What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-22 compared with 2022-03-22 · 518 added, 646 removed, 367 unchanged (76% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Registered Public Accounting Firm (BDO USA, LLP;

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

Boston, Massachusetts;

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Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021

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

Consolidated Statements of Preferred

Stock and Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

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Report of Independent Registered Public Accounting

Stockholders and Board of Directors

Shareholders and Board of Directors

Phio Pharmaceuticals Corp.

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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, 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”).

We have audited the accompanying consolidated

balance sheets of Phio Pharmaceuticals Corp.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements

of operations, preferred stock and stockholders’ equity, and cash flows for each of the years then ended, 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.

present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its

operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United

States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements

have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements,

the Company does not generate revenues and continues to suffer recurring losses from operations that raise substantial doubt about its

ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated

financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 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.

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.

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

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

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.

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 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 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

Critical audit matters are matters arising from

the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially

challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

We have served as the Company's auditor since

/s/ BDO USA, LLP

Boston, Massachusetts

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Total current assets

Right of use asset, net

Right of use asset

Property and equipment, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Lease liability, net of current portion

Long-term debt

Total liabilities

Commitments and contingencies (Footnote 8)

Temporary Equity Abstract

Series D Preferred Stock, $ 0.0001

shares authorized, issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Stockholders’ equity:

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

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

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Total stockholders’ equity

Total liabilities and stockholders’ equity

Total liabilities, preferred stock and stockholders’ equity

See accompanying notes to consolidated financial

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(Amounts in thousands, except share and per

Twelve Months Ended

Operating expenses:

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Operating loss

Other income (expense)

Gain on extinguishment of debt

Interest (expense) income, net

Total other income (expense)

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

Net loss per share:

Basic and diluted

Net loss per common share:

Weighted average number of common shares outstanding

Basic and diluted

See accompanying notes to consolidated financial

PHIO PHARMACEUTICALS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

D Preferred Stock

Balance at December 31, 2020

Cash in lieu of fractional shares

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

$ ( 103,613 )

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

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

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

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 December 31, 2021

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

$ ( 116,900 )

Issuance of common stock upon vesting of restricted stock units

Shares withheld for payroll taxes

Issuance of preferred stock

Stock-based compensation expense

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(Amounts in thousands)

Twelve Months Ended

Cash flows from operating activities:

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Depreciation and amortization

Non-cash lease expense

Amortization of right of use asset

Non-cash stock-based compensation

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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

Net proceeds from the issuance of preferred stock

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

Cash and restricted cash at the end of period

Supplemental disclosure of cash flow information:

Interest paid

The following table provides a reconciliation of cash and restricted

cash reported within the consolidated balance sheets to the totals above:

Restricted cash

Total cash and restricted cash

See accompanying notes to consolidated financial

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Significant Accounting Policies

Nature of Operations

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

(“ Phio ,” “ we ,” “ our ” or the “ Company ”) is a clinical

stage biotechnology company whose proprietary INTASYL™ self-delivering RNAi technology platform is designed to make immune

cells more effective in killing tumor cells.

We are developing therapeutics that are designed to leverage INTASYL to precisely

target specific proteins that reduce the body’s ability to fight cancer, without the need for specialized formulations or drug

delivery systems.

We are committed to discovering and developing innovative cancer treatments for patients by creating new pathways

toward a cancer-free future.

The Company continues to respond to and monitor

the ongoing coronavirus pandemic.

The Company believes that the coronavirus pandemic has not had a significant impact on its financial

condition and results of operations, however, the extent to which the coronavirus pandemic may materially impact our financial results

and operations will depend on a number of factors, including the availability of supplies and services we rely on, the ability to enroll

subjects in our clinical trials, the emergence of variant strains of the coronavirus, the development, availability, and public acceptance

of effective treatments and vaccines, and the duration of the coronavirus pandemic, which remain difficult to predict and are highly uncertain.

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, which may be adversely impacted by the coronavirus pandemic, rates

of inflation and the ongoing conflict between Russia and Ukraine.

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.

