What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-25 compared with 2020-03-26 · 586 added, 470 removed, 413 unchanged (72% of the section changed)

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In our opinion,

the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiary

at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the two years in the period

ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements,

on January 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Update

2016-02, Leases (ASC 842).

the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,

2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31,

2020 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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audits provide a reasonable basis for our opinion.

The critical audit matter communicated

below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required

to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated

financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical

audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,

by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or

disclosures to which it relates.

Accounting for warrants issued as part

of equity offerings

As described in Note 9 to the consolidated

financial statements, the Company entered into two registered direct offerings and an underwritten public offering during 2020

that included the issuance of common stock and warrants to purchase common stock.

The warrants were evaluated for proper classification

on the balance sheet and it was determined that the warrants issued in these equity offerings should be classified within stockholders’

We identified the accounting for warrants

issued as part of equity offerings as a critical audit matter.

Our principal considerations included the existence of accounting

complexities related to certain provisions of the warrant agreements, including provisions of cash settlement and derivative elements.

Auditing these elements required especially challenging auditor judgement and significant audit effort as well as the need for

specialized knowledge and skill assessing these elements of the agreement.

The primary procedures we performed to

address this critical audit matter included:

Reading the agreements related to the warrants issued along with management’s technical accounting

memos to understand the facts and circumstances within the warrant agreements and other assumptions impacting the determination

of warrant classification.

Utilizing personnel with specialized knowledge

and skill in debt and equity accounting to evaluate the appropriateness of management’s interpretation on how to apply

the relevant accounting guidance for the classification of the warrants issued, including the evaluation of derivative characteristics

and the terms associated with the Company’s control that could require cash settlement of the warrants.

/s/ BDO USA, LLP

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Total current assets

Right of use asset

Right of use asset, net

Property and equipment, net of accumulated depreciation of $1,122 and $1,048 in 2020 and 2019, respectively

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Lease liability, net of current portion

Long-term debt

Total liabilities

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Operating loss

Total other income, net

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

Net loss per share:

Net loss per common share:

Basic and diluted

Weighted average shares:

Weighted average number of common shares outstanding:

Basic and diluted

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Balance at December 31, 2018

Issuance of common stock under Lincoln Park Capital, LLC purchase agreement

Issuance of common stock and warrants in connection with registered direct offering and private placement, net of offering costs of $690

Issuance of common stock, pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs of $1,630

Issuance of common stock upon the exercise of pre-funded warrants

Issuance of common stock under employee stock purchase plan

Issuance of common stock upon

the exercise of warrants

Issuance of common stock under

Lincoln Park Capital, LLC purchase agreement

Issuance of restricted stock

Issuance of common stock under

employee stock purchase plan

Issuance of common stock in

connection with registered direct public offering, net of offering costs of $234

Issuance of common stock upon

vesting of restricted stock units

Stock-based compensation expense

Balance at December 31,

Issuance of common stock upon the exercise of pre-funded warrants

Issuance of common stock under Lincoln Park Capital, LLC purchase agreement

Issuance of restricted stock

Issuance of common stock under employee stock purchase plan

Issuance of common stock in connection with registered direct public offering, net of offering costs of $234

Issuance of common stock upon vesting of restricted stock units

Cash in lieu of fractional

shares for 1:55 reverse stock split

Issuance of common stock under

employee stock purchase plan

Issuance of common stock and

warrants in connection with registered direct and private placement offerings, net of offering costs of $746

Issuance of common stock,

pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs of $906

Issuance of common stock upon

the exercise of warrants

Issuance of common stock upon

vesting of restricted stock units

Stock-based compensation expense

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Net proceeds from the issuance of common stock and warrants

Net proceeds from the exercise of warrants

Cash paid in lieu of fractional shares for 1:55 reverse stock split

Payment of taxes for net share settled restricted stock unit issuances

Proceeds from the issuance of common stock upon exercise of pre-funded warrants

Proceeds from debt

Proceeds from the issuance of common stock in connection with the employee stock purchase plan

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Net cash provided by financing activities

Net (decrease) increase in cash and restricted cash

Net increase (decrease) in cash and restricted cash

Cash and restricted cash at the beginning of period

Cash and restricted cash at the end of period

Supplemental disclosure of cash flow information:

Interest paid

Supplemental disclosure of non-cash investing and financing activities:

Right of use asset obtained in

exchange for operating lease liability

Purchase of equipment through short-term financing lease included in accrued expenses and other current liabilities

Right of use asset obtained in exchange for operating lease liability

Acquisition of property and equipment included in accrued expenses and other current liabilities

See accompanying notes to consolidated financial

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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.

