What changed in this filing

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Item 9A. Controls and Procedures

2022-02-14 compared with 2021-03-29 · 1040 added, 1785 removed, 253 unchanged (92% of the section changed)

AND PROCEDURES

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive

Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.

We maintain disclosure

controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current

reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the

SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our

principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and

procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the

desired control objectives.

In reaching a reasonable level of assurance, management necessarily was required to apply its

judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In addition, the design of any

system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no

assurance that any design will succeed in achieving its stated goals under all potential future conditions;

controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may

occur and not be detected.

Based on the evaluation of our disclosure

controls and procedures as of March 25, 2021, our Chief Executive Officer has concluded that, as of such date, our disclosure controls

and procedures, as defined above, are effective.

Material Weakness in Internal Control Over Financial Reporting

The closing of our

initial public offering occurred on February 12, 2021.

As a newly public company under the Exchange Act, we are not

required to evaluate the effectiveness of our internal controls over financial reporting until the end of the fiscal year

after we file our Annual Report on Form 10-K for the year ended December 31, 2020.

Although our management did not conduct an

evaluation of our internal control over financial reporting, in connection with the audit of our financial statements for the

years ended December 31, 2020, 2019 and 2018, we became aware of material weaknesses in our internal controls over financial

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial

reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial

statements will not be prevented or detected on a timely basis.

The material weaknesses related to a lack of segregation of

duties in the financial reporting process due to the small size of our accounting and finance department, lack of sufficient

documentation of various accounting processes, and the design over controls related to recording

certain transactions.

We plan to remediate the material weaknesses by hiring additional accounting and finance staff, and

implementing new controls, processes and technologies to formalize internal controls frameworks and procedures.

While we have

initiated our remediation plan, we cannot assure you when or if these remediation measures will be fully completed or that

they will prevent future control deficiencies or material weaknesses.

The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to

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ensure that such information is accumulated and communicated to a company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a 15(e) and 15d 15(e) under the Exchange Act, as of the end of the period covered by this report.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process designed to provide reasonable assurance of the reliability of financial reporting and of the preparation of financial statements for external reporting purposes, in accordance with U.S.

generally accepted accounting principles.

Internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors;

and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on its financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021.

In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013).

These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring.

Management’s assessment included documentation, evaluating and testing the design and operating effectiveness of its internal controls over financial reporting.

Based on management’s processes and assessment, as described above, management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective.

Remediation of Material Weakness in Internal Control Over Financial Reporting

The closing of our IPO occurred on February 12, 2021.

As a newly public company under the Exchange Act, we were not required to evaluate the effectiveness of our internal controls over financial reporting until the end of the fiscal year after we file our Annual Report on Form 10-K for the year ended December 31, 2020.

Although our management did not conduct an evaluation of our internal control over financial reporting, in connection with the audit of our financial statements for the years ended December 31, 2020, 2019 and 2018, we became aware of material weaknesses in our internal controls over financial reporting for those periods.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses related to a lack of segregation of duties in the financial reporting process due to the small size of our accounting and finance department, lack of sufficient documentation of various accounting processes, and the design over controls related to recording certain transactions.

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We have remediated the material weaknesses by hiring additional accounting and finance staff, and implementing new controls, processes and technologies to formalize internal controls frameworks and procedures.

Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an

attestation report of our registered public accounting firm due to an exemption provided by the JOBS Act for “emerging growth

This Annual Report does not include an attestation report of our registered public accounting firm due to an exemption provided by the JOBS Act for “emerging growth companies.”

Changes in Internal Control Over Financial Reporting

We are taking actions to remediate the

material weaknesses relating to our internal controls over financial reporting as described above.

Except as otherwise disclosed

herein, there have been no changes in our internal control over financial reporting during the year ended December 31, 2020 that

have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system,

no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control

system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits

of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation

of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected.

These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur

because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion

of two or more people, or by management override of the controls.

The design of any system of controls also is based in part upon

certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving

its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions,

or the degree of compliance with policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective

control system, misstatements due to error or fraud may occur and not be detected.

Management’s Report on Internal Control over Financial

This Annual Report does

not include a report of management’s assessment regarding internal control over financial reporting or an attestation report

of our independent registered public accounting firm due to a transition period established by the rules of the Securities

and Exchange Commission for newly public companies.

DIRECTORS, EXECUTIVE OFFICERS

AND CORPORATE GOVERNANCE MANAGEMENT

The following table sets forth certain information

about our directors, director nominees, our executive officers, and a key consultant.

Chief Executive Officer and Director

Executive, Financial, and Accounting Officer)

Vice President, Regulatory Affairs & Program Management

Directors and Director Nominee

Chairman of the Board

Payne(1)(2)(3)

Thorell(1)(2)

Whitaker, M.D.

Medical Officer

We have taken actions and remediated the material weaknesses relating to our internal controls over financial reporting as described above.

Except as otherwise disclosed herein, there have been no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE MANAGEMENT

The following table sets forth certain information about our directors, director nominees, our executive officers, and a key consultant.

Name Age Position

Executive Officers

David Baker 58 President, Chief Executive Officer and Director

(Principal Executive Officer)

Leanne Kelly 45 Chief Financial Officer

(Principal Financial and Accounting Officer)

Toren 55 Senior Vice President, Regulatory Affairs & Program Management

Non-Employee Directors and Director Nominee

Ofir Levi (1)(3)

47 Director, Chairman of the Board

Joseph Payne (1)(2)(3)

Richard Ammer 51 Director

Marella Thorell (1)(2)

Key Consultant

Timothy Whitaker, M.D.

63 Chief Medical Officer

(1) Member of the audit committee.

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Executive Officers

David Baker has served

as our President and Chief Executive Officer since January 15, 2019, and as a member of the Board from that time until August 23,

2019, and upon the consummation of the initial public offering of our common stock on February 12, 2021, he was again appointed

as a director.

Prior to being appointed our President and Chief Executive Officer, he served as a consultant to our company since

January 15, 2018.

He previously served as the Interim Chief Executive Officer and Chief Commercial Officer of Alcobra Ltd

(now known as Arcturus), where he oversaw the development of ADAIR.

Prior to joining Alcobra Ltd., he worked at Shire Pharmaceuticals

for 10 years, including as Vice President of Commercial Strategy and New Business in the Neuroscience Business Unit.

Baker led the commercial assessment of neuroscience licensing opportunities, managed commercial efforts on pipeline

CNS products, and led the long-term strategic planning process.

Previously, he served as Global General Manager for Shire’s

where he led the launch of Vyvanse and led global expansion efforts including successful establishment of a partnership

in Japan and launches in Canada and Brazil.

David Baker has served as our President and Chief Executive Officer since January 15, 2019, and as a member of the board of directors from that time until August 23, 2019, and upon the consummation of the IPO of our common stock on February 12, 2021, he was again appointed as a director.

Prior to being appointed our President and Chief Executive Officer, he served as a consultant to our company since January 15, 2018.

He previously served as the Interim Chief Executive Officer and Chief Commercial Officer of Alcobra Ltd (now known as Arcturus), where he oversaw the development of ADAIR.

Prior to joining Alcobra Ltd., he worked at Shire Pharmaceuticals for 10 years, including as Vice President of Commercial Strategy and New Business in the Neuroscience Business Unit.

In that role, Mr.

Baker led the commercial assessment of neuroscience licensing opportunities, managed commercial efforts on pipeline CNS products, and led the long-term strategic planning process.

Previously, he served as Global General Manager for Shire’s Vyvanse® where he led the launch of Vyvanse and led global expansion efforts including successful establishment of a partnership in Japan and launches in Canada and Brazil.

Prior to that, Mr.

Baker served as Vice President of Marketing for all of Shire’s

ADHD products.

Baker served as Vice President of Marketing for all of Shire’s ADHD products.

From 1990 through 2004, Mr.

Baker worked at Merck & Co., where he held positions of increasing responsibility

in marketing, sales, market research, and business development.

In addition to his knowledge and experience with CNS medications,

Baker worked at Merck & Co., where he held positions of increasing responsibility in marketing, sales, market research, and business development.

In addition to his knowledge and experience with CNS medications, Mr.

Baker’s expertise includes therapeutics for osteoporosis, migraine, and hyperlipidemia.

He has been directly involved

with the marketing of five medications with annual sales in excess of $1 billion each.

Baker graduated Magna Cum

Laude with a bachelor’s degree in Economics and Computer Science from Duke University.

He earned a Master of Business Administration

in Marketing from Duke’s Fuqua School of Business.

Baker also serves on the board of directors of Benchworks, Inc.,

a private healthcare advertising agency.

He has been directly involved with the marketing of five medications with annual sales in excess of $1 billion each.

Baker graduated Magna Cum Laude with a bachelor’s degree in Economics and Computer Science from Duke University.

He earned a Master of Business Administration in Marketing from Duke’s Fuqua School of Business.

Baker also serves on the board of directors of Benchworks, Inc., a private healthcare advertising agency.

We believe Mr.

Baker’s extensive

experience in the biopharmaceuticals industry and his in-depth understanding of our business, strategy and management team qualifies

him to serve on our board of directors.

Baker’s extensive experience in the biopharmaceuticals industry and his in-depth understanding of our business, strategy and management team qualifies him to serve on our board of directors.

Kelly has served as our Chief Financial Officer since May 2021.

She brings over 20 years of experience leading private and publicly traded companies across life science, technology and e-Commerce sectors with a foundation in public accounting.

Prior to joining Vallon, she most recently served as the Controller and Executive Director, Global Financial Reporting at OptiNose, Inc, a $50 million revenue specialty pharmaceutical company.

Over the course of her career, she has held Senior Vice President of Finance, Controller and Chief Financial Officer positions in private and public companies such as

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Flower Orthopedics, Iroko Pharmaceuticals, LLC, and Genaera Corporation.

Kelly began her career as an auditor with KPMG LLP.

While serving in those roles, Ms.

Kelly's work included multi-million dollar financings, M&A diligence and support.

She also has experience in financial oversight, internal and external financial reporting, forecasting, and financial analysis, as well as investor and public relations.

Kelly received her Bachelor of Science degree in Business Economics with a concentration in Accounting from Lehigh University, and is a licensed CPA (inactive status) in the state of Pennsylvania.

Toren has served as our Senior Vice President, Regulatory Affairs, since April 2018.

She brings over

25 years of Regulatory and Clinical Development experience in the pharmaceutical industry from Glaxo SmithKline,

AstraZeneca, Cephalon, and Teva.

She brings over 25 years of Regulatory and Clinical Development experience in the pharmaceutical industry from Glaxo SmithKline, AstraZeneca, Cephalon, and Teva.

At Vallon, Ms.

Toren heads the Regulatory Affairs & Program Management function,

providing regulatory strategies to optimize the most efficient and effective outcomes for Vallon’s drug products as

well as ensuring full compliance with FDA and DEA regulations for products in development through post approval.

until April 2018, Ms.

Toren developed the Global Regulatory Policy & Intelligence function for Teva’s

Specialty, Generic, & Biosimilar portfolio.

Toren heads the Regulatory Affairs & Program Management function, providing regulatory strategies to optimize the most efficient and effective outcomes for Vallon’s drug products as well as ensuring full compliance with FDA and DEA regulations for products in development through post approval.

From 2003 until April 2018, Ms.

Toren developed the Global Regulatory Policy & Intelligence function for Teva’s Specialty, Generic, & Biosimilar portfolio.

In this role, Ms.

Toren participated in several FDA, PhRMA, and BIO

cross company working groups to address regulatory policy for abuse deterrent products.

Toren participated in several FDA, PhRMA, and BIO cross company working groups to address regulatory policy for abuse deterrent products.

Prior to that, Ms.

Toren led the

successful registration of Fentora®, negotiated approval of the first RiskMap for opioids, and was a driver of the

initial development of the Fentora®

and Actiq®

REMS programs.

Toren earned her bachelor’s degree in

Chemistry and Biology from Florida Atlantic University, an MS in Biostatistics and Epidemiology from New York Medical

Toren led the successful registration of Fentora®, negotiated approval of the first RiskMap for opioids, and was a driver of the initial development of the Fentora® and Actiq® REMS programs.

Toren earned her bachelor’s degree in Chemistry and Biology from Florida Atlantic University, an MS in Biostatistics and Epidemiology from New York Medical College.

Non-Executive Directors

Ofir Levi has served as

a member of our Board since inception and has served as the Chairman of the Board since our inception.

He is an accomplished biotech

entrepreneur with over 16 years of experience establishing, managing and investing in early to late stage life science companies.

He was a research consultant for Adamas Health Care Fund from its inception in 2014 until January 2020 where he led a research

team that conducts deep scientific analysis of publicly traded pharmaceutical and biotechnology companies.

Prior to his engagement

with Adamas Health Care Fund, Dr.

Levi was the founder and CEO at Bioassociate Ltd., an expertise-based consulting, research

and analysis company focused on the pharmaceutical, biotechnology and life science sectors.