Company has limited cash resources, has reported recurring losses from operations since inception and has not yet received product revenues.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern, and the Company’s current

cash resources may not provide sufficient capital to fund operations for at least the next 12 months from the date of the release of these

financial statements.

The continuation of the Company as a going concern depends upon the Company’s ability to raise additional

capital through an equity offering, debt offering or strategic opportunity to fund its operations.

There can be no assurance that the

Company will be successful in accomplishing these plans in order to continue as a going concern.

These financial statements do not include

any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary

should the Company be unable to continue as a going concern.

Basis of Presentation

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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

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All material intercompany accounts have been eliminated in consolidation.

Reverse Stock Split

Effective January 26, 2023, the Company completed

a 1-for-12 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 split.

The reverse stock split did

not reduce the number of authorized shares of the Company’s common stock or preferred stock.

Uses of Estimates in Preparation of Financial Statements

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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

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

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

other relevant assumptions that we believe are reasonable under the circumstances.

Actual results could differ materially from these estimates.

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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

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

per institution.

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 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

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Leasehold improvements

of remaining lease term or 5 years

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, 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 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.

annually or whenever an event or change in circumstance occurs in which 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.

As of December 31, 2022 and 2021,

the Company believes no impairment existed.

At the inception of a contract, the Company determines

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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.

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 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

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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, 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.

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

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.

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

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

The Company follows the provisions of the Financial

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

Patents and Patent Application Costs

Although the Company believes that its patents

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Stock-based Compensation

The Company follows the provisions of the FASB

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

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.

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 fair value of restricted stock units (“ RSUs ”)

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.

compensation expense is recognized on a straight-line basis 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.

Stock-based compensation expense recognized in

the financial statements is based on awards that are ultimately expected to vest.

Accordingly, we are also required to estimate forfeitures

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

Our forfeiture rate estimates are based on an analysis of our actual forfeiture experience, employee turnover behavior, and other

The impact of any adjustments to our forfeiture rates or to the extent that actual forfeitures differ from our estimates, is

recorded as a cumulative adjustment in the period the estimates are revised.

The Company recognizes assets or liabilities for

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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.

Valuation 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.

Comprehensive Loss

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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.

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.

RSUs and stock options.

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 ”

In May 2021, the FASB issued Accounting Standards

Update 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 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 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.

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

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.

The adoption of this standard had

no impact on the Company’s consolidated financial statements.

Collaboration and License Agreements

In March 2021, the Company

entered into a clinical co-development collaboration agreement (the “ Clinical Agreement ”) with AgonOx, a private

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

Clinical Agreement, Phio and AgonOx are working to develop a T cell-based therapy using the Company’s lead product candidate,

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

Per the terms of the Clinical

Agreement, the Company committed to make future payments of up to $ 4,000,000

to reimburse AgonOx for expenses incurred to support the Phase 1 clinical trial with the DP TIL technology and PH-762.

The 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.

The Company recognized approximately $ 130,000

of expense in connection with these efforts during the year ended December 31, 2022.

expense under the Clinical Agreement was recognized during the year ended December 31, 2021.

was approximately $ 120,000

recorded as prepaid expenses and other current assets as of December 31, 2022.

RNA Technologies, LLC (“ Advirna ”)

In September 2011, the Company entered into an agreement

with Advirna, pursuant to which Advirna assigned to us its existing patent and technology rights related to the INTASYL technology

in exchange for an annual maintenance fee of $ 100,000 , a one-time milestone payment upon the future issuance of the first patent with

valid claims covering the assigned patent and technology rights and the issuance of shares of common stock of the Company equal to 5 %

of the Company’s fully-diluted shares outstanding at the time of issuance.

The one-time milestone payment and the issuance of shares

of common stock in the Company were completed in 2014 and 2012, respectively.

Additionally, the Company is required to pay low single-digit

royalties to Advirna on any licensing revenue received by the Company with respect to future licensing of the assigned Advirna patent

and technology rights.

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

Phio’s 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 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.

Further, the Company also granted back to Advirna a license under the assigned patent and technology

rights for fields of use outside human therapeutics.

Value of Financial Instruments

Company follows the provisions of the FASB 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:

quoted prices in active markets for identical assets or liabilities.