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 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 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

Our operations have continued with limited impact and are operating in accordance with federal, state, WHO and the

Center for Disease Control’s guidelines, including the implementation of safety measures such as working remotely, staggered

scheduling and cleaning protocols.

While the measures to contain and prevent the spread of coronavirus may be modified

or extended, we expect that our activities, including our internal research and development functions, will continue to remain

largely operational.

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.

If the impact

to their operations continue or extend, it may in turn affect our operations.

We previously had been able to engage with

third-party service providers in areas with limited or no impact (e.g.

countries with limited or no restrictions), but with

the global spread of the virus and associated restrictions, this has been no longer possible.

The Company does not expect a material

impact to its program’s anticipated timelines as a result of potential delays from our third-party service providers and

believes that it has a sufficient supply of our INTASYL compounds to conduct its ongoing preclinical studies and initial clinical

The Company has also undertaken efforts to mitigate potential future impact by identifying and engaging alternative

third-party service providers and suppliers.

However, the ultimate impact to these third parties on which we rely is highly uncertain

and subject to change.

If the measures to contain the outbreak are extended or further expanded, it could reduce or delay the

availability of supplies and services that we purchase and outsource, which may in turn slow or delay our preclinical and clinical

activities, and/or result in higher costs.

We believe that the coronavirus pandemic has not had a significant impact on our operations and

financial condition thus far, however a variety of factors, including current and future restrictions and the length

of the pandemic, may further impact our operations and may slow or diminish our research and development activities.

to which the coronavirus pandemic impacts our results will depend on future developments, which are highly uncertain and cannot

be predicted.

Summary of Significant Accounting Policies

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GAAP ”).

Additionally, certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Reverse Stock Split

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and expenses during the reporting period.

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.

Actual results could differ materially from

these estimates.

The areas subject to significant estimates and judgement include, among others, those related to fair value of

equity awards, research and development expenses, right of use lease assets, the fair value of financial instruments, useful lives

of property and equipment, income taxes, and our valuation allowance on our deferred tax assets.

The areas subject to significant estimates and judgement include, among others, those

related to the fair value of equity awards, 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.

Restricted Cash

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Concentrations of Credit Risk

Financial instruments that potentially

subject the Company to concentrations of credit risk consist principally of cash.

The Company maintains cash balances in several

accounts with a financial institution that management believes is creditworthy, which at times are in excess of federally insured

The Company has established guidelines related to credit ratings and maturities intended to safeguard principal balances

and maintain liquidity.

In connection with the adoption on January

1, 2019, the Company follows the provisions of the Financial Accounting Standards Board (“

FASB ”) Accounting

Standards Codification (“

ASC ”) Topic 842, “

Leases ”

ASC 842 ”).

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

The Company has 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.

The Company has also 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.

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.

Financial instruments that potentially subject

the Company to concentrations of credit risk consist principally of cash.

The Company maintains cash balances in several accounts

with a financial institution that management believes is creditworthy, which at times are in excess of federally insured limits.

These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to

$250,000 per institution.

Property and Equipment

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the years ended December 31, 2020 and 2019 was $72,000 and $67,000, respectively.

Derivative Financial Instruments

The Company follows the provisions of the

FASB ASC Topic 815, “

Derivatives and Hedging ”

ASC 815 ”).

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.

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

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.

Impairment of Long-Lived Assets

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existed as of December 31, 2020 or 2019.

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

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.

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.

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 such as certain

payroll tax benefits, changes to the net operating loss rules, and the business interest expense deduction rules.

Outside of the

Paycheck Protection Program (the “

PPP ”) offered under the CARES Act, the Company has not utilized the other

loan programs and tax provisions, such as certain payroll tax benefits.

On May 11, 2020, the Company received loan proceeds pursuant

The Company followed the guidance under the FASB ASC Topic 470, “

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 is accruing interest over the term of the loan.

For additional information regarding

the Company’s accounting for the PPP loan proceeds, refer to Note 7.

As there continues to be updates to the provisions under

the CARES Act, the Company will continue to assess the potential impacts on its business, results of operations and financial statements.

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

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.

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.

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.

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

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.

Patents and Patent Application Costs

Although the Company believes that its patents

and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain.

costs are, therefore, expensed as research and development 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.

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 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, “

Financial Accounting Standards Board (the “

FASB ”) Accounting Standards Codification (“

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 based on

the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite

service period.

ASC 718 ”), which requires the

measurement and recognition of compensation expense for all stock-based payment awards.

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.

The fair value of restricted stock units is based upon the Company’s closing stock price at the grant

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.

compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.

