What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-22 compared with 2021-03-25 · 806 added, 792 removed, 207 unchanged (89% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Independent Registered Public Accounting Firm (BDO USA, LLP;

Boston, Massachusetts;

PCAOB ID# 243)

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’

Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Report of Independent Registered Public

Accounting Firm

Report of Independent Registered Public Accounting

Stockholders and Board of Directors

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets

of Phio Pharmaceuticals Corp.

(the “Company”) and subsidiary as of December 31, 2020 and 2019, the related consolidated

statements of operations, stockholders’

equity, and cash flows for each of the two years in the period ended December 31,

2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

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.

We have audited the accompanying consolidated balance sheets of Phio

Pharmaceuticals Corp.

(the “Company”) and subsidiary as of December 31, 2021 and 2020, the related consolidated statements

of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related

notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements

present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of

its operations and its cash flows for each of the two years in the period ended December 31, 2021 , in conformity with accounting

principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor

were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to

obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness

of the Company’s internal control over financial reporting.

These consolidated financial statements are the responsibility of the

Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks

of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that

respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in

the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our

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

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matter

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

As described in Note 10 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’

financial statements, the Company completed a private placement offering in January 2021 that included the issuance of common stock

and warrants to purchase common stock.

The warrants were evaluated for proper classification on the consolidated balance sheet and

it was determined that the warrants issued in this equity offering should be classified within stockholders’ equity.

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.

issued as part of the equity offering in January 2021 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 memo 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

We have served as the Company’s auditor since 2011.

Boston, Massachusetts

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(Amounts in thousands, except share data)

Years Ended December 31,

Current assets:

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Right of use asset, net

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

LIABILITIES AND STOCKHOLDERS’

Property and equipment, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Accrued expenses

Lease liability

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Total liabilities

Commitments and contingencies (Note 8)

Stockholders’

Commitments and contingencies (Footnote 9)

Stockholders’ equity:

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

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Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial

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CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and

per share data)

Years Ended December 31,

(Amounts in thousands, except share and per

Twelve Months Ended

Operating expenses:

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Operating loss

Total other (expense) income, net

Other income (expense)

Gain on extinguishment of debt

Interest (expense) income, net

Total other income (expense)

Loss before income taxes

Provision for income taxes

Net loss per common share:

Net loss per share:

Basic and diluted

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PHIO PHARMACEUTICALS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(Amounts in thousands, except share data)

Balance at December 31, 2019

Issuance of common stock upon

the exercise of warrants

Issuance of common stock under

Lincoln Park Capital, LLC purchase agreement

Issuance of restricted stock

Cash in lieu of fractional shares

reverse stock split

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

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 December 31, 2020

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

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 December 31,

$ ( 116,900 )

See accompanying notes to consolidated financial

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(Amounts in thousands)

Years Ended December 31,

Twelve Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

Depreciation and amortization

Non-cash lease expense

Non-cash stock-based compensation expense

Non-cash stock-based compensation

Forgiveness of debt

Changes in operating assets and liabilities:

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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 debt

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

Payments for capital lease obligations less than one year

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

Payments of taxes for net share settled restricted stock unit issuances

Payments of capital lease obligations less than one year

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

Net increase in cash and restricted cash

Cash and restricted cash at the beginning of period

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Interest paid

Supplemental disclosure of non-cash investing and financing activities:

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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Nature of Operations

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™

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 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.

Phio Pharmaceuticals Corp.

“ we ,” “ our ” or the “ Company ”) is seeking to address the biggest challenges in

immuno-oncology by creating new pathways to a cancer-free future for patients.

We are developing therapeutics that leverage our INTASYL™

technology to target both tumor and immune cells by regulating genes to strengthen a patient’s immune system while weakening tumor

defense mechanisms.

With our INTASYL self-delivering RNAi technology, we aim to bring the benefits of RNA therapeutics into cancer care

where other modalities may fall short.

Our operations are being conducted in accordance

with guidance provided by the World Health Organization, the Center for Disease Control and governmental authorities, including the implementation

of safety measures such as working remotely and flexible scheduling.

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.

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

had and continues to undertake efforts to mitigate potential future impacts by identifying and engaging alternative third-party providers

to limit the impact of potential delays on our program’s anticipated timelines.

However, the continued impacts to these third-party

providers, including, for example, limited availability of certain services and supplies, began significantly affecting our operations

in the second quarter of 2021, which resulted in delays to the start of our clinical trials.

If measures to overcome the pandemic are

insufficient, it could further reduce or delay the availability of supplies and services that we purchase and rely on, which may in turn

further slow or delay our preclinical and clinical activities.

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.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have

been prepared in accordance with accounting principles generally accepted in the United States of America (“

GAAP ”).

