What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-22 · 597 added, 489 removed, 396 unchanged (73% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Report of Independent Registered Public Accounting Firm (BDO USA, P.C.;

Boston, Massachusetts;

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Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Preferred

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

Consolidated Statements of Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

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Phio Pharmaceuticals, Corp.

Marlborough, Massachusetts

Opinion on 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, 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.

Massachusetts

on the Consolidated Financial Statements

We have audited

the accompanying consolidated balance sheets of Phio Pharmaceuticals, Corp.

(the “Company”) as of December 31, 2023 and 2022,

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,

2023 and 2022, 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.

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 has suffered recurring losses from operations and negative cash flows 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

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.

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.

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

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

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

We conducted our audits in accordance

with the standards of the PCAOB.

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

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

The Company is not required to

have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required

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

of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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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.

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

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Critical Audit Matter

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

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

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially

challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

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 Certain Warrants Issued in 2023

As described in Note 9 to the consolidated

financial statements, the Company completed each of two registered direct offerings of common stock and concurrent private placement

offerings of warrants to purchase common stock in April and June 2023 (the “April 2023 Financing” and “June 2023

Financing”, respectively).

In December 2023, the Company issued additional warrants to purchase common stock to certain

holders of existing warrants in connection with an Inducement Letter Agreement (the “December 2023 Financing”).

Company assessed the warrants issued in the April 2023 Financing, June 2023 Financing and December 2023 Financing to determine

whether the warrants should be accounted for as either liabilities or equity instruments depending on the specific terms of the

The Company determined that the warrants issued in the April 2023 Financing, June 2023 Financing and December 2023

Financing were classified within stockholders’ equity.

We identified the assessment of the accounting for certain warrants

to purchase common stock issued in connection with the April 2023 Financing, June 2023 Financing and December 2023 Financing as a critical

audit matter.

Determining whether the certain warrants issued should be accounted for as either liabilities or equity instruments requires

significant judgment due to the application of complex technical accounting guidance.

Auditing this element required especially challenging

and complex auditor judgement due to the nature and extent of the audit effort required to address the matter, including the need for

specialized knowledge and skill in assessing elements of the agreements.

The primary procedures we performed to address this critical audit

matter included:

and analyzing agreements related to the certain warrants issued to identify relevant terms

and conditions that affect whether the certain warrants issued should be accounted for as

either liabilities or equity instruments.

whether the certain warrants issued should be accounted for as either liabilities or equity

personnel with specialized knowledge and skill in the relevant technical accounting guidance

to evaluate the appropriateness of the Company’s application of the relevant technical

accounting guidance in determining whether the certain warrants issued should be accounted

for as either liabilities or equity instruments.

/s/ BDO USA, P.C.

We have served as the Company's auditor since

/s/ BDO USA, LLP

Boston, Massachusetts

March 22, 2023

April 1, 2024

PHIO PHARMACEUTICALS CORP.

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Commitments and contingencies (Footnote 7)

Temporary Equity Abstract

Series D Preferred Stock, $ 0.0001

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

Series D Preferred Stock, $ 0.0001 par value;

0 and 1 shares authorized, issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Stockholders’ equity:

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General and administrative

Loss on impairment of property and equipment

Total operating expenses

Operating loss

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

Total other expense, net

Net loss per common share:

Basic and diluted

Weighted average number of common shares outstanding

Basic and diluted

See accompanying notes to consolidated financial

PHIO PHARMACEUTICALS CORP.

STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

D Preferred Stock

Series D Preferred Stock

Balance at December 31, 2021

$ ( 116,900 )

Issuance of common stock, pre-funded

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

Issuance of common stock 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

Issuance of preferred stock

Stock-based compensation expense

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$ ( 128,380 )

Cash-in-lieu of fractional shares for reverse stock split

Redemption of preferred stock

Issuance of common stock and warrants, net of offering costs

Issuance of common stock upon exercise of warrants

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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Amortization of right of use asset

Non-cash stock-based compensation

Forgiveness of debt

Impairment of property and equipment

Stock-based compensation

Changes in operating assets and liabilities:

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Net proceeds from the issuance of common stock and warrants

Net proceeds from the exercise of warrants

Payments of taxes for net share settled restricted stock unit issuances

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-in-lieu of fractional shares for reverse stock split

Redemption of Series D Preferred Stock

Payment of taxes on net share settlements of restricted stock units

Net cash provided by (used in) financing activities

Net decrease in cash and restricted cash

Cash and restricted cash at the beginning of period

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Phio Pharmaceuticals Corp.

