Business Context and Reporting Period
RXi Pharmaceuticals Corporation (filing as Phio Pharmaceuticals Corp. in metadata) filed a Form 8-K on March 26, 2018, reporting events occurring on March 20, 2018. The filing addresses a material weakness in internal controls and the need to restate interim financial statements for the quarters ended March 31, 2017, June 30, 2017, and September 30, 2017.
Key Financial Metrics
The filing does not provide current revenue, profit, cash flow, or liquidity metrics. It specifically notes that the accounting adjustment described is a non-cash charge that did not affect previously reported net loss, operating cash flows, or the balance sheet.
- Acquisition Adjustment: $1.6 million increase to acquired in-process research and development expense.
- Tax Impact: Corresponding $1.6 million income tax benefit due to a reduction in the valuation allowance.
Material Changes Versus Prior Period
The Company determined that previously issued interim financial statements for the first three quarters of 2017 should no longer be relied upon. The error stemmed from the failure to account for deferred taxes based on the difference between book basis and tax basis regarding the acquisition of MirImmune Inc. Consequently, the Company has filed amendments to its Form 10-Q reports for these periods to restate the financials.
Guidance, Risks, and Management Commentary
Material Weakness: Management and the Audit Committee concluded that the internal control deficiencies regarding the tax accounting of the acquisition represent a "material weakness" in internal control over financial reporting. As a result, disclosure controls and procedures were deemed ineffective for the prior periods.
Remediation Plan: The Company is implementing a plan that includes increased quarterly involvement of third-party tax accountants and a review of tax accounting processes. Effectiveness will be evaluated in the next quarterly review as of March 31, 2018.
External Review: The matters disclosed have been discussed with the independent registered public accounting firm, BDO USA, LLP.
Investor Verification Checklist
- Verify the amended Form 10-Q filings for the quarters ended March 31, June 30, and September 30, 2017, to review restated figures.
- Confirm the status of the remediation plan for the material weakness in the upcoming Q1 2018 evaluation.
- Review the specific tax accounting treatment for the MirImmune Inc. acquisition in the restated documents.
- Note that the filing indicates no impact on previously reported net loss or cash flows, but verify this in the amended reports.