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

Reverse Stock Split

Effective January 15, 2020, the Company

completed a 1-for-55 reverse stock split of the Company’s outstanding common stock.

All share and per share amounts in the

financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including

reclassifying an amount equal to the reduction in par value to additional paid-in capital.

Unless otherwise noted, shares of common

stock issued and outstanding, shares underlying warrants and stock awards, shares reserved, conversion price of convertible securities,

exercise prices of warrants and stock awards and loss per share have been proportionately adjusted to reflect the reverse stock

The reverse stock split did not reduce the number of authorized shares of the Company’s common stock or preferred

The accompanying financial statements have been

prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP ”).

Additionally,

certain prior year amounts have been reclassified for consistency with the current year presentation.

The Company made an adjustment to

the consolidated statements of operations to reflect patent costs within general and administrative operating expenses in the consolidated

statements of operations.

The reclassification increased general and administrative operating expenses and reduced research and development

operating expenses by $ 715,000 for the year ended December 31, 2020.

This reclassification had no effect on total operating expenses,

net loss, net loss per share and had no impact on the Company’s consolidated balance sheets, statement of stockholders’ equity

and statement of cash flows for the prior year period.

Principles of Consolidation

The consolidated financial statements include

the accounts of Phio and its wholly owned subsidiary, MirImmune, LLC.

All material intercompany accounts have been eliminated in

consolidation.

The consolidated financial statements include the

accounts of Phio and its wholly-owned subsidiary, MirImmune, LLC.

All material intercompany accounts have been eliminated in consolidation.

Uses of Estimates in Preparation of Financial Statements

The preparation of financial statements

in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues

and expenses during the reporting period.

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

related to the fair value of equity awards, 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.

The preparation of financial statements in accordance

with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

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

of equity awards, accruals for research and development expenses, useful lives of property and equipment, income taxes, and our valuation

allowance on our deferred tax assets.

On an ongoing basis we evaluate our estimates and base our estimates on historical experience and

other relevant assumptions that we believe are reasonable under the circumstances, including as a result of new information that may emerge

concerning the coronavirus pandemic.

We have made estimates of the impact of the coronavirus pandemic within our financial statements

and there may be changes to those estimates in future periods.

Actual results could differ materially from these estimates.

Restricted Cash

Restricted cash consists of certificates

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

Restricted cash consists of certificates of deposit

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

The following table provides a reconciliation

of cash and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of

cash flows (in thousands):

Schedule of Cash

Restricted cash

Cash and restricted cash shown in the statement of cash flows

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 limits.

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

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

These accounts are insured by the Federal Deposit Insurance Corporation (the “ FDIC ”) for up to $ 250,000

per institution.

Property and Equipment

Property and equipment are stated at cost

and depreciated using the straight-line method based on the estimated useful lives of the related assets.

The Company provides

for depreciation over the assets’

estimated useful lives as follows:

Property and equipment are stated at cost and

depreciated using the straight-line method based on the estimated useful lives of the related assets.

The Company provides for depreciation

over the assets’ estimated useful lives as follows:

Schedule of estimated useful lives

Computer equipment

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Leasehold improvements

Depreciation and amortization expense for

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

Impairment of Long-Lived Assets

The Company reviews long-lived assets for

impairment whenever an event occurs or change in circumstances that the related carrying amounts may not be recoverable.

An impairment

loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would

be determined based on either discounted future cash flows or other appropriate fair value methods.

The Company believes no impairment

existed as of December 31, 2020 or 2019.

The Company reviews long-lived assets for impairment

whenever an event occurs or change in circumstances that the related carrying amounts may not be recoverable.

An impairment loss would

be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined

based on either discounted future cash flows or other appropriate fair value methods.

The Company believes no impairment existed as of

December 31, 2021 or 2020.

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

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.

The Company follows the provisions of the FASB

ASC Topic 820, “Fair Value Measurements and Disclosures,” for the Company’s financial assets and liabilities that are

re-measured and reported at fair value each reporting period and are re-measured and reported at fair value at least annual using a fair

value hierarchy that is broken down into three levels.

Level inputs are defined as follows:

Level 1 – quoted prices in active markets

for identical assets or liabilities.

Level 2 – other significant observable inputs for the

assets or liabilities through corroboration with market data at the measurement date.

Level 3 – significant unobservable inputs that reflect

management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

For the years ended December 31, 2021 and 2020, the Company categorized

its restricted cash of $ 50,000 as Level 2 hierarchy.

The assets classified as Level 2 have initially been valued at the applicable transaction

price and subsequently valued, at the end of each reporting period, using other market observable data.

Observable market data points

include quoted prices, interest rates, reportable trades and other industry and economic events.

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.

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

over a similar term an amount equal to the lease payments in a similar economic environment.

