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, 2023 December 31, 2022 ASSETS Current assets: Cash $ 8,407 $ 11,781 Restricted cash 50 50 Prepaid expenses and other current assets 871 615 Total current assets 9,328 12,446 Right of use asset 66 161 Property and equipment, net 142 183 Other assets 3 24 Total assets $ 9,539 $ 12,814 LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 173 $ 779 Accrued expenses 2,083 1,025 Lease liability 70 135 Total current liabilities 2,326 1,939 Lease liability, net of current portion – 35 Total liabilities 2,326 1,974 Commitments and contingencies (Note 2) – – Series D Preferred Stock, $ 0.0001 par value; 0 and 1 shares authorized, issued and outstanding at September 30, 2023 and December 31, 2022, respectively – 2 Stockholders’ equity: Common stock, $ 0.0001 par value, 100,000,000 shares authorized; 2,307,385 and 1,139,024 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively – – Additional paid-in capital 144,524 139,218 Accumulated deficit ( 137,311 ) ( 128,380 ) Total stockholders’ equity 7,213 10,838 Total liabilities, preferred stock and stockholders’ equity $ 9,539 $ 12,814 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, 2023 2022 2023 2022 Operating expenses: Research and development $ 1,808 $ 2,508 $ 5,325 $ 5,398 General and administrative 968 1,063 3,600 3,334 Total operating expenses 2,776 3,571 8,925 8,732 Operating loss ( 2,776 ) ( 3,571 ) ( 8,925 ) ( 8,732 ) Total other expense, net ( 4 ) ( 5 ) ( 6 ) ( 17 ) Net loss $ ( 2,780 ) $ ( 3,576 ) $ ( 8,931 ) $ ( 8,749 ) Net loss per common share: Basic and diluted $ ( 1.14 ) $ ( 3.14 ) $ ( 5.03 ) $ ( 7.70 ) Weighted average number of common shares outstanding Basic and diluted 2,440,164 1,138,571 1,775,043 1,135,744 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 PHIO PHARMACEUTICALS CORP. CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (Amounts in thousands, except share data) (Unaudited) For the Three and Nine Months Series D Preferred Stock Common Stock Additional Paid-in Accumulated Ended September 30, 2023 Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2022 1 $ 2 1,139,024 $ – $ 139,218 $ ( 128,380 ) $ 10,838 Cash-in-lieu of fractional shares for reverse stock split – – ( 1,706 ) – ( 11 ) – ( 11 ) Redemption of preferred stock ( 1 ) ( 2 ) – – – – – Issuance of common stock upon vesting of restricted stock units – – 18,080 – – – – Shares withheld for payroll taxes – – ( 4,816 ) – ( 25 ) – ( 25 ) Stock-based compensation expense – – – – 111 – 111 Net loss – – – – – ( 3,602 ) ( 3,602 ) Balance at March 31, 2023 – $ – 1,150,582 $ – $ 139,293 $ ( 131,982 ) $ 7,311 Issuance of common stock and warrants, net of offering costs – – 659,629 – 5,048 – 5,048 Issuance of common stock upon exercise of warrants – – 175,000 – – – – Stock-based compensation expense – – – – 94 – 94 Net loss – – – – – ( 2,549 ) ( 2,549 ) Balance at June 30, 2023 – $ – 1,985,211 $ – $ 144,435 $ ( 134,531 ) $ 9,904 Issuance of common stock upon exercise of warrants – – 320,290 – – – – Issuance of common stock upon vesting of restricted stock units – – 2,000 – – – – Shares withheld for payroll taxes – – ( 116 ) – – – – Stock-based compensation expense – – – – 89 – 89 Net loss – – – – – ( 2,780 ) ( 2,780 ) Balance at September 30, 2023 – $ – 2,307,385 $ – $ 144,524 $ ( 137,311 ) $ 7,213 For the Three and Nine Months Ended Series D Preferred Stock Common Stock Additional Paid-in Accumulated September 30, 2022 Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2021 – $ – 1,127,917 $ – $ 138,832 $ ( 116,900 ) $ 21,932 Issuance of common stock upon vesting of restricted stock units – – 12,943 – – – – Shares withheld for payroll taxes – – ( 2,633 ) – ( 25 ) – ( 25 ) Stock-based compensation expense – – – – 186 – 186 Net loss – – – – – ( 2,642 ) ( 2,642 ) Balance at March 31, 2022 – $ – 1,138,227 $ – $ 138,993 $ ( 119,542 ) $ 19,451 Stock-based compensation expense – – – – 83 – 83 Net loss – – – – – ( 2,531 ) ( 2,531 ) Balance at June 30, 2022 – $ – 1,138,227 $ – $ 139,076 $ ( 122,073 ) $ 17,003 Issuance of common stock upon vesting of restricted stock units – – 1,064 – – – – Shares withheld for payroll taxes – – ( 293 ) – ( 3 ) – ( 3 ) Stock-based compensation expense – – – – 103 – 103 Net loss – – – – – ( 3,576 ) ( 3,576 ) Balance at September 30, 2022 – $ – 1,138,998 $ – $ 139,176 $ ( 125,649 ) $ 13,527 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, 