What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-10 · 325 added, 418 removed, 202 unchanged (79% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share and per

September 30,

Current assets:

Restricted cash

Prepaid expenses and other current assets

Prepaid expenses

Total current assets

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Accounts payable

Accrued expenses and other current liabilities

Accrued expenses

Lease liability

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Lease liability, net of current portion

Long-term debt

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 10)

Stockholders’ equity:

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

13,534,692 and 5,780,973 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

13,658,722 and 13,534,996 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

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(Amounts in thousands, except share and per

Three Months Ended

September 30,

Nine Months Ended

September 30,

Ended March 31,

Operating expenses:

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Operating loss

Other (expense) income

Gain on extinguishment of debt

Interest (expense) income, net

Total other (expense) income

Net loss per share:

Basic and diluted

Net loss per common share:

Weighted average number of common shares outstanding

Basic and diluted

The accompanying notes are an integral part of

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(Amounts in thousands, except share data)

For the Three and Nine Months Ended

For the Three Months Ended

March 31, 2022

Balance at December 31, 2021

$ ( 116,900 )

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

Issuance of common stock

under employee stock purchase plan

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

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 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

Shares withheld for payroll taxes

Stock-based compensation expense

Balance at March 31, 2022

Stock-based compensation expense

Balance at June 30, 2021

Offering costs related to the exercise of warrants

Issuance of common stock upon vesting of restricted stock units

Stock-based compensation expense

Balance at September 30, 2021

$ ( 119,542 )

the Three and Nine Months Ended

September 30, 2020

For the Three Months Ended

March 31, 2021

Balance at December 31, 2020

Issuance of common stock under employee

stock purchase plan

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

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

$ ( 103,613 )

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

Issuance of common stock in registered direct offering, net of offering costs

Issuance of common stock upon the exercise of warrants

Issuance of common stock upon vesting of restricted

Issuance of common stock upon vesting of restricted stock units

Shares withheld for payroll taxes

Stock-based compensation expense

Balance at March 31, 2021

Issuance of common stock and warrants in connection

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

Issuance of common stock upon the exercise of warrants

Issuance of common stock upon vesting of restricted

Stock-based compensation expense

Balance at June 30, 2020

Offering costs related to the exercise of warrants

Issuance of common stock upon vesting of restricted

Stock-based compensation expense

Balance at September 30, 2020

$ ( 107,020 )

The accompanying notes are an integral part of

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(Amounts in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

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Accounts payable

Accrued expenses and other liabilities

Accrued expenses

Lease liability

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Net proceeds from the exercise of warrants

Proceeds from debt

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 in cash and restricted cash

Payment of taxes for net share settled restricted stock unit issuances

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and restricted cash

Cash and restricted cash at the beginning of period

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Nature of Operations

Pharmaceuticals Corp.

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

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

therapeutic platform.

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

proprietary INTASYL platform with utility in immune cells and the tumor microenvironment.

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 a pandemic.

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

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

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.

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

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

providers to our program’s anticipated timelines.

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

for example, limited availability of certain services and supplies, began to significantly affect our operations in the second quarter

of 2021, resulting in delays to certain of our clinical program timelines.

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.

We believe that the coronavirus pandemic has not

had a significant impact on our financial condition to date;

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

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

in the future.

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

and cannot be predicted.

Phio Pharmaceuticals Corp.

“ we ,” “ our ” or the “ Company ”) strives to address the biggest challenges in immuno-oncology

by working to create 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.

Company continues to respond to and monitor the ongoing coronavirus pandemic.

The Company’s corporate headquarters and research

facility have seen limited impact and, during the three months ended March 31, 2022, continued to

operate with safety measures in place for the health and well-being of its employees, such as working remotely and flexible scheduling,

in accordance with guidance from federal, state and local authorities.

The Company believes that the coronavirus pandemic has not had

a significant impact on its financial condition and results of operations for the three months ended March 31, 2022.

However, the Company

may experience delays in enrollment with its current clinical trial and with its clinical trial expected to commence in the middle of

The extent to which the coronavirus pandemic may materially impact our financial results and operations will depend on a number

of factors, including delays in our operations due to limited availability of supplies and services we rely on, the ability to enroll

patients in our clinical trials and the duration of the coronavirus pandemic, which remain difficult to predict and are highly uncertain.

Significant Accounting Policies

Basis of Presentation

The accompanying condensed

consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in

the United States of America (“ GAAP ”).

Certain information and footnote disclosures included in the Company’s

annual financial statements have been condensed or omitted.

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

statements, but does not include all disclosures required by GAAP.

These statements should be read in conjunction with the consolidated

financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,

as filed with the Securities and Exchange Commission (the “ SEC ”).