Certain adjustments to the right of use asset

may be required for items such as initial direct costs or incentives received.

Lease payments on operating leases, including scheduled

increases, 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.

Act is an emergency economic stimulus package passed in response to the coronavirus outbreak that includes, but is not limited to, provisions

providing aid to small businesses in the form of loans and grants and numerous tax provisions including, certain payroll tax benefits,

changes to the net operating loss rules and changes to the business interest expense deduction rules.

In May 2020, the Company received

loan proceeds pursuant to the Paycheck Protection Program (the “ PPP ”) offered under the CARES Act, and

the loan was subsequently forgiven in February 2021.

Outside of the PPP, the Company has not utilized the other CARES Act

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

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

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

ASC 470 ”)

The Company followed the guidance under the Financial

Accounting Standards Board (the “ FASB ”) Accounting Standards Codification

(“ ASC ”) Topic 470, “ Debt ” (“ ASC 470 ”)

in assessing the accounting for the PPP loan proceeds.

Per ASC 470, the Company recorded a liability on the balance sheet for the

full amount of PPP loan proceeds received and 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.

Per ASC 470, the Company recorded a liability on the balance sheet for the full

amount of the PPP loan proceeds received and accrued interest over the term of the loan.

forgiveness, the Company recognized the extinguishment of the liability in the consolidated statement of operations as a gain on extinguishment

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.

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’

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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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.

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.

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.

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.

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.

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.

Collaborative Arrangements

follows the provisions of the FASB ASC Topic 808, “Collaborative Arrangements,” (“ Topic 808 ”) when collaboration

agreements involve joint operating activities in which both parties are active participants and that are also both exposed to significant

risks and rewards.

The Company also considers the guidance in the FASB ASC Topic 606, “Revenue from Contracts with Customers,”

(“ Topic 606 ”) in determining the appropriate treatment for activities between the Company and its collaborative partners

that are more reflective of a vendor-customer relationship and therefore, within the scope of Topic 606.

Under Topic 808, the Company

determines an appropriate recognition method, either by analogy to appropriate accounting literature or by applying a reasonable accounting

policy election.

Generally, the classification of transactions under the collaborative arrangements is determined based on the nature

and contractual terms of the arrangement along with the nature of the operations of the participants.

or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development activities,

are recorded as increases or decreases to research and development expense.

Patents and Patent Application

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 general and administrative costs as incurred.

Stock-based Compensation

The Company follows the provisions of the

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.

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.

The Company follows the provisions of the FASB

ASC Topic 718, “ Compensation — Stock Compensation ” (“ ASC 718 ”), which requires the measurement

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

The fair value of restricted stock units is based upon the

Company’s closing stock price at the grant date.

The Company uses the Black-Scholes option-pricing model to estimate the fair value

of stock options at the grant date.

The Black-Scholes valuation model requires the input of valuation assumptions to calculate the value

of stock options, including expected volatility, expected term, risk-free interest rate and expected dividends.

Stock-based compensation

expense is recognized over the requisite service period, which generally represents the vesting period, and commences at the date of grant

based on the fair value of the award.

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

for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts

in the financial statements in accordance with the FASB ASC Topic 740, “Accounting for Income Taxes”

740 ”) .

These temporary differences will result in taxable or deductible amounts in future years when the reported

amounts of the assets or liabilities are recovered or settled.

Those temporary differences referred to as deferred tax assets and

liabilities are determined at the end of each period using the tax rate expected to be in effect when taxes are actually paid or

ASC 740 requires that a valuation allowance

be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be

The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary,

at least on an annual basis.

During this evaluation, the Company reviews its forecasts of income in conjunction with other positive

and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is

Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit.

The recognition and measurement of benefits

related to the Company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws,

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.

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

requirements.

Any interest and penalties accrued related to uncertain tax positions are recorded as tax expense.

Differences between

actual results and the Company’s assumptions or changes in the Company’s assumptions in future periods are recorded

in the period they become known.

Accordingly, we are

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

from estimates.

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

those awards that are expected to vest.

Our forfeiture rate estimates are based on an analysis of our actual forfeiture experience, employee

turnover behavior, and other factors.

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

the period of adjustment.

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

adjustment in the period the estimates are revised.

The Company recognizes assets or liabilities for

the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the

financial statements in accordance with the FASB ASC Topic 740, “Accounting for Income Taxes” (“ ASC 740 ”) .

These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities

are recovered or settled.

Those temporary differences referred to as deferred tax assets and liabilities are determined at the end of

each period using the tax rate expected to be in effect when taxes are actually paid or recovered.

allowances are established if, based on the weight of available evidence, it is more likely than not that all or a portion of a deferred

tax asset will not be realized.

The provision for income taxes, if any, represents the tax payable for the period and the change in deferred

income tax assets and liabilities during the period.

