What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-12 compared with 2021-05-13 · 319 added, 751 removed, 277 unchanged (79% of the section changed)

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Property and equipment, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Commitments and contingencies

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized

Common stock, $ 0.0001 par value, 100,000,000 shares authorized;

and 5,780,973 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

13,534,389 and 5,780,973 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

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(Amounts in thousands, except share and per

Ended March 31,

Three Months Ended

Six Months Ended

Operating expenses:

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Operating loss

Other income (expense)

Operating income (expense):

Gain on extinguishment of debt

Interest (expense) income, net

Total other income

Net loss per common share:

Total other (expense) income

Net loss per share:

Basic and diluted

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PHIO PHARMACEUTICALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(Amounts in thousands, except share data)

For the Three

Months Ended March 31, 2021

at December 31, 2020

of common stock, pre-funded warrants and warrants in connection with private placement, net of offering costs of $1,333

of common stock in registered direct offering, net of offering costs of $776

of common stock upon the exercise of warrants

of common stock upon vesting of restricted stock units

compensation expense

at March 31, 2021

the Three Months Ended March 31, 2020

at December 31, 2019

of common stock under employee stock purchase plan

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

of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs of $273

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

of common stock upon the exercise of warrants

of common stock upon vesting of restricted stock units

compensation expense

at March 31, 2020

For the Three and Six Months Ended June 30, 2021

Balance at December 31, 2020

$ ( 103,613 )

Issuance of common stock, pre-funded

warrants and warrants in connection with private placement, net of offering costs

Issuance of common stock in registered

direct offering, net of offering costs

Issuance of common stock upon

the exercise of warrants

Issuance of common stock upon

vesting of restricted stock units

Stock-based compensation expense

Balance at March 31, 2021

Stock-based compensation expense

Balance at June 30, 2021

$ ( 109,707 )

For the Three and Six Months Ended June 30, 2020

Balance at December 31, 2019

Issuance of common stock under

employee stock purchase plan

Cash in lieu of fractional shares

for 1:55 reverse stock split

Issuance of common stock and

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

Issuance of common stock, pre-funded

warrants and warrants in connection with underwritten public offering, net of offering costs

Issuance of common stock upon

the exercise of warrants

Issuance of common stock upon

vesting of restricted stock units

Stock-based compensation expense

Balance at March 31, 2020

Issuance of common stock and

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

Issuance of common stock upon

the exercise of warrants

Issuance of common stock upon

vesting of restricted stock units

Stock-based compensation expense

Balance at June 30, 2020

The accompanying notes are an integral part of

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(Amounts in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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Net proceeds from the exercise of warrants

Proceeds from debt

Forgiveness of debt

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Cash and restricted cash at the end of period

Supplemental disclosure of non-cash investing and financing activities:

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

The accompanying notes are an integral part of

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Pharmaceuticals Corp.

Phio ,”

or the “

Company ”)

is a biotechnology company developing the next generation of immuno-oncology therapeutics based on its self-delivering RNAi (“

INTASYL™

(“ Phio ,” “ we ,” “ our ” or the “ Company ”)

is a biotechnology company developing the next generation of immuno-oncology therapeutics based on its self-delivering RNAi (“ INTASYL™ ”)

therapeutic platform.

The Company’s efforts are focused on silencing tumor-induced suppression of the immune system through its

proprietary INTASYL platform with utility in immune cells and the tumor 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

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including the United States.

In March 2020, the World Health Organization (the “

WHO ”) declared the outbreak a pandemic.

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

Control’s guidelines, including the implementation of safety measures such as working remotely, staggered scheduling and cleaning

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.

In March 2020, the World Health Organization (the “ WHO ”) declared the outbreak a pandemic.

Our operations are being conducted in accordance with federal, state, WHO and the Center for Disease Control’s guidelines, including

the implementation of safety measures such as working remotely and flexible scheduling.

As a result of the coronavirus

pandemic, certain of our third-party suppliers and service providers on which we rely have seen impacts to their operations and if the

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

The Company has undertaken efforts to mitigate potential

future impact by identifying and engaging alternative third-party service providers and suppliers, and because of that, to date the Company

has not seen a material impact to its program’s anticipated timelines resulting from delays from our third-party service providers.

For example, by engaging different contract manufacturers, the Company believes that it has a sufficient supply of its INTASYL compounds

to conduct its ongoing preclinical studies and initial clinical activities.

However, the ultimate impact to these third parties on which

we rely is highly uncertain and subject to change.

Without a swift and sustained improvement of the impacts experienced by the Company’s

third-party suppliers and service providers, the effect of our mitigation efforts will diminish and may result in material impacts to

our operations.

If the global measures to contain the pandemic are insufficient, it could reduce or delay the availability of supplies

and services that we purchase and rely, which may in turn slow or delay our preclinical and clinical activities, and/or result in higher

We believe that the coronavirus

pandemic has not had a significant impact on our financial condition thus far, however a variety of factors such as those described

above, 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, which in turn may impact our financial condition.

The extent to which the coronavirus pandemic

impacts our results will depend on future developments, which are highly uncertain and cannot be predicted.

pandemic, certain of our third-party suppliers and service providers on which we rely have seen impacts to their operations.

has undertaken efforts to mitigate potential future impacts by identifying and engaging alternative third-party service providers and

suppliers, and because of that, the Company had been able to limit the impact of delays from our third-party service providers to its

program’s anticipated timelines.

However, the continued impacts to our third-party service providers, including, for example, limited

availability in certain services and supplies, have now started to significantly affect our operations in the second quarter of 2021 resulting

in delays to certain of our clinical program timelines.

If measures to contain the pandemic are insufficient, it could further reduce

or delay the availability of supplies and services that we purchase and rely on, which may in turn further slow or delay our preclinical

and clinical activities.

We believe that the coronavirus pandemic has not

had a significant impact on our financial condition to date;

however a variety of factors such as those described above, may

further impact our operations and slow or diminish our research and development activities, which in turn may impact our financial condition

in the future.

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

and cannot be predicted.

Significant Accounting Policies

Basis of Presentation

accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting

principles generally accepted in the United States of America (“

GAAP ”).

Certain information and footnote

disclosures included in the Company’s annual financial statements have been condensed or omitted.

The year-end condensed

balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

statements should be read in conjunction with the consolidated financial statements and notes thereto included in the

Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange

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.

The accompanying condensed consolidated

financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States

of America (“ GAAP ”).

Certain information and footnote disclosures included in the Company’s annual financial

statements have been condensed or omitted.

The year-end condensed balance sheet data was derived from audited financial statements, but

does not include all disclosures required by GAAP.