2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement

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.

December 31, 2022 and 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 carrying amounts of cash,

accounts payable and accrued expenses of the Company approximate their fair values due to their short-term nature.

Property and Equipment

The following table summarizes the Company’s

major classes of property and equipment:

major classes of property and equipment, in thousands:

Schedule of property and equipment

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Accrued Expenses

Accrued expenses consist of the following, in

Accrued expenses consist of the following, in thousands:

Schedule of accrued expenses and other current liabilities

2 unchanged sentences

Research and development costs

Total accrued expenses and other current liabilities

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.

Total accrued expenses

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.

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

all of our significant lease obligations.

The amounts reported in the consolidated balance sheets for operating leases in which the Company

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Schedule of lease amounts recorded in balance sheet

December 31, 2021

December 31, 2020

Right of use asset

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Weighted average discount rate

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.

Operating lease costs included in operating expense

were $ 132,000 for the years ended December 31, 2022 and 2021, respectively.

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

in the operating activities of our consolidated statements of cash flows was $ 135,000 and $ 132,000 for the years ended December 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 consolidated balance sheet

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

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, 2022 is as follows, in thousands:

Aggregate future minimum lease payments

2 unchanged sentences

Total operating lease liabilities (includes current portion)

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

In 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 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.

In February 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 of $ 233 ,000 for the loan proceeds received and interest accrued in the consolidated

statements of operations for the year ended December 31, 2021.

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, 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,

In March 2021, the

Company entered into a Clinical Agreement with AgonOx to develop a T cell-based therapy using the Company’s lead product

candidate, PH-762, and AgonOx’s DP TIL technology.

Per the terms of the Clinical Agreement, the Company committed to make

future payments of up to $ 4,000,000

to reimburse AgonOx for expenses incurred to support the Phase 1 clinical trial with the DP TIL technology and PH-762.

to Note 2 for further details on the Clinical Agreement with AgonOx.

The Company applies the disclosure provisions of

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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.

Refer to Note 6 for more information about the

Company’s obligations under its non-cancellable lease for its corporate headquarters.

License Commitments

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 progress through clinical trials, upon approval of the product by a regulatory

agency and/or upon a percentage of sales of the product pursuant to such agreements.

The expenditures required under these arrangements

may be material individually in relation to any product candidates covered by the intellectual property licensed under any such arrangement,

and material in the aggregate in the unlikely event that milestones for multiple products covered by these arrangements were reached in

the same period.

Due to the contingent nature of these payments, they are not included in the table of contractual obligations shown below.

During the years ended December 31, 2022 and 2021,

the Company did no t trigger any milestone payments.

The Company’s contractual license obligations

that will require future cash payments as of December 31, 2022, which result from payments expected in connection with annual license

fees, are as follows, in thousands:

Schedule of future cash payments for contractual license obligations

Year Ending December 31,

From time to time, the Company may become a party

to various legal proceedings and complaints arising in the ordinary course of business.

To the Company’s knowledge, it is not currently

a party to any actual or threatened material legal proceedings.

Accordingly, there were no contingent liabilities recorded as of the year

ended December 31, 2022.

Preferred Stock

The Company has authorized up to 10,000,000

shares of preferred stock, $ 0.0001

par value per share, for issuance.

The Company’s Board of Directors is authorized under the Company’s Amended and

Restated Articles of Incorporation, to designate the authorized preferred stock into one or more series and to fix and determine

such rights, preferences, privileges and restrictions of any series of preferred stock, including voting rights, dividend rights,

conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s Board of

Directors upon its issuance.

At December 31, 2022, the Company had designated one share of preferred

stock as Series D Preferred Stock and the remaining authorized shares were undesignated.

On November 16, 2022, the Company issued and

sold one share of the Company’s Series D Preferred Stock, par value $ 0.0001 per share (the “ Series D Preferred

Stock ”) to Robert Bitterman, then its interim Executive Chairman and current Chief Executive Officer, for $ 1,750 .