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 option 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 would be 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 were revised.

The Company recognizes assets or liabilities

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new interpretations of existing laws, and rulings by taxing authorities.

The Company follows a more-likely-than not threshold

for financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return.

The Company follows a more-likely-than not threshold for

financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return.

relates to, amongst other things, classification, accounting for interest and penalties associated with tax positions, and disclosure

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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 attributable to common stockholders 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.

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 less 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.

Liquidity and Going

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The Company’s

ability to continue to fund its operations are 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.

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,

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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 proceeds from the Company’s February 2020 Registered Offering and February 2020 Underwritten Offering (as discussed

in the footnotes below), should be sufficient to fund operations for at least the next 12 months from

the date this Annual Report on Form 10-K is filed .

would be forced to scale back or terminate our operations or seek to merge with or to be acquired by another company.

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

and the net proceeds received from the Company’s financing activities subsequent to the balance sheet date, discussed further

in Note 14, should be sufficient to fund operations for at least the next 12 months from

the date of the release of these financial statements .

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting

In November 2018, the FASB issued Accounting

Standards Update (“

ASU ”) 2018-18, “

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

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.

will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting

The Company does not expect the adoption of Topic 808 to have a material impact on its financial statements.

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.

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

As the Company cannot provide reasonable assurance at this time that the Company will choose to exercise the option to

terminate the lease early, the lease term, as per ASC 842, currently only takes into consideration the additional five years as

a result of the amendment.

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.

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.

Future lease payments for non-cancellable

operating leases as of December 31, 2019 were as follows, in thousands:

Total undiscounted lease payments

Effects of discounting

Total operating lease liabilities

Amounts reported in the consolidated balance

sheet for operating leases in which the Company is the lessee as of December 31, 2019 were as follows (amounts in

Right of use asset

Lease liability, current

Lease liability, non-current

Weighted average remaining lease term

Weighted average discount rate

The components of the lease costs were as

follows, in thousands:

Operating leases

Operating lease cost

Total rent expense for the years

ended December 31, 2019 and 2018 was $127,000 and $120,000, respectively.

Supplemental cash flow information relating

to our lease was as follows, in thousands:

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows used in operating leases

Right of use assets obtained in exchange for lease liabilities

Right of use asset

808 ”), which clarifies the interaction between Topic 808 and ASC Topic 606, “

Revenue from Customers ”

Topic 606 ”).

The update provides guidance on whether certain transactions between collaborative arrangement

participants should be accounted for with revenue under Topic 606 and provides more comparability in the presentation of revenue

for certain transactions between collaborative arrangement participants.

This ASU is effective for annual reporting periods beginning

after December 15, 2019, including interim periods within that reporting period.

This guidance is required to be applied retrospectively

to the date of adoption of Topic 606.

The Company adopted Topic 606 in the first quarter of 2018 and adopted

ASU 2018-18 in the first quarter of 2020.

The Company also elected to apply ASU 2018-18 only to contracts that were not completed

at the date of initial application of Topic 606.

Since the Company has no significant revenue, this ASU has no immediate impact

on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12,

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .”

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.

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.

adoption is permitted.

The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated

financial statements.

August 2020, the FASB issued ASU 2020-06, “

Debt with Conversion and Other Options (Subtopic 470-20) and

Derivatives and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815 –

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.

The ASU is part of the FASB’s simplification

initiative, which aims to reduce unnecessary complexity in U.S.

For convertible instruments, the accounting models

for instruments issued with beneficial conversion features or cash conversion features are removed.

contracts in an entity’s own equity, ASU 2020-06 simplifies the settlement assessment by removing the requirements to (1)

to consider whether the contract would be settled in registered shares, (2) to consider whether collateral is required to be posted,

and (3) to 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 does not expect the adoption of ASU 2020-06 to have a material

impact on its consolidated financial statements.

Accrued Expenses and Other Current Liabilities

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Compensation and benefits

Clinical development expenses

Professional fees

Research and development costs

Total accrued expenses

Total accrued expenses and other current liabilities

On January 22, 2019, the Company amended

the lease for its corporate headquarters and primary research facility in Marlborough, Massachusetts.

The Company leases 7,581

square feet of office and laboratory space, which will expire on March 31, 2024.

The lease contains an option to terminate the

lease after two years 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 is not included in the lease liability on the

Company’s balance sheet.

Additionally, the lease agreement did not contain information to determine the rate implicit in

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 our corporate headquarters

represents substantially all of our significant lease obligations.