Ofir Levi has served as a member of our board of directors since inception and has served as the Chairman of the board of directors since our inception.

He is an accomplished biotech entrepreneur with over 16 years of experience establishing, managing and investing in early to late stage life science companies.

He was a research consultant for Adamas Health Care Fund from its inception in 2014 until January 2020 where he led a research team that conducts deep scientific analysis of publicly traded pharmaceutical and biotechnology companies.

Prior to his engagement with Adamas Health Care Fund, Dr.

Levi was the founder and CEO at Bioassociate Ltd., an expertise-based consulting, research and analysis company focused on the pharmaceutical, biotechnology and life science sectors.

Until 2011, Dr.

Levi was the CEO

of Radmor Biocap LLC, a company that invested and managed seed and early stage companies, pharmaceutical development, clinical

diagnostics and medical devices.

Levi Radmor, signed several license agreements with leading universities around

the world for novel technologies, and established companies developing these technologies.

Levi was the CEO of Radmor Biocap LLC, a company that invested and managed seed and early stage companies, pharmaceutical development, clinical diagnostics and medical devices.

Levi, Radmor signed several license agreements with leading universities around the world for novel technologies, and established companies developing these technologies.

Levi completed his Ph.D.

studies in Prof.

Daniel Michaelson’s neurobiology lab at Tel-Aviv University.

During the four years of his Ph.D.

he led a research group in both in-house research and several international collaborations.

Levi’s PhD thesis focused

on neurogenesis processes in Alzheimer’s Disease.

studies, he led a research group in both in-house research and several international collaborations.

Levi’s PhD thesis focused on neurogenesis processes in Alzheimer’s Disease.

We believe Dr.

Levi’s extensive

experience as an investor and entrepreneur in the biopharmaceuticals industry and his in-depth understanding of our business, strategy

and management team qualifies him to serve on our board of directors.

Joseph Payne joined our

board of directors on June 22, 2018 in connection with the Asset Purchase Agreement, as the designated director nominee of

Arcturus pursuant to the terms of the 2018 Voting Agreement (as hereinafter defined), which agreement terminated upon the filing

of the registration statement in connection with the initial public offering of our common stock.

Business — Asset Purchase Agreement” in this Annual Report for more information.

He also serves on the

board of directors of Arcturus since November 2017.

Payne previously served as President and Chief Executive Officer

of Arcturus and on its board of directors from March 2013 to February 2018.

Levi’s extensive experience as an investor and entrepreneur in the biopharmaceuticals industry and his in-depth understanding of our business, strategy and management team qualifies him to serve on our board of directors.

Joseph Payne joined our board of directors on June 22, 2018 in connection with the Asset Purchase Agreement, as the designated director nominee of Arcturus pursuant to the terms of the 2018 Voting Agreement (as hereinafter defined), which agreement terminated upon the filing of the registration statement in connection with the IPO of our common stock.

He also serves on the board of directors of Arcturus since November 2017.

Payne previously served as President and Chief Executive Officer of Arcturus and on its board of directors from March 2013 to February 2018.

Prior to joining Arcturus, Mr.

served as Senior Manager of Nitto Denko Corporation, a life sciences research company, from June 2009 until February 2013.

Payne’s background includes over 20 years of drug discovery experience at Arcturus, Nitto Denko Corporation,

Kalypsys Inc., Merck Research Labs, Bristol-Myers Squibb Co.

Payne served as Senior Manager of Nitto Denko Corporation, a life sciences research company, from June 2009 until February 2013.

Payne’s background includes over 20 years of drug discovery experience at Arcturus, Nitto Denko Corporation, Kalypsys Inc., Merck Research Labs, Bristol-Myers Squibb Co.

and DuPont Pharmaceuticals Co.

Payne received a bachelor’s

degree in Chemistry, magna cum laude from Brigham Young University, a Master of Science in Synthetic Organic Chemistry from the

University of Calgary and an Executive Training Certificate from MIT Sloan School of Management.

Payne received a bachelor’s degree in Chemistry, magna cum laude from Brigham Young University, a Master of Science in Synthetic Organic Chemistry from the University of Calgary and an Executive Training Certificate from MIT Sloan School of Management.

We believe Mr.

Payne’s extensive

experience in the biopharmaceuticals industry and as a chief executive officer of a biopharmaceutical company qualifies him to

serve on our board of directors.

Payne’s extensive experience in the biopharmaceuticals industry and as a chief executive officer of a biopharmaceutical company qualifies him to serve on our board of directors.

Richard Ammer, M.D., Ph.D.

joined our board of directors in July 2019 in connection with the July 2019 private placement.

Since 2003, Dr.

Ammer serves as general manager and since 2012 as managing owner of MEDICE Arzneimittel Pütter GmbH &

KG, a family-owned mid-sized pharmaceutical enterprise, where he is responsible for search and development, medical and regulatory

affairs, manufacturing, market access and international marketing and distribution.

Ammer served as general manager and since 2012 as managing owner of MEDICE Arzneimittel Pütter GmbH & Co.

KG, a family-owned mid-sized pharmaceutical enterprise, where he is responsible for search and development, medical and regulatory affairs, manufacturing, market access and international marketing and distribution.

Since 2008, Dr.

Ammer has served as a

board member and Vice President of the German Pharmaceutical Association with a focus on research and development.

graduated with a degree in medicine from Technical University, Munich, and internship at Harvard Medical School, Boston.

pursued his clinical and scientific education in internal medicine at Massachusetts General Hospital in Boston from 1996 until

2000, the German Heart Center from 2000 until 2001, and the University Hospital in Muenster 2001, where he has been responsible

for patients undergoing cardiac and renal care.

He also established a nation-wide network of excellence and competence on cardiac

arrhythmias, sponsored by the federal ministry of science (BMBF), for which he served as its general manager from 2002 to 2004.

His research on atrial fibrillation, for which he obtained his PhD in 2000 from Technical University, Munich, was awarded by the

European Society in Cardiology with the Young Investigator Award in Basic Science in 2001.

Ammer also studied business

administration and economics at University St.

Gallen from 1992 until 1996, and at Harvard Extension School from 1996 until 1998

and obtained a PhD in 2005 from University St.

Ammer has served as a board member and Vice President of the German Pharmaceutical Association with a focus on research and development.

Ammer graduated with a degree in medicine from Technical University, Munich, and internship at Harvard Medical School, Boston.

Ammer pursued his clinical and scientific education in internal medicine at Massachusetts General Hospital in Boston from 1996 until 2000, the German Heart Center from 2000 until 2001, and the University Hospital in

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Muenster 2001, where he has been responsible for patients undergoing cardiac and renal care.

He also established a nation-wide network of excellence and competence on cardiac arrhythmias, sponsored by the federal ministry of science (BMBF), for which he served as its general manager from 2002 to 2004.

His research on atrial fibrillation, for which he obtained his PhD in 2000 from Technical University, Munich, was awarded by the European Society in Cardiology with the Young Investigator Award in Basic Science in 2001.

Ammer also studied business administration and economics at University St.

Gallen from 1992 until 1996, and at Harvard Extension School from 1996 until 1998 and obtained a PhD in 2005 from University St.

Since 2001, Dr.

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We believe Dr.

Ammer’s extensive

experience in the biopharmaceuticals industry and as a chief executive officer of a biopharmaceutical company qualifies him to

serve on our board of directors.

Marella Thorell has

served as a director and as the chairperson of our audit committee since February 12, 2021.

Since February 2021, she has served

as Head of Finance of Centessa Pharmaceuticals Limited, a next-generation biopharmaceutical company, formed by Medicxi through

the merger of ten private biotech companies and completion of a $250 million Series A financing.

Ammer’s extensive experience in the biopharmaceuticals industry and as a chief executive officer of a biopharmaceutical company qualifies him to serve on our board of directors.

Marella Thorell has served as a director and as the chairperson of our audit committee since February 12, 2021.

Thorell has more than 30 years of accomplishments in finance and operations having successfully led multiple M&A, licensing, and fundraising transactions.

She currently serves as the Chief Accounting Officer of Centessa Pharmaceuticals plc (Nasdaq:

CNTA) and previously served as Head of Finance.

Prior to that, Ms.

the Chief Financial Officer of Palladio BioSciences, Inc.

Thorell has more than 25 years of experience in executive financial

and operational roles and has successfully led multiple M&A, licensing, and fundraising transactions.

Thorell also served

as CFO/COO and an Executive Director of Realm Therapeutics, which was acquired by ESSA Pharma in July 2019, having previously

held a number of other senior positions within Realm Therapeutics.

Thorell was appointed a director of ESSA following the

Thorell worked at Campbell Soup Company, in several financial and management roles of increasing responsibility.

She was also an executive consultant focusing on financial and human capital projects.

She began her career and earned her CPA

qualification with Ernst & Young, LLP.

Thorell earned a BS in Business from Lehigh University, magna cum laude.

Thorell was the Chief Financial Officer of Palladio Biosciences, leading their finance operations and capital strategy and execution.

Before joining Palladio, she served in various capacities at Realm Therapeutics, PLC, (Nasdaq:

RLM), including Chief Financial Officer, Chief Operating Officer and Executive Director.

In this role, she led accounting and financial reporting operations and helped transition Realm’s focus to drug development following a strategic overhaul.

She was also responsible for divesting domestic and international operating businesses and in-licensing and out-licensing assets.

Earlier in her career Ms.

Thorell worked for Campbell Soup Company (NYSE:

CPB) in finance and operational roles of increasing responsibility and at Ernst & Young, LLP where she earned a C.P.A.

Thorell also serves on the Board of Essa Pharm (Nasdaq:

EPIX) and on the Board of Living Beyond Breast Cancer (lbbc.org).

Thorell earned a B.S.

in Business from Lehigh University, magna cum laude.

We believe Ms.

Thorell’s extensive

experience and education in finance and accounting in the biopharmaceuticals industry qualifies her to serve on our board of directors.

Thorell’s extensive experience and education in finance and accounting in the biopharmaceuticals industry qualifies her to serve on our board of directors.

Key Consultant

Timothy Whitaker, M.D.

a part-time consultant that has served as our Chief Medical Officer since April 2018.

He brings over 20 years of experience

in the pharmaceutical industry and nearly a decade in academic medicine.

His pharmaceutical industry experience involves extensive

leadership and management of many global clinical development programs, achieving numerous global regulatory approvals.

of this work has been in neuroscience and includes leading the development and approval of multiple ADHD medications.

Most recently,

Whitaker served as the Chief Medical Officer at Alder Biopharmaceuticals leading a positive Phase III study in the

development of a CGRP antagonist for migraine.

is a part-time consultant that has served as our Chief Medical Officer since April 2018.

He brings over 20 years of experience in the pharmaceutical industry and nearly a decade in academic medicine.

His pharmaceutical industry experience involves extensive leadership and management of many global clinical development programs, achieving numerous global regulatory approvals.

The majority of this work has been in neuroscience and includes leading the development and approval of multiple ADHD medications.

Most recently, Dr.

Whitaker served as the Chief Medical Officer at Alder Biopharmaceuticals leading a positive Phase III study in the development of a CGRP antagonist for migraine.

Prior to that, Dr.

Whitaker worked at Shire for more than 10 years, most

recently as VP and Neuroscience Therapeutic Area Head, Global Clinical Development.

Whitaker worked at Shire for more than 10 years, most recently as VP and Neuroscience Therapeutic Area Head, Global Clinical Development.

Prior to Shire, Dr.

Whitaker served as

a Senior Director — Neuroscience at Wyeth Research with a focus on sleep disorders and life cycle management

for Effexor®.

Whitaker served as a Senior Director — Neuroscience at Wyeth Research with a focus on sleep disorders and life cycle management for Effexor®.

Prior to joining industry, Dr.

Whitaker held a variety of clinical and teaching positions at the University

of Vermont (UVM) College of Medicine and the Medical Center Hospital of Vermont, including Associate Professor of Psychiatry, Director

of the Inpatient Services, Executive Committee of the Vermont Regional Sleep Disorders Center, and Director of the Psychopharmacology

He earned his bachelor’s degree from Duke University, and his medical degree from Wake Forest University School of

He completed a residency training program in psychiatry and a fellowship in clinical psychopharmacology at UVM/Medical

Center Hospital of Vermont in Burlington.

Whitaker held a variety of clinical and teaching positions at the University of Vermont (UVM) College of Medicine and the Medical Center Hospital of Vermont, including Associate Professor of Psychiatry, Director of the Inpatient Services, Executive Committee of the Vermont Regional Sleep Disorders Center, and Director of the Psychopharmacology Clinic.

He earned his bachelor’s degree from Duke University, and his medical degree from Wake Forest University School of Medicine.

He completed a residency training program in psychiatry and a fellowship in clinical psychopharmacology at UVM/Medical Center Hospital of Vermont in Burlington.

Family Relationships

There is no family relationship between any

director, executive officer or person nominated to become a director or executive officer.

There is no family relationship between any director, executive officer or person nominated to become a director or executive officer.