2023 2022 Cash flows from operating activities: Net loss $ ( 8,931 ) $ ( 8,749 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 46 56 Amortization of right of use asset 95 91 Stock-based compensation 294 372 Changes in operating assets and liabilities: Prepaid expenses and other assets ( 235 ) ( 220 ) Accounts payable ( 606 ) 260 Accrued expenses 1,058 ( 1,141 ) Lease liability ( 100 ) ( 93 ) Net cash used in operating activities ( 8,379 ) ( 9,424 ) Cash flows from investing activities: Cash paid for purchase of property and equipment ( 5 ) ( 121 ) Net cash used in investing activities ( 5 ) ( 121 ) Cash flows from financing activities: Net proceeds from the issuance of common stock and warrants 5,048 – Cash in lieu of fractional shares for reverse stock split ( 11 ) – Redemption of Series D preferred stock ( 2 ) – Payment of taxes on net share settlements of restricted stock units ( 25 ) ( 28 ) Net cash provided by (used in) financing activities 5,010 ( 28 ) Net decrease in cash and restricted cash ( 3,374 ) ( 9,573 ) Cash and restricted cash at the beginning of period 11,831 24,107 Cash and restricted cash at the end of period $ 8,457 $ 14,534 The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets to the totals above: September 30, 2023 2022 Cash $ 8,407 $ 14,484 Restricted cash 50 50 Cash and restricted cash $ 8,457 $ 14,534 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. Organization and Significant Accounting Policies Nature of Operations Phio Pharmaceuticals Corp. (“ Phio ” or the “ Company ”) is a clinical stage biotechnology company whose proprietary INTASYL™ self-delivering RNAi technology platform is designed to make immune cells more effective in killing tumor cells. Phio is developing therapeutics that are designed to leverage INTASYL to precisely target specific proteins that reduce the body’s ability to fight cancer, without the need for specialized formulations or drug delivery systems. Effective January 26, 2023, the Company completed a 1-for-12 reverse stock split of the Company’s outstanding common stock, including reclassifying an amount equal to the reduction in par value to additional paid-in capital. The reverse stock split did not reduce the number of authorized shares of the Company’s common or preferred stock. All share and per share amounts have been adjusted to give effect to the reverse stock split. 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. 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 (“ GAAP ”). Certain information and footnote disclosures that are included in the Company’s annual consolidated financial statements, but that are not required for interim reporting purposes, have been condensed or omitted. Additionally, the Company made adjustments to the outstanding stock option and unvested restricted stock unit balances, and related per share amounts, at December 31, 2022 to reflect final revisions to those outstanding equity awards as a result of the Company’s reverse stock split. The adjustment had no effect on the Company’s condensed consolidated financial statements. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “ SEC ”) on March 22, 2023 (the “ 2022 Form 10-K ”). 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. Use of Estimates 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 as of 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, and the valuation allowance on the Company’s deferred tax assets. On an ongoing basis the Company evaluates its estimates and bases its estimates on historical experience and other relevant assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from these estimates. 7 Liquidity The Company has reported recurring losses from operations since 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 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 the Company on acceptable terms, or at all. If the Company fails to obtain additional funding when needed, the Company would be forced to scale back or terminate its operations or seek to merge with or to be acquired by another company. The Company has limited cash resources, has reported recurring losses from operations since inception and has not yet received product revenues. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern, and the Company’s current cash resources may not provide sufficient capital to fund operations for at least the next 12 months from the date of the release of these financial statements. The continuation of the Company as a going concern depends upon the Company’s ability to raise additional capital through an equity offering, debt offering and/or strategic opportunity to fund its operations. There can be no assurance that the Company will be successful in accomplishing these plans in order to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Summary of Significant Accounting Policies There have been no material changes to the significant accounting policies disclosed in the Company’s 2022 Form 10-K. Recent Accounting Pronouncements There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s 2022 Form 10-K. 2. Collaboration Agreement AgonOx, Inc. (“ AgonOx ”) In March 2021, the Company entered into a clinical co-development collaboration agreement (the “ Clinical Co-Development Agreement ”) with AgonOx, a private company developing a pipeline of novel immunotherapy drugs targeting key regulators of the immune response to cancer. Under the Clinical Co-Development Agreement, Phio and AgonOx are working to develop a T cell-based therapy using the Company’s lead product candidate, PH-762, and AgonOx’s “double positive” tumor infiltrating lymphocytes (“ DP TIL ”) technology. Per the terms of the Clinical Co-Development Agreement, the Company committed to provide financial support for development costs of up to $ 4,000,000 to AgonOx for expenses incurred to conduct a Phase 1 clinical trial of PH-762 treated DP TIL in patients with advanced melanoma and other advanced solid tumors. The Company will recognize its share of costs arising from research and development activities performed by AgonOx in the Company’s financial statements in the period AgonOx incurs such expense. Phio will be entitled to certain future development milestones and low single-digit sales-based royalty payments from AgonOx’s licensing of its DP TIL technology. The Company recognized approximately $ 606,000 and $ 906,000 of expense in connection with these efforts during the three and nine months ended September 30, 2023, respectively. No expense under the Clinical Co-Development Agreement was recognized during the three and nine months ended September 30, 2022. There is approximately $ 2,964,000 of remaining costs not yet incurred under the Clinical Co-Development Agreement as of September 30, 2023. 8 3. Fair Value of Financial Instruments The Company follows the provisions of the Financial Accounting Standards Board (the “ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 820, “ Fair Value Measurement ,” for the Company’s financial assets and liabilities that are re-measured and reported at fair value each reporting period and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are defined as follows: Level 1 – quoted prices in active markets for identical assets or liabilities. Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date. At September 30, 2023 and December 31, 2022, the Company categorized its restricted cash of $ 50,000 as Level 2 hierarchy. Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards. The assets classified as Level 2 have initially been valued at the applicable transaction price and subsequently valued, at the end of each reporting period, using other market observable data. Observable market data points include quoted prices, interest rates, reportable trades and other industry and economic events. The carrying amounts of cash, accounts payable and accrued expenses of the Company approximate their fair values due to their short-term nature. 4. 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. The lease for the Company’s corporate headquarters represents all of its significant lease obligations. The amounts reported in the condensed consolidated balance sheets for the operating lease 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, 2023 December 31, 2022 Assets Right of use asset $ 66 $ 161 Liabilities Lease liability, current 70 135 Lease liability, non-current – 35 Total lease liability $ 70 $ 170 Lease Term and Discount Rate Weighted average remaining lease term 0.50 1.25 Weighted average discount rate 4.70 % 4.70 % 9 Operating lease costs included in operating expense were $ 33,000 for the three months ended September 30, 2023 and 2022. Operating lease costs included in operating expense were $ 99,000 for the nine months ended September 30, 2023 and 2022. 