The amounts reported in the 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 lease term and discount rate:

December 31, 2020

December 31, 2019

Right of use asset

Lease liability, current

Lease liability, non-current

Total lease liability

Lease Term and Discount Rate

Weighted average remaining lease term

Weighted average discount rate

Operating lease cost included in operating

expense was $132,000 and $127,000 for the years ended December 31, 2020 and 2019, respectively.

Short-term lease costs were not

material for the years ended December 31, 2020 and 2019.

Cash paid for the amounts included in the

measurement of the operating lease liability on the Company’s consolidated balance sheets and included within changes in

the lease liability in the operating activities of our consolidated statement of cash flows was $127,800 and $121,000 for the years

ended December 31, 2020 and 2019, 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 consolidated

balance sheet as of December 31, 2020 is as follows, in thousands:

Total lease payments

Imputed interest

Total operating lease liabilities (includes current portion)

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.

matures on May 11, 2022, bears interest at a rate of 1% per year and monthly principal and interest payments are deferred to the

date that the Small Business Administration remits the borrower’s loan forgiveness amount to the lender.

The loan may be

forgiven if used for eligible purposes, including payroll, benefits, rent and utilities.

The Company believes it has used the loan

proceeds for the eligible purposes allowed and applied for full loan forgiveness.

On February 18, 2021, the Small Business Administration

determined that the Company’s application for full loan forgiveness was fully approved and the full amount of the PPP loan

was remitted to the lender for forgiveness.

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

As loan forgiveness had not yet been determined at December 31, 2020, 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 is accruing interest over the term of the loan.

As of December 31, 2020,

the PPP loan proceeds have been classified as long-term debt on the balance sheet.

Commitments and Contingencies

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Because of the contingent nature of these payments,

they are not included in the table of contractual obligations shown below (see also Note 12).

These arrangements may be material individually,

and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period,

the aggregate charge to expense could be material to the results of operations.

In addition, these arrangements often give the

Company the discretion to unilaterally terminate development of the product, which would allow the Company to avoid making the

contingent payments;

however, the Company is unlikely to cease development if the compound successfully achieves clinical testing

they are not included in the table of contractual obligations shown below.

During the years

ended December 31, 2020 and 2019, the Company did not trigger any milestone payments.

The Company’s contractual license

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the Company has not accrued any liabilities in its consolidated financial statements related to these indemnifications.

From time to time, the Company is

party to legal proceedings.

From time to time, the Company is party

to legal proceedings.

There are none deemed to be material at this time.

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Stockholders’

Lincoln Park Capital Fund, LLC –

August 8, 2017, the Company entered into a purchase agreement (the “

2017 Purchase Agreement ”) and a registration

rights agreement with Lincoln Park Capital, LLC (“

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.

The 2017 Purchase Agreement will expire on April 1, 2020.

No shares of common stock were sold to LPC

under the 2017 Purchase Agreement during the year ended December 31, 2019.

During the year ended December 31, 2018, the Company

sold 7,910 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.

The 2019 Purchase Agreement will expire on May 1,

As a commitment fee for entering into the 2019 Purchase Agreement,

the Company issued 9,090 shares of the Company’s common stock to LPC at a value per share of $20.72, which was recorded as

a cost of capital.

No shares of common stock were sold to LPC under the 2019 Purchase Agreement during the year ended December

April 2018 Registered Direct Offering

and Private Placement —

On April 11, 2018, the Company closed a registered direct offering of 27,465

shares of the Company’s common stock at a purchase price of $173.25 per share and in a concurrent private placement, sold

warrants to purchase a total of 20,599 shares of common stock at a purchase price of $6.875 per underlying warrant share and with

an exercise price of $173.25 per share (the “

April 2018 Offering ”).

Net proceeds to the Company from the April

2018 Offering were $4,210,000 after deducting placement agent fees and offering expenses paid by the Company.

In connection with

the April 2018 Offering, the Company issued warrants to purchase a total of 1,373 shares of common stock with an exercise price

of $223.00 per share to the placement agent, H.C.

Wainwright & Co., LLC (“

HCW ”).

Underwritten Public Offering —

On October 3, 2018, the Company closed an underwritten public offering of 67,740

shares of the Company’s common stock and pre-funded warrants (the “

2018 Pre-Funded Warrants ”) to purchase

an aggregate of 321,870 shares of the Company’s common stock (the “

October 2018 Offering ”).

The 2018 Pre-Funded

Warrants were immediately exercisable at an exercise price per share of $0.55.

of common stock or 2018 Pre-Funded Warrant, as applicable, was sold as a unit with a warrant to purchase one share of common stock

at an exercise price of $38.50 per share.