These statements should be read in conjunction with the consolidated financial statements

and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities

and Exchange Commission (the “ SEC ”).

In the opinion of management, all

adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial

statements have been included.

Interim results are not necessarily indicative of results for a full year.

Principles of Consolidation

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Restricted cash consists of certificates of deposit

held by financial institutions as collateral for the Company’s corporate credit cards.

Fair Value of Financial Instruments

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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.

Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis

the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental borrowing rate.

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.

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On March 27, 2020, the

United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “

CARES Act ”) in response to the coronavirus

United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “ CARES Act ”) in response to the coronavirus

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.

On May 11, 2020, the

Company received loan proceeds pursuant to the Paycheck Protection Program (the “

PPP ”) offered under the CARES Act.

Outside of the PPP, the Company has not utilized the other loan programs and tax provisions, such as certain payroll tax benefits.

not limited to, provisions providing aid to small businesses in the form of loans and grants and numerous tax provisions including, certain

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

2020, the Company received loan proceeds pursuant to the Paycheck Protection Program (the “ PPP ”) offered under the

CARES Act, and the loan was subsequently forgiven in February 2021.

Outside of the PPP, the Company has not utilized the other loan programs

and tax provisions, such as certain payroll tax benefits.

The Company followed the

guidance under the Financial Accounting Standards Board (the “

FASB ”) Accounting Standards Codification (“

Topic 470, “

ASC 470 ”) in assessing the accounting for the PPP loan proceeds.

guidance under the Financial Accounting Standards Board (the “ FASB ”) Accounting Standards Codification (“ ASC ”)

Topic 470, “ Debt ” (“ ASC 470 ”) in assessing the accounting for the PPP loan proceeds.

the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and accrued interest over the

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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.

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that it has received.

Accrued liabilities for the services provided by contract research organizations (“

CROs ”) are

Accrued liabilities for the services provided by contract research organizations (“ CROs ”) are

recorded during the period incurred based on such estimates and assumptions as expected cost, passage of time, the achievement of milestones

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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

have a material impact on the Company’s reported results.

The Company’s historical accrual estimates have not been materially

different from its actual costs.

Stock-based Compensation

The Company follows the

provisions of the FASB ASC Topic 718, “

Compensation —

Stock Compensation ”

ASC 718 ”),

Company follows the provisions of the FASB ASC Topic 718, “ Compensation — Stock Compensation ” (“ ASC

718 ”), which requires the measurement and recognition of compensation expense for all stock-based payment awards.

The fair value of restricted

stock units is based upon the Company’s closing stock price at the grant date.

The Company uses the Black-Scholes option-pricing

model to estimate the fair value of stock options at the grant date.

The Black-Scholes valuation model requires the input of valuation

assumptions to calculate the value of stock options, including expected volatility, expected term, risk-free interest rate and expected

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.

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

The Company uses the Black-Scholes

option-pricing model to estimate the fair value of stock options at the grant date.

The Black-Scholes valuation model requires the input

of valuation assumptions to calculate the value of stock options, including expected volatility, expected term, risk-free interest rate

and expected dividends.

Stock-based compensation expense is recognized over the requisite service period, which generally represents

the vesting period, and commences at the date of grant based on the fair value of the award.

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

Accordingly, we are

also required to estimate forfeitures at the time of grant, and to revise those estimates in subsequent periods if actual forfeitures

Accordingly, we

are also required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures

differ from estimates.

We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only

for those awards that are expected to vest.

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 impact of any adjustments to our forfeiture rates is recorded as a cumulative adjustment

in the period of adjustment.

To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative

adjustment in the period the estimates are revised.

Comprehensive Loss

The Company’s comprehensive loss is equal

to its net loss for all periods presented.

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Diluted net loss per share

is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding and the impact of all

dilutive potential common shares outstanding, except where such dilutive potential common shares would be anti-dilutive.

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Liquidity and Going Concern

The Company has

reported recurring losses from operations since inception and expects that the Company will continue to have negative cash flows from

operations for the foreseeable future.

Historically, the Company’s primary source of funding has been the sale of its securities.

The Company’s ability to continue to fund its operations is dependent on obtaining funding from third parties, such as proceeds

from the issuance of debt, sale of equity, or strategic opportunities, in order to maintain its operations.

This is dependent on a number

of factors, including the market demand or liquidity of the Company’s common stock.

There is no guarantee that debt, additional

equity or other funding will be available to us on acceptable terms, or at all.

If we fail to obtain additional funding when needed, we

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

The Company has reported

recurring losses from operations since its inception and expects to continue to have negative cash flows from operations for the foreseeable

Historically, the Company’s primary source of funding has been from the sales of its securities.

The Company’s ability

to continue to fund its operations is dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale

of equity, or strategic opportunities, in order to maintain its operations.

This is dependent on a number of factors, including the market

demand or liquidity of the Company’s common stock.

There is no guarantee that debt, additional equity or other funding will be available

to us on acceptable terms, or at all.

If we fail to obtain additional funding when needed, we would be forced to scale back or terminate

our operations or seek to merge with or to be acquired by another company.

While we believe that

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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 impact of the coronavirus pandemic on our financial condition, results of operations or cash flows in the future.

The Company believes that

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In December 2019, the FASB issued Accounting Standards

Update (“

ASU ”) 2019-12, “

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ”

ASU 2019-12 ”).

Update (“ ASU ”) 2019-12, “ Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ”

(“ ASU 2019-12 ”).

The amendments in the update simplify the accounting for income taxes by eliminating the exceptions

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The Company adopted ASU 2019-12 on January 1, 2021.

The adoption of this standard did not have a material impact on the Company’s

consolidated financial statements.

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 –

ASU 2020-06 ”), which

simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments

and contracts in an entity’s own equity.

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.

For 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.

In August 2020, the FASB issued

ASU 2020-06, “ Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts

in Entity’s Own Equity (Subtopic 815 – 40)” (“ ASU 2020-06 ”), which simplifies the accounting

for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an

entity’s own equity.

ASU 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity

For convertible instruments, the accounting models for instruments issued with beneficial conversion features or cash

conversion features are removed.

For contracts in an entity’s own equity, ASU 2020-06 simplifies the settlement assessment

by removing the requirements to (1) consider whether the contract would be settled in registered shares, (2) consider whether collateral

is required to be posted, and (3) assess shareholder rights.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2023,

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The adoption of this

standard did not have an impact on the Company’s consolidated financial statements.

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 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 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 our corporate headquarters represents

substantially all of our significant lease obligations.