(“ 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.

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.

The Company is 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.

Phio was incorporated in the state of Delaware

in 2011 as RXi Pharmaceuticals Corporation.

On November 19, 2018, the Company changed its name to Phio Pharmaceuticals Corp., to reflect

its transition from a platform company to one that is fully committed to developing groundbreaking immuno-oncology therapeutics.

Basis of Presentation

The accompanying financial statements have been

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

The accompanying consolidated financial statements

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

Principles of Consolidation

The consolidated financial statements include the

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

All material intercompany accounts have been eliminated in consolidation.

The consolidated financial statements include

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

All material intercompany accounts have been eliminated

in consolidation.

The Company operates as one operating

segment and all assets are located in the United States.

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.

Effective January 26, 2023, the Company

completed a 1-for-12

reverse stock split of the Company’s outstanding common stock (the “ Reverse Stock Split ”).

and per share amounts in the consolidated 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

Additionally, the Company made adjustments to the outstanding stock option and unvested restricted stock unit

(“ RSU ”) balances, and related per share amounts, at December 31, 2022 to reflect final revisions to those

outstanding equity awards as a result of 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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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 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.

Actual results could differ materially from these estimates.

of equity awards, accruals for research and development expenses, useful lives of property and equipment, and the valuation allowance

on our deferred tax assets.

On an ongoing basis the Company evaluates its estimates and bases its estimates on historical experience and

other relevant assumptions that the Company believes are reasonable under the circumstances.

Actual results could differ materially from

these estimates.

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 the Company fails to obtain additional funding when needed, the Company would be forced to scale back or terminate

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

The Company has limited cash resources, has reported

recurring losses from operations since inception, negative operating cash flows 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 consolidated

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 and/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 consolidated 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.

Restricted Cash

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Concentrations of Credit Risk

Financial instruments that potentially subject

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

The Company maintains cash balances in several accounts with

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

These accounts

are insured by the Federal Deposit Insurance Corporation 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 reputable financial institution that management believes is creditworthy, and 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.

relies, and expects to continue to rely, on a small number of vendors to perform research activities and clinical trial activities that

continue to progress its product candidates for its development programs.

These programs could be adversely affected by a significant

interruption in the related processes of these vendors.

Property and Equipment

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Leasehold improvements

of remaining lease term or 5 years

Lesser of lease term or 5 years

Impairment of Long-Lived Assets

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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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activities performed by collaborators in the period its collaborators incur such expense.

Payments or reimbursements that are the result

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.

Payments in excess of our collaboration expense will be recorded as

Patents and Patent Application Costs

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

costs are, therefore, expensed as general and administrative costs as incurred.

are, therefore, expensed as general and administrative costs as incurred.

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 (“ 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.

The fair value of 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.

Stock-based 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

the consolidated 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.

historical data to estimate pre-vesting award forfeitures and record stock-based compensation expense only for those awards that are expected

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

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

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

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

are recovered or settled.

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

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

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.

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

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

of the assets or liabilities are recovered or settled.

Those temporary differences referred to as deferred tax assets and liabilities

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

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

tax asset will not be realized.

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

income tax assets and liabilities during the period.

The recognition and measurement of benefits related

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

of existing laws, and rulings by taxing authorities.

The Company follows a more-likely-than not threshold for financial statement recognition

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

The guidance relates to, amongst other things, classification,

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

Any interest and penalties accrued related

to uncertain tax positions are recorded as tax expense.

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

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

Comprehensive Loss

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Recent Accounting Pronouncements

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 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 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

In November 2023, the FASB issued Accounting Standards

Update (“ ASU ”) 2023-07, “ Segment Reporting (Topic 280) – Improvements to Reporting Segment Disclosures”

(“ ASU 2023-07 ”), which requires disclosure of incremental segment information on an annual and interim basis.

In addition, ASU 2023-07 clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides

new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements.

The amendments

in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

December 15, 2024.

Early adoption is permitted.