The combined public offering price was $38.50 per common stock unit or $37.95 per 2018

Pre-Funded Warrant unit.

Net proceeds from the October 2018 Offering were $13,193,000 after deducting underwriting discounts and

commissions and offering expenses paid by the Company.

Additionally, pursuant to the October 2018 Offering, the Company

issued warrants to purchase up to 29,220 shares of common stock at an exercise price of $48.125 per share to the underwriter, HCW.

November 2019 Registered Public Offering—

November 19, 2019, the Company closed a registered public offering of 181,818 shares of the Company’s common stock at

an offering price of $5.50 per share (the “

November 19, 2019, the Company closed a registered public offering of 181,818 shares of the Company’s common stock at an

offering price of $5.50 per share (the “

November 2019 Offering ”).

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In connection with the November 2019 Offering, the Company issued warrants to

purchase a total of 13,636 shares of common stock with an exercise price of $6.875 per share to the placement agent, HCW.

purchase a total of 13,636 shares of common stock with an exercise price of $6.875 per share (the “

November 2019 Placement

Agent Warrants ”) to the placement agent, H.C.

Wainwright & Co., LLC (“

HCW ”).

Concurrent with the close of the November

2019 Offering, the Company unilaterally reduced the per share exercise price of all of the outstanding common stock warrants issued

in the October 2018 Offering to an exercise of $10.45 per share, which was equal to the closing price of the Company’s common

stock on November 15, 2019, and to $13.06 per share for the warrants issued to HCW, which was equal to 125% of the closing price

of the Company’s common stock on November 15, 2019.

in October 2018 to an exercise price of $10.45 per share, which was equal to the closing price of the Company’s common stock

on November 15, 2019, and to $13.06 per share for the warrants issued to HCW, which was equal to 125% of the closing price of the

Company’s common stock on November 15, 2019.

The modification resulted in an increase in fair value of approximately $800,000.

This amount was recorded as a cost of capital of the November 2019 Offering and recorded in additional paid-in capital

as the modification was required to complete the capital raise.

This amount was recorded as a cost of capital of the November 2019 Offering and recorded in additional paid-in capital as the modification

was required to complete the capital raise.

February 2020 Registered Direct Offering

and Private Placement —

On February 6, 2020, the Company completed a registered direct offering (the “

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 “

2020 Registered Direct Warrants ”).

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.

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.

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 shares (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 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.

Additionally, pursuant to 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.

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 “

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 “

Warrants ”).

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.

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 “

2020 Placement Agent Warrants ”) to the placement agent, HCW.

Company first assesses the warrants it issues under the FASB ASC Topic 480, “

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within stockholders’

The following table summarizes warrant activity

and the shares of common stock underlying the Company’s outstanding equity-classified warrants for the year ended December 31,

The following table summarizes warrant

activity and the shares of common stock underlying the Company’s outstanding equity-classified warrants for the year ended

December 31, 2020:

Balance December 31,

June 2015 Warrants

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April 2018 Placement Agent Warrants

October 2018 Pre-Funded Warrants

No expiration

October 2018 Warrants

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November 2019 Placement Agent Warrants

February 2020 Registered Direct Warrants

February 2020 Placement Agent Warrants

February 2020 Underwritten Offering Warrants

February 2020 Pre-funded Warrants

No expiration

February 2020 Underwriter Warrants

April 2020 Warrants

April 2020 Placement Agent Warrants

During the year ended December 31, 2020,

the Company received proceeds of approximately $72,000 from the exercise of the Company’s 2018 Pre-Funded Warrants for a

total of 130,338 shares of common stock.

During the year ended December 31, 2018, the Company received proceeds of $105,000 from

the exercise of the 2018 Pre-Funded Warrants for a total of 191,532 shares of common stock.

All of the 2018 Pre-Funded Warrants

issued in October 2018 have been exercised.

the Company received net proceeds of $3,856,000 from the exercise of warrants.

During the year ended December 31, 2019, the Company

received net proceeds of $72,000 from the exercise warrants.

Of the warrants exercised during the year

ended December 31, 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 during the

year ended December 31, 2019.

Net Loss per Share

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Options to purchase common stock

Restricted stock units

Restricted stock

Nonvested restricted stock units

Warrants to purchase common stock

Stock-based Compensation

On January 23, 2012, the Company’s

Board of Directors and sole stockholder adopted the Phio Pharmaceuticals Corp.

The Company’s approved equity plans

include the Phio Pharmaceuticals Corp.