Immaterial Revision

In 2021, the Company completed an Internal Revenue

Code Section 382 analysis of its historical net operating loss carry-forward amount.

As a result, the prior year net operating loss carry-forward

was determined to be limited.

See Note 13 Income Taxes , for further details.

Comprehensive Loss

The Company’s comprehensive loss is

equal to its net loss for all periods presented.

The Company’s comprehensive loss is equal

to its net loss for all periods presented.

Net Loss per Share

Basic net loss per share is computed by

dividing net loss by the weighted average number of common shares outstanding.

Diluted net loss per share is computed by dividing

the Company’s net 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

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.

Basic net loss per share is computed by dividing

net loss by the weighted average number of common shares outstanding.

Diluted net loss per share is computed by dividing the Company’s

net loss by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares outstanding,

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

Dilutive potential common shares primarily consist of warrants,

restricted stock units and stock options.

Liquidity and Going Concern

The Company has reported recurring losses from

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

Historically,

the Company’s primary source of funding has been from 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 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 .

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.

believes that its existing cash should be sufficient to fund operations for at least the next 12 months from the date of the release

of these financial statements.

Recent Accounting Pronouncements

In November 2018, the FASB issued Accounting

Standards Update (“

ASU ”) 2018-18, “

Collaborative Arrangements (Topic 808) ”

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

Accrued expenses and other current liabilities

consist of the following, in thousands:

In December 2019, the FASB issued Accounting Standards

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

Simplifying the Accounting for Income Taxes ”

(“ ASU 2019-12 ”).

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

related to the incremental approach for intraperiod tax allocation, the recognition of a deferred tax liability for equity method investments,

not recognizing a deferred tax liability for a foreign subsidiary and the general methodology for calculating income taxes in an interim

The amendments also clarify and simplify other aspects of the accounting for income taxes.

The amendments in ASU 2019-12 are effective for public entities for fiscal years, and the interim periods within those fiscal years, beginning

after December 20, 2020.

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

The adoption of this standard did not have a material

impact on the Company’s consolidated financial statements.

2020, the FASB issued ASU 2020-06, “ Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and

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

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

and contracts in an entity’s own equity.

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

unnecessary complexity in U.S.

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.

is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

Early adoption is permitted,

but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company early adopted

ASU 2020-06 on January 1, 2021.

The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

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

(Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s

Own Equity (Subtopic 815-40) ” (“ ASU 2021-04 ”).

The amendments in the updates are intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges

of freestanding equity-classified written call options that remain equity classified after modification or exchange.

The amendments in

ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those

fiscal years.

An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date

of the amendments.

Early adoption is permitted for all entities, including within an interim period.

The Company does not expect the adoption

of ASU 2021-04 to have a material impact on its consolidated financial statements.

Property and Equipment

The following table summarizes the Company’s

major classes of property and equipment:

Schedule of property and equipment

Computer equipment

Machinery & equipment

Furniture & fixtures

Leasehold improvements

Total gross fixed assets

accumulated depreciation and amortization

Property and equipment, net

Depreciation and amortization expense for the years

ended December 31, 2021 and 2020 was $ 75,000 and $ 72,000 , respectively.

Accrued Expenses

Accrued expenses consist of the following, in

Schedule of accrued expenses and other current liabilities

Compensation and benefits

2 unchanged sentences

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:

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

The lease contains an option to terminate after two or three years by providing advance written notice of

termination pursuant to the terms of the agreement.

The exercise of this option was not determined to be reasonably certain and thus

was not included in the lease liability on the Company’s balance sheet.

The Company did not exercise its option to terminate

in either the second or third year of the lease, and the option to terminate has expired.

Additionally, the lease agreement did not

contain information to determine the borrowing rate implicit in the lease.

As such, the Company calculated its incremental borrowing

rate based on what the Company would have to pay to borrow on a collateralized basis over the lease term for an amount equal to the

remaining lease payments, taking into consideration such assumptions as, but not limited to, the U.S.

treasury yield rate and

borrowing rates from a creditworthy financial institution using the above lease factors.

The lease for 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 the lease term (number of

years) and discount rate:

Schedule of lease amounts recorded in balance sheet

December 31, 2021

7 unchanged sentences

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.

Operating lease costs included in operating

expense were $ 132,000 and $ 132,000 for

the years ended December 31, 2021 and 2020, respectively.

Short-term lease costs were not material for the years ended December 31,

2021 and 2020.

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 $ 131,600 and $ 127,800 for the years ended December 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 consolidated

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

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

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

Aggregate future minimum lease payments

Total lease payments

1 unchanged sentence

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.

May 2020, the Company received loan proceeds in the amount of $ 231,252

from Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act.