The Series D Preferred Stock was entitled to 17,500,000 votes per share exclusively with respect to any proposal to amend the

Company’s Amended and Restated Certificate of Incorporation (as may be amended and/or restated from time to time, the

“ Amended Certificate ”) to effect a reverse stock split of the Company’s common stock (“ Reverse

Stock Split ”).

The terms of the Series D Preferred Stock provided that it would be voted, without action by the holder, on

any such proposal in the same proportion as shares of the Company’s common stock were voted.

The Series D Preferred Stock

otherwise had no voting rights except as otherwise required by the General Corporation Law of the State of Delaware.

The Series D Preferred Stock was not convertible into,

or exchangeable for, shares of any other class or series of stock or other securities of the Company.

The Series D Preferred Stock had

no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger,

acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily.

The holder of the Series D Preferred

Stock was not entitled to receive dividends of any kind.

Under its terms, the outstanding share of Series D

Preferred Stock was to be redeemed in whole, but not in part, at any time:

(i) if such redemption was approved by the Board of Directors

in its sole discretion or (ii) automatically and effective upon the approval by the Company's stockholders of a Reverse Stock Split.

such redemption, the holder of the Series D Preferred Stock was entitled to receive consideration of $ 1,750 in cash.

The Series D Preferred Stock has been classified

outside of permanent equity (within the mezzanine section between liabilities and equity on the balance sheets) as the Company may not

be able to control the actions necessary to provide for a redemption in full of the then outstanding Series D Preferred Stock.

The Series D Preferred Stock was redeemed in whole

on January 4, 2023, upon the approval by the Company’s stockholders of a Reverse Stock Split.

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 ,

January 2021 Private

Placement — In January 2021, the Company completed a private placement of 368,405

shares of the Company’s common stock at a purchase price per share of $ 36.84 ,

pre-funded warrants to purchase an aggregate of 11,672

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

shares of the Company’s common stock at a purchase price per pre-funded warrant of $ 36.828

and warrants to purchase an aggregate of 285,061

shares of the Company’s common stock with an exercise price of $ 36.00

per warrant (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 28,509

shares of the Company’s common stock at an exercise price of $ 46.05

Net proceeds to the Company from the Private Placement were $ 12,669,000

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

February 2021 Registered Direct Offering

— In February 2021, the Company completed a registered direct offering of 187,232 shares

of the Company’s common stock at a purchase price of $ 41.04

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.

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 ”).

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

per share (the “ Offering ”).

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

HCW, to purchase a total of 14,044

shares of the Company’s common stock at an exercise price of $ 51.30

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

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 are no instances outside of the Company’s control that could require cash

settlement from the warrants issued by the Company, the 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.

” Financial instruments are accounted for as

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

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, 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:

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, 2022:

Summary of outstanding warrants

Balance December 31,

December 2016 Warrants

April 2018 Warrants

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April 2020 Placement Agent Warrants

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:

Schedule of antidilutive stock

Options to purchase common stock

Unvested restricted stock units

Warrants to purchase common stock

February 2021 Placement Agent Warrants

No warrants were exercised during the year ended

December 31, 2022.

The Company received net proceeds of $ 2,146 ,000 from the exercise of warrants during the year ended December 31, 2021.

Stock-based Compensation

The Company’s approved equity plans include

the Phio Pharmaceuticals Corp.

The Company’s approved equity plans include the

Phio Pharmaceuticals Corp.

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

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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 grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSU 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, 2022, 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 of common stock reserved under the 2020 Plan, including 141

shares subject to outstanding stock options and 47,328

shares subject to unvested RSUs and 43,807

shares available for future grants.

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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.

RSUs are issued under 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 service requirements.

Upon vesting, each outstanding RSU will be settled for one share of the Company’s common

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

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Unvested units at December 31, 2022

The weighted-average fair value of RSUs granted during

the years ended December 31, 2022 and 2021 was $ 10.08 and $ 35.28 , respectively.

Stock-based compensation expense related to RSUs

was $ 401,000 and $ 443,000 for the years ended December 31, 2022 and 2021, 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.

The aggregate fair value of awards that vested

during the years ended December 31, 2022 and 2021 was $ 138,000 and $ 9,000 , which represents the market value of the Company’s common

stock on the date that the RSUs vested.