The amounts reported in the condensed consolidated balance sheets for operating

leases in which the Company is the lessee and other supplemental balance sheet information is set forth as follows, in thousands, except

lease term and discount rate:

March 31, 2021

standard did not have an impact on the Company’s consolidated financial statements.

the FASB issued ASU 2021-04, “ Earnings per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50),

Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic

815-40) ” (“ ASU 2021-04 ”).

The amendments in the updates are intended to clarify and reduce diversity in an

issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified

after modification or exchange.

The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December

15, 2021, including interim periods within those fiscal years.

An entity should apply the amendments prospectively to modifications or

exchanges occurring on or after the effective date of the amendments.

Early adoption is permitted for all entities, including within an

interim period.

The Company is evaluating the potential impact of this guidance on its consolidated financial statements and related disclosures.

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 is 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 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.

lease for our corporate headquarters represents substantially all of our significant lease obligations.

The amounts reported in the condensed

consolidated balance sheets for operating leases in which the Company is the lessee and other supplemental balance sheet information

is set forth as follows, in thousands, except the lease term (number of years) and discount rate:

Schedule of lease and supplemental balance sheet information

June 30, 2021

December 31, 2020

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Weighted average discount rate

Operating lease cost included in operating expense

was $33,000 and $33,000 for the three months ended March 31, 2021 and 2020, respectively.

Short-term lease costs were not material for

the three months ended March 31, 2021 and 2020.

Operating lease costs included in operating expense were $ 33,000 for the three months ended June 30, 2021 and 2020.

Operating lease costs included in operating expense were $ 66,000 for the six months ended June 30, 2021 and 2020.

Short-term lease costs were not material for the three and six months ended June 30, 2021 and 2020.

Cash paid for the amounts included in the measurement

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

liability in the operating activities of our condensed consolidated statement of cash flows was $32,200 and $31,200 for the three months

March 31, 2021 and 2020, respectively.

Future lease payments for our non-cancellable operating

leases and a reconciliation to the carrying amount of the operating lease liability presented in the condensed consolidated balance sheet

as of March 31, 2021 is as follows, in thousands:

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

liability in the operating activities of our condensed consolidated statements of cash flows was $ 33,100 and $ 32,200 for the three months

June 30, 2021 and 2020, respectively.

Cash paid for the six months ended June 30, 2021 and 2020 was $ 65,300 and $ 63,400 , respectively.

Future lease payments for

our non-cancellable operating leases and a reconciliation to the carrying amount of the operating lease liability presented in the condensed

consolidated balance sheet as of June 30, 2021 is as follows, in thousands:

Schedule of future minimum lease payments

2021 (remaining)

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The PPP loan had a maturity date of May 11, 2022 , interest at a rate of 1 % per year and monthly principal and interest payments

that were deferred to the date that the Small Business Administration (the “

SBA ”) remitted the borrower’s loan

that were deferred to the date that the Small Business Administration (the “ SBA ”) remitted the borrower’s loan

forgiveness amount to the lender.

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purposes, including payroll, benefits, rent and utilities.

followed the guidance under ASC 470 in assessing the accounting for the PPP loan proceeds.

Per ASC 470, the Company recorded a liability

on the balance sheet for the full amount of PPP loan proceeds received and accrued interest over the term of the loan.

The Company believed

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

On February 18, 2021, the SBA approved

the Company’s application for full loan forgiveness and the full amount of the PPP loan was remitted to the lender for forgiveness.

Upon loan forgiveness, the Company recognized a gain on the extinguishment of debt of $233,000 for the loan proceeds received and

interest accrued in the condensed consolidated statement of operations.

Stockholders’

January 2021 Private

Placement —

On January 25, 2021, the Company completed a private placement of 4,420,863 shares of the Company’s

common stock at a purchase price per share of $3.07, pre-funded warrants to purchase an aggregate of 140,065 shares of the Company’s

common stock (the “

January 2021 Pre-Funded Warrants ”) at a purchase price per pre-funded warrant share of $3.069, and

warrants to purchase an aggregate of 3,420,696 shares of the Company’s common stock with an exercise price of $3.00 per warrant

share (the “

January 2021 Warrants ”) (the “

Private Placement ”).

In connection with the Private Placement,

the Company issued warrants to the placement agent, H.C.

Wainwright & Co., LLC (“

HCW ”), to purchase a total of

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

January 2021 Placement Agent Warrants ”).

Net proceeds to the Company from the Private Placement were $12,669,000 after deducting placement agent fees and offering expenses.

February 2021 Registered Direct Offering —

February 17, 2021, the Company completed a registered direct offering of 2,246,784 shares of the Company’s common stock at a purchase

price of $3.42 per share (the “

Offering ”).

In connection with the Offering, the Company issued warrants to the placement

agent, HCW, to purchase a total of 168,509 shares of the Company’s common stock at an exercise price of $4.275 (the “

2021 Placement Agent Warrants ”).

Net proceeds to the Company from the Offering were $6,908,000 after deducting placement

agent fees and offering expenses.

The Company followed the guidance under ASC 470 in assessing the accounting for the PPP loan proceeds.

Per ASC 470, the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and accrued interest over the term of the loan.

The Company believed it used the loan proceeds for eligible purposes and applied for full loan forgiveness.

On February 18, 2021, the SBA approved the Company’s application for full loan forgiveness, and the full amount of the PPP loan was remitted to the lender for forgiveness.

Upon loan forgiveness, the Company recognized a gain on the extinguishment of debt of $ 233,000 for the loan proceeds received and interest accrued in the condensed consolidated statements of operations for the six months ended June 30, 2021.

Stockholders’ Equity

2021 Private Placement — On January 25, 2021, the Company completed a private placement of 4,420,863

shares of the Company’s common stock at a purchase price per share of $ 3.07 ,

pre-funded warrants to purchase an aggregate of 140,065

shares of the Company’s common stock (the “ January 2021 Pre-Funded Warrants ”) at a purchase price per

pre-funded warrant share of $ 3.069

and warrants to purchase an aggregate of 3,420,696

shares of the Company’s common stock with an exercise price of $ 3.00

per warrant share (the “ January 2021 Warrants ”) (the “ Private Placement ”).

In connection

with the Private Placement, the Company issued warrants to the placement agent, H.C.

Wainwright & Co., LLC (“ HCW ”),

to purchase a total of 342,070

shares of the Company’s common stock at an exercise price of $ 3.8375

(the “ January 2021 Placement Agent Warrants ”).

Net proceeds to the Company from the Private Placement were

after deducting placement agent fees and offering expenses.