The PPP loan had a maturity date of May

11, 2022 , interest at a rate of 1 %

per year and monthly principal and interest payments that were deferred to the date that the Small Business Administration (the

“ SBA ”) remitted the borrower’s loan forgiveness amount to the lender.

When applying for the PPP loan, the

Company carefully assessed the requirements for application under the program and believed that the loan was necessary to support

its operations.

The loans under the PPP may be forgiven if used for eligible purposes, including payroll, benefits, rent and

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.

In February 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 consolidated statements of operations for the year ended December

Commitments and Contingencies

License Commitments

The Company acquires assets under development

and enters into research and development arrangements with third parties that often require milestone and royalty payments based

on the progress of the asset through development stages.

Milestone payments may be required, for example, upon approval of the

product for marketing by a regulatory agency.

In certain agreements, the Company is required to make royalty payments based upon

a percentage of the sales of the products licensed pursuant to such agreements.

Because of the contingent nature of these payments,

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

obligations that will require future cash payments as of December 31, 2020 are as follows, in thousands:

The Company acquires assets under development and

enters into research and development arrangements with third parties that often require milestone and royalty payments based on the progress

of the asset through development stages.

Milestone payments may be required, for example, upon approval of the product for marketing by

a regulatory agency.

In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales of the

products licensed pursuant to such agreements.

Because of the contingent nature of these payments, they are not included in the table

of contractual obligations shown below.

During the years ended December 31, 2021 and 2020, the Company

did not trigger any milestone payments.

The Company’s contractual license obligations

that will require future cash payments as of December 31, 2021 are as follows, in thousands:

Schedule of future cash payments for contractual

license obligations

Year Ending December 31,

The Company applies the disclosure provisions

of the FASB ASC Topic 460, “

Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect

Guarantees of Indebtedness of Others ”

ASC 460 ”), to its agreements that contain guarantee or

indemnification clauses.

The Company applies the disclosure provisions of

the FASB ASC Topic 460, “ Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees

of Indebtedness of Others ” (“ ASC 460 ”), to its agreements that contain guarantee or indemnification

The Company provides:

(i) indemnifications of varying scope and size to certain investors and other

parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims;

and (ii) indemnifications of varying scope and size to officers and directors against third-party claims arising from the

services they provide to us.

These indemnifications give rise only to the disclosure provisions of ASC 460.

To date, the Company

has not incurred costs as a result of these obligations and does not expect to incur material costs in the future.

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.

(i) indemnifications of varying scope and size to certain investors and other parties for certain

losses suffered or incurred by the indemnified party in connection with various types of third-party claims;

and (ii) indemnifications

of varying scope and size to officers and directors against third-party claims arising from the services they provide to us.

These indemnifications

give rise only to the disclosure provisions of ASC 460.

To date, the Company has not incurred costs as a result of these obligations and

does not expect to incur material costs in the future.

Accordingly, 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

There are none deemed to be material at this time.

Accordingly, the Company has not accrued any liabilities

in its consolidated financial statements related to proceedings.

Stockholders’

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 2019 Offering ”).

Net proceeds from the November 2019 Offering

were $766,000, after deducting fees and expenses.

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 (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 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.

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.

Accordingly, the Company has not accrued any liabilities in its consolidated

financial statements related to proceedings.

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 $ 12,669,000 after

deducting placement agent fees and offering expenses.

2021 Registered Direct Offering — On February 17, 2021, the Company completed a registered direct offering

of 2,246,784 shares

of the Company’s common stock at a purchase price of $ 3.42 per

share (the “ Offering ”).

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

to purchase a total of 168,509 shares

of the Company’s common stock at an exercise price of $ 4.275 (the

“ February 2021 Placement Agent Warrants ”).

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

after deducting placement agent fees and offering expenses.

February 2020 Registered

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

“ February 2020 Registered Offering ”) of 197,056 shares

of the Company’s common stock at a purchase price of $ 8.705

per share and in a concurrent private placement, sold warrants to purchase an aggregate of 197,056

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

per underlying warrant share and with an exercise price of $ 8.71

per share (the “ February 2020 Registered Direct Warrants ”).

In connection with the February 2020 Registered

Offering, the Company also issued warrants to purchase a total of 14,779 shares of the Company’s common stock with an exercise

price of $11.0375 per share (the “

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

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.

Offering, the Company also issued warrants to purchase a total of 14,779

shares of the Company’s common stock with an exercise price of $ 11.0375

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

Net proceeds to the Company

from the February 2020 Registered Offering were $ 1,467,000

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

February 2020

Underwritten Public Offering — On February 13, 2020, the Company completed an underwritten public offering

of 993,633 shares

of the Company’s common stock at a purchase price per share of $ 4.00 ,

pre-funded warrants (the “ 2020 Pre-Funded Warrants ”) to purchase an aggregate of 1,006,367 shares

of the Company’s common stock at a purchase price per pre-funded warrant share of $ 3.999 and

warrants (the “ February 2020 Warrants ”) to purchase an aggregate of 2,000,000

shares of the Company’s common stock with an exercise price of $ 4.00 per

warrant share (the “ February 2020 Underwritten Offering ”).