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 the Company’s condensed consolidated statements of cash flows was $ 35,000 and $ 34,000 for the three months ended September 30, 2023 and 2022, respectively. 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 the Company’s condensed consolidated statements of cash flow was $ 104,000 and $ 101,000 for the nine months ended September 30, 2023 and 2022, respectively. Future lease payments for the Company’s non-cancellable operating lease and a reconciliation to the carrying amount of the operating lease liability presented in the condensed consolidated balance sheet as of September 30, 2023 is as follows, in thousands: Schedule of future minimum lease payments 2023 (remaining) $ 36 2024 35 Total lease payments 71 Less: Imputed interest ( 1 ) Total operating lease liability $ 70 5. Preferred Stock The Company has authorized up to 10,000,000 shares of preferred stock, $ 0.0001 par value per share, for issuance. The Company’s Board of Directors (the “ Board ’) is authorized under the Company’s Amended and Restated Articles of Incorporation (as may be amended and/or restated from time to time, the “ Amended Certificate ”), to designate the authorized preferred stock into one or more series and to fix and determine such rights, preferences, privileges and restrictions of any series of preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board upon its issuance. On November 16, 2022, the Company issued and sold one share of the Company’s Series D Preferred Stock, par value $ 0.0001 per share (the “ Series D Preferred Stock ”) to Robert Bitterman, then its interim Executive Chairman and current Chief Executive Officer, for $ 1,750 . The Series D Preferred Stock was entitled to 17,500,000 votes per share exclusively with respect to any proposal to amend the Company’s Amended Certificate to effect a reverse stock split of the Company’s common stock (“ Reverse Stock Split ”). The terms of the Series D Preferred Stock provided that it would be voted, without action by the holder, on any such proposal in the same proportion as shares of the Company’s common stock were voted. The Series D Preferred Stock otherwise had no voting rights except as required by the General Corporation Law of the State of Delaware. The Series D Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series D Preferred Stock had no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Series D Preferred Stock was not entitled to receive dividends of any kind. Under its terms, the outstanding share of Series D Preferred Stock was to be redeemed in whole, but not in part, at any time: (i) if such redemption was approved by the Board in its sole discretion or (ii) automatically and effective upon the approval by the Company's stockholders of a Reverse Stock Split. Upon such redemption, the holder of the Series D Preferred Stock was entitled to receive consideration of $ 1,750 in cash. The Series D Preferred Stock was redeemed in whole on January 4, 2023, upon the approval by the Company’s stockholders of a Reverse Stock Split, such that, at September 30, 2023, there were no shares of Series D Preferred Stock authorized, issued or outstanding and all of the Company’s authorized shares of preferred stock were undesignated. 10 6. Stockholders’ Equity April 2023 Financing — On April 20, 2023, the Company completed a registered direct offering and a concurrent private placement of a total of: 353,983 registered shares of the Company’s common stock at a purchase price per share of $ 5.65 , unregistered five and one-half year term Series A warrants to purchase up to 353,983 shares of common stock at an exercise price of $ 5.40 per share and unregistered eighteen month term Series B warrants to purchase up to 353,983 shares of common stock at an exercise price of $ 5.40 per share (collectively, the “ April 2023 Financing ”). In addition, the Company issued unregistered warrants to the placement agent, H.C. Wainwright & Co., LLC (“ HCW ”), in the April 2023 Financing to purchase a total of 26,549 shares of common stock at an exercise price of $ 7.0625 per share. Net proceeds to the Company from the April 2023 Financing were $ 1,538,000 after deducting placement agent fees and offering expenses. In connection with the April 2023 Financing, the Company entered into warrant amendment agreements (the “ Warrant Amendment Agreements ”) with the participating investors to amend the exercise price of certain existing warrants to purchase up to an aggregate of 191,619 shares of common stock that were previously issued in April 2018 through January 2021, such that each of the amended warrants have an exercise price of $ 5.40 per share. The Company received $ 24,000 as consideration in connection with the Warrant Amendment Agreements. The Company assessed the amendments to the exercise price of the warrants under the FASB ASC Topic 815, “ Derivatives and Hedging ” (“ ASC 815 ”) and determined that the amendment to the exercise price was completed in connection with and contingent on the close of the April 2023 Financing. The increase in fair value of $ 293,000 related to the Warrant Amendment Agreements was recognized as an equity issuance cost and recorded in additional paid in capital per ASC 815. June 2023 Financing — On June 2, 2023, the Company completed a registered direct offering and a concurrent private placement of a total of: 233,646 registered shares and 72,000 unregistered shares of the Company’s common stock each at a purchase price per share of $ 4.28 , unregistered pre-funded warrants to purchase up to an aggregate of 628,935 shares of common stock at a purchase price per share of $ 4.279 and with an exercise price of $ 0.001 per share, unregistered five and one-half year term Series A warrants to purchase up to an aggregate of 934,581 shares of common stock at an exercise price of $ 4.03 per share and unregistered eighteen month term Series B warrants to purchase up to an aggregate of 934,581 shares of common stock at an exercise price of $ 4.03 per share (collectively, the “ June 2023 Financing ”). In addition, the Company issued unregistered warrants to the placement agent, HCW, in the June 2023 Financing to purchase a total of 70,094 shares of common stock at an exercise price of $ 5.35 per share. Net proceeds to the Company from the June 2023 Financing were $ 3,510,000 after deducting placement agent fees and offering expenses. Warrants The Company first assessed the warrants in the April 2023 Financing and June 2023 Financing under the FASB ASC Topic 480, “ Distinguishing Liabilities from Equity ” (“ ASC 480 ”) to determine whether they were within the scope of ASC 480. As there were no instances outside of the Company’s control that could require cash settlement, the Company’s warrants issued in the April 2023 Financing and June 2023 Financing were determined to be outside the scope of ASC 480. The Company then applied and followed the applicable accounting guidance in ASC Topic 815 . Financial instruments are accounted for as either derivative liabilities or equity instruments depending on the specific terms of the agreement. The warrants issued in the April 2023 Financing and June 2023 Financing did not meet the definition of a derivative instrument as they are indexed to the Company’s common stock and classified within stockholders’ equity. Based on this determination, the warrants issued in the April 2023 Financing and June 2023 Financing were classified within stockholders’ equity. During the three and nine months ended September 30, 2023, shares of common stock issued related to exercises from the pre-funded warrants issued in the June 2023 Financing totaled 320,290 and 495,290 , respectively. The Company realized proceeds of $ 320 and $ 495 , respectively, from the exercises of the pre-funded warrants. There were no warrants exercised during the three and nine months ended September 30, 2022. 11 The following table summarizes the Company’s outstanding warrants, all of which are classified as equity instruments, at September 30, 2023: Summary of outstanding warrants Number of Shares Weighted- Average Exercise Price Per Share Outstanding at December 31, 2022 545,401 $ 54.53 Issued 3,302,706 4.46 Exercised ( 495,290 ) 0.001 Expired ( 1,837 ) 1,245.59 Outstanding at September 30, 2023 3,350,980 $ 9.09 The Company’s outstanding warrants as of September 30, 2023 expire at various dates between October 2023 and December 2028. 