As of December 31, 2022, the compensation

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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.

Stock options are available for issuance under the

2020 Plan or as inducement grants issued outside of the 2020 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.

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The Company did not grant stock options during

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

the years ended December 31, 2022 and 2021.

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

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Balance at December 31,

Unvested shares cancelled

Vested shares cancelled

Balance at December 31, 2022

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As of December 31, 2022, the compensation

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.

expense for all unvested stock options was recognized in the Company’s results of operations.

There is no income tax benefit as the Company is

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Total stock-based compensation

The provisions for income taxes for the years ended

The provision for income taxes for the years ended

December 31, 2022 and 2021 are as follows, in thousands:

Components of Federal and State Income Tax Expense

Years Ended December 31,

Ended December 31,

Total current

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Total provision for income taxes

Reconciliation of the effective income tax rate

statutory rate is as follows:

The following table presents a reconciliation of

statutory tax rate to the Company’s actual effective income tax rate:

Schedule of effective income tax reconciliation

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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

The significant components of the Company’s

net deferred tax assets and liabilities are as follows, in thousands:

Schedule of deferred tax assets

Years Ending December 31,

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Stock-based compensation

Licensing deduction deferral

Capitalized research and development expenses

Lease liability

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Net deferred tax asset

The Tax Cuts and Jobs Act of 2017 included a provision

that requires the capitalization and amortization of research and development costs incurred in tax years beginning after December 31,

Under this provision, U.S.-based research and development expenses are amortized over a period of five years and non-U.S.-based

research and development expenses are amortized over a period of 15 years.

The deferred tax assets as of December 31, 2022 included capitalized

research and development expenses of $ 1,662,000 .

The Company evaluated the realizability of its

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As of December 31, 2022, the Company had

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

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

federal net operating loss (“ NOL ”) carryforwards of approximately $ 49,200,000

and state NOL carryforwards of approximately $ 23,200,000

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.

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, the Company’s federal NOLs

generated in tax years beginning after December 31, 2017, totaling approximately $ 48,879,000 ,

may be carried forward indefinitely, but are limited to offset up to 80% of future taxable income.

The remaining federal NOLs

generated, totaling approximately $ 321,000 ,

will begin to expire in 2037

and the Company’s available state NOL carryforwards will begin to expire in 2038 .

In addition, the Company had federal and state research and development credits of approximately $ 819,000

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respectively, which will begin to expire in 2041

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 .

and 2036 , respectively.

Ownership changes may limit the amount of NOL carryforwards

or tax credit carryforwards that can be utilized to offset future taxable income or tax liability.

Pursuant to Sections 382 and 383

of the Internal Revenue Code of 1986, as amended (the “ Code ”), NOL and tax credit carryforwards may be subject to annual

limitations in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

Any limitation may result

in expiration of a portion of the NOL carryforwards or tax credit carryforwards before utilization.

During 2021, the Company completed an assessment

of the available NOL and tax credit carryforwards under Sections 382 and 383 of the Code and determined that the Company underwent six

ownership changes during the period from 2012 to 2021.

As a result, NOL 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 adjusted

its NOL and tax credit carryforwards to address the impact of the ownership changes.

For the years ended prior to December 31, 2021, federal

and state NOLs of $ 55,000,000 and $ 70,000,000 , respectively, were reduced and federal and state tax credit carryforwards of $ 1,400,000

and $ 700,000 , respectively, were also reduced.

The Company assesses the need to conduct an ownership

change analysis to determine whether any changes occurred in ownership that would limit NOL or tax credit carryforwards on an annual basis.

Due to the minimal number of share issuances during the year, the Company did not conduct an ownership change analysis in 2022.

may experience ownership changes in the future as a result of subsequent shifts in stock ownership, some of which may be outside of the

Company’s control.

The recognition and measurement of benefits related

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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.

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

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The Company is subject to tax examinations for federal and state purposes for tax years 2014 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

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.

Net Loss per Share

The following table sets 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

Options to purchase common stock

Unvested restricted stock units

Warrants to purchase common stock

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data