Composition of Our Board of Directors

Our amended and restated certificate of incorporation

and amended and restated bylaws provide that the number of directors on our board shall be determined from time to time by resolution

of the Board or the Company’s stockholders, and the current size of our Board is five members.

Our amended and restated bylaws also provide

that our directors may be removed from office with or without cause by vote of the holders of a majority of the shares of stock

entitled to vote in the election of directors.

Our current and future executive officers

and significant employees serve at the discretion of our board of directors.

Our board of directors may also choose to form certain

committees, such as a compensation and an audit committee.

Our board of directors is divided into three

classes with staggered three-year terms.

At each annual meeting of stockholders, the directors whose terms then expire will be

subject to re-election to serve until the third annual meeting following re-election.

As a result, only one class of directors

will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective

three-year terms.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that the number of directors on our board shall be determined from time to time by resolution of the Board or our stockholders, and the current size of our Board is five members.

Our amended and restated bylaws also provide that our directors may be removed from office with or without cause by vote of the holders of a majority of the shares of stock entitled to vote in the election of directors.

Tabl e of Contents

Our current and future executive officers and significant employees serve at the discretion of our board of directors.

Our board of directors may also choose to form certain committees, such as a compensation and an audit committee.

Our board of directors is divided into three classes with staggered three-year terms.

At each annual meeting of stockholders, the directors whose terms then expire will be subject to re-election to serve until the third annual meeting following re-election.

As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.

Our directors are divided among the three classes as follows:

the Class I directors are David Baker and Ofir Levi, and their

term expires at the annual meeting of stockholders to be held in 2021;

the Class II directors are Richard Ammer and Marella Thorell,

and their term expires at the annual meeting of stockholders to be held in 2022;

the Class III directors are Joseph Payne, and his term expires

at the annual meeting of stockholders to be held in 2023.

Our amended and restated certificate of incorporation

and amended and restated bylaws provide that only our board of directors can fill vacancies on the board, including due to increases

in the size of the board.

Any additional directorships resulting from an increase in the authorized number of directors would be

placed among the three classes so that, as nearly as possible, each class consists of one-third of the authorized number of directors.

The classification of our board of directors

may have the effect of delaying or preventing changes in our control or management.

See Exhibit 4.5 “Description of Capital

Stock — Anti-Takeover Effects of our Certificate of Incorporation and Bylaws and Delaware Law.”

• the Class I directors are David Baker and Ofir Levi, and their term expires at the annual meeting of stockholders to be held in 2022;

• the Class II directors are Richard Ammer and Marella Thorell, and their term expires at the annual meeting of stockholders to be held in 2022;

• the Class III directors are Joseph Payne, and his term expires at the annual meeting of stockholders to be held in 2023.

With respect to the Class I directors, their terms were originally scheduled to expire at last year’s annual meeting.

Because we did not hold an annual meeting of stockholders in 2021, the Class I directors will continue to serve as directors through this year’s annual meeting, whereby both Class I and Class II directors will be subject to re-election.

Upon re-election, each Class I director will serve a term expiring at our annual meeting of stockholders in 2024, while each Class II director will serve the full three-year term.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that only our board of directors can fill vacancies on the board, including due to increases in the size of the board.

Any additional directorships resulting from an increase in the authorized number of directors would be placed among the three classes so that, as nearly as possible, each class consists of one-third of the authorized number of directors.

The classification of our board of directors may have the effect of delaying or preventing changes in our control or management.

See Exhibit 4.5 “Description of Capital Stock — Anti-Takeover Effects of our Certificate of Incorporation and Bylaws and Delaware Law.”

Director Independence

Under the listing requirements of The Nasdaq

Capital Market, independent directors must comprise a majority of a listed company’s board of directors within twelve months

from the date of listing.

In addition, subject to specified exceptions, each member of a listed company’s audit, compensation

and nominating and governance committees must be independent within twelve months from the date of listing.

Audit committee members

must also satisfy additional independence criteria, including those set forth in Rule 10A-3 under the Securities Exchange Act of

1934, as amended (the Exchange Act), and compensation committee members must also satisfy the independence criteria set forth in

Rule 10C-1 under the Exchange Act.

A director will only qualify as an “independent director” if, in the opinion of

that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent

judgment in carrying out the responsibilities of a director.

In order to be considered independent for purposes of Rule 10A-3 under

the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of

the audit committee, the board of directors or any other board committee:

(1) accept, directly or indirectly, any consulting, advisory

or other compensatory fee from the listed company or any of its subsidiaries, other than compensation for board service;

be an affiliated person of the listed company or any of its subsidiaries.

In order to be considered independent for purposes of

Rule 10C-1, the board of directors must consider, for each member of a compensation committee of a listed company, all factors

specifically relevant to determining whether a director has a relationship to such company which is material to that director’s

ability to be independent from management in connection with the duties of a compensation committee member, including, but not

the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such

company to the director, and whether the director is affiliated with the company or any of its subsidiaries or affiliates.

Our board of directors has determined that

all members of the board of directors and our director nominees, except Richard Ammer and David Baker, are independent directors,

including for purposes of the rules of The Nasdaq Capital Market and the SEC.

In making such independence determination, our board

of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that

our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock

by each non-employee director.

The composition and functioning of our board of directors and each of our committees comply with

all applicable requirements of The Nasdaq Capital Market and the rules and regulations of the SEC.

Under the listing requirements of The Nasdaq Capital Market, independent directors must comprise a majority of a listed company’s board of directors within twelve months from the date of listing.

In addition, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees must be independent within twelve months from the date of listing.

Audit committee members must also satisfy additional independence criteria, including those set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act.

A director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered independent for purposes of Rule 10A-3 under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee:

(1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries, other than compensation for board service;

or (2) be an affiliated person of the listed company or any of its subsidiaries.

In order to be considered independent for purposes of Rule 10C-1, the board of directors must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director, and whether the director is affiliated with the company or any of its subsidiaries or affiliates.

Our board of directors has determined that all members of the board of directors and our director nominees, except Richard Ammer and David Baker, are independent directors, including for purposes of the rules of The Nasdaq Capital Market and the SEC.

In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

The composition and functioning of our board of directors and each of our committees comply with all applicable requirements of The Nasdaq Capital Market and the rules and regulations of the SEC.

Tabl e of Contents

Board Oversight of Risk

One of the key functions of our board of

directors is informed oversight of our risk management process.

In particular our board of directors is responsible for monitoring

and assessing strategic risk exposure.

Our executive officers are responsible for the day-to-day management of the material risks

One of the key functions of our board of directors is informed oversight of our risk management process.

In particular our board of directors is responsible for monitoring and assessing strategic risk exposure.

Our executive officers are responsible for the day-to-day management of the material risks we face.

Our board of directors administers its oversight function directly as a whole.

Our board of directors also administers

its oversight through various standing committees, which address risks inherent in their respective areas of oversight.

our audit committee is responsible for overseeing the management of risks associated with financial reporting, accounting and auditing

Our board of directors also administers its oversight through various standing committees, which address risks inherent in their respective areas of oversight.

For example, our audit committee is responsible for overseeing the management of risks associated with financial reporting, accounting and auditing matters;

our compensation committee oversees the management of risks associated with our compensation policies and programs;

our nominating and corporate governance committee oversees the management of risks associated with director independence, conflicts

of interest, composition and organization of our board of directors and director succession planning.

and our nominating and corporate governance committee oversees the management of risks associated with director independence, conflicts of interest, composition and organization of our board of directors and director succession planning.

Board Committees

directors established an audit committee, a compensation committee and a nominating and corporate governance committee and

may establish other committees to facilitate the management of our business.

Members serve on these committees until their

resignation or until otherwise determined by our board of directors.

Our board of directors and its committees set meeting

schedules throughout the year and can also hold special meetings and act by written consent from time to time, as

Our board of directors expects to delegate

various responsibilities and authority to committees as generally described below.

The committees regularly report on their activities

and actions to the full board of directors.

Each member of each committee of our board of directors qualifies as an independent

director in accordance with the listing standards of The Nasdaq Capital Market.

Each committee of our board of directors has a

written charter that was approved by our board of directors.

Copies of each charter are posted on our

website at www.vallon-pharma.com under the Investor Relations section.

Information contained on our website is not incorporated

by reference into this Annual Report.

Our board of directors established an audit committee, a compensation committee and a nominating and corporate governance committee and may establish other committees to facilitate the management of our business.

Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Our board of directors and its committees set meeting schedules throughout the year and can also hold special meetings and act by written consent from time to time, as appropriate.

Our board of directors expects to delegate various responsibilities and authority to committees as generally described below.

The committees regularly report on their activities and actions to the full board of directors.

Each member of each committee of our board of directors qualifies as an independent director in accordance with the listing standards of The Nasdaq Capital Market.

Each committee of our board of directors has a written charter that was approved by our board of directors.

Copies of each charter are posted on our website at www.vallon-pharma.com under the Investor Relations section.

Information contained on our website is not incorporated by reference into this Annual Report.

Audit Committee

The members of our audit committee are Ofir

Levi, Joseph Payne and Marella Thorell, who is the chair of the audit committee.

Our audit committee assists our board of

directors with its oversight of the integrity of our financial statements;

The members of our audit committee are Ofir Levi, Joseph Payne and Marella Thorell, who is the chair of the audit committee.

Our audit committee assists our board of directors with its oversight of the integrity of our financial statements;

our compliance with legal and regulatory requirements;

the qualifications, independence and performance of the independent registered public accounting firm;

the design and implementation

of our financial risk assessment and risk management.

Among other things, our audit committee is responsible for reviewing and

discussing with our management the adequacy and effectiveness of our disclosure controls and procedures.

Our audit committee also

discusses with our management and independent registered public accounting firm the annual audit plan and scope of audit activities,

scope and timing of the annual audit of our financial statements, and the results of the audit, quarterly reviews of our financial

statements and, as appropriate, initiates inquiries into certain aspects of our financial affairs.

Our audit committee is responsible for establishing

and overseeing procedures for the receipt, retention and treatment of any complaints regarding accounting, internal accounting

controls or auditing matters, as well as for the confidential and anonymous submissions by our employees of concerns regarding

questionable accounting or auditing matters.

In addition, our audit committee has direct responsibility for the appointment, compensation,

retention and oversight of the work of our independent registered public accounting firm.

Our audit committee has sole authority

to approve the hiring and discharging of our independent registered public accounting firm, all audit engagement terms and fees

and all permissible non-audit engagements with the independent auditor.

Our audit committee reviews and oversees all related person

transactions in accordance with our policies and procedures.

Each member of our

audit committee is independent under the rules and regulations of the SEC and the listing standards of the Nasdaq Capital

Market applicable to audit committee members.

Our board of directors has determined that Marella Thorell qualifies as an

audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of

The Nasdaq Capital Market listing standards.

the design and implementation of our financial risk assessment and risk management.

Among other things, our audit committee is responsible for reviewing and discussing with our management the adequacy and effectiveness of our disclosure controls and procedures.

Our audit committee also discusses with our management and independent registered public accounting firm the annual audit plan and scope of audit activities, scope and timing of the annual audit of our financial statements, and the results of the audit, quarterly reviews of our financial statements and, as appropriate, initiates inquiries into certain aspects of our financial affairs.

Our audit committee is responsible for establishing and overseeing procedures for the receipt, retention and treatment of any complaints regarding accounting, internal accounting controls or auditing matters, as well as for the confidential and anonymous submissions by our employees of concerns regarding questionable accounting or auditing matters.

In addition, our audit committee has direct responsibility for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm.

Our audit committee has sole authority to approve the hiring and discharging of our independent registered public accounting firm, all audit engagement terms and fees and all permissible non-audit engagements with the independent auditor.

Our audit committee reviews and oversees all related person transactions in accordance with our policies and procedures.

Each member of our audit committee is independent under the rules and regulations of the SEC and the listing standards of The Nasdaq Capital Market applicable to audit committee members.

Our board of directors has determined that Marella Thorell qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of The Nasdaq Capital Market listing standards.

In making this determination, our board has considered Ms.

Thorell’s prior

experience, business acumen and independence.

Both our independent registered public accounting firm and management

periodically meets privately with our audit committee.

We believe that the composition and functioning

of our audit committee complies with all applicable requirements of Section 404 of the Sarbanes-Oxley Act of 2002, and all

applicable SEC and The Nasdaq Capital Market rules and regulations.

We intend to comply with future requirements to the extent

they become applicable to us.

Thorell’s prior experience, business acumen and independence.

Both our independent registered public accounting firm and management periodically meets privately with our audit committee.

We believe that the composition and functioning of our audit committee complies with all applicable requirements of Section 404 of the Sarbanes-Oxley Act of 2002, and all applicable SEC and The Nasdaq Capital Market rules and regulations.

We intend to comply with future requirements to the extent they become applicable to us.

Tabl e of Contents

Compensation Committee

The members of our compensation committee

are Marella Thorell and Joseph Payne, who is the chair of the compensation committee.