The enhanced disclosures are required to be applied

retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of

ASU 2023-07 on its consolidated financial statements and disclosures, but does not expect that it will have a material impact on its

consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09,

“ Income Taxes (Topic 740) – Improvements to Income Tax Disclosures” (“ ASU 2023-09 ”), which

requires disclosure of specific categories in the rate reconciliation table along with additional information for reconciling items that

meet a quantitative threshold, disclosure of disaggregated income taxes paid and modifies other income tax-related disclosures.

The amendments

in ASU 2023-09 are effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with

a retrospective option.

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2023-09, but does not expect

that it will have a material impact on its consolidated financial statements.

Collaboration Agreement

In February 2021, the Company entered into a

clinical co-development collaboration agreement (the “ Clinical Co-Development 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.

Clinical Co-Development 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” tumor infiltrating lymphocytes (“ DP

TIL ”) technology.

Per the terms of the Clinical Co-Development Agreement, the Company agreed to reimburse AgonOx up to

$ 4,000,000 in expenses incurred to conduct a Phase 1 clinical trial of PH-762 treated DP TIL in patients with advanced melanoma and

other advanced solid tumors.

The Company will recognize its share of costs arising

from research and development activities performed by AgonOx in the Company’s consolidated 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 $ 1,115,000

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.

and $ 130,000 of expense in connection with these efforts during the years ended December 31, 2023 and 2022, respectively.

There is approximately $ 2,757,000 of remaining

costs not yet incurred under the Clinical Co-Development Agreement as of December 31, 2023.

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.

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.

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.

December 31, 2022, the Company categorized its restricted cash of $ 50,000 as Level 2 hierarchy.

Restricted cash consisted of certificates

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

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,

13 unchanged sentences

ended December 31, 2023 and 2022 was $ 56,000 and $ 71,000 , respectively.

In November 2023, the Company decided not to

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

Beginning in April of

2024, we expect to continue operations as a remote business with a small laboratory facility.

Based on this evaluation, the Company

determined that long-lived assets with a carrying amount of $ 126,000

were no longer recoverable and an impairment charge of $ 126,000

was recorded to write those assets down to their fair value.

The Company did no t

record any impairment charges at December 31, 2022.

Accrued Expenses

Accrued expenses consist of the following, in thousands:

Schedule of accrued expenses and other current liabilities

Schedule of accrued expenses

Compensation and benefits

19 unchanged sentences

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

is the lessee and other supplemental balance sheet information is set forth as follows, in thousands, except the lease term (number of

years) and discount rate:

The lease for the Company’s corporate headquarters

represents all of its significant lease obligations.

The amounts reported in the consolidated balance sheets for the operating lease in

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

term (number of years) and discount rate:

Schedule of lease amounts recorded in balance sheet

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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 statements of cash flows was $ 135,000 and $ 132,000 for the years ended December 31, 2022

and 2021, respectively.

in the operating activities of the Company’s consolidated statements of cash flows was $ 139,000 and $ 135,000 for the years ended

December 31, 2023 and 2022, 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, 2022 is as follows, in thousands:

Aggregate future minimum lease payments

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

31, 2023 is as follows, in thousands:

Schedule of future minimum lease payments

Total lease payments

Imputed interest

Total operating lease liabilities (includes current portion)

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.

Total operating lease liability

Commitments and Contingencies

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

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

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

The Company provides:

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

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

and (ii) indemnifications

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

These indemnifications

give rise only to the disclosure provisions of ASC 460.

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

does not expect to incur material costs in the future.

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

statements related to these indemnifications.

In February 2021, the

Company entered into the Clinical Co-Development 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 Co-Development Agreement, the

Company agreed to reimburse AgonOx up to $ 4,000,000

in expenses incurred to conduct a Phase 1 clinical trial of PH-762 treated DP TIL in patients with advanced melanoma

and other advanced solid tumors.

Refer to Note 2 for further details on the Clinical Co-Development Agreement with AgonOx.

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

In September 2011, the Company entered into

an agreement with Advanced RNA Technologies, LLC (“ Advirna ”), pursuant to which Advirna assigned to the Company

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 of 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 Advirna agreement have been

The Company’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 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 Advirna 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.