In the opinion of management, all adjustments (including

normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included.

The accompanying

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

States (“ GAAP ”).

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

statements have been condensed or omitted.

Additionally, certain prior year amounts have been reclassified for consistency with the

current year presentation.

The Company made an adjustment to reflect patent costs within general and administrative operating

expenses in the condensed consolidated statements of operations.

The reclassification increased general and administrative operating

expenses and reduced research and development operating expenses by $ 192,000

for the three months ended March 31, 2021.

This reclassification had no effect on total operating expenses, net loss, net loss per

common share and had no impact on the Company’s condensed consolidated balance sheets, statement of stockholders’ equity

and statement of cash flows for the prior year period.

The year-end condensed consolidated

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

These statements should

be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form

10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “ SEC ”)

on March 22, 2022.

opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed

consolidated financial statements have been included.

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

Principles of Consolidation

The condensed consolidated financial statements

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

All material intercompany accounts have been eliminated

in consolidation.

The condensed consolidated

financial statements include the accounts of Phio and its wholly-owned subsidiary, MirImmune, LLC.

All material intercompany accounts

have been eliminated in consolidation.

Uses of Estimates in Preparation of Financial Statements

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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.

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

revenues and expenses during the reporting period.

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

related to the fair value of equity awards, accruals for research and development expenses, useful lives of property and equipment, 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.

Restricted Cash

Restricted cash consists of

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

Fair Value of Financial

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 condensed consolidated balance sheet that sum to the

total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

Schedule of Cash and Cash Equivalents

Restricted cash

Cash and restricted cash shown in the statement of cash flows

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

in the condensed consolidated 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 Financial Accounting Standards Board (the “ FASB ”) Accounting Standards Codification (“ ASC ”)

Topic 820, “ Fair Value Measurement ,” for the Company’s financial assets and liabilities that are re-measured

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

that is broken down into three levels.

Level inputs are defined as follows:

Level 1 – quoted prices in active markets

for identical assets or liabilities.

Level 2 – other significant observable inputs for the

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

Level 3 – significant unobservable inputs that reflect

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

At March 31, 2022 and December 31, 2021, 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.

the inception of a contract, the Company determines whether the contract is or contains a lease based on all relevant facts and circumstances.

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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.

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.

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

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.

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 including, certain payroll tax benefits, changes to the net operating loss rules and changes to the business interest

expense deduction rules.

On May 11, 2020, the Company received loan proceeds pursuant to the Paycheck Protection Program (the “ PPP ”)

offered under the CARES Act, 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.

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.

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.

Upon loan forgiveness, the Company recognized the extinguishment of the liability in the condensed consolidated statement

of operations as a gain on extinguishment of debt.

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.

Derivative Financial Instruments

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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 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

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 (“ CROs ”)

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.

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.

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

The Company’s historical accrual estimates have not been materially different from its actual costs.

Collaborative Arrangements

Company 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.

The Company recognizes its share of costs arising from research and development activities performed by collaborators in

the period its collaborators incur such expense.

Payments or reimbursements that are the result

of a collaborative relationship instead of a customer relationship, such as co-development activities, are evaluated on a quarterly basis

and recorded as an offset to research and development expense incurred.

In the event the amounts paid to the Company by a collaborative

partner exceed the Company’s research and development expense incurred in a quarterly period, such amounts are classified as collaborative

arrangement revenue.

Stock-based Compensation

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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 impact of any adjustments to our forfeiture rates or to the extent that actual forfeitures differ

from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates are revised.

Comprehensive Loss

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loss is equal to its net loss for all periods presented.

Net Loss per Share

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.

potential common shares primarily consist of warrants, restricted stock units and stock options.

Net Loss per Common Share

net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding.

Diluted net loss

per common 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

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 the sales of its securities.

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

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

This is dependent on a number of

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

There is no guarantee that debt, additional equity

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

If we fail to obtain additional funding when needed, we would

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

The Company has reported

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

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

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.

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.

Company 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 .

time, the potential economic impact brought by the coronavirus pandemic, which may be exacerbated by the global macroeconomic uncertainty

from the ongoing conflict between Russia and Ukraine, is difficult to assess or predict.

There may be developments outside of our control

that require us to adjust our operating plans.

Given the nature of the situation, we cannot reasonably estimate the impact of the coronavirus

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

The Company 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

Recent Accounting Pronouncements

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 period.

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

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.

In August 2020, the FASB

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

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

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

in an entity’s own equity.

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

complexity 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.

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 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.

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

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

In January 2019, the

Company amended the lease for its corporate headquarters and primary research facility in

Marlborough, Massachusetts.