Each member of our compensation committee

is independent under the rules and regulations of the SEC and the listing standards of The Nasdaq Capital Market applicable to

compensation committee members.

Our compensation committee assists our board of directors with its oversight of the forms and amount

of compensation for our executive officers (including officers reporting under Section 16 of the Exchange Act), the administration

of our equity and non-equity incentive plans for employees and other service providers and certain other matters related to our

compensation programs.

Our compensation committee, among other responsibilities, evaluates the performance of our chief executive

officer and, in consultation with him, evaluates the performance of our other executive officers (including officers reporting

under Section 16 of the Exchange Act).

The members of our compensation committee are Marella Thorell and Joseph Payne, who is the chair of the compensation committee.

Each member of our compensation committee is independent under the rules and regulations of the SEC and the listing standards of The Nasdaq Capital Market applicable to compensation committee members.

Our compensation committee assists our board of directors with its oversight of the forms and amount of compensation for our executive officers (including officers reporting under Section 16 of the Exchange Act), the administration of our equity and non-equity incentive plans for employees and other service providers and certain other matters related to our compensation programs.

Our compensation committee, among other responsibilities, evaluates the performance of our chief executive officer and, in consultation with him, evaluates the performance of our other executive officers (including officers reporting under Section 16 of the Exchange Act).

Nominating and Corporate Governance Committee

The members of our nominating and corporate

governance committee are Joseph Payne and Ofir Levi, who is the chair of the nominating and corporate governance committee.

Each member of our nominating and governance

committee is independent under the rules and regulations of the SEC and the listing standards of The Nasdaq Capital Market, applicable

to nominating and governance committee members.

Our nominating and corporate governance committee assists our board of directors

with its oversight of and identification of individuals qualified to become members of our board of directors, consistent with

criteria approved by our board of directors, and selects, or recommends that our board of directors selects, director nominees;

develops and recommends to our board of directors a set of corporate governance guidelines and oversees the evaluation of our board

of directors.

The members of our nominating and corporate governance committee are Joseph Payne and Ofir Levi, who is the chair of the nominating and corporate governance committee.

Each member of our nominating and governance committee is independent under the rules and regulations of the SEC and the listing standards of The Nasdaq Capital Market, applicable to nominating and governance committee members.

Our nominating and corporate governance committee assists our board of directors with its oversight of and identification of individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors, and selects, or recommends that our board of directors selects, director nominees;

develops and recommends to our board of directors a set of corporate governance guidelines and oversees the evaluation of our board of directors.

Communicating with Our Board of Directors

You may communicate with our board of directors

as a group, or to specific directors, by writing to the Chairman of our board of directors at our offices located at 100 N.

Street, Suite 300, Philadelphia, PA 19103, or board@vallon-pharma.com, who will then forward all such correspondence to the Chairman.

The Chairman will review all such correspondence and regularly forward to our full board of directors such correspondence and copies

of all correspondence that, in the opinion of the Chairman, deals with the functions of our board of directors or committees thereof

or that he otherwise determines requires their attention.

Directors may at any time review a log of all correspondence we receive

that is addressed to members of our board of directors and request copies of any such correspondence.

Concerns relating to accounting,

internal controls, or auditing matters may be communicated in this manner.

These concerns will be immediately brought to the attention

of our board of directors and handled in accordance with procedures established by our board of directors.

Notwithstanding the

foregoing, the non-management directors have requested that the Chairman not forward to them advertisements, solicitations for

periodicals or other subscriptions, and other similar communications.

You may communicate with our board of directors as a group, or to specific directors, by writing to the Chairman of our board of directors at our offices located at 100 N.

18th Street, Suite 300, Philadelphia, PA 19103, or board@vallon-pharma.com, who will then forward all such correspondence to the Chairman.

The Chairman will review all such correspondence and regularly forward to our full board of directors such correspondence and copies of all correspondence that, in the opinion of the Chairman, deals with the functions of our board of directors or committees thereof or that he otherwise determines requires their attention.

Directors may at any time review a log of all correspondence we receive that is addressed to members of our board of directors and request copies of any such correspondence.

Concerns relating to accounting, internal controls, or auditing matters may be communicated in this manner.

These concerns will be immediately brought to the attention of our board of directors and handled in accordance with procedures established by our board of directors.

Notwithstanding the foregoing, the non-management directors have requested that the Chairman not forward to them advertisements, solicitations for periodicals or other subscriptions, and other similar communications.

Compensation Committee Interlocks and Insider Participation

None of our current or former executive officers

serve as a member of the compensation committee.

None of our officers serve, or have served during the last completed fiscal year,

on the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that

has one or more of its executive officers serving as a member of our board of directors or our compensation committee.

For a description

of transactions between us and members of our compensation committee and affiliates of such members, see the section entitled “Certain

Relationships and Related Party Transactions.”

None of our current or former executive officers serve as a member of the compensation committee.

None of our officers serve, or have served during the last completed fiscal year, on the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or our compensation committee.

For a description of transactions between us and members of our compensation committee and affiliates of such members, see the section entitled “Certain Relationships and Related Party Transactions.”

Code of Business Conduct and Ethics

We adopted a Code of Business Conduct and

Ethics that applies to all directors, officers and employees.

Our Code of Business Conduct and Ethics is available on our website

at https://www.vallon-pharma.com/ .

A copy of our code of ethics will also be provided to any person without charge,

upon written request sent to us at our offices located at 100 N.

We adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees.

Our Code of Business Conduct and Ethics is available on our website at https://www.vallon-pharma.com/ .

A copy of our code of ethics will also be provided to any person without charge, upon written request sent to us at our offices located at 100 N.

18th Street, Suite 300, Philadelphia, PA 19103.

Delinquent Section 16 Reports

Not applicable.

Tabl e of Contents

EXECUTIVE COMPENSATION

Summary Compensation Table

As an emerging growth company, we are required

to disclose the compensation earned by or paid to our named executive officers for the last two completed fiscal years.

Name and Principal Position

As an emerging growth company, we are required to disclose the compensation earned by or paid to our named executive officers for the last two completed fiscal years.

Name and Principal Position Year Salary ($) Option

Awards ($) (1)

Non-Equity Incentive Compensation (2)

David Baker 2021 391,553 259,136 150,000 12,000 812,689

President and Chief Executive Officer 2020 330,000 122,999 206,250 9,900 669,149

Toren, Senior

Vice President, Regulatory Affairs

& Program Management

Kelly 2021 177,604 259,136 55,772 6,347 498,859

Chief Financial Officer

Toren 2021 256,871 64,784 30,174 7,544 359,373

Senior Vice President, Regulatory Affairs & Program Management 2020 235,000 57,399 58,750 7,050 358,199

(1) Reflects the aggregate grant date fair value of stock options granted during the fiscal year calculated in accordance with FASB ASC Topic 718.

See Note F to our audited financial statements for the period ended December 31, 2020, included elsewhere in this Annual Report, for a discussion of the assumptions made by us in determining the grant date fair value of our equity awards.

Reflects matching contributions to a SIMPLE IRA.

In February 2021, the Board approved a bonus payment of $206,250 to Mr.

In February 2021, the Board approved a bonus payment of $58,750 to Ms.

Toren as well as an increase to her annual base salary of 7% to $251,450 effective March 1, 2021.

Compensation Arrangements for Executive Officers

Employment Agreements

On January 15, 2019, David Baker entered

into an employment agreement (the “ Baker Agreement ”) to serve as our President and Chief Executive Officer.

Pursuant to the Baker Agreement, Mr.

Baker will receive an annual base salary of $300,000, with a 10% increase on the date

we raise gross proceeds of $4.0 million (or more) by way of either a private or public offering of our common stock (the “ $4.0

Million Raise ”).

Baker will also receive a target annual bonus opportunity of 50% of base salary, as described

The Baker Agreement includes a severance benefit equal to two months of base salary prior to the $4.0 Million Raise,

four months of base salary on and after the $4.0 Million Raise, and six months of base salary after the listing of our

common stock on a securities exchange (“ Exchange Listing ”), plus one additional month for each year of completed

employment during the period commencing on the date of the first Exchange Listing (up to a maximum of six additional months,

so that total severance does not ever exceed twelve months), and twelve months after a change in control, with continued

medical benefits during the applicable severance period and an opportunity to earn a pro-rated bonus in the year of termination.

The Baker Agreement also provides for the acceleration of vesting of the stock options granted to Mr.

Baker on October 1,

2018 covering 46,875 shares of the Company’s common stock under the 2018 Plan at an exercise price of $1.84;

of additional options under the 2018 Plan to purchase up to 2.0% of the fully diluted shares of common stock of the Company at

an exercise price per share of $2.20 (which was the fair value of one share of common stock on the date of grant), that shall vest

in installments and become exercisable as follows:

50.0% on the date the Company closes a firm-commitment underwritten public offering

of its common stock pursuant to an effective registration statement, and 50.0% on the earlier of (a) an Exchange Listing,

or (b) the achievement of a market capitalization for the Company equal to $50.0 million or more, with accelerated vesting

on a change in control.

The initial public offering completed February 12, 2021 triggered the vesting of 100% of the options.

base compensation as of January 1, 2021 is $330,000.

On April 2, 2018, Ms.

entered into an Employment Agreement (the “ Toren Agreement ”) to serve as our Senior Vice President,

Regulatory Affairs & Program Management.

The Toren Agreement provides for an annual base salary of $228,000 and a

one-time cash signing bonus of $28,500, and a short-term incentive (“ STI ”) bonus opportunity with a target

of 75% of annual base salary.

Effective as of October 1, 2019, Ms.

Toren received a 3.1% increase and a cash bonus

of $23,000 for 2018 performance.

These amounts do not necessarily correspond to the actual value that may be realized by the executive in connection with the option awards.The assumptions made in valuing the option awards reported in this column are described in our audited financial statements (Note B.

Summary of Significant Accounting Policies - [3] Stock-based compensation and Note F, Equity incentive plan ).

(2) The amounts in this column represent performance bonuses earned by the named executive officers in the year shown based upon the achievement of pre-established performance objectives.

See "— Non-Equity Incentive Plan Compensation" below.

(3) The amounts reflect matching contributions to the named executive officers’ accounts under our SIMPLE IRA plan.

Elements of Compensation

2021 Base Salaries

Effective as of April 1, 2021, Mr.

Baker’s annual salary was increased to $400,000.

Effective as of March 1, 2021, Ms.

Toren received a 7% increase and a cash bonus of $58,750.

In addition, on October 11, 2019, Ms.

Toren received a grant of options to purchase 5,000 shares of common stock,

at an exercise price equal to $3.8172 per share (which was the fair value of one share of common stock on the date of grant),

which vest in equal installments on each of October 11, 2020, 2021, and 2022.

Toren will be eligible to

participate in an annual bonus plan under terms and conditions no less favorable than other

similarly situated executives of the Company, provided that her target annual bonus opportunity will be 20% of her annual

base a salary.

She is also entitled to receive a one-time performance bonus of $130,000 related to the development and

commercialization of ADAIR, which will vest in installments on the following dates:

(i) $25,000 on the date the FDA

completes its 30-day review period of our IND application for ADAIR (the “ First Milestone ”), which

occurred in July 2018 (ii) $25,000 on the date that we successfully complete the human abuse liability study for

ADAIR (the “ Second Milestone ”), (iii) $30,000 on the date that we submit an NDA filing for ADAIR (the

“ Third Milestone ”), and (iv) $50,000 on the later of the date when the FDA approves the NDA and the

date we engage in exclusive collaboration for commercialization of the product (the “ Fourth Milestone ”).

October 1, 2018, Ms.

Toren was also granted an option to purchase up to 46,875 shares of our Common Stock under the 2018

Plan at an exercise price per share equal to $1.84 (which was the fair value of one share of common stock on the date of

The stock options will vest in installments and become exercisable as follows:

1/6 on the date of the grant, 1/6 on

the date the Second Milestone is achieved, 1/3 on the date the Third Milestone is achieved, and 1/3 on the date the Fourth

Milestone is achieved.

The Toren Agreement entitles Ms.

to certain severance benefits if the Company terminates the executive’s employment other than for death, Disability or Cause,

or if she terminates her employment for Good Reason.

In such event, subject to Ms.

Toren signing and not revoking a release

of claims in favor of Vallon, we would pay her, among other things, continued annual base salary for the period beginning on the

date of termination and ending two months thereafter, and increased by an additional one month for every whole year of service

performance by Ms.

Toren for Vallon and its affiliates, provided that such period is subject to a maximum of six months.

The Toren Agreement contains standard ownership of works, confidentiality, non-compete, non-solicitation and non-disparagement

Employee Benefit and Incentive Plans

Qualified Retirement Plan .

our employees, including our Chief Executive Officer and Senior Vice President, Regulatory Affairs & Program Management, retirement

and certain other benefits, including participation in the tax-qualified SIMPLE IRA retirement plan sponsored by the Company in

the same manner as all other Company other employees.