As part of its business, the Company may enter

into licensing agreements with third parties that 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

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Year Ending December 31,

The Company applies the disclosure provisions of

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

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

The Company provides:

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

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

and (ii) indemnifications

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

These indemnifications

give rise only to the disclosure provisions of ASC 460.

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

does not expect to incur material costs in the future.

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

statements related to these indemnifications.

From time to time, the Company may become a party

5 unchanged sentences

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.

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 (the “ Board ”)

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

time, the “ Amended Certificate ”), 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 Board upon its issuance.

In November 2022, the Company sold one

share of 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 not convertible into, or exchangeable for, shares of any other class or series of stock or other

securities of the Company;

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;

and was not entitled to receive dividends of any kind.

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 Certificate to effect a reverse stock split

of the Company’s common stock.

The terms 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.

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 in its sole

discretion or (ii) automatically and effective upon the approval by the Company's stockholders of an amendment to the Amended Certificate

to effect a reverse stock split of the Company’s common stock.

The Series D Preferred Stock was redeemed in whole on January 4,

2023, upon the approval by the Company’s stockholders of the Reverse Stock Split.

Upon such redemption, the holder of the Series

D Preferred Stock received consideration of $ 1,750 in cash.

At December 31, 2023, there were no shares of preferred

stock issued or outstanding.

Stockholders’ Equity

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 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 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 (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’

Based on this determination, the Company’s warrants are classified within stockholders’ equity.

2023 Financing — In April 2023, the Company completed a registered direct offering and a concurrent private placement of

353,983 registered shares of the Company’s common stock at a purchase price per share of $ 5.65 , unregistered

five and one-half year term Series A warrants to purchase up to 353,983 shares of common stock at an exercise price of $ 5.40 per

share and unregistered eighteen month term Series B warrants to purchase up to 353,983 shares of common stock at an exercise

price of $ 5.40 per share (collectively, the “ April 2023 Financing ”).

In addition, the Company issued unregistered

warrants to the placement agent, H.C.

Wainwright & Co., LLC (“ HCW ”), in the April 2023 Financing to purchase a

total of 26,549 shares of common stock at an exercise price of $ 7.0625 per share.

Net proceeds to the Company from the

April 2023 Financing were $ 1,538,000 after deducting placement agent fees and offering expenses.

connection with the April 2023 Financing, the Company entered into warrant amendment agreements (the “ Warrant Amendment

Agreements ”) with the participating investors to amend the exercise price of certain existing warrants to purchase up to

an aggregate of 191,619 shares

of common stock that were previously issued in April 2018 through January 2021, such that each of the amended warrants have an

exercise price of $ 5.40 per

The Company received $ 24,000

as consideration in connection with the Warrant Amendment Agreements.

The Company assessed the amendments to the exercise price of

the warrants under the FASB ASC Topic 815, “ Derivatives and Hedging ” (“ ASC 815 ”) and

determined that the amendment to the exercise price was completed in connection with and contingent on the close of the April 2023

The increase in fair value of $ 293,000

related to the Warrant Amendment Agreements was recognized as an equity issuance cost and recorded in additional paid in capital per

2023 Financing — In June 2023, the Company completed a registered direct offering and a concurrent private placement

of a total of:

233,646 registered

shares and 72,000 unregistered

shares of the Company’s common stock each at a purchase price per share of $ 4.28 ,

unregistered pre-funded warrants to purchase up to an aggregate of 628,935 shares

of common stock at a purchase price per share of $ 4.279

and with an exercise price of $ 0.001

per share, unregistered five and one-half year term Series A warrants to purchase up to an aggregate of 934,581

shares of common stock at an exercise price of $ 4.03 per

share and unregistered eighteen month term Series B warrants to purchase up to an aggregate of 934,581

shares of common stock at an exercise price of $ 4.03 per

share (collectively, the “ June 2023 Financing ”).

In addition, the Company issued unregistered warrants to the

placement agent, HCW, in the June 2023 Financing to purchase a total of 70,094

shares of common stock at an exercise price of $ 5.35 per

Net proceeds to the Company from the June 2023 Financing were $ 3,510,000 after

deducting placement agent fees and offering expenses.

2023 Financing – In December 2023, the Company entered into an inducement letter agreement (the “ Inducement Letter

Agreement ”) with certain holders of the Company’s existing warrants to purchase up to an aggregate of 2,130,252 shares

of the Company’s common stock.