The 2020 Pre-Funded Warrants were immediately

exercisable at an exercise price per share of $ 0.001 and

each share of Company common stock or 2020 Pre-Funded Warrant, as applicable, was sold with a February 2020 Warrant.

In connection

with the February 2020 Underwritten Offering, the Company issued warrants to purchase up to 150,000

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

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

In connection with the February

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

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, “

Distinguishing Liabilities from Equity ”

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

As there are no instances outside of

the Company’s control that could require cash settlement of the warrants, the Company’s outstanding warrants are outside

the scope of ASC 480.

Company then applies and follows the applicable accounting guidance in ASC 815.

Financial instruments are accounted for as either

derivative liabilities or as equity instruments depending on the specific terms of the agreement.

The Company’s outstanding

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

within stockholders’

Based on this determination, all of the Company’s outstanding warrants issued are classified

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, 2020:

Balance December 31,

On February 12, 2020, HCW exercised its option

to purchase warrants to purchase an aggregate of 300,000

shares of the Company’s common stock.

Net proceeds from the

February 2020 Underwritten Offering were $ 7,093,000

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

April 2020 Registered

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

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

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

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

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

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

share (the “ April 2020 Warrants ”).

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

to purchase a total of 128,480 shares

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

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

Net proceeds to the Company from

the April 2020 Offering were $ 3,527,000

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

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 Company’s outstanding warrants are outside the scope of ASC 480.

then applies and follows the applicable accounting guidance in ASC 815.

Financial instruments are accounted for as either derivative liabilities

or as equity instruments depending on the specific terms of the agreement.

The warrants issued in the Private Placement and the Offering

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

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

Based on this determination, the Company’s

warrants are classified within stockholders’ equity.

The following

table summarizes the Company’s outstanding equity-classified warrants at December 31, 2021:

Summary of outstanding warrants

Balance December 31,

June 2015 Warrants

December 2016 Warrants

6 unchanged sentences

February 2020 Placement Agent Warrants

February 2020 Underwritten Offering Warrants

February 2020 Pre-funded Warrants

No expiration

February 2020 Warrants

February 2020 Underwriter Warrants

1 unchanged sentence

April 2020 Placement Agent Warrants

During the year ended December 31, 2020,

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.

January 2021 Pre-Funded Warrants

No expiration

January 2021 Warrants

January 2021 Placement Agent Warrants

February 2021

Placement Agent Warrants

( 1,083,321 )

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

from the exercise of warrants during the years ended December 31, 2021 and 2020, respectively.

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 such cashless exercises of warrants during the year ended December

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

Nonvested restricted stock units

Unvested restricted stock units

Warrants to purchase common stock

Stock-based Compensation

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 ”).

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.

The Company’s approved equity plans include

the Phio Pharmaceuticals Corp.

2020 Long Term Incentive Plan (the “ 2020 Plan ”) and the Phio Pharmaceuticals Corp.

Long Term Incentive Plan (the “ 2012 Plan ”).

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, 2021, there were an aggregate

shares of common stock reserved under the 2020 Plan, including 2,499 shares subject to outstanding stock options and 367,101 shares

subject to unvested restricted stock units (“ RSUs ”) and 894,227

shares available for future grants.

RSUs granted by the Company to employees vest annually over 3 years after the grant date,

stock options 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:

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, 2021:

Summary of RSU activity

Grant Date Fair Value

1 unchanged sentence

Unvested units at December 31, 2021

Stock-based compensation expense related

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

Stock-based compensation expense related to RSUs

was $ 443,000 and $ 85,000 for the years ended December 31, 2021 and 2020, respectively.

The aggregate fair value of awards that

vested during the year ended December 31, 2021 was $ 9,400 ,

which represents the market value of the Company’s common stock on the date that the RSUs vested.

As of December 31, 2021, the compensation

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

expense for all unvested RSUs in the amount of approximately $ 770,000 will be recognized in the Company’s results of operations

over a weighted average period of 2.03 years.

Stock Options

Stock options are issued under the 2020

Plan or as inducement grants issued outside of the plan to new employees.

Stock options are generally subject to graded vesting

and the satisfaction of service requirements.

Upon the exercise of a stock option, the Company

issues new shares and delivers them to the recipient.