Pursuant to the SIMPLE IRA program, employees are eligible to contribute

to an individual SIMPLE IRA account on a tax-deferred basis.

If an employee participates in the SIMPLE IRA plan, the Company makes

a matching contribution to the employee’s SIMPLE IRA account in an amount up to 3% of the employee’s base salary (subject

to applicable IRS compensation limits).

Toren’s annual salary was increased to $251,450.

Kelly’s base salary, which was negotiated in connection with her appointment as Chief Financial Officer on May 10, 2021, was set at $275,000.

Non-Equity Incentive Plan Compensation

Each of our named executive officers is eligible to receive an annual performance bonus based on the achievement of corporate and personal objectives as determined by our board of directors or compensation committee.

Each executive officer is assigned a target bonus expressed as a percentage of base salary.

For 2021, the target bonus opportunities for Mr.

Kelly (prorated to her May 10, 2021 start date) and Ms.

Toren, expressed as a percentage of base salary, were 50%, 35% and 20%, respectively.

Actual performance bonus payments depend on the extent to which we achieve pre-established corporate objectives for the year, along with an overall assessment of each officer’s personal performance, as determined by our board of directors or compensation committee.

For 2021, the corporate objectives, consisted primarily of:

(i) IPO completion;

(ii) execution of the SEAL study;

(iii) determination of ADMIR ;

(iv) execution of key non-clinical studies;

and (v) manufacture of ADAIR.

In the first quarter of 2022, our compensation committee assessed our level of achievement of these objectives.

Based on this assessment, our compensation committee determined that our performance relative to the corporate objectives warranted a payout of 75% of the target bonus opportunity, subject to adjustments for personal performance.

Actual bonus amounts paid with respect to 2021 are reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table above.

In addition, pursuant to her employment agreement, Ms.

Toren is entitled to receive a one-time performance bonus of $130,000 related to the development and commercialization of ADAIR, which will vest in installments on the following dates:

(i) $25,000 on the date the FDA completes its 30-day review period of our IND application for ADAIR , which occurred in July 2018 (ii) $25,000 on the date that we successfully complete the human abuse liability study for ADAIR , (iii) $30,000 on the date that we submit an NDA filing for ADAIR , and (iv) $50,000 on the later of the date when the FDA approves the NDA and the date we engage in exclusive collaboration for commercialization of the product.

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Option Awards Granted During 2021

On May 14, 2021, each of Mr.

Baker and Ms.

Toren contributed to the SIMPLE IRA and received a

related matching contribution.

Participants are fully vested in both their own contribution and the matching contributions at all

We do not maintain any deferred compensation,

pension, or profit-sharing plans.

Our board of directors have adopted the 2018 Plan, the material terms of which are described

below, allowing for the grant of equity and cash-based awards to our employees and directors.

Toren was granted a non-qualified stock option to purchase 100,000 and 25,000 shares of our common stock, respectively, with an exercise price of $3.66 per share, which was equal to the closing price of our common stock on the date of grant.

Subject to the executive's continued employment on each applicable vesting date, 25% of the shares underlying these options vest on May 14, 2022, with the remainder vesting in equal quarterly installments thereafter through May 14, 2025.

Additionally, on May 14, 2021, in conjunction with the commencement of her employment with the Company, Ms.

Kelly was granted non-qualified options to purchase 100,000 shares of our common stock, with an exercise price of $3.66 per share, which was equal to the closing price of our common stock on the date of grant.

Subject to Ms.

Kelly's continued employment on each applicable vesting date, 70,000 shares underlying these options will vest as follows:

(i) 17,500 shares on May 14, 2022, and (ii) the remainder vesting in equal quarterly installments thereafter through May 14, 2025.

An additional 30,000 shares underlying these options will vest, if at all, following the achievement of certain performance conditions related to regulatory submissions to the FDA for ADAIR, subject to Ms.

Kelly’s continued employment.

Qualified Retirement Plan

We offer our employees, including our named executive officers, retirement and certain other benefits, including participation in the tax-qualified SIMPLE IRA retirement plan sponsored by the Company in the same manner as all of our other employees.

Pursuant to the SIMPLE IRA program, employees are eligible to contribute to an individual SIMPLE IRA account on a tax-deferred basis.

If an employee participates in the SIMPLE IRA plan, we make a matching contribution to the employee’s SIMPLE IRA account in an amount up to 3% of the employee’s base salary (subject to applicable IRS compensation limits).

Kelly and Ms.

Toren contributed to the SIMPLE IRA and received a related matching contribution.

Participants are fully vested in both their own contribution and the matching contributions at all times.

We do not maintain any deferred compensation, pension, or profit-sharing plans.

Employment Agreements

We have entered into an employment agreement with each of our named executive officers.

The employment agreements provide that the executive will receive a base salary and be eligible to receive an annual cash bonus contingent upon the attainment of certain company milestones and/or individual objectives.

Pursuant to the employment agreements, each executive's base salary and target bonus will be reviewed periodically by our compensation committee or board of directors.

The employment agreements also provide for certain termination benefits, which are described below in the section entitled "Potential Payments Upon a Termination or Change in Control .

Our named executive officers are also entitled to participate in all of our retirement and group welfare plans available to our senior level executives as a group or our employees generally, subject to the terms and conditions applicable to such plans.

Further, each such executive's employment agreement contains restrictive covenants relating to non-disclosure of confidential information, mutual non-disparagement, assignment of inventions, non-competition and non-solicitation provisions.

Potential Payments Upon a Termination or Change in Control

Pursuant to his employment agreement with us, if Mr.

Baker’s employment were terminated by us without cause or terminated by Mr.

Baker for good reason, in either case not in connection with a change in control, then Mr.

Baker is entitled to the following severance benefits:

• continued base salary for a period of 12 months, plus a pro-rated bonus for the year of termination, based on actual performance results for the entire year, and provided he was employed for at least six months during that year;

• subsidized premiums for COBRA continuation coverage for a period of 12 months (or such earlier date that he obtains alternative coverage).

Pursuant to his employment agreement with us, if Mr.

Baker’s employment were terminated by us without cause or terminated by Mr.

Baker for good reason,in either case withing the one-year period following a change in control, then Mr.

Baker would be entitled to the following severance benefits:

• continued base salary for a period of 18 months, plus a lump sum payment equal to 150% of his target bonus, without proration, for the fiscal year of termination;

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• subsidized premiums for COBRA continuation coverage for a period of 18 months (or such earlier date that he obtains alternative coverage);

• accelerated vesting of all outstanding stock-based awards held by the executive as of the date of termination, with any performance awards deemed satisfied at the “target” performance level, and any stock options remaining outstanding for their full term.

Pursuant to her employment agreement with us, if Ms.

Kelly’s employment were terminated by us without cause or terminated by Ms.

Kelly for good reason, in either case not in connection with a change in control, then Ms.

Kelly would be entitled to the following severance benefits:

• continued base salary for a period of nine months, plus a pro-rated bonus for the year of termination, based on actual performance results for the entire year, and provided she was employed for at least six months during that year;

• subsidized premiums for COBRA continuation coverage for a period of nine months (or such earlier date that she obtains alternative coverage).

Pursuant to her employment agreement with us, if Ms.Kelly’s employment were terminated by us without cause or terminated by Ms.

Kelly for good reason, in ether case within the one-year period following a change in control transaction, then Ms.

Kelly would be entitled to the following severance benefits:

• continued base salary for a period of 12 months, plus a lump sum payment equal to 100% of her target bonus, without proration, for the fiscal year of termination;

• subsidized premiums for COBRA continuation coverage for a period of 12 months (or such earlier date that she obtains alternative coverage);

Pursuant to her employment agreement with us, if Ms.

Toren’s employment were terminated by us without cause or terminated by Ms.

Toren for good reason, then Ms.

Toren would be entitled to the following severance benefits:

• continued base salary for a period equal to two months, plus an additional one month for every whole year of service performance by Ms.

Toren for the Company and its affiliates, up to a maximum of six months.

Outstanding Equity Awards at Fiscal Year-End

Stock Option Awards

The following table sets forth the outstanding

stock option awards as of December 31, 2020 held by our named executive officers, on an award-by-award basis, setting forth the

total number of shares underlying each stock option award that are (i) exercisable, but not yet exercised, (ii) unexercisable and

not yet exercised, and (iii) total aggregate amount underlying each award.

unexercised, but

unvested stock

options (time

unexercised, but

unvested stock

based) (1) (4)

Total securities

underlying the

stock options

The following table sets forth the outstanding stock option awards as of December 31, 2021 held by our named executive officers, on an award-by-award basis, setting forth the total number of shares underlying each stock option award that are (i)

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exercisable, but not yet exercised, (ii) unexercisable and not yet exercised, and (iii) total aggregate amount underlying each award.

Name Number of securities underlying unexercised, but vested stock options (1)

Number of securities underlying unexercised, but unvested stock options (time based) (1)

Number of securities underlying unexercised, but unvested stock options (performance based) (1)(2)

Total securities underlying the stock options Option exercise price Option expiration date

David Baker 46,875 — — 46,875 (3)

$ 1.84 10/1/2028

Chief Executive Officer 61,250 — — 61,250 (3)

$ 2.20 2/5/2029

— 37,500 37,500 $ 4.72 5/22/2030

— 100 — 100,000 (4)

$ 3.66 5/14/2031

Leanne Kelly — 70 30,000 100,000 (5)

$ 3.66 5/14/2031

Chief Financial Officer

Penny Toren 7,813 — 39,062 46,875 (6)

$ 1.84 10/1/2028

SVP, Regulatory Affairs and Project Management 3,334 2 — 5,000 (7)

$ 3.82 10/11/2029

— 17,500 17,500 $ 4.72 5/22/2030

— 25 — 25,000 (4)

$ 3.66 5/14/2031

__________________

(1) All stock option awards were granted under our 2018 Equity Incentive Plan.

(2) The stock option award will vest upon satisfaction of certain performance milestones.

(3) The stock option award is fully vested.

(3) The stock option vested as to 50% of the underlying shares upon the closing of our initial public offering of our common stock,

and 50% on the earlier of (a) the listing of our common stock on a national stock exchange, or (b) the achievement of a market

capitalization for the Corporation equal to $50 million or more, with accelerated vesting on a change in control.

(4) The stock option vests upon satisfaction of certain performance milestones.

(5) The stock option vests as to one-sixth of the underlying shares of common stock upon the date of grant, then upon satisfaction

of certain performance milestones.

(6) The stock option vests as to one-third of the underlying shares of common stock on each of October 11, 2020, October 11, 2021and

October 11, 2022.

We have not granted any stock awards to

any of our named executive officers.

(4) The stock options award will vest 25% on the first anniversary of the vesting start date (May 14, 2021) and 6.25% (1/16th of such shares) for each subsequent full quarter that the executive remains employed with us.

(5) 70% of the stock option award will vest 25% on the first anniversary of the vesting start date (May 14, 2021) and 6.25% (1/16th of such shares) for each subsequent full quarter that the executive remains employed with us.

The remaining 30% of the stock option award will vest upon the satisfaction of certain performance milestones.

(6) The stock option award vests as to one-sixth of the underlying shares of common stock upon the date of grant, then upon satisfaction of certain performance milestones.

(7) The stock option award vests as to one-third of the underlying shares of common stock on each of October 11, 2020, October 11, 2021 and October 11, 2022.

We have not granted any stock awards to any of our named executive officers.

Director Compensation and Compensation Table

Beginning in April 2020 and ending in

August 2020, Dr.

Levi received a consulting fee of $6,000 per month for his advisory services.

None of our other directors

receive, nor have received, any compensation for their service as a director since inception.

See also the section entitled “Item

Certain Relationships and Related Transactions, and Director Independence—Ofir Levi.”

We intend to pay our directors an annual

retainer of $25,000 in cash, to be paid quarterly and prorated for any partial year of Board service.

In addition, the Board may

grant stock options under the 2018 Plan, or a cash payment, including for any service on a committee of the Board.

Directors will

also be eligible to receive stock option awards under the 2018 Plan.

In addition, the chairperson of our audit committee shall

receive an additional annual cash retainer of $10,000.

The following table provides information

on compensation paid to our non-employee directors in 2020.

Our director compensation program is designed to enhance our ability to attract and retain highly qualified directors and to align their interests with the long-term interests of our shareholders.

The program generally includes a cash component, which is designed to compensate non-employee directors for their service on our board of directors and an equity component, which is designed to align the interests of non-employee directors and shareholders.

Directors who are employees of the Company receive no additional compensation for their service on our board of directors.

The compensation committee annually reviews compensation paid to our non-employee directors and makes recommendations for adjustments, as appropriate, to the full board of directors.

As part of this annual review, the committee considers the significant time commitment and skill level required by each non-employee director in serving on our board of directors and its various committees.

The compensation committee seeks to maintain a market competitive director compensation program and benchmarks our director compensation program against those maintained by our peer group.

For 2021, each of our non-employee directors was eligible to receive an annual retainer of $25,000, and the chair of the audit committee was eligible to receive an additional retainer of $10,000.