The existing warrants were originally issued on dates between October 2018 and June 2023 with an

exercise price of $ 5.40 or $ 4.03 per share.

Pursuant to the Inducement Letter Agreement, these warrants were exercised for cash at a reduced

exercise price of $ 1.33 per share in consideration of the Company’s agreement to issue new five and one-half year term Series A

warrants to purchase up to 2,270,320 shares of common stock at an exercise price of $ 1.08 per share and new eighteen month term Series

B warrants to purchase up to 1,990,184 shares of common stock at an exercise price of $ 1.08 per share (collectively, the “ December

2023 Financing ”).

In addition, the Company issued warrants to the placement agent, HCW, in the December 2023 Financing to purchase

a total of 159,769 shares of common stock at an exercise price of $ 1.66 per share.

Pursuant to the terms of the Inducement Letter

Agreement, in the event that the exercise of the existing warrants in the December 2023 Financing would have otherwise caused a holder

to exceed the beneficial ownership limitations set forth in the existing warrant, the Company issued the number of shares that would

not cause a holder to exceed such beneficial ownership limitation and agreed to hold such balance of shares of common stock in abeyance.

Accordingly, at December 31, 2023, an aggregate of 826,370

shares of common stock were held in abeyance (the “ Abeyance Shares ”) with such Abeyance Shares evidenced through

the holder’s existing warrants and which are deemed to be prepaid.

The Abeyance Shares will be held until notice is received by

the holder that the balance of the shares of common stock may be issued in compliance with such beneficial ownership limitations and

may be exercised pursuant to a notice of exercise from the holder.

Until such time, the Abeyance Shares are evidenced through the holder’s

existing warrants and have been included in the Company’s table of outstanding warrants below.

proceeds to the Company from the December 2023 financing were $ 2,404,000 after deducting placement agent fees and offering expenses.

Company assessed the amendments to the exercise price of the warrants under the ASC 815 and determined that the amendment to the exercise

price was completed in connection with and contingent on the close of the December 2023 Financing.

The increase in fair value of $ 412,000

related to the modification of the terms of the warrants to induce exercise was recognized as an equity issuance cost and recorded in

additional paid in capital per ASC 815.

The Company first assessed the warrants in the

April 2023 Financing, June 2023 Financing and December 2023 Financing under the FASB ASC Topic 480, “ Distinguishing Liabilities

from Equity ” (“ ASC 480 ”) to determine whether they were within the scope of ASC 480.

As there were no instances

outside of the Company’s control that could require cash settlement, the Company’s warrants issued in the April 2023 Financing,

June 2023 Financing and December 2023 Financing were determined to be outside the scope of ASC 480.

The Company then applied and followed the applicable

accounting guidance in ASC 815.

Financial instruments are accounted for as either derivative liabilities or equity instruments depending

on the specific terms of the agreement.

The warrants issued in the April 2023 Financing, June 2023 Financing and December 2023 Financing

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

Based on this determination, the warrants issued in the April 2023 Financing, June 2023 Financing and December 2023 Financing

were classified within stockholders’ equity.

In addition to the December 2023 Financing, the

Company issued 628,935 shares of common stock related to exercises from the pre-funded warrants issued in the June 2023 Financing for

proceeds of $ 630 .

There were no warrants exercised during the year ended December 31, 2022.

The following table summarizes the Company’s

outstanding equity-classified warrants at December 31, 2022:

Summary of outstanding warrants

Balance December 31,

April 2018 Warrants

April 2018 Placement Agent Warrants

October 2018 Warrants

October 2018 Underwriter Warrants

November 2019 Placement Agent Warrants

February 2020 Registered Direct Warrants

February 2020 Placement Agent Warrants

February 2020 Warrants

February 2020 Underwriter Warrants

April 2020 Warrants

April 2020 Placement Agent Warrants

January 2021 Warrants

January 2021 Placement Agent Warrants

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.

outstanding warrants, all of which are classified as equity instruments, at December 31, 2023:

Schedule of outstanding warrants

Exercise Price

Outstanding at December 31, 2022

( 1,932,817 )

Outstanding at December 31, 2023

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.

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

These plans are administered by our Board of Directors and provide for

the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, 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.