2020 Long Term Incentive Plan (the “

2020 Plan ”) and the Phio Pharmaceuticals

2012 Long Term Incentive Plan (the “

2012 Plan ”).

Under the Plan, the Company may grant incentive stock options, nonqualified stock options, cash awards, stock appreciation rights,

restricted stock and stock unit awards and other stock-based awards.

The Company’s Board of Directors currently acts as

the administrator of the Company’s Plan.

The administrator has the power to select participants from among the key employees,

directors and consultants of and advisors to the Company, establish the terms, conditions and vesting schedule, if applicable,

of each award and to accelerate vesting or exercisability of any award.

As of December 31, 2019, an aggregate

of 72,728 shares of common stock were reserved for issuance under the Company’s Plan, including 2,649 shares subject to outstanding

common stock options and 14,945 shares subject to unvested restricted stock units (“

RSUs ”) granted under the

Plan and 53,864 shares available for future grants.

Stock options and RSUs granted by the Company to employees vest annually over

4 years after the grant date and, in the instance of stock options, expire within ten years of issuance.

These plans are administered by our board of directors

and provide for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock

awards, restricted stock unit awards, performance stock awards, and performance cash awards.

Upon adoption of the 2020 Plan, shares

that remained available for grant under the 2012 Plan and shares that were subject to outstanding awards under the 2012 Plan were

included in the authorized shares available for grant under the 2020 Plan.

Further, upon adoption of the 2020 Plan, the Company

no longer grants new equity awards under the 2012 Plan.

As of December 31, 2020, there were

an aggregate of 1,267,675 shares of common stock reserved under the 2020 Plan, including 2,570 shares subject to outstanding stock

options and 9,699 shares subject to unvested restricted stock units (“

RSUs ”) and 1,254,906 shares available

for future grants.

Stock options and RSUs granted by the Company to employees generally vest annually over 4 years after the grant

date and, in the instance of stock options, expire within ten years of issuance.

Restricted Stock Units

RSUs are issued under 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 year ended December 31, 2020:

Grant Date Fair Value

Unvested units at December 31, 2019

Unvested units at December 31, 2020

Stock-based compensation expense related

to RSUs was $85,000 and $125,000 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, the compensation

expense for all unvested RSUs in the amount of approximately $151,000 will be recognized in the Company’s results of operations

over a weighted average period of 2.35 years.

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 years ended December 31,

2019 and 2018, the following assumptions were used:

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

The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants.

The Company did not grant stock options during the year ended December 31, 2020.

For valuing options granted during the year ended

December 31, 2019, the following assumptions were used:

December 31, 2019

Risk-free interest rate

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97.67 –

91.28 –

Expected lives (in years)

Expected dividend yield

The weighted-average fair value of options

granted during the years ended December 31, 2019 and 2018 was $16.50 and $96.25 per share, respectively.

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

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

The weighted-average fair value of

options granted during the year ended December 31, 2019 was $16.50 per share.

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 following table summarizes the activity

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Stock-based compensation expense related

to stock options for the year ended December 31, 2019 and 2018 was $69,000 and $112,000, respectively.

There is no income tax benefit as the Company

is currently operating at a loss and an actual income tax benefit may not be realized.

to stock options for the years ended December 31, 2020 and 2019 was $51,000 and $69,000, respectively.

As of December 31, 2020, the compensation

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of operations over a weighted average period of 1.47 years.

Restricted Stock Units

are issued under 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.

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.

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 year ended December 31, 2019:

Grant Date Fair Value

Unvested units at December 31, 2018

Unvested units at December 31, 2019

Stock-based compensation expense related

to RSUs was $125,000 and $52,000 for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, the compensation

expense for all unvested RSUs in the amount of approximately $254,000 will be recognized in the Company’s results of operations

over a weighted average period of 3.31 years.

There is no income tax benefit as the Company

is currently operating at a loss and an actual income tax benefit may not be realized.

Restricted Stock

On August 31, 2018, and through subsequent

amendments on December 19, 2018 and February 14, 2019, Geert Cauwenbergh, Dr.

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%

During the period of from September 15,

2018 to February 28, 2019, the Company’s former Chief Executive Officer elected the right to receive, in lieu cash, up to

50% of his base salary and cash bonuses, if any, (collectively, the “

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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 related vesting period.

the year ended December 31, 2019, the Company granted 4,419 shares of restricted stock in lieu of Compensation to Dr.

and recorded $106,000 in stock-based compensation expense related to the restricted stock.

During the year ended December 31, 2018,

the Company granted 3,697 shares of restricted stock in lieu of Compensation to Dr.

Cauwenbergh and recorded $118,000 in stock-based

compensation expense related to the restricted stock.