The annual retainer was payable in cash, or at the election of a director, in the form of an equivalent amount of stock options.

In addition, each non-employee director serving in 2021 received an initial stock option grant to purchase 15,000 shares, which generally vests in quarterly or monthly installments over two years.

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In January 2022, the board of directors, upon recommendation of the compensation committee, increased the annual retainer for each non-employee director to $30,000, increased the annual retainer for the chair of the audit committee to $15,000, and provided an annual retainer for the chair of the compensation committee of $10,000 and for the chair of the nominating and governance committee of $5,000.

Going forward, non-employee directors who are first appointed or elected to the board will receive an initial stock option grant to purchase 15,000 shares, which generally will vest in quarterly installments over two years.

The following table provides information on compensation paid to our non-employee directors in 2021:

Name Fees Earned

Cash (US$) Option Awards ($) (1)(7)

Richard Ammer $ — $ 62,607 (2)(3)

Ofir Levi — 111,964 (4)

Joseph Payne — 72,609 (2)(5)

Marella Thorell 30,973 80,235 (6)

Thorell joined our board of directors effective February 12, 2021 and was granted 15,000 options which vest monthly over

a period of 24 months.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information

known to us regarding beneficial ownership of our capital stock as of March 15, 2021 for:

each person or group of affiliated persons known by us to be the beneficial owner of more than five percent of our capital

_________________

(1) Reflects the aggregate grant date fair value of stock options granted during the fiscal year calculated in accordance with FASB ASC Topic 718.

Summary of Significant Accounting Policies - [3] Stock-based compensation and Note F, Equity incentive plan ).

(2) Options to purchase 15,000 shares of common stock were granted on May 14, 2021 and vest monthly over a 24-month period.

(3) Options to purchase 10,204 shares of common stock were granted on May 14, 2021 of which 25% vested immediately and an additional 25% vested on each of June 30, 2021, September 30, 2021 and December 31, 2021.

(4) Options to purchase 30,000 shares of common stock were granted on May 14, 2021 which vest monthly over a 24-month period.

An additional 15,000 options to purchase common stock were grantedon May 14, 2021 of which 25% vested immediately and an additional 25% vested on each of June 30, 2021, September 30, 2021 and December 31, 2021.

(5) Options to purchase 14,286 were granted on May 14, 2021 of which 25% vested immediately and an additional 25% vested on each of June 30, 2021, September 30, 2021 and December 31, 2021.

Thorell joined our board of directors effective February 12, 2021 and was granted 15,000 options which vest monthly over a period of 24 months.

(7) The following table shows the aggregate number of outstanding shares of common stock underlying outstanding options held by our non-employee directors as of December 31, 2021:

Name Outstanding Option Awards

Richard Ammer 45,000

Ofir Levi 25,204

Joseph Payne 29,286

Marella Thorell 15,000

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of December 31, 2021, as adjusted to reflect the sale of common stock offered by us in this offering, for:

• each person or group of affiliated persons known by us to be the beneficial owner of more than five percent of our capital stock;

• each of our named executive officers;

each of our directors;

all of our executive officers, and directors as a group.

We have determined beneficial ownership in

accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership

for any other purpose.

Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole

or shared voting power or investment power, and includes securities that the individual or entity has the right to acquire, such

as through the exercise of stock options, within 60 days of March 15, 2021.

Except as noted by footnote, and subject to community

property laws where applicable, we believe, based on the information provided to us, that the persons and entities named in the

table below have sole voting and investment power with respect to all common stock shown as beneficially owned by them.

The percentage of beneficial ownership

in the table below is based on 6,811,122shares of common stock deemed to be outstanding as of March 15, 2021.

Unless otherwise indicated, the address for

each beneficial owner is c/o Vallon Pharmaceuticals, Inc., 100 N.

• each of our directors and our director nominees;

• all of our executive officers, and directors and director nominees as a group.

We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose.

Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power, and includes securities that the individual or entity has the right to acquire, such as through the exercise of stock options, within 60 days of December 31, 2021.

Except as noted by footnote, and subject to community property laws where applicable, we believe, based on the information provided to us, that the persons and entities named in the table below have sole voting and investment power with respect to all common stock shown as beneficially owned by them.

The percentage of beneficial ownership in the table below is based on 6,812,836 shares of common stock deemed to be outstanding as of December 31, 2021.

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Unless otherwise indicated, the address for each beneficial owner is c/o Vallon Pharmaceuticals, Inc., 100 N.

18th Street, Suite 300, Philadelphia, PA 19103.

Beneficially Owned

Common Stock Beneficially Owned

Number of Shares and Nature of

Beneficial Ownership

Percentage of Total Common Stock

Name and Address of Beneficial Owner

Nature of Beneficial

Percentage of

Greater than 5% Stockholders

SALMON Pharma GmbH (1)

1,523,797 22.4 %

Arcturus Therapeutics, Inc.

(fka successor to Arcturus Therapeutics Ltd.) (2)

843,750 12.4 %

Tomer Feingold (4)(11)(12)

509,781 7.5 %

Dov Malnik (3)(4)(11)(12)

Directors and Named Executive Officers

509,781 7.5 %

Directors, Director Nominees and Named Executive Officers (5)

David Baker (6)

Penny Toren (6)

Leanne Kelly (7)

Ofir Levi (8)

Richard Ammer (9)

Joseph Payne (10)

881,161 12.9 %

Marella Thorell (11)

All directors and executive officers as a group (5 persons)

*Less than 1.0%.

All directors, director nominees, and executive officers as a group (6 persons)

2,786,130 39.8 %

________________

* Represents beneficial ownership of less than one percent of our outstanding common stock.

(1) SALMON Pharma GmbH’s address is Sankt-Jakobs-Strasse 90, CH-9002 Basel, Switzerland.

(2) Arcturus Therapeutics Inc.’s address is 10628 Science Center Drive, Suite 250, San Diego, California 92121.

(2) Arcturus Therapeutics Ltd.’s address is 10628 Science Center Drive, Suite 250, San Diego, California 92121.

Malnik has granted Ariel Malnik a power of attorney to vote and dispose of the shares held individually by Mr.

(4) On March 3, 2020, the Securities and Exchange Commission filed an action against Tomer Feingold and Dov Malnik in the

(4) On March 3, 2020, the Securities and Exchange Commission filed an action against Tomer Feingold and Dov Malnik in the U.S.

District Court for the Southern District of New York (SEC v.

Feingold, et al., Civ.

20-cv-01881) alleging violations

of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 14(e) of the Exchange Act and Rule 14e-3

thereunder, and requesting other equitable relief.

20-cv-01881) alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 14(e) of the Exchange Act and Rule 14e-3 thereunder and requesting other equitable relief.

Adamas is named as a relief defendant in the action.

The action is pending.

As of November 23, 2021, the action has been settled with regard to Mr.

Vallon Pharmaceuticals, Inc.

is not a named party or identified in this action.

(5) Consists of (i) 108,125 shares of common stock issuable pursuant to stock options exercisable within 60 days of March

15, 2021, and (ii) 7,843 shares of common stock.

(6) Consists of 7,813 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 15, 2021.

(7) Consists of 1,476,734 shares of common stock held by SALMON Pharma GmbH (“ Salmon Pharma ”), of which Dr.

is an affiliate and may be deemed to have shared voting and dispositive power over the shares beneficially owned by Salmon Pharma,

but disclaims such beneficial ownership except to the extent of his pecuniary interest therein, if any.

(5) The address for each of our executive officers, directors and director nominees is c/o Vallon Pharmaceuticals, 100 N.

18th Street, Suite 300, Philadelphia, PA 19103.

(6) Consists of (i)7,843 shares of common stock and (ii) 120,625 shares of common stock issuable pursuant to stock options exercisable within 60 days of December 31, 2021.

(7) Consists of 6,250 shares of common stock.

(8) Consists of (i) 196,875 shares of common stock and (ii) 26,250 shares of common stock issuable pursuant to stock options exercisable within 60 days of December 31, 2021.

(9) Consists of (i) 1,523,797 shares of common stock held by SALMON Pharma GmbH (“Salmon Pharma”), of which Dr.

Ammer is an affiliate and may be deemed to have shared voting and dispositive power over the shares beneficially owned by Salmon Pharma but disclaims such beneficial ownership except to the extent of his pecuniary interest therein, if any, and (ii) 15,829 shares of common stock issuable pursuant to stock options exercisable within 60 days of December 31, 2021.

(10) Consists of 843,750 shares of common stock held by Arcturus, of which Mr.

Payne is an affiliate and may be deemed to have

shared voting and dispositive power over the shares beneficially owned by Arcturus, but disclaims such beneficial ownership except

to the extent of his pecuniary interest therein, if any.

(9) Consists of 1,875 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 15, 2021.

(10) On December 30, 2020, we entered into the 2020 Voting Agreement with Dov Malnik and Tomer Feingold, pursuant to which

at every meeting of our stockholders, and at every adjournment or postponement thereof, Messrs.

Malnik and Feingold (in their

capacity as stockholders) shall have the right to vote all common stock held by them collectively constituting no more than 9.99%

of the total number of shares of common stock issued and outstanding as of the record date for voting on the matters presented

at such meeting or taking action by written consent.

Payne is an affiliate and may be deemed to have shared voting and dispositive power over the shares beneficially owned by Arcturus but disclaims such beneficial ownership except to the extent of his pecuniary interest therein, if any, (ii) 17,500 shares of common stock and (iii) 19,911 shares of common stock issuable pursuant to stock options exercisable within 60 days of December 31, 2021.

(11) Includes 7,500 shares of common stock issuable pursuant to stock options exercisable within 60 days of December 31, 2021.

(12) On December 30, 2020, we entered into the 2020 Voting Agreement with Dov Malnik and Tomer Feingold, pursuant to which, following the date of effectiveness of this registration statement, at every meeting of our stockholders, and at every adjournment or postponement thereof, Messrs.

Malnik and Feingold (in their capacity as stockholders) shall have the right to vote all common stock held by them collectively constituting no more than 9.99% of the total number of shares of common stock issued and outstanding as of the record date for voting on the matters presented at such meeting or taking action by written consent.

The common stock held or otherwise beneficially owned by Messrs.

and Feingold in excess of the Share Voting Cap shall be voted at every meeting of the stockholders of the Company, and at every

adjournment or postponement thereof, and on every action or approval by written consent of the stockholders, in a manner that is

proportionate to the manner in which all other holders of the issued and outstanding shares of Common Stock vote in respect of

each matter presented at any such meeting and in respect of each action taken by written consent.

See the section entitled “Certain

Relationships and Related Party Transactions—2020 Voting Agreement”.

Malnik and Feingold in excess of the Share Voting Cap shall be voted at every meeting of the stockholders of the Company, and at every adjournment or postponement thereof, and on every action or approval by written consent of the stockholders, in a manner that is proportionate to the manner in which all other holders of the issued and outstanding shares of Common Stock vote in respect of each matter presented at any such meeting and in respect of each action taken by written consent.

See the section entitled “Certain Relationships and Related Party Transactions—2020 Voting Agreement”.

Equity Compensation Information

Our 2018 Equity Incentive Plan is our sole

equity incentive plan approved and adopted by our stockholders, and provides for the issuance of shares of our common stock to

our officers and other employees, directors and consultants.

The following table presents information

as of December 31, 2020 with respect to compensation plans or arrangements under which shares of our common stock may be issued.

Plan category

Our 2018 Equity Incentive Plan is our sole equity incentive plan approved and adopted by our stockholders, and provides for the issuance of shares of our common stock to our officers and other employees, directors and consultants.

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The following table presents information as of December 31, 2021 with respect to compensation plans or arrangements under which shares of our common stock may be issued.

Plan category Number of securities

to be issued upon

outstanding options,

warrants and rights

warrants and rights Weighted-

average exercise

options, warrants

and rights Number of

available for

1 unchanged sentence

Equity compensation plans approved by security holders (1)

690,365 $ 3.57 657 (3)

Equity compensation plans not approved by security holders 18,125 (2)

Total 708,490 $ 3.60

________________

(1) Includes shares of our common stock under our 2018 Equity Incentive Plan.

For a description of this plan, refer to Note F to

the financial statements included in this Annual Report on Form 10-K.

(2) The 18,125 stock options referenced above were granted to an advisor in January 2020 and May 2020 outside of the 2018 Equity

Incentive Plan, and are subject to separate stock option award agreements.

CERTAIN RELATIONSHIPS AND

RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Party Transactions

The following is a summary of each transaction

or series of similar transactions since the inception of Vallon Pharmaceuticals (January 11, 2018) to which it was or is a

party and that:

the amount involved exceeded or exceeds $120,000 or is greater than 1% of our total assets;

any of our directors or executive officers, any holder of 5% of our capital stock or any

member of their immediate family had or will have a direct or indirect material interest.

Asset Purchase Agreement

In June 2018, we entered into the Asset

Purchase Agreement with Arcturus, a holder of more than 5% of our common stock, the terms for which are described above under the

heading “Item 1.