7. Stock-based Compensation In July 2023, the Company’s stockholders approved an amendment to the Company’s 2020 Long-Term Incentive Plan (the “2020 Plan”) to increase the number of shares authorized for issuance thereunder by 125,500 shares. Restricted Stock Units Restricted stock units (“ RSUs ”) are issued under the Company’s 2020 Plan or as inducement grants issued outside of the 2020 Plan to new employees. RSUs are generally subject to graded vesting and the satisfaction of certain service requirements. Upon vesting, each outstanding RSU will be settled 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, 2023: Summary of RSU activity Number of Shares Weighted- Average Grant Date Fair Value Per Share Unvested units at December 31, 2022 47,335 $ 15.03 Granted 43,500 5.24 Vested ( 20,080 ) 16.34 Forfeited ( 1,500 ) 5.24 Unvested units at September 30, 2023 69,255 $ 12.93 There were no RSU grants during the three months ended September 30, 2023. The weighted-average fair value of RSUs granted during the nine months ended September 30, 2023 was $ 5.24 . The weighted-average fair value of RSUs granted during the three and nine months ended September 30, 2022 was $ 9.00 and $ 10.32 , respectively. Stock-based compensation expense related to RSUs was $ 89,000 and $ 294,000 for the three and nine months ended September 30, 2023, respectively. Stock-based compensation expense related to RSUs was $ 98,000 and $ 359,000 for the three and nine months ended September 30, 2022, respectively. 12 The aggregate fair value of awards that vested during the nine months ended September 30, 2023 and 2022 was $ 100,000 and $ 138,000 , respectively, which represents the market value of the Company’s common stock on the date that the RSUs vested. Stock Options Stock options are available to be issued under the 2020 Plan and are generally subject to graded vesting and the satisfaction of certain 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 net share settle to satisfy stock option exercises. The Company used 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 was based upon the Company’s own implied volatility. The expected life assumption used for option grants was based upon the simplified method provided for under the FASB ASC Topic 718, “ Compensation – Stock Compensation ”. The dividend yield assumption was 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, 2023: Summary of stock option activity Number of Shares Weighted- Average Exercise Price Per Share Aggregate Intrinsic Value Balance at December 31, 2022 177 $ 35,231.40 Granted – – Exercised – – Forfeited – – Expired ( 50 ) 82,948.68 Balance at September 30, 2023 127 $ 16,445.06 $ – Exercisable at September 30, 2023 127 $ 16,445.06 $ – Stock-based compensation expense related to stock options for the three and nine months ended September 30, 2022 was $ 5,000 and $ 13,000 , respectively. As of September 30, 2022, the compensation expense for all unvested stock options had been recognized in the Company’s results of operations. 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, 2023 and 2022, in thousands: Schedule of stock based compensation expense   Three Months Ended Nine Months Ended   September 30, September 30,   2023 2022 2023 2022 Research and development $ 51 $ 54 $ 163 $ 163 General and administrative 38 49 131 209 Total stock-based compensation $ 89 $ 103 $ 294 $ 372 13 8. Net Loss per Common 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 the dilutive effect of potential common stock equivalents, except when the inclusion of such potential common stock equivalents would be anti-dilutive. Dilutive potential common stock equivalents primarily consist of stock options, RSUs and warrants. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented because the impact of these items is generally anti-dilutive during periods of net loss. The weighted average number of common shares outstanding as of September 30, 2023 includes the pre-funded warrants issued in connection with the June 2023 Financing, the exercise of which requires nominal consideration for the delivery of the shares of common stock. The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive: Schedule of anti-dilutive stock September 30, 2023 2022 Stock options 127 142 Unvested restricted stock units 69,255 57,017 Warrants 1 3,217,335 545,401 Total 3,286,717 602,560 __________________ 1 The weighted average number of common shares outstanding as of September 30, 2023 includes pre-funded warrants issued in the June 2023 Financing because the exercise of such warrants requires only nominal consideration. Therefore, these pre-funded warrants are not included in the table above. 14