February 2021 Registered

Direct Offering — On February 17, 2021, the Company completed a registered direct offering of 2,246,784 shares of the Company’s

common stock at a purchase price of $ 3.42 per share (the “ Offering ”).

In connection with the Offering, the Company

issued warrants to the placement agent, HCW, to purchase a total of 168,509 shares of the Company’s common stock at an exercise

price of $ 4.275 (the “ February 2021 Placement Agent Warrants ”).

Net proceeds to the Company from the Offering were

$ 6,908,000 after deducting placement agent fees and offering expenses.

February 2020 Registered Direct Offering and

Private Placement —

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

February 2020

Registered Offering ”) of 197,056 shares of the Company’s common stock at a purchase price of $8.705 per share and in a

concurrent private placement, sold warrants to purchase an aggregate of 197,056 shares of the Company’s common stock at a purchase

price of $0.125 per underlying warrant share and with an exercise price of $8.71 per share (the “

February 2020 Registered Direct

Warrants ”).

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

Registered Offering ”) of 197,056 shares of the Company’s common stock at a purchase price of $ 8.705 per share and in a

concurrent private placement, sold warrants to purchase an aggregate of 197,056 shares of the Company’s common stock at a purchase

price of $ 0.125 per underlying warrant share and with an exercise price of $ 8.71 per share (the “ February 2020 Registered Direct

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.

14,779 shares of the Company’s common stock with an exercise price of $ 11.0375 per share (the “ February 2020 Placement

Agent Warrants ”) to the placement agent, HCW.

Net proceeds to the Company from the February 2020 Registered Offering were $ 1,467,000

after deducting placement agent fees and offering expenses paid by the Company.

February 2020 Underwritten Public Offering

On February 13, 2020, the Company completed an underwritten public offering of 993,633 shares of the Company’s common stock

at a purchase price per share of $4.00, pre-funded warrants (the “

2020 Pre-Funded Warrants ”) to purchase an aggregate

of 1,006,367 shares of the Company’s common stock at a purchase price per pre-funded warrant share of $3.999, and warrants (the

February 2020 Warrants ”) to purchase an aggregate of 2,000,000 shares of the Company’s common stock with an

exercise price of $4.00 per warrant 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 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 “

2020 Underwriter Warrants ”) to HCW, as underwriter.

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 issued warrants to purchase up to 150,000

shares of Company common stock, immediately exercisable at an exercise price of $ 5.00

per share (the “ February 2020 Underwriter Warrants ”) to HCW, as underwriter.

In connection with the February 2020 Underwritten

Offering, the Company also granted to the underwriter, HCW, a 30-day option to purchase up to an additional 300,000 shares of the

Company’s common stock at a purchase price of $3.999 per such share and/or warrants to purchase up to 300,000 shares of the Company’s

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.

12, 2020, HCW exercised its option to purchase warrants to purchase an aggregate of 300,000 shares of the Company’s common stock.

Net proceeds from the February 2020 Underwritten

Offering were $ 7,093,000 after deducting underwriting discounts and commissions and offering expenses paid by the Company.

April 2020 Registered Direct Offering and Private

Placement —

On April 2, 2020, the Company completed a registered direct offering (the “

April 2020 Offering ”)

of 1,713,064 shares of the Company’s common stock at a purchase price of $2.21 per share and in a concurrent private placement,

sold warrants to purchase an aggregate of 1,713,064 shares of the Company’s common stock at a purchase price of $0.125 per underlying

warrant share and with an exercise price of $2.21 per share (the “

April 2020 Warrants ”).

April 2020 Registered

Direct Offering and Private Placement — On April 2, 2020, the Company completed a registered direct offering (the

“ April 2020 Offering ”) of 1,713,064 shares

of the Company’s common stock at a purchase price of $ 2.21 per

share and in a concurrent private placement, sold warrants to purchase an aggregate of 1,713,064 shares

of the Company’s common stock at a purchase price of $ 0.125 per

underlying warrant share and with an exercise price of $ 2.21 per

share (the “ April 2020 Warrants ”).

In connection with the April 2020 Offering, the Company also issued warrants

to purchase a total of 128,480

shares of the Company’s common stock with an exercise price of $ 2.9188

per share (the “ April 2020 Placement Agent Warrants ”) to the placement agent, HCW.

Net proceeds to the Company

from the April 2020 Offering were $3,527,000 after deducting placement agent fees and offering expenses paid by the Company.

In connection

with the April 2020 Offering, the Company also issued warrants to purchase a total of 128,480 shares of the Company’s common stock

with an exercise price of $2.9188 per share (the “

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

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

Distinguishing Liabilities from Equity ”

480 ”) to determine whether they are within the scope of ASC 480.

As there were no instances outside of the Company’s control

that could require cash settlement of the warrants issued in the Private Placement and Offering, as well as warrants issued in the Company’s

from the April 2020 Offering were $ 3,527,000 after

deducting placement agent fees and offering expenses paid by the Company.

first assesses the warrants it issues under the FASB ASC Topic 480, “ Distinguishing Liabilities from Equity ” (“ ASC

480 ”) to determine whether they are within the scope of ASC 480.

As there were no instances outside of the Company’s control

that could require cash settlement of the warrants issued in the Private Placement and Offering, as well as warrants issued in the Company’s

prior financing transactions, the warrants are outside the scope of ASC 480.

3 unchanged sentences

The warrants issued in the Private Placement and the Offering

do not meet the definition of a derivative instrument as they are indexed to the Company’s common stock and classified within stockholders’

equity, as are the warrants issued in the Company’s prior financing transactions.

Based on this determination, the Company’s

warrants are classified within stockholders’

The following table summarizes the Company’s

outstanding equity-classified warrants at March 31, 2021:

Balance December

Balance March

do not meet the definition of a derivative instrument as they are indexed to the Company’s common stock and classified within stockholders’

equity, as are the warrants issued in the Company’s prior financing transactions.

Based on this determination, the Company’s

warrants are classified within stockholders’ equity.

The following table summarizes

the Company’s outstanding equity-classified warrants at June 30, 2021:

Summary of outstanding warrants

December 2016 Warrants

3 unchanged sentences

October 2018 Underwriter Warrants

November 2019 Placement Agent

February 2020 Registered Direct

February 2020 Placement Agent

February 2020 Underwritten Offering

November 2019 Placement Agent Warrants

February 2020 Registered Direct Warrants

February 2020 Placement Agent Warrants

February 2020 Underwritten Offering Warrants

February 2020 Underwriter Warrants

4 unchanged sentences

January 2021 Warrants

January 2021 Placement Agent

2021 Placement Agent Warrants

The Company received net proceeds of $2,146,000

and $1,000 from the exercise of warrants during the three months ended March 31, 2021 and 2020, respectively.