Business — Asset Purchase Agreement”.

Payne, a member of our board of directors,

has served on the board of directors of Arcturus since November 2017.

In connection with the Asset Purchase Agreement, we

also entered into a voting agreement (the “ 2018 Voting Agreement ”), entitling Arcturus to designate a member

of our board of directors;

however, the 2018 Voting Agreement terminated upon the filing of the registration statement in connection

with the initial public offering of our common stock.

Additionally, on June 26, 2018, we entered

into a Payment and Release Agreement with Amiservice Development Ltd.

(“ Amiservice ”), a British Virgin Islands

corporation, pursuant to which we reimbursed Amiservice for making a capital infusion into Arcturus of $250,000, as part of the

transactions contemplated by the Asset Purchase Agreement, and paying other miscellaneous transaction expenses on our behalf.

is a company wholly owned by Dov Malnik, a holder of more than 5% of our common stock.

We reimbursed Amiservice an aggregate sum

of $562,493 as full repayment for all of the foregoing expenses.

Beginning in June 2020 and ending in

October 2020, Dr.

Levi, a member of our board of directors, received a consulting fee of $6,000 per month for his advisory

On July 2, 2018, we entered into a Payment

and Release Agreement with O2 Capital Advisors (“ O2 ”), pursuant to which we reimbursed O2 for certain consulting

services by David Siner.

O2 is owned by Ofir Levi, a member of our board of directors and a shareholder of the Company.

expensed approximately $186,000 and $161,000 for services rendered by Mr.

Siner for the fiscal year ended December 31,

2019 and from our inception (January 11, 2018) through December 31, 2018, respectively.

Medice, through its affiliated entity, Salmon

Pharma, owns approximately 22.4% of our issued and outstanding shares of common stock, and accordingly controls approximately 22.4%

of our voting power.

On January 6, 2020, we entered into a license agreement with Medice, which grants Medice an exclusive

license, with the right to grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe.

Medice currently

markets several ADHD products in Europe and is the ADHD market leader in Europe based on branded prescription market share.

is responsible for obtaining regulatory approval of ADAIR in the licensed territory.

Business — Medice

License” for additional information.

Since the completion of our initial public

offering, Salmon Pharma is entitled to rights with respect to the registration of the shares of common stock held by it under the

Securities Act.

These rights are provided under the terms of an investor’s rights agreement between us and Salmon Pharma.

See Exhibit 4.5 “Description of Capital Stock — Registration Rights” for additional information regarding

these registration rights.

For a description of this plan, refer to Note F to the financial statements included in this Annual Report on Form 10-K.

(2) The 18,125 stock options referenced above were granted to an advisor in January 2020 and May 2020 outside of the 2018 Equity Incentive Plan, and are subject to separate stock option award agreements.

(3) Excludes 70,000 shares of common stock issuable upon the exercise of options for which the Company can, at its discretion, issue cash in lieu of shares to the extent the authorized option pool is depleted when exercised.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following is a summary of each transaction or series of similar transactions since January 1, 2019, to which we have been a party that:

• The amount involved exceeded or exceeds $120,000 or is greater than 1% of our total assets as of December 31, 2020 and 2019;

• any of our directors or executive officers, any holder of 5% of our capital stock or any member of their immediate family had or will have a direct or indirect material interest.

Beginning in June 2020 and ending in October 2020, Dr.

Levi, a member of our board of directors, received a consulting fee of $6,000 per month for his advisory services.

Medice, through its affiliated entity, Salmon Pharma, owns approximately 22.4% of our issued and outstanding shares of common stock, and accordingly controls approximately 22.4% of our voting power.

On January 6, 2020, we entered into a license agreement with Medice, which grants Medice an exclusive license, with the right to grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe.

Medice currently markets several ADHD products in Europe and is the ADHD market leader in Europe based on branded prescription market share.

Medice is responsible for obtaining regulatory approval of ADAIR in the licensed territory.

Under the license agreement, Medice paid Vallon a minimal upfront payment and will pay milestone payments of up to $6.3 million in the aggregate upon first obtaining regulatory approval to market and sell ADAIR in any country, territory or region in the licensed territory and upon achieving certain annual net sales thresholds.

2020 Voting Agreement

On December 30, 2020, we entered

into the 2020 Voting Agreement with Dov Malnik and Tomer Feingold, pursuant to which at every meeting of our stockholders,

and at every adjournment or postponement thereof, Messrs.

Malnik and Feingold (in their capacity as stockholders) shall

have the right to vote all common stock held by them collectively constituting no more than 9.99% of the total number of

shares of common stock issued and outstanding as of the record date for voting on the matters presented at such meeting or

taking action by written consent (the “ Share Voting Cap ”).

The common stock held or otherwise beneficially

owned by Messrs.

Malnik and Feingold in excess of the Share Voting Cap (“ Excess Shares ”) shall be voted at

every meeting of the stockholders of the Company, and at every adjournment or postponement thereof, and on every action or

approval by written consent of the stockholders, in a manner that is proportionate to the manner in which all other holders

of the issued and outstanding shares of Common Stock vote in respect of each matter presented at any such meeting and in

respect of each action taken by written consent.

On December 30, 2020, we entered into the 2020 Voting Agreement with Dov Malnik and Tomer Feingold, pursuant to which at every meeting of our stockholders and at every adjournment or postponement thereof, Messrs.

The common stock held or otherwise beneficially owned by Messrs.

Malnik and Feingold in excess of the Share Voting Cap (Excess Shares) shall be voted at every meeting of the stockholders of the Company, and at every adjournment or postponement thereof, and on every action or approval by written consent of the stockholders, in a manner that is proportionate to the manner in which all other holders of the issued and outstanding shares of common stock vote in respect of each matter presented at any such meeting and in respect of each action taken by written consent.

Furthermore, each of Messrs.

Malnik and Feingold executed an irrevocable

proxy for the voting of the Excess Shares in accordance with the 2020 Voting Agreement.

The 2020 Voting Agreement terminates

on the earliest to occur of (i) the date following the effective date of the 2020 Voting Agreement on which

Malnik and Feingold collective beneficial own less than 9.99% of our outstanding common stock, (ii) the

date following written notice to them that we have withdrawn this registration statement and do not intend to proceed with

the IPO, (iii) the third anniversary of the effectiveness of this registration statement, or (iv) with respect to

either Messrs.

Malnik or Feingold, the date on which any proceeding before or brought by the SEC against such

stockholder has been terminated or otherwise concluded.

Malnik and Feingold executed an irrevocable proxy for the voting of the Excess Shares in accordance with the 2020 Voting Agreement.

The 2020 Voting Agreement terminates on the earliest to occur of (i) the date following the effective date of the 2020 Voting Agreement on which Messrs.

Malnik and Feingold collective beneficial ownership of our common stock falls below 9.99%, (ii)the third anniversary of the effectiveness

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of our registration statement relating to the IPO, or (iii) with respect to either Messrs.

Malnik or Feingold, the date on which any proceeding before or brought by the SEC against such stockholder has been terminated or otherwise concluded.

Equity Financings

2018 Private Placement

In June 2018, we raised approximately

$3.0 million through a private placement of 1,771,687 shares of our common stock pursuant to the Section 4(a)(2) exemption

from registration under the Securities Act (the “ 2018 Private Placement ”).

The following table sets forth the aggregate

number of common stock acquired by 5% holders in the 2018 Private Placement described above.

Aggregate Purchase Price

Greater than 5% Stockholders(1)

Tomer Feingold

Adamas Health Care Fund(2)

(1) Additional details regarding these stockholders and their equity holdings are provided in this Annual Report under the section

entitled “Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Feingold, and Dr.

Levi were affiliated with Adamas Health Care Fund at the time of the 2018 Private

2019 Convertible Note Financing

In April 2019, we entered into a Convertible

Promissory Note Purchase Agreement with certain existing stockholders and Salmon Pharma, an affiliate of Medice, pursuant to which

we issued the 2019 Convertible Notes for cash proceeds of $1,150,000.

The 2019 Convertible Notes bore an interest rate of 7.0%

per annum, non-compounding, and had a maturity date of January 1, 2020.

The terms of the 2019 Convertible Notes included a

mandatory conversion upon a qualified financing, such as the July 2019 Financing discussed below, and were convertible into

shares of our capital stock that are offered to investors in a subsequent equity financing at a discount to the price per share

offered in such subsequent financing.

On July 25, 2019, upon the closing of

the July 2019 Financing, the 2019 Convertible Notes converted into an aggregate of 383,849 shares of our common stock at a

conversion price of $3.04 per share.

The following table sets forth the principal

amounts under the 2019 Convertible Notes acquired by 5% holders in the financing transaction described above, and the number of

shares of common stock such 2019 Convertible Notes converted into in connection with the July 2019 Financing.

Principal Amount

2019 Convertible Notes

Number of Shares of

Common Stock upon

Conversion in July 2019

Greater than 5% Stockholders(1)

Tomer Feingold

SALMON Pharma GmbH(2)

(1) Additional details regarding these stockholders and their equity holdings are provided in this Annual Report under the section

entitled “Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Ammer is affiliated with Salmon Pharma.

In April 2019, we entered into a Convertible Promissory Note Purchase Agreement (the 2019 Contrvertible Notes) with certain existing stockholders and Salmon Pharma, an affiliate of Medice, pursuant to which we issued the 2019 Convertible Notes for cash proceeds of $1,150,000.

The 2019 Convertible Notes bore an interest rate of 7.0% per annum, non-compounding, and had a maturity date of January 1, 2020.

The terms of the 2019 Convertible Notes included a mandatory conversion upon a qualified financing, such as the July 2019 Financing discussed below, and were convertible into shares of our capital stock that are offered to investors in a subsequent equity financing at a discount to the price per share offered in such subsequent financing.

In July 2019, upon the closing of the July 2019 Financing, the 2019 Convertible Notes converted into an aggregate of 383,849 shares of our common stock at a conversion price of $3.04 per share.

2019 Private Placement

On July 25, 2019, we consummated the

July 2019 Financing, in which we entered into a Stock Purchase Agreement with Salmon Pharma, pursuant to which we sold and

issued 1,309,861 shares of our common stock for aggregate cash proceeds of $5.0 million.

In July 2019, we entered into a Stock Purchase Agreement with Salmon Pharma (the July 2019 Financing), pursuant to which we sold and issued 1,309,861 shares of our common stock for aggregate cash proceeds of $5.0 million.

2021 Convertible Note Financing

In January 2021, we entered into a Convertible

Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate of Medice, and David

Baker, our Chief Executive Officer, pursuant to which we issued the 2021 Convertible Notes, for cash proceeds of $350,000.

2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30,

The 2021 Convertible Notes are convertible into shares of our capital stock that are offered to investors in any subsequent

equity financing after the date of their issuance in which we issued any of our equity securities (a “ Qualified Financing ”)

and are convertible at a twenty percent (20%) discount to the price per share offered in such Qualified Financing.

Such Qualified

Financing included the initial public offering of our common stock, consummated on February 12, 2021;

therefore, the 2021 Convertible

Notes converted into an aggregate of 54,906 shares of our common stock immediately prior to the closing of the initial public offering,

as agreed upon among the parties thereto.

The following table sets forth the principal

amounts under the 2021 Convertible Notes acquired by our directors and officers, and 5% holders in the financing transaction described

above, and the number of shares of common stock such 2021 Convertible Notes converted into in connection with the initial public

Principal Amount

2021 Convertible Notes

Approximate Number of

Shares of Common Stock

upon Conversion

In January 2021, we entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma and David Baker, our Chief Executive Officer, pursuant to which we issued convertible promissory notes for cash proceeds of $350,000.

The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30, 2021.

The 2021 Convertible Notes were convertible into shares of our capital stock offered to investors in any subsequent equity financing, or Qualified Financing, after the date of their issuance in which we issued any of our equity securities and were convertible at a 20.0% discount to the price per share offered in such Qualified Financing.

On February 12, 2021, we consummated the IPO of our common stock, which was considered a Qualified Financing.

Accordingly, the 2021 Convertible Notes converted into an aggregate of 54,906 shares of our common stock immediately prior to the closing of the IPO at a conversion price of $6.40 per share.

The following table sets forth the principal amounts under the 2019 Convertible Notes and 2021 Convertible Notes, or the Convertible Notes, acquired by 5% holders in the financing transaction described above, and the number of shares of common stock such Convertible Notes converted into in connection with the July 2019 Financing and IPO.

Principal Amount under the Convertible Notes

Shares of Common Stock upon Conversion of Convertible Notes

Greater than 5% Stockholders (1)

Tomer Feingold

$ 200,000 66,812

SALMON Pharma GmbH (2)

(1) Additional details regarding these stockholders and their equity holdings are provided in this Annual Report under the section

entitled “Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

$ 800,000 213,936

__________________

(1) Additional details regarding these stockholders and their equity holdings are provided in this report under the caption “Principal Stockholders.”