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 year ended December 31, 2019, the Company granted 4,419 shares of restricted

stock in lieu of Compensation and recorded $106,000 in stock-based compensation expense.

Compensation Expense Related to Equity Awards

The Company recorded total stock-based compensation

expense related to equity awards in the consolidated statement of operations for the years ended December 31, 2019 and 2018 as

follows, in thousands:

The following table sets forth total stock-based

compensation expense for the years ended December 31, 2020 and 2019, in thousands:

Research and development

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Effective tax rate

The components of net deferred tax assets

(liabilities) are as follows, in thousands:

The components of the Company’s deferred

tax assets are as follows, in thousands:

Years Ending December 31,

Deferred tax assets:

Net operating loss carryforwards

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Other timing differences

Gross deferred tax assets

Lease liability

Deferred tax assets

Deferred tax liabilities:

Right of use asset

Deferred tax liability

Valuation allowance

Net deferred tax asset (liability)

Net deferred tax asset

The Company’s deferred tax assets

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operating losses and tax credits.

The Company has incurred net operating

losses since inception.

At December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately

$73,800,000 and $66,000,000, respectively.

Approximately, $55,400,000 of the federal net operating loss carryforwards will begin

to expire in 2032, unless previously utilized.

The federal net operating loss carryforwards generated after December 31, 2017

of $18,400,000 will carryforward indefinitely.

The Company’s state tax loss carryforwards will begin to expire in 2032,

unless previously utilized.

In addition, the Company has federal and state research credits of $1,204,000 and $633,000, respectively,

which begin to expire in 2032.

Based on an assessment of all available evidence including, but not limited to the Company’s

limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology,

the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology

companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will

not be realized and, as a result, a full deferred income tax valuation allowance has been recorded against these assets.

In general, an ownership change, as defined

by Section 382 of the Internal Revenue Code, results from 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.

The Company has not conducted a study to

assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to

their history of losses.

If the Company has experienced a change of control, as defined by Section 382, at any time since

inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject

to an annual limitation under Section 382.

Any limitation may result in expiration of a portion of the net operating

loss carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed

and any limitation is known, no adjustments have been reflected in the deferred tax asset for net operating loss carryforwards.

The Company has incurred net operating losses since inception.

At December 31,

2020, the Company had federal and state net operating loss carryforwards of approximately $83,600,000 and $75,300,000, respectively,

which will begin to expire in 2031.

Approximately, $55,300,000 of the federal net operating

loss carryforwards will begin to expire in 2031, unless previously utilized, and approximately $28,300,000 of the federal net

operating loss carryforwards will carryforward indefinitely.

The Company’s state tax loss carryforwards will begin to expire

in 2031, unless previously utilized.

In addition, the Company has federal and state research credits of $1,430,000

and $742,000, respectively, which begin to expire in 2031.

Based on an assessment of all available evidence including, but not

limited to the Company’s limited operating history in its core business and lack of profitability, uncertainties of the

commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks

normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating

loss carryforwards and credits will not be realized and, as a result, a full deferred income tax valuation allowance has been

recorded against these assets.

In general, an ownership change, as

defined by Section 382 of the Internal Revenue Code, results from 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.

The Company has not

conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control

since inception due to their history of losses.

If the Company has experienced a change of control, as defined by

Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and

development tax credit carryforwards would be subject to an annual limitation under Section 382 and 383.

Any limitation may

result in expiration of a portion of the net operating loss carryforwards or research and development tax credit

carryforwards before utilization.

Further, until a study is completed and any limitation is known, no adjustments have been

reflected in the deferred tax asset for net operating loss carryforwards.

The Company files income tax returns in

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technology rights related to the INTASYL™

In exchange, the Company is obligated to pay Advirna an annual maintenance

fee and a milestone payment upon the issuance of the first patent with valid claims covering the assigned technology, which was

paid in 2014.

Additionally, we will be required to pay a 1% royalty to Advirna on any licensing revenue received by us with respect

to future licensing of the assigned Advirna patent and technology rights.

To date, royalties owed to Advirna under the agreement

have been minimal.

We also granted back to Advirna a license under the assigned patent and technology rights for fields of use

outside human therapeutics.

Our rights under the Advirna agreement

will expire upon the later of:

Under the terms of the agreement, in April 2012, the Company issued

to Advirna shares of common stock equal to 5% of the Company’s fully-diluted shares outstanding at the time of issuance.

In exchange, the Company is also obligated to pay Advirna an annual maintenance fee and a milestone payment upon the issuance of

the first patent with valid claims covering the assigned technology, which was paid in 2014.