January 2021 Placement Agent Warrants

February 2021 Placement Agent Warrants

No warrants were exercised during the three months

ended June 30, 2021.

During the three months ended June 30, 2020, the Company received net proceeds of $ 3,863,000 from the exercise of

The Company received net proceeds of $ 2,146,000 and $ 3,864,000 from the exercise of warrants during the six months ended June

30, 2021 and 2020, respectively.

Of the warrants

exercised during the three and six months ended June 30, 2020, 428,266 of the Company’s April 2020 Warrants were exercised via

a cashless exercise transaction and as a result a total of 225,796 shares of common stock were issued.

There were no cashless exercises

of warrants for the same periods in the current year.

Net Loss per Share

The following table sets forth the potential common

shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive:

The following table sets

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

Schedule of antidilutive stock

Options to purchase common stock

3 unchanged sentences

Restricted Stock Units

Restricted stock units (“

RSUs ”)

are issued under the Company’s 2020 Long-Term Incentive Plan or as inducement grants issued outside of the plan to new employees.

Restricted stock units (“ RSUs ”)

are issued under the Company’s 2020 Long-Term Incentive Plan (the “ 2020 Plan ”) or as inducement grants issued

outside of the plan to new employees.

RSUs are generally subject to graded vesting and the satisfaction of service requirements.

Upon vesting, each outstanding RSU will be

exchanged for one share of the Company’s common stock.

Employee RSU recipients may elect to net share settle upon vesting, in which

case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of equal value.

The fair value

of the RSUs awarded are based upon the Company’s closing stock price at the grant date and are expensed over the requisite service

The following table summarizes the activity of

the Company’s RSUs for the three months ended March 31, 2021:

Grant Date Fair Value

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 six months ended June 30, 2021:

Summary of RSU activity

Unvested units at December 31, 2020

Unvested units at March 31, 2021

compensation expense related to RSUs was $57,000 and $29,000 for the three months ended March 31, 2021 and 2020, respectively.

Unvested units at June 30, 2021

compensation expense related to RSUs was $ 124,000 and $ 19,000 for the three months ended June 30, 2021 and 2020, respectively.

compensation expense related to RSUs was $ 181,000 and $ 48,000 for the six months ended June 30, 2021 and 2020, respectively.

Stock Options

10 unchanged sentences

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

3 unchanged sentences

has no intention of paying cash dividends.

did not grant stock options during the three months ended March 31, 2021 and 2020.

The following table summarizes the activity of

the Company’s stock options for the three months ended March 31, 2021:

did not grant stock options during the three and six months ended June 30, 2021 and 2020.

The following table summarizes

the activity of the Company’s stock options for the six months ended June 30, 2021:

Summary of Stock Option Activity

Balance at December 31, 2020

Balance at March 31, 2021

Exercisable at March 31, 2021

Balance at June 30, 2021

Exercisable at June 30, 2021

Stock-based compensation expense related to stock

options for the three months ended March 31, 2021 and 2020 was $10,000 and $14,000, respectively.

options for the three months ended June 30, 2021 and 2020 was $ 8,000 and $ 11,000 , respectively.

Stock-based compensation expense related

to stock options for the six months ended June 30, 2021 and 2020 was $ 18,000 and $ 25,000 , respectively.

Compensation Expense Related to Equity Awards

The following table sets forth total stock-based

compensation expense for the three months ended March 31, 2021 and 2020, in thousands:

The following table sets

forth total stock-based compensation expense for the three and six months ended June 30, 2021 and 2020, in thousands:

Details of Stock-based Compensation Expense Recorded

Three Months Ended

Six Months Ended

Research and development

1 unchanged sentence

Total stock-based compensation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this document, “we,”

“our,”

“ours,”

“us,”

“Phio”

and the “Company”

refers to Phio Pharmaceuticals Corp.

and our subsidiary, MirImmune,

LLC and the ongoing business operations of Phio Pharmaceuticals Corp.

and MirImmune, LLC, whether conducted through Phio Pharmaceuticals

or MirImmune, LLC.

This management’s discussion and analysis of financial condition

as of March 31, 2021 and results of operations for the three months ended March 31, 2021 and 2020 should be read in conjunction with the

financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities

and Exchange Commission (the “

SEC ”) on March 25, 2021.

This report contains forward-looking statements within the meaning

of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by words such as “intends,”

“believes,”

“anticipates,”

“indicates,”

“plans,”

“expects,”

“suggests,”

“may,”

“would,”

“should,”

“potential,”

“designed to,”

“will,”

“ongoing,”

“estimate,”

“forecast,”

“predict,”

“could”

and similar references,

although not all forward-looking statements contain these words.

Forward-looking statements are neither historical facts nor assurances

of future performance.

These statements are based only on our current beliefs, expectations and assumptions regarding the future of our

business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.

Because forward-looking

statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to

predict and many of which are outside of our control.

Risks that could cause actual results to vary from expected results expressed in

our forward-looking statements include, but are not limited to, the impact to our business and operations by the recent coronavirus outbreak,

the development of our product candidates, our ability to execute on business strategies, our ability to develop our product candidates

with collaboration partners, the timeline and duration for advancing our product candidates into clinical development, results from our

preclinical and clinical activities and our ability to obtain future financing.

Our actual results and financial condition may differ

materially from those indicated in the forward-looking statements as a result of a number of important factors, including those identified

in our Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Risk Factors”

and in other filings

the Company periodically makes with the SEC.

Therefore, you should not rely on any of these forward-looking statements.

Forward-looking

statements contained in this Quarterly Report on Form 10-Q speak as of the date hereof and the Company does not undertake to update any

of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this report.

Phio Pharmaceuticals Corp.

is a biotechnology company

developing the next generation of immuno-oncology therapeutics based on our self-delivering RNAi (“

INTASYL™

therapeutic platform.

Our efforts are focused on silencing tumor-induced suppression of the immune system through our proprietary INTASYL

platform with utility in immune cells and the tumor micro-environment.

Our goal is to develop powerful INTASYL therapeutic compounds that

can weaponize immune effector cells to overcome tumor immune escape, thereby potentially providing patients a powerful new treatment option

that goes beyond current treatment modalities.

Our development efforts are based on our broadly

patented INTASYL technology platform.