These plans are administered by our Board and provide for 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

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 141

shares subject to outstanding stock options and 47,328

shares subject to unvested RSUs and 43,807

shares available for future grants.

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

stock options granted by the Company to employees generally vest annually over 4 years after the grant date and, in the instance of stock

options, expire within ten years of issuance.

In July 2023,

the Company’s stockholders approved an amendment to the 2020 Plan to increase the number of shares authorized for issuance thereunder

to 231,140 shares of common stock.

As of December 31, 2023, there were 10,084

shares subject to outstanding stock options, 49,683 shares subject to unvested RSUs and 133,574 shares available for future grants.

Restricted Stock Units

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.

RSUs are issued under the Company’s

2020 Plan or as inducement grants issued outside of the 2020 Plan to new employees.

RSUs are generally subject to graded vesting and

the satisfaction of certain service requirements.

RSUs granted by the Company to employees generally vest annually over 3

years after the grant date and over 1

year after the grant date for directors of the Board of Directors.

Upon vesting, each outstanding RSU will be settled 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 Company does not expect to

repurchase shares to satisfy RSU vests.

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, 2023

The weighted-average fair value of RSUs granted during

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

The weighted-average fair value of RSUs granted

during the years ended December 31, 2023 and 2022 was $ 5.24 and $ 10.08 , respectively.

Stock-based compensation expense related to RSUs

1 unchanged sentence

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.

during the years ended December 31, 2023 and 2022 was $ 105,000 and $ 138,000 , which represents the market value of the Company’s

common stock on the date that the RSUs vested.

As of December 31, 2023, the compensation

2 unchanged sentences

Stock Options

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.

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.

Stock options granted by the Company to employees generally vest annually over 4

years after the grant date and generally vest over 1 year after the grant date for members of

the Board of Directors and expire within ten years of grant.

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.

10 unchanged sentences

The Company did not grant stock options during

the years ended December 31, 2022 and 2021.

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

plan for the year ended December 31, 2022:

the year ended December 31, 2022.

For valuing options granted during the year ended December 31, 2023, the following assumptions were

Schedule of assumptions

Risk-free interest rate

Expected volatility

Expected lives (in years)

Expected dividend yield

The weighted average grant date fair value of options

granted during the year ended December 31, 2023 was $ 1.14 per share.

The following table summarizes the Company’s

stock option activity for the year ended December 31, 2023:

Summary of stock option activity

Balance at December 31, 2022

Unvested shares cancelled

Vested shares cancelled

Balance at December 31, 2023

2 unchanged sentences

options for the years ended December 31, 2023 and 2022 was $ 5,000 and $ 13,000 , respectively.

As of December 31, 2022, the compensation

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

As of December 31, 2023, the compensation expense

for all unvested stock options in the amount of $ 6,000 will be recognized in the Company’s results of operations over a weighted

average period of 0.25 years.

There is no income tax benefit as the Company is

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

Employee Stock Purchase Plan

The Company has 684 shares authorized for issuance under the 2013 Employee Stock Purchase

Plan (“ ESPP ”).

The ESPP allows employees to contribute a percentage of their cash earnings, subject to certain maximum

amounts, to be used to purchase shares of the Company’s common stock on each of two semi-annual purchase dates at a purchase price

equal to 90% of the market value per share on either (a) the date of grant of a purchase right under the ESPP or (b) the date on which

such purchase right is deemed exercised, whichever is lower.

As of December 31, 2023, 661 shares were reserved for future issuance under

There was no activity under the ESPP for the years ended December 31, 2023 and 2022.

Compensation Expense Related to Equity Awards

1 unchanged sentence

compensation expense for the years ended December 31, 2023 and 2022, in thousands:

Details of Stock-based Compensation Expense

Schedule of stock-based compensation expense

Research and development

3 unchanged sentences

December 31, 2023 and 2022 are as follows, in thousands:

Components of Federal and State Income Tax Expense

Ended December 31,

Schedule of provision for income taxes

Years Ended December 31,

Total current

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

in the financial statements in accordance with ASC 740.

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

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

in the consolidated financial statements in accordance with ASC 740.