The Company does not expect to repurchase shares to satisfy stock option

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

Expected volatility

97.67 –

Expected lives (in years)

Expected dividend yield

The weighted-average fair value of

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

Stock options are issued under the 2020 Plan or

as inducement grants issued outside of the plan to new employees.

Stock options are generally subject to graded vesting and the satisfaction

of service requirements.

Upon the exercise of a stock option, the Company issues new shares and

delivers them to the recipient.

The Company does not expect to repurchase shares to satisfy stock option exercises.

The Company uses the Black-Scholes option-pricing

model to determine the fair value of all its option grants.

The risk-free interest rate used for each grant was based upon the

yield on zero-coupon U.S.

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

of the Company’s stock option plan for the year ended December 31, 2020:

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.

yield assumption is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

The Company did not grant stock options during

the years ended December 31, 2021 and December 31, 2020.

The following table summarizes the activity of the Company’s stock option

plan for the year ended December 31, 2021:

Summary of Stock Option Activity

Balance at December 31, 2020

1 unchanged sentence

Exercisable at December 31, 2021

Stock-based compensation expense related

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

Stock-based compensation expense related to stock

options for the years ended December 31, 2021 and 2020 was $ 37,000 and $ 51,000 , respectively.

As of December 31, 2021, the compensation

expense for all unvested stock options in the amount of approximately $58,000 will be recognized in the Company’s results

of operations over a weighted average period of 1.47 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

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 “

Compensation ”) payable in the form of unvested,

restricted shares of the Company’s common stock.

Such restricted shares were received in the form of a series of grants made

on each Company payroll date in lieu of cash payment of the Compensation.

All shares issued in lieu of Compensation vested in full

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 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.

expense for all unvested stock options in the amount of approximately $ 21,000 will be recognized in the Company’s results of operations

over a weighted average period of 0.58 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.

Compensation Expense Related to Equity Awards

1 unchanged sentence

compensation expense for the years ended December 31, 2021 and 2020, in thousands:

Details of Stock-based Compensation Expense

Research and development

1 unchanged sentence

Total stock-based compensation

For the years ended December 31, 2020

and 2019, all of the Company’s loss before income taxes was generated in the United States.

The components of federal and state income

tax expense (benefit) are as follows, in thousands:

The provisions for income taxes for the years ended

December 31, 2021 and 2020 are as follows, in thousands:

Components of Federal and State Income Tax Expense

Years Ended December 31,

2 unchanged sentences

Valuation allowance

Total income tax expense (benefit)

Reconciliation of the effective income tax

rate to the U.S.

Total provision for income taxes

Reconciliation of the effective income tax rate

statutory rate is as follows:

Schedule of effective income tax reconciliation

Years Ended December 31,

5 unchanged sentences

Effective tax rate

The components of the Company’s deferred

The Company recognizes deferred tax assets and

liabilities to reflect the tax effects of temporary differences between the tax basis of assets or liabilities and their reported amounts

in the financial statements in accordance with ASC 740.

These temporary differences will result in taxable or deductible amounts in future

years when the reported amounts of the assets or liabilities are recovered or settled.

ASC 740 requires that a valuation allowance be

established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized.

The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual

During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding

the realizability of its deferred income tax assets to determine if a valuation allowance is required.

Adjustments to the valuation allowance

will increase or decrease the Company’s income tax provision or benefit.

The components of the Company’s deferred

tax assets are as follows, in thousands:

Schedule of deferred

Years Ending December 31,

4 unchanged sentences

Licensing deduction deferral

Other timing differences

Lease liability

Other timing differences

Deferred tax assets

4 unchanged sentences

Net deferred tax asset

The Company’s deferred tax assets

at December 31, 2020 and 2019 consisted primarily of its net operating loss carryforwards, tax credit carryforwards, deferred

compensation and intangible assets capitalized for federal income tax purposes.

The valuation allowance increased $2,641,000 and

$2,532,000 for the years ended December 31, 2020 and 2019, respectively, and is primarily attributable to an increase in net

operating losses and tax credits.

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

the United States, Massachusetts and New Jersey.

The Company is subject to tax examinations for federal and state purposes for

tax years 2012 through 2020.

The Company has not recorded any uncertain tax positions as of December 31, 2020 or 2019.

Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

has not incurred any interest or penalties.

In the event that the Company is assessed interest or penalties at some point in the

future, they will be classified in the financial statements as general and administrative expenses.

License Agreements

As part of its business, the Company enters

into licensing agreements with third parties that often require milestone and royalty payments based on the progress of the asset

through development stages.

Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory

In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales of the products

licensed pursuant to such agreements.

The Company evaluated the realizability of its

net deferred tax assets and concluded that, in accordance with the applicable accounting standards, that it is more likely than not that

the Company may not realize the benefit of all of its deferred tax assets.

Accordingly, a valuation allowance against 100% of its deferred

tax assets has been recorded.