Our INTASYL compounds do not require a delivery vehicle to penetrate into tissues and cells and

are designed to “silence”

or down-regulate, the expression of a specific gene which is over-expressed in cancer.

that our INTASYL platform uniquely positions the Company in the field of immuno-oncology for the following reasons:

Efficient uptake of INTASYL by target cells obviating the need for facilitated delivery (mechanical or formulation);

Does not require permanent genetic modification;

Can target multiple genes (i.e.

multiple immunosuppression pathways) in a single therapeutic entity;

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

Favorable clinical safety profile of INTASYL with local administration;

Can be readily manufactured under current good manufacturing practices.

In contrast to other RNA

technologies and platforms, the self-delivering nature of our INTASYL platform makes it ideally suited for use with adoptive cell therapy

ACT ”) treatments as well as for direct therapeutic use.

ACT consists of the infusion of immune cells with antitumor

properties, after growing them in a lab to large numbers.

These cells can be derived from unmodified (i.e.

naturally occurring) immune

cells, immune cells isolated from resected tumors, or genetically engineered immune cells that recognize tumor cells.

Regardless of the

source of immune cells (ACT or naturally occurring immune cells), in patients with solid tumors, these cells have several shortcomings

that inhibit their full therapeutic potential.

By using INTASYL technology during the manufacturing of such ACT cell products we can improve

the phenotype and function of these cells, potentially leading to better therapeutic outcomes.

Multiple inhibitory mechanisms restrain

immune cells from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence.

the immunosuppressive tumor micro-environment (the “

TME ”) can pose a formidable barrier to immune cell infiltration

and function.

By using INTASYL based drugs administered directly, we can also reprogram cells in the TME to help overcome these immunosuppressive

We have developed a product

platform based on our INTASYL technology that allows easy, precise, rapid, and selective non-genetically modified programming of ACT cells

( ex vivo , during manufacturing) and of the TME ( in vivo , by local application), resulting in reduced immune inhibition and

in improved immunotherapy.

INTASYL Use To Improve Adoptive Cell Therapy

ACT is a form of immune

therapy based on the use of immune cells, isolated from patients, donors or retrieved from allogeneic immune cell banks.

They are grown

in a lab to large numbers, followed by administering them to the patient to fight cancer.

Sometimes, immune cells that naturally recognize

a tumor are used, while other times immune cells are modified or “genetically engineered”

to make them recognize and kill

the cancer cells.

There are several types of ACT, including:

a.) non-engineered cell therapy in which immune cells are grown from the

patient’s tumor or blood, such as tumor infiltrating lymphocytes (“

TILs ”), or from donor blood or tissue such

as natural killer (“

NK ”) cells, dendritic cells (“

DC ”) and macrophages, and b.) genetically engineered

immune cells that are genetically modified to recognize specific tumor proteins and to remain in an activated state (such as T cell receptor

technology (“

TCRs ”), chimeric antigen receptor (“

CAR ”) T cells, or CAR-NK cells).

Multiple inhibitory mechanisms

restrain immune cells used in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence,

and other barriers to immune cell infiltration and function mainly in solid tumors.

We believe our INTASYL compounds are ideally suited

to be used in ACT products.

With INTASYL compounds, we can unlock the full potential of ACT, by improving the immune cell function,

differentiation and metabolism, in order to make these immune cells more effective without the need for additional complicated manufacturing

steps and/or genetic engineering.

Our approach builds

on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL compounds ex

vivo while they are grown in the lab and before administering them to the patient.

Because our INTASYL compounds do not

require a delivery vehicle, in contrast to other RNA technologies, to penetrate into the cells, we are able to enhance the function

of these cells by merely adding our INTASYL compounds during the expansion process and without the need for genetic engineering,

without the need for complex delivery vehicles or formulations, and without additional needed complex manufacturing steps.

adding INTASYL to the cell culture media used during the cell expansion, we can reduce or eliminate the expression of genes that

make the immune cells less effective.

For example, with our INTASYL compounds, we can reduce the expression of immunosuppressive

proteins by the therapeutic immune cells, potentially enabling them to overcome tumor resistance mechanisms and thus improving their

ability to destroy the tumor cells.

In various types of immune cells tested to date, INTASYL treatment results in potent silencing

with close to 100% transfection efficiency and while maintaining cell viability and cell growth rate.

After expanding these cells and

enhancing them with INTASYL ex vivo , they are returned to the patient for treatment.

Our lead product candidate

and most advanced program being developed in ACT is PH-762, an INTASYL compound that targets the checkpoint protein PD-1.

Checkpoint proteins,

such as PD-1, normally act as a type of “off switch”

that prevent T cells from attacking certain cells, such as cancer cells,

T cells are immune cells that protect the body from cancer cells and infections.

Data developed by

Phio and with collaborators has shown that PH-762 silences PD-1 checkpoint expression, thereby removing the “off switch”

and resulting in enhanced T cell activation and tumor cytotoxicity.

Experimental data shows that PH-762 can silence the expression

of PD-1 in target human T cells in a potent and durable manner, and can increase the function of patient derived TILs for use in

ACT, and of CAR-T cells used in ACT, showing that PH-762 is applicable for use in both ACT and as a standalone direct

In March 2021, the Company

announced that it entered into a clinical development collaboration with AgonOx, Inc.

AgonOx ”), a private company

developing a pipeline of novel immunotherapy drugs targeting key regulators of the immune response to cancer.

Under the agreement, the

companies will collaborate on the development of novel T cell-based therapies using PH-762 and AgonOx’s “double positive”

(DP) TIL technology.

AgonOx has demonstrated that their DP CD8+ T cells isolated from human solid tumors (DP TILs) have increased tumor

killing activity when compared to TILs that were not enriched prior to expansion.

Preclinical data from AgonOx in collaboration with Phio

has shown that treating DP TILs with PH-762 increases the tumor killing activity of the DP TILs even further (a two-fold increase).

a result, the use of PH-762 treated DP TILs is expected to enhance therapeutic responses in cancer data.

Based on these data showing that

the combination of our technologies can result in TIL therapeutics, our collaboration will focus on conducting a clinical study for PH-762

treated DP TILs.

Under the terms of the collaboration agreement, AgonOx will receive financial support for the clinical trial from Phio

and Phio will be entitled to certain future development milestones and sales-related royalty payments from AgonOx’s DP TIL technology.

In collaboration with AgonOx, we are planning a clinical trial in ACT with PH-762 and AgonOx’s DP TIL technology.

We are in the

process of finalizing the investigational new drug (“

IND ”)-enabling studies and preparing for regulatory submission

in the third quarter of 2021 and anticipate commencing the start of the clinical trial soon thereafter.

