, the Company issues new shares and delivers them to the recipient. The Company does not expect to repurchase shares to satisfy stock option exercises. The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. The risk-free interest rate used for each grant was 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. As the Company has limited stock option exercise information, the expected life assumption used 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 Company did not grant stock options during the three and nine months ended September 30, 2021 and 2020. The following table summarizes the activity of the Company’s stock options for the nine months ended September 30, 2021: Schedule of Stock Option Activity Number of Shares Weighted- Average Exercise Price Per Share Aggregate Intrinsic Value Balance at December 31, 2020 2,570 $ 3,334.06 Granted – – Exercised – – Cancelled ( 71 ) 946.27 Balance at September 30, 2021 2,499 $ 3,401.90 $ – Exercisable at September 30, 2021 2,153 $ 3,932.78 $ – 14 Stock-based compensation expense related to stock options for the three months ended September 30, 2021 and 2020 was $ 11,000 and $ 16,000 , respectively. Stock-based compensation expense related to stock options for the nine months ended September 30, 2021 and 2020 was $ 29,000 and $ 41,000 , respectively. 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, 2021 and 2020, in thousands: Schedule of Details of Stock-based Compensation Expense Recorded Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Research and development $ 36 $ 6 $ 80 $ 17 General and administrative 107 31 262 93 Total stock-based compensation $ 143 $ 37 $ 342 $ 110 10. Income Taxes The Company has incurred net operating losses since inception and based on an assessment of all available evidence, has concluded that it is more likely than not that the net operating loss carryforwards generated as result will not be realized and a full deferred income tax valuation allowance has been recorded against these assets. If the Company has experienced a change of control, as defined by Section 382 of the Internal Revenue Code as transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period, utilization of the net operating loss carryforwards would be subject to an annual limitation. The Company is in the process of conducting a study to assess the utilization of its net operating loss carryforwards and may be subject to substantial annual limitations. 15