These temporary differences will result in taxable or deductible

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

ASC 740 requires that a valuation allowance be

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

Adjustments to the valuation allowance

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

As a result of this evaluation,

the Company has recorded a full valuation allowance against its deferred tax assets as the Company believes it is more likely than not

that the benefit of all of its deferred tax assets will not be realized.

The significant components of the Company’s

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

Schedule of deferred tax assets

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

Schedule of deferred tax assets and liabilities

Years Ending December 31,

12 unchanged sentences

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

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

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

Accordingly, a valuation allowance against 100% of its deferred

tax assets has been recorded.

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

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

As of December 31, 2022, the Company had

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, 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

and $ 517,000 ,

respectively, which will begin to expire in 2041

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.

Ownership changes may limit the amount of net operating

loss (“ NOL ”) carryforwards or tax credit carryforwards that can be utilized to offset future taxable income or tax

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 2023, 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.

of the available NOL and tax credit carryforwards under Sections 382 and 383 of the Code since the last assessment completed in 2021 and

concluded that the Company underwent an ownership change in 2023.

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

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

of existing laws, and rulings by taxing authorities.

The Company follows a more-likely-than not threshold for financial statement recognition

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

The guidance relates to, amongst other things, classification,

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

Any interest and penalties accrued related

to uncertain tax positions are recorded as tax expense.

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

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

The Company has not recorded any uncertain

tax positions as of December 31, 2022 or 2021.

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

tax positions over the next 12 months.

The Company has not incurred any interest or penalties.

In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial

statements as general and administrative expenses.

change are subject to substantial annual limitations under Sections 382 and 383 of the Code.

The Company adjusted its NOL and tax credit

carryforwards to address the impact of the ownership change.

For the year ended December 31, 2023, federal and state NOLs were reduced

by $ 52,400,000 and $ 25,900,000 , respectively, and federal and state research and development tax credit carryforwards were reduced by

$ 918,000 and $ 517,000 , respectively, as a result of the ownership change in 2023.

The Company 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.

At December 31, 2023, the Company had federal

and state NOL carryforwards of approximately $ 2,900,000 and

$ 2,475,000 ,

respectively, 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 NOLs generated in tax years

beginning after 2017 may be carried forward indefinitely, but are limited to offset up to 80% of future taxable income.

As of December

31, 2023, all of our federal NOL carryforwards will carryforward indefinitely.

The Company’s available state NOL carryforwards

will begin to expire in 2044,

unless previously utilized.

At December 31, 2023, the Company also had federal

and state research and development credits of approximately $ 227,000

and $ 87,000 ,

respectively.

The federal tax credit carryforwards will begin to expire in 2044

and the state tax credit carryforwards will begin to expire in 2039.

The Company has not recorded any uncertain tax

positions as of December 31, 2023 or 2022.

The Company does no t believe there will be any material changes in its unrecognized tax

positions over the next 12 months.

The Company has no t 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 consolidated

financial statements as general and administrative expenses.

The Company files income tax returns in the United

States, Massachusetts and New Jersey.

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

States and in multiple state jurisdictions.

The Company is subject to tax examinations for federal and state purposes for tax years 2015

through 2023.

Net Loss per Share

Basic net loss per share is computed by dividing

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

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

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

except when the inclusion of such potential common stock equivalents would be anti-dilutive.

Dilutive potential common stock equivalents

primarily consist of stock options, RSUs and warrants.

Therefore, basic and diluted net loss per share applicable to common stockholders

were the same for all periods presented because the impact of these items is generally anti-dilutive during periods of net loss.

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

Schedule of anti dilutive stock

Stock options

Unvested restricted stock units

Warrants to purchase common stock

The weighted average number of common shares outstanding as of December 31, 2023 includes the Abeyance Shares from the December 2023

Financing, the exercise of which was prepaid and requires no further consideration for the delivery of the shares of common stock.

these Abeyance Shares are not included in the table above.

Subsequent Events

In connection with the Inducement Letter Agreement,

shares were held in abeyance in the event that the exercise of the existing warrants in the December 2023 Financing would have otherwise

caused a holder to exceed the beneficial ownership limitations set forth in the existing warrant.

These Abeyance Shares will be held until

notice is received by the holder that the balance, or portion thereof, may be issued in compliance with the beneficial ownership limitations.

Subsequent to the balance sheet date, 826,370 Abeyance Shares were released and issued.

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