Our second product candidate

in ACT is PH-894, an INTASYL compound that targets BRD4 which is a regulator of gene expression impacting cell differentiation.

studies, PH-894 has been shown to improve T cell function and persistence by differentiating T cells into a more active state (stem-cell

like memory phenotype).

Data, completed in partnership with the Karolinska Institutet in Sweden, demonstrated that the application of

PH-894, was shown to silence BRD4 in human T cells during expansion for ACT, which has the potential to confer superior anti-tumor activity,

for example by improving T cell persistence.

With this data, we expanded our collaboration with the Karolinska Institutet to build upon

these findings and develop INTASYL compounds for additional targets and cell types toward clinical application in areas of the Karolinska

Institutet’s ongoing clinical research.

We are also developing

our INTASYL compound PH-804 for use in ACT.

PH-804 targets the suppressive immune receptor TIGIT, which is a checkpoint protein present

on T cells and NK cells.

We have shown that PH-804 can silence the expression of TIGIT in NK cells and T cells, overcoming their “off

switch”

and the cells becoming “weaponized”

to kill cancer cells.

Direct Therapeutic Use of INTASYL Towards

the Tumor Micro-Environment

The TME is the environment

that surrounds and feeds a tumor, including normal cells, blood vessels, immune cells, and the extracellular matrix.

The TME is an immunosuppressive

environment that inhibits the immune system’s natural ability to recognize and destroy tumor cells by negatively impacting how immunosuppressive

cells are being attracted and activated.

Reprogramming different components of the TME may overcome resistance to immunotherapy.

reprogramming of the TME by INTASYL compounds through direct local administration into the tumor could potentially become an important

form of therapy.

The Company has previously shown in a clinical setting that our INTASYL compounds are safe and well-tolerated following

local administration, therefore we believe that our INTASYL technology can not only be used with ACT, but can also be used as an independent

therapeutic platform.

We are developing

our PH-762, PH-894 and PH-804 INTASYL compounds also for use as direct therapeutics to reprogram the TME, for example by in

situ transfection and activation of immune cells in the TME.

Animal studies

conducted by the Company showed that local administration of PH-894 or the mouse version of PH-762 through intra-tumoral injection

resulted in potent anti-tumoral effects.

The treated animals showed a complete and statistically significant inhibition of tumor

growth, whereas placebo treated animals displayed exponential tumor growth.

In vivo studies performed by the Company

with PH-804 showed that intra-tumoral injection of a mouse version of PH-804 reduced the tumor growth in colorectal carcinoma tumor

bearing mice, which was shown to inhibit tumor growth and was correlated with the silencing of TIGIT mRNA expression and in increase

in cytotoxic effector T cells in the TME.

The combined PH-804, PH-762,

and PH-894 data further shows that INTASYL compounds can trigger associated changes in the TME such as an increase of TILs, including

CD8+ T cells responsible for tumor cell killing, and an increase of activation markers on these cells.

These preclinical findings demonstrate

that direct injection of INTASYL compounds can successfully infiltrate solid tumors and impact the TME by activating the immune response

in animal models of solid tumors resulting in reduced tumor growth.

A key challenge for many other immunotherapy platforms is to be able

to achieve an adequate therapeutic effect in solid tumors with an acceptable safety profile.

Many of the available systemic immuno-therapeutics

indeed come with dose limiting immune-related adverse events, which we believe can be mitigated with local INTASYL treatment.

positive preclinical data, the Company is preparing for a clinical study with PH-762 using intra-tumoral administration for patients

with advanced melanoma.

The required preclinical studies and regulatory submission needed to initiate the clinical trial with PH-762

as a direct therapeutic are being finalized.

The clinical trial will be conducted at the Gustave Roussy Institute, which is one of

the largest cancer centers in Europe, with Dr.

Caroline Robert as our lead principal investigator.

The Company expects to start the

clinical trial evaluating the use of PH-762 as a direct therapeutic in the fourth quarter of 2021.

We are also investigating

other relevant compounds for TME targets, such as PH-790, an INTASYL compound targeting PD-L1.

PD-L1 is a protein formed by cancer cells

that activate the PD-1 “off switch”

on immune cells.

Our approach with PH-790 is to block the formation of the PD-L1 protein,

which may prevent cancer cells from inactivating T cells and attack the cancer.

Recent data presented demonstrated that the antitumoral

efficacy of our individual pipeline products, PH-762, PH-790 and PH-804, can be further improved by combining them in a single drug treatment.

We have shown that we can efficiently and potently target multiple proteins in a single drug treatment.

Animal data showed that the combination

of our INTASYL compounds in a single formulation (at suboptimal doses of the individual agents) inhibited tumor growth without having

a negative impact on the tolerability of the treatment.

Impact of COVID-19 on our Business

In December 2019, a novel

strain of coronavirus that causes COVID-19 was reported to have surfaced in Wuhan, China and has since spread to other parts of the world,

including the United States.

In March 2020, the World Health Organization (the “

WHO ”) declared the outbreak a pandemic.

Health and Safety

From the first signs of

the outbreak, we have taken proactive measures intended to protect the health and safety of our employees.

We have implemented safety

measures following the guidance provided by the WHO, the Centers for Disease Control (the “

CDC ”) and governmental

authorities, which include formal policies related to working remotely for employee personnel who do not need to be physically present

in our offices, the wearing of face masks while in the office, physically distancing workspaces, cleaning protocols, staggered scheduling

and social distancing protocols.

The Company has also implemented protocols to address actual and suspected cases of COVID-19 and

encourages sick employees to remain home.

We expect to continue following these safety measures and may take further actions as we require,

as government authorities require or recommend, or as we determine to be in the best interests of our employees.

Our operations have continued

to operate with limited impact and are operating in accordance with federal and state government, WHO and CDC guidelines.

We have implemented

enhanced safety measures, as discussed above, and have experienced limited absenteeism from our employees due to the coronavirus

pandemic and we do not currently expect that our operations will be significantly impacted by employee absenteeism.

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.

We believe the impact to our operations has been minimal thus

far, however current and future restrictions may further impact our operations and may slow or diminish our research and development activities.

Supply and Services

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.

The Company has undertaken efforts to mitigate potential

future impacts by identifying and engaging alternative third-party service providers and suppliers, and because of that, to date the Company

has not seen a material impact to its program’s anticipated timelines resulting from delays from our third-party service providers.

For example, by engaging different contract manufacturers, we believe that we have a sufficient supply of our INTASYL compounds to conduct

our ongoing preclinical studies and initial clinical activities.

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

highly uncertain and subject to change.