Ammer is affiliated with Salmon Pharma.

Review, Approval or Ratification

of Transactions with Related Parties

Our written related party

transactions policy states that our employees, officers and directors, and any members of the immediate family of and any

entity affiliated with any of the foregoing persons are not permitted to enter into a material related party transaction with

us without the review and approval of our Audit Committee.

The policy provides that any request for us to enter into a

transaction with such parties in which the amount involved exceeds $120,000 must be notify the Company’s general

counsel, or, if the Company does not then have a general counsel, the Company’s principal executive, financial, or

accounting officer (each a “ Designated Officer ”) , of the facts and

circumstances of the proposed transaction.

Should an employee of the Company become aware of a related party transaction,

regardless of whether such employee is a party to such transaction, such employee will report the Related Party Transaction

to the Designated Officer.

Review, Approval or Ratification of Transactions with Related Parties

Our written related party transactions policy states that our employees, officers and directors, and any members of the immediate family of and any entity affiliated with any of the foregoing persons are not permitted to enter into a material related party transaction with us without the review and approval of our Audit Committee.

The policy provides that the our general counsel, or, if we do not then have a general counsel, our principal executive, financial, or accounting officer (each a Designated Officer), must be notified of any request for us to enter into a transaction with such parties in which the amount involved exceeds $120,000 as well as of the facts and circumstances of the proposed transaction.

Should an employee of the Company become aware of a related party transaction, regardless of whether such employee is a party to such transaction, such

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employee will report the Related Party Transaction to the Designated Officer.

The Designated Officer shall report such Related Party Transaction to the Committee for review.

approving or rejecting any such proposal, our Audit Committee considers the relevant facts and circumstances available and

deemed relevant to the committee, including, but not limited to, (i) whether the transaction was undertaken in the ordinary

course of business;

In approving or rejecting any such proposal, our Audit Committee considers the relevant facts and circumstances available and deemed relevant to the committee, including, but not limited to, (i) whether the transaction was undertaken in the ordinary course of business;

(ii) whether the related party transaction was initiated by us, a subsidiary, or the related party;

whether the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to the

company than terms that could have been reached with an unrelated third party;

(iv) the purpose of, and the potential

benefits to us of, the Related Party Transaction;

(v) the approximate dollar value of the amount involved in the related

party transaction, particularly as it relates to the related party;

(vi) the related party’s interest in the related

party transaction;

(vii) whether the related party transaction would impair the independence of an otherwise independent

and (viii) any other information regarding the related party transaction or the related party that would be

material to investors in light of the circumstances of the particular transaction.

(iii) whether the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to the company than terms that could have been reached with an unrelated third party;

(iv) the purpose of, and the potential benefits to us of, the Related Party Transaction;

(v) the approximate dollar value of the amount involved in the related party transaction, particularly as it relates to the related party;

(vi) the related party’s interest in the related party transaction;

(vii) whether the related party transaction would impair the independence of an otherwise independent director;

and (viii) any other information regarding the related party transaction or the related party that would be material to investors in light of the circumstances of the particular transaction.

Employment Agreements

We have entered into employment agreements

with certain of our executive officers.

See “Item 11-Executive Compensation—Compensation Arrangements for Executive

Officers—Employment Agreements.”

We have entered into employment agreements with certain of our executive officers.

See “Item 11-Executive Compensation.”

Equity Grants

We have granted stock options to certain

of our executive officers and members of our board of directors.

We have granted stock options to certain of our executive officers and members of our board of directors.

See “Item 11-Executive Compensation.”

Indemnification and Limitation

Section 145 of the Delaware General Corporation

Law (the “ DGCL ”) authorizes a corporation to indemnify its directors and officers against liabilities arising

out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have

served or are currently serving as a director or officer to a corporation.

The indemnity may cover expenses (including attorneys’

fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection

with any such action, suit or proceeding.

Section 145 permits corporations to pay expenses (including attorneys’ fees) incurred

by directors and officers in advance of the final disposition of such action, suit or proceeding.

In addition, Section 145 provides

that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability

asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such,

whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

We have adopted provisions in our amended

and restated certificate of incorporation and our amended and restated bylaws that limit or eliminate the personal liability of

our directors to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended.

Consequently, a director

will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except

for liability for:

Indemnification and Limitation on Liability

Section 145 of the Delaware General Corporation Law (DGCL) authorizes a corporation to indemnify its directors and officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have served or are currently serving as a director or officer to a corporation.

The indemnity may cover expenses (including attorneys’ fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding.

Section 145 permits corporations to pay expenses (including attorneys’ fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding.

In addition, Section 145 provides that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

We have adopted provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that limit or eliminate the personal liability of our directors to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended.

Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

• any breach of the director’s duty of loyalty to us or our stockholders;

any act or omission not in good faith or that involves intentional misconduct or a knowing

violation of law;

any unlawful payments related to dividends or unlawful stock purchases, redemptions or other

distributions;

• any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

• any unlawful payments related to dividends or unlawful stock purchases, redemptions or other distributions;

• any transaction from which the director derived an improper personal benefit.

These limitations of liability do not alter

director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction

or rescission.

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

In addition, our bylaws provide that:

we will indemnify our directors, officers and, in the discretion of our board of directors,

certain employees to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended;

we will advance reasonable expenses, including attorneys’ fees, to our directors and,

in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings

relating to their service for or on behalf of us, subject to limited exceptions.

We have entered into indemnification agreements

with each of our directors, and intend to enter into such agreements with our executive officers.

These agreements provide that

we will indemnify each of our directors, our executive officers and, at times, their affiliates to the fullest extent permitted

by Delaware law.

We will advance expenses, including attorneys’ fees (but excluding judgments, fines and settlement amounts),

to each indemnified director, executive officer or affiliate in connection with any proceeding in which indemnification is available

and we will indemnify our directors and officers for any action or proceeding arising out of that person’s services as a

director or officer brought on behalf of us or in furtherance of our rights.

Additionally, certain of our directors or officers

may have certain rights to indemnification, advancement of expenses or insurance provided by their affiliates or other third parties,

which indemnification relates to and might apply to the same proceedings arising out of such director’s or officer’s

services as a director referenced herein.

Nonetheless, we have agreed in the indemnification agreements that our obligations to

those same directors or officers are primary and any obligation of such affiliates or other third parties to advance expenses or

to provide indemnification for the expenses or liabilities incurred by those directors are secondary.

We also maintain general liability insurance

which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities

as directors or officers, including liabilities under the Securities Act of 1933, as amended, or the Securities Act.

• we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended;

• we will advance reasonable expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings relating to their service for or on behalf of us, subject to limited exceptions.

We have entered into indemnification agreements with each of our directors, and intend to enter into such agreements with our executive officers.

These agreements provide that we will indemnify each of our directors, our executive officers and, at times,

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their affiliates to the fullest extent permitted by Delaware law.

We will advance expenses, including attorneys’ fees (but excluding judgments, fines and settlement amounts), to each indemnified director, executive officer or affiliate in connection with any proceeding in which indemnification is available and we will indemnify our directors and officers for any action or proceeding arising out of that person’s services as a director or officer brought on behalf of us or in furtherance of our rights.

Additionally, certain of our directors or officers may have certain rights to indemnification, advancement of expenses or insurance provided by their affiliates or other third parties, which indemnification relates to and might apply to the same proceedings arising out of such director’s or officer’s services as a director referenced herein.

Nonetheless, we have agreed in the indemnification agreements that our obligations to those same directors or officers are primary and any obligation of such affiliates or other third parties to advance expenses or to provide indemnification for the expenses or liabilities incurred by those directors are secondary.

We also maintain general liability insurance which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended, or the Securities Act.

Director Independence

See “Item 10.

Directors, Executive Officers and Corporate

Governance Management—Director Independence.”

Committees of our Board of

Our board of directors has established

an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant

to a written charter adopted by our board of directors.

Directors, Executive Officers and Corporate Governance Management—Director Independence.”

Committees of our Board of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant to a written charter adopted by our board of directors.

See “Item 10.

Directors, Executive Officers and Corporate Governance

Management—Board Committees.”

ACCOUNTANT FEES AND SERVICES

The following

table represents aggregate fees incurred for EisnerAmper LLP services during the years ended December 31, 2020 and 2019 by us.

Directors, Executive Officers and Corporate Governance Management—Board Committees.”

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our independent registered public accounting firm is EisnerAmper LLP , Iselin, New Jersey , Auditor Firm ID:

The following table represents aggregate fees incurred for EisnerAmper LLP services during the years ended December 31, 2021 and 2020 by us.

Audit Fees (1)

$ 180,760 $ 171,984

Audit Related Fees (2)

All Other Fees (4)

(1) Audit fees consist of fees billed for professional services performed by EisnerAmper LLP for the audit of our annual financial

statements, the review of interim financial statements, and review of the Registration Statement on Form S-1 for the initial public

offering of our common stock, and related services that are normally provided in connection with statutory and regulatory filings

or engagements.

(2) Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance

of the audit or review of our financial statements.

(3) Tax fees consist of fees for professional services, including tax consulting, compliance, and transfer pricing services.

The Audit Committee will approve in advance

the engagement and fees of the independent registered public accounting firm for all audit services and non-audit services, based

upon independence, qualifications and, if applicable, performance.

The Audit Committee may form and delegate to subcommittees

of one or more members of the Audit Committee the authority to grant pre-approvals for audit and permitted non-audit services,

up to specific amounts.

All audit services provided by EisnerAmper LLP for the periods presented were ratified by our board of

Total $ 180,760 $ 171,984

(1) Audit Fees represent the aggregate fees billed for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements, review of financial statements included in our quarterly reports or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years as well as the issuance of consents in connection with registration statement filings with the SEC and comfort letters in connection with securities offerings.

(2) Audit Related Fees represent the aggregate fees billed for assurance and related professional services rendered by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit Fees" .

(3) Tax Fees represent the aggregate fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice and tax planning services.

(4) All Other Fees represent the aggregate fees billed for all other products and services rendered by our independent registered public accounting firm other than the services reported in the other categories

The Audit Committee will approve in advance the engagement and fees of the independent registered public accounting firm for all audit services and non-audit services, based upon independence, qualifications and, if applicable, performance.

The Audit Committee may form and delegate to subcommittees of one or more members of the Audit Committee the authority to grant pre-approvals for audit and permitted non-audit services, up to specific amounts.

All audit services provided by EisnerAmper LLP for the periods presented were ratified by our board of directors.

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Pre-Approval of Audit and Non-Audit Services

Our audit committee has adopted policies

and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting

These policies and procedures generally provide that we will not engage our registered public accounting firm to render audit

or non-audit services unless the service is specifically approved in advance by our audit committee or the engagement is entered

into pursuant to one of the pre-approval procedures described below.

From time to time, our audit committee

may pre-approve specified types of services that are expected to be provided to us by our registered public accounting firm during

the next 12 months.

Any such pre-approval is detailed as to the particular service or type of services to be provided and is also

generally subject to a maximum dollar amount.

Consistent with requirements of the SEC

and the Public Company Accounting Oversight Board regarding auditor independence, our Audit Committee is responsible for the appointment,

compensation and oversight of the work of our independent registered public accounting firm.

In recognition of this responsibility,

our Audit Committee, or the chair if such approval is needed between meetings of the audit committee, pre-approves all audit and

permissible non-audit services provided by the independent registered public accounting firm.

These services may include audit

services, audit-related services, tax services and other services.

EXHIBITS, FINANCIAL STATEMENT

Our audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting firm.

These policies and procedures generally provide that we will not engage our registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by our audit committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

From time to time, our audit committee may pre-approve specified types of services that are expected to be provided to us by our registered public accounting firm during the next twelve months.

Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.

Consistent with requirements of the SEC and the Public Company Accounting Oversight Board regarding auditor independence, our Audit Committee is responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm.

In recognition of this responsibility, our Audit Committee, or the chair if such approval is needed between meetings of the audit committee, pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm.

These services may include audit services, audit-related services, tax services and other services.

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EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

(1) Financial Statements .

The financial

statements of the Company, together with the report thereon of EisnerAmper LLP, an independent registered public accounting firm,

are included in this Annual Report beginning on page F-1.

The financial statements of the Company, together with the report thereon of EisnerAmper LLP, an independent registered public accounting firm, are included in this Annual Report beginning on page F-1.

(2) Financial Statement Schedules .

All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial

statements or notes thereto.

All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

(3) Exhibits.

See (b) below.

The exhibits listed in the Exhibit Index

below are filed or incorporated by reference as part of this Annual Report.

Underwriting Agreement (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K, filed with the SEC on February 16, 2021)

The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report.

Incorporated by Reference

Description Form Date Number

Underwriting Agreement

8-K 2/16/21 1.1

Amended and Restated Certificate of Incorporation of Vallon Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on February 16, 2021)

8-K 2/16/21 3.1

Amended and Restated Bylaws of Vallon Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed with the SEC on February 16, 2021)