The lease is for a total of 7,581

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

The lease contains an option to terminate after two or

three years by providing advance written notice of termination pursuant to the terms of the agreement.

The 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

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.

Company adopted ASU 2021-04 on January 1, 2022.

The adoption of this standard had no impact on the Company’s condensed consolidated

financial statements.

In January 2019, the Company

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

The lease is for a total

of 7,581 square feet of office and laboratory space and will expire on March 31, 2024 .

The lease contains an option to terminate 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.

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,

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.

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Schedule of lease and supplemental balance sheet information

September 30, 2021

December 31, 2021

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Weighted average discount rate

Operating lease costs included in operating expense

were $ 33,000 for the three months ended September 30, 2021 and 2020.

Operating lease costs included in operating expense were $ 99,000

for the nine months ended September 30, 2021 and 2020.

Short-term lease costs were not material for the three and nine months ended September

30, 2021 and 2020.

Cash paid for the

amounts included in the measurement of the operating lease liability on the Company’s condensed consolidated balance sheets

and included within changes in the lease liability in the operating activities of our condensed consolidated statements of cash

flows was $ 44,200

and $ 32,200 for the three months

ended September 30, 2021 and 2020, respectively.

Cash paid for the nine months ended September 30, 2021 and 2020 was $ 109,500

and $ 95,600 , respectively.

Operating lease costs

included in operating expense were $ 33,000

for the three months ended March 31, 2022 and 2021, respectively.

Cash paid for the amounts

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

within changes in the lease liability in the operating activities of our condensed consolidated statements of cash flows was $ 33,000 and

$ 32,000 for the three months ended March 31, 2022 and 2021, respectively.

Future lease payments for

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

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

consolidated balance sheet as of March 31, 2022 is as follows, in thousands:

Schedule of future minimum lease payments

2 unchanged sentences

Imputed interest

Total operating lease liability (includes current portion)

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

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 utilities.

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.

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

On February 18, 2021, the SBA approved

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

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

interest accrued in the condensed consolidated statements of operations for the nine months ended September 30, 2021.

Total operating lease liabilities (includes current portion)

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

Aid, Relief, and Economic Security Act (the “ CARES Act ”).

The Company followed the guidance under the FASB 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 the 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.

2021, the Small Business Administration 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

for the loan proceeds received and interest accrued in the condensed consolidated statements of operations for the three months

ended March 31, 2021.

Stockholders’ Equity

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

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

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

share of $ 3.069 and warrants to purchase an aggregate of 3,420,696 shares of the Company’s common stock with an exercise price of

$ 3.00 per warrant share (the “ January 2021 Warrants ”) (the “ Private Placement ”).

In connection with

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

Wainwright & Co., LLC (“ HCW ”),

to purchase a total of 342,070 shares of the Company’s common stock at an exercise price of $ 3.8375 (the “ January 2021

Placement Agent Warrants ”).

Net proceeds to the Company from the Private Placement were $ 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

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.

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

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.

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 ”).

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

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.

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

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

As there were no instances outside of the Company’s

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

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

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 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.

January 2021 Private

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

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

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

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

pre-funded warrant 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 (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

per warrant (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

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

per warrant (the “ February 2021 Placement Agent Warrants ”).

Net proceeds to the Company from the Offering were

after deducting placement agent fees and offering expenses.

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 from any of the warrant series issued in the Company’s financing transactions, the Company’s outstanding warrants

are outside the scope of ASC 480.

The Company then applies

and follows the applicable accounting guidance in the FASB ASC Topic 815, “ Derivatives and Hedging.

instruments are accounted for as either derivative liabilities or equity instruments depending on the specific terms of the

The warrants issued by the Company do not meet the definition of a derivative instrument as they are indexed to the

Company’s common stock and classified within stockholders’ equity.

Based on this determination, the Company’s

warrants are classified within stockholders’ equity.

The following table summarizes the Company’s

outstanding equity-classified warrants at September 30, 2021:

outstanding equity-classified warrants at March 31, 2022:

Schedule of outstanding warrants

Balance December 31,

December 2016 Warrants

April 2018 Warrants

2 unchanged sentences

October 2018 Underwriter Warrants

November 2019 Placement Agent

February 2020 Registered Direct

February 2020 Placement Agent

February 2020

November 2019 Placement Agent Warrants

February 2020 Registered Direct Warrants

February 2020 Placement Agent Warrants

February 2020 Warrants

February 2020 Underwriter Warrants

1 unchanged sentence

April 2020 Placement Agent Warrants

January 2021 Pre-Funded Warrants

No expiration

January 2021 Warrants

January 2021 Placement Agent

2021 Placement Agent Warrants

( 1,083,321 )

January 2021 Placement Agent Warrants

February 2021 Placement Agent Warrants

No warrants were exercised

during the three months ended September 30, 2021 and 2020.