Without a swift and sustained improvement of the impacts experienced by our third-party suppliers

and service providers, the effects of our mitigation efforts will diminish and may result in material impacts to our operations.

global measures to contain the pandemic are insufficient, it could reduce or delay the availability of supplies and services that we purchase

and rely on, which may in turn slow or delay our preclinical and clinical activities, and/or result in higher costs.

With the global spread

of the coronavirus and the associated safety measures to contain the spread by governmental authorities, a delay in the commencement of

new clinical trials and in the enrollment and participation of patients in clinical trials may occur.

The steps required for us to initiate

our clinical trials with PH-762 in the second half of 2021 are continuing and ongoing, however, the Company does not yet know the full

extent of potential delays or impacts related to its planned clinical activities.

Liquidity and Capital

While we believe that

the coronavirus pandemic has not had a significant impact on our financial condition at this time, the extent to which the coronavirus

pandemic 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 pandemic and the actions to contain the coronavirus or treat its impact, among

Due to our uncertainty

around our ability to access the capital markets to provide the necessary working capital to fund our long-term operations as a result

of the coronavirus pandemic, the Company applied for and received a loan of $231,252 in May 2020 under the Paycheck Protection Program

PPP ”) as part of the Coronavirus Aid, Relief and Economic Security (the “

CARES Act ”).

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 our operations.

The Company believed it used the loan proceeds for the eligible purposes allowed and applied

for full loan forgiveness.

In February 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.

In connection with and addition to the PPP, the Company took other proactive steps to control costs in response

to the coronavirus pandemic, which included the reduction of senior management salaries by 10% from May to December 2020.

these savings helped to mitigate the financial impact of the coronavirus pandemic on our financial condition.

we do not yet know the full extent of potential delays or the impact on our business, financial condition, or our preclinical and clinical

trial activities and there may be developments outside of our control that require us to adjust our operating plans and, therefore, given

the nature of the situation, cannot reasonably estimate the impact of the coronavirus on our financial condition, results of operations

or cash flows in the future.

Critical Accounting Policies and Estimates

The discussion

and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which

have been prepared in accordance with accounting principles generally accepted in the United States .

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,

liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our

estimates and base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported

been no significant changes to our critical accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Results of Operations

The following data summarizes the results of our

operations for the periods indicated, in thousands:

Three Months Ended March 31,

Operating expenses

Operating loss

Comparison of the Three Months Ended March 31, 2021 and 2020

Operating Expenses

The following table summarizes our total operating

expenses, for the periods indicated, in thousands:

Three Months Ended March 31,

Research and development

General and administrative

Total operating expenses

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, research activities under our research collaborations, expenses associated

with preclinical and clinical development activities and other operating costs.

Our research and development programs are focused on the

development of immuno-oncology therapeutics based on our INTASYL therapeutic platform.

and development expenses for the three months ended March 31, 2021 increased 115% as compared with the three months ended March 31, 2020,

primarily due to manufacturing costs and fees for the required preclinical studies in support of the Company’s planned clinical

trials for PH-762 as compared to the same period in the prior year.

General and Administrative Expenses

administrative expenses relate to compensation and benefits for general and administrative personnel, facility-related expenses, professional

fees for legal, audit, tax and consulting services, as well as other general corporate expenses.

administrative expenses for the three months ended March 31, 2021 decreased 11% as compared with the three months ended March 31, 2020,

primarily due to a decrease in legal fees as compared to the same period in the prior year .

Other income consists

primarily of interest income and expense and various income or expense items of a non-recurring nature.

Other income for the three

months ended March 31, 2021 increased by $226,000 as compared with the three months ended March 31, 2020, primarily due to the full forgiveness

of the Company’s PPP loan by the Small Business Administration in the first quarter of 2021 as compared to the prior year period.

Liquidity and Capital Resources

Historically, the Company’s primary source

of funding has been through the sale of its securities.

In the future, we will be dependent on obtaining funding from third parties,

such as proceeds from the issuance of debt, sale of equity, or strategic opportunities, in order to maintain our operations.

reported recurring losses from operations since inception and expect that we will continue to have negative cash flows from our operations

for the foreseeable future.

At March 31, 2021, we had cash of $32,695,000 as compared with cash of $14,244,000 at December 31, 2020.

2019, the Company entered into a purchase agreement (the “

Purchase Agreement ”) with Lincoln Park Capital, LLC (“

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 agreement.

The Company is initially limited to the issuance of 19.99% of the Company’s

shares outstanding on the date of the Purchase Agreement to LPC unless stockholder approval is obtained to issue more than such amount

or the average price of all sales under the Purchase Agreement exceed certain amounts as set forth in the agreement.

The Purchase Agreement

expires in May 2022.

To date, no shares of common stock have been sold to LPC under the Purchase Agreement.

We believe that our existing cash at March 31,

2021 should be sufficient to fund operations for at least the next 12 months from the date of the release of the associated financial

The following table summarizes our cash flows for

the periods indicated, in thousands:

Three Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase in cash and restricted cash

Net Cash Flow from Operating Activities

Net cash used in operating activities was $3,033,000

for the three months ended March 31, 2021, as compared with $2,176,000 for the three months ended March 31, 2020.

The increase in cash

used in operating activities was primarily due to an increase in net loss as compared to the same period in the prior year as the Company

expects its operating cash outflows to increase in 2021 as a result of increased spending primarily related to the Company’s preclinical

studies in support of and for the planned clinical trials for PH-762.

Net Cash Flow from Investing Activities

Net cash used in investing activities was $6,000

for the three months ended March 31, 2021, as compared with $10,000 for the three months ended March 31, 2020.

The decrease in net cash

flows from investing activities was primarily related to laboratory and computer equipment purchases as compared to the same period in

the period year.

Net Cash Flow from Financing Activities

Net cash provided by financing activities was $21,490,000

for the three months ended March 31, 2021, as compared with $8,536,000 for the three months ended March 31, 2020.

The increase in net

cashflows from financings activities was primarily due to the net proceeds received by the Company from capital raises activities and

warrant exercises as compared to the same period in the prior year.

Off-Balance Sheet Arrangements

In connection

with certain license agreements, we are required to indemnify the licensor for certain damages arising in connection with the intellectual

property rights licensed under the agreement.

In addition, we are a party to a number of agreements entered into in the ordinary course

of business that contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of

certain events.

These indemnification obligations are considered off-balance sheet arrangements in accordance with ASC Topic 460, “

Guarantor’s

Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others .”

have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations in

our financial statements.

See Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year

ended December 31, 2020, which was filed with the SEC on March 25, 2021, for further discussion of these indemnification agreements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required

to provide this information.

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-Q

Item 1. Financial Statements