Additionally, we will be required

to pay low single-digit royalties to Advirna on any licensing revenue received by us with respect to future licensing of the assigned

Advirna patent and technology rights.

To date, royalties owed to Advirna under the agreement have been minimal.

We also granted

back to Advirna a license under the assigned patent and technology rights for fields of use outside human therapeutics.

Our rights under the Advirna agreement will

expire upon the later of:

(i) the expiration of the last-to-expire of the “patent rights”

4 unchanged sentences

Subsequent Events

February 2020 Registered Direct Offering

and Private Placement —

On February 6, 2020, the Company closed a registered direct offering of 197,056

shares of the Company’s common stock at a purchase price of $8.705 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 Offering ”).

to the Company from the February 2020 Registered Offering are estimated to be $1,400,000 after deducting placement agent fees and

offering expenses.

In connection with the February 2020 Registered Offering, the Company issued warrants to purchase a total of

14,779 shares of common stock with an exercise price of $11.0375 per share to the placement agent, HCW.

February 2020

Underwritten Public Offering —

On February 13, 2020, the Company closed an underwritten public offering of 993,633

shares of the Company’s common stock and pre-funded warrants (the “

2020 Pre-Funded Warrants ”) to purchase

an aggregate of 1,006,367 shares of the Company’s common stock (the “

February 2020 Underwritten Offering ”).

The 2020 Pre-Funded Warrants were immediately exercisable at an exercise price per share of $0.001.

share of common stock or 2020 Pre-Funded Warrant, as applicable, was sold as a unit with a warrant to purchase one share of common

stock at an exercise price of $4.00 per share.

The combined public offering price was $4.00 per common stock unit or $3.999 per

2020 Pre-Funded Warrant unit.

Net proceeds from the February 2020 Underwritten Offering are estimated to be $7,000,000 after deducting

underwriting discounts and commissions and offering expenses paid by the Company.

Additionally, pursuant to the February

2020 Underwritten Offering, the Company issued warrants to purchase up to 150,000 shares of common stock at an exercise price of

$5.00 per share to the underwriter, HCW.

2021 Private Placement —

On January 25, 2021, the Company closed on its 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 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

In connection with the private placement, the Company issued warrants to the placement agent, HCW, to purchase a total

of 342,070 shares of the Company’s common stock at an exercise price of $3.8375.

Net proceeds to the Company are estimated

to be $12.7 million after deducting placement agent fees and offering expenses.

The Company is currently reviewing the accounting

for the 2020 Pre-Funded Warrants and the warrants issued in the February 2020 Registered Offering and the February 2020 Underwritten

Subsequent to the balance sheet date, the

Company received proceeds of approximately $1,000 from the exercise of the Company’s 2020 Pre-Funded Warrants for a total

of 1,006,367 shares of common stock.

Coronavirus —

2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China and has since spread to other parts of the world,

including the United States and Europe.

In March 2020, the World Health Organization declared the outbreak a pandemic.

The coronavirus

pandemic is affecting the United States and global economies.

If the outbreak continues to spread, it may affect the Company’s

operations and those of third parties on which the Company relies, including causing disruptions in the supply of the Company’s

product candidates and the conduct of current and planned preclinical and clinical studies.

We may need to limit operations or

implement limitations, and may experience limitations in employee resources.

There are risks that it may be more difficult to

contain if the outbreak reaches a larger population or broader geography, in which case the risks described herein could be elevated

significantly.

The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain

and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions

to contain the coronavirus or treat its impact, among others.

Additionally, while the potential economic impact brought by, and

the duration of, the coronavirus pandemic is difficult to assess or predict, the impact of the coronavirus on the global financial

markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term

and long-term liquidity and the Company’s ability to complete its preclinical studies on a timely basis, or at all.

ultimate impact of coronavirus is highly uncertain and subject to change.

The Company does not yet know the full extent of potential

delays or impacts on its business, financing or preclinical and clinical trial activities or the global economy as a whole.

these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those

of the third parties on which we rely.

for the pre-funded warrants and warrants issued in the January 2021 private placement.

February 2021 Registered Direct Offering

On February 12, 2021, the Company closed on a registered direct offering of 2,246,784 shares of the Company’s

common stock at a purchase price of $3.42 per share.

In connection with the registered direct 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

Net proceeds to the Company are estimated to be $6.9 million after deducting placement agent fees and offering expenses.

Warrant Exercises —

to the balance sheet date, the Company received net proceeds of $2,146,000 from the exercise of warrants for a total of 1,083,321

shares of common stock.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data