The Company received net proceeds of $ 2,146,000 and $ 3,856,000 from the exercise

of warrants during the nine months ended September 30, 2021 and 2020, respectively.

the warrants exercised during the nine months ended September 30, 2020, 428,266 of the Company’s April 2020 Warrants were exercised

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

There were no cashless exercises

of warrants for the nine months ended September 30, 2021.

Net Loss per Share

during the three months ended March 31, 2022.

The Company received net proceeds of $ 2,146,000 from the exercise of warrants during the

three months ended March 31, 2021.

Loss per Common 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:

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

anti-dilutive:

Schedule of antidilutive stock

September 30,

Options to purchase common stock

3 unchanged sentences

Restricted Stock Units

Restricted stock units (“ RSUs ”)

are issued under the Company’s 2020 Long-Term Incentive Plan (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.

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.

Restricted stock units (“ RSUs ”) are issued under

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

Plan to new employees.

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

Upon vesting,

each outstanding RSU will be 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 nine months ended September 30, 2021:

the Company’s RSUs for the three months ended March 31, 2022:

Schedule of RSU activity

Grant Date Fair Value

Unvested units at December 31, 2021

Unvested units at September 30, 2021

compensation expense related to RSUs was $ 132,000 and $ 21,000 for the three months ended September 30, 2021 and 2020, respectively.

compensation expense related to RSUs was $ 313,000 and $ 69,000 for the nine months ended September 30, 2021 and 2020, respectively.

Unvested units at March 31, 2022

compensation expense related to RSUs was $ 179,000 and $ 57,000 for the three months ended March 31, 2022 and 2021, respectively.

The aggregate fair value of awards that

vested during the three months ended March 31, 2022 and 2021 was $ 128,000

and $ 8,000 ,

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

Stock Options

1 unchanged sentence

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.

subject to graded vesting and the satisfaction of certain service requirements.

Upon the exercise of a stock option, the Company

issues new shares and delivers them to the recipient.

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

8 unchanged sentences

and presently has no intention of paying cash dividends.

Company did not grant stock options during the three and nine months ended September 30, 2021 and 2020.

Company did not grant stock options during the three months ended March 31, 2022 and 2021.

The following table summarizes the activity of

the Company’s stock options for the nine months ended September 30, 2021:

the Company’s stock options for the three months ended March 31, 2022:

Schedule of Stock Option Activity

Balance at December 31, 2021

Balance at September 30, 2021

Exercisable at September 30, 2021

Balance at March 31, 2022

Exercisable at March 31, 2022

Stock-based compensation expense

related to stock options for the three months ended September 30, 2021 and 2020 was $ 11,000 and $ 16,000 , respectively.

Stock-based compensation

expense related to stock options for the nine months ended September 30, 2021 and 2020 was $ 29,000 and $ 41,000 , respectively.

related to stock options for the three months ended March 31, 2022 and 2021 was $ 7,000 and $ 10,000 , respectively.

Compensation Expense Related to Equity Awards

The following table sets

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

Schedule of Details of Stock-based Compensation Expense

Three Months Ended

Nine Months Ended

September 30,

forth total stock-based compensation expense for the three months ended March 31, 2022 and 2021, in thousands:

Schedule of stock based compensation expense

Research and development

1 unchanged sentence

Total stock-based compensation

Company has incurred net operating losses since inception and based on an assessment of all available evidence, has concluded that it

is more likely than not that the net operating loss carryforwards generated as result will not be realized and a full deferred income

tax valuation allowance has been recorded against these assets.

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

382 of the Internal Revenue Code as 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, utilization of the net operating loss carryforwards would be subject to an annual limitation.

The Company is in the process of conducting a study to assess the utilization of its net operating loss carryforwards and may be subject

to substantial annual limitations.

Collaboration Agreements

In March 2021, the Company

entered into a clinical co-development collaboration agreement 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 clinical development agreement,

the companies are working to 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, the Company committed to make future payments of up to

$ 4,000,000 to reimburse AgonOx for expenses incurred to support a clinical trial with AgonOx’s DP TIL technology and PH-762.

Company will recognize its share of costs arising from research and development activities performed by AgonOx in the Company’s

financial statements in the period AgonOx incurs such expense.

Phio will be entitled to certain future development milestones and low

single-digit sales-based royalty payments from AgonOx’s licensing of its DP TIL technology.

There were no reimbursable costs incurred

by AgonOx under the clinical development agreement during the three months ended March 31, 2022 and 2021.

No milestone or sales-based

royalty payments from AgonOx have been received to date.

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

What changed 10-Q

Item 1. Financial Statements