Significant judgment is required in the evaluation of deferred tax benefits and differences in future results

from our estimates could result in material differences in the realization of these assets.

As of December 31, 2021, the Company had

federal net operating loss carryforwards of approximately $ 42,900,000

and state net operating loss carryforwards of approximately $ 18,100,000

to reduce future taxable income.

The utilization of the federal carryforwards as an available offset to future taxable

income is subject to limitations under federal income tax laws.

Under current federal income tax law, federal net operating losses

incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but are limited to 80% of taxable

As of December

31, 2021, approximately $ 42,579,000

of our federal net operating loss carryforwards will carryforward indefinitely, while the remaining federal net operating loss of

will begin to expire in 2031 , unless previously utilized.

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

2038 , unless previously utilized.

In addition, the Company had federal and state research and development credits of approximately

and $ 472,000 ,

respectively, which will begin to expire in 2042 .

Based on an assessment of all available evidence, 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.

Ownership changes may limit the amount of net operating

loss carryforwards or research and development tax credit carryforwards that can be utilized to offset future taxable income or tax liability.

In general, an ownership change, as defined by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “ 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.

If the Company has experienced a change of control, 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 of the Code.

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

before utilization.

During 2021, the Company completed an

assessment of the available net operating loss and tax credit carryforwards under Section 382 and 383 and determined that the

Company underwent six ownership changes during the period from 2012 to 2021.

As a result, net operating loss and tax credit

carryforwards attributable to the pre-ownership changes are subject to substantial annual limitations under Section 382 and 383 of

Code due to the ownership changes.

The Company has adjusted its net operating loss and tax credit carryforwards to address the

impact of the ownership changes.

This resulted in a reduction of available federal and state net operating loss carryforwards of

approximately $ 55,000,000 and $ 70,000,000 , respectively, which related to the years ended December 31, 2020 and prior.

resulted in a reduction of federal and state tax credit carryforwards of approximately $ 1,400,000 and $ 700,000 , respectively,

related to the years ended December 31, 2020 and prior.

Accordingly, the net operating loss and tax credit carryforwards presented

above for the year ending December 31, 2020 were reduced by $ 15,952,000 and $ 2,017,000 , respectively, with a corresponding reduction

to the valuation allowance of $ 17,969,000 .

The recognition and measurement of benefits related

to the Company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, 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 guidance relates to, amongst other things, classification,

accounting for interest and penalties associated with tax positions, and disclosure requirements.

Any interest and penalties accrued related

to uncertain tax positions are recorded as tax expense.

Differences between actual results and the Company’s assumptions or changes

in the Company’s assumptions in future periods are recorded in the period they become known.

The Company has not recorded any uncertain

tax positions as of December 31, 2021 or 2020.

The Company does not believe there will be any material changes in its unrecognized

tax positions over the next 12 months.

The Company has not incurred any interest or penalties.

In the event that the Company is assessed

interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expenses.

The Company files income tax returns in the United

States, Massachusetts and New Jersey.

The Company is subject to tax examinations for federal and state purposes for tax years 2013 through

Collaboration

and License Agreements

In March 2021, the Company 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 collaboration, the companies will develop a T cell-based therapy

using PH-762 and AgonOx’s “double positive” TIL (“ DP TIL ”) technology.

Per the terms of the clinical

development agreement, AgonOx will receive financial support from Phio to conduct a clinical trial with AgonOx’s DP TIL technology

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

The Company did not provide financial support to AgonOx, nor has Phio received milestone or sales-based royalty payments from

AgonOx under this agreement in 2021.

As part of its business, the Company enters into

licensing agreements with third parties that often require milestone and royalty payments based on the progress of the asset through development

Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency.

agreements, the Company is required to make royalty payments based upon a percentage of the sales of the products licensed pursuant to

such agreements.

The expenditures required under these arrangements

may be material individually in the event that the Company develops product candidates covered by the intellectual property licensed

under any such arrangement, 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 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 objectives.

We have entered into

an agreement with Advirna LLC (“

Advirna ”), pursuant to which Advirna assigned to us its existing patent and

technology rights related to the INTASYL™

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”

(as defined therein)

included in the Advirna agreement;

or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated

in accordance with the provisions of the agreement.

Subsequent Events

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 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.

may be material individually in the event that the Company develops product candidates covered by the intellectual property licensed under

any such arrangement, 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 discretion to unilaterally terminate development of the product, which would allow the Company to avoid making the contingent

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

We have entered into an agreement

with Advirna LLC (“ Advirna ”), pursuant to which Advirna assigned to us its existing patent and technology rights related

to the INTASYL™ technology.

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” (as defined therein) included in

the Advirna agreement;

or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated in accordance

with the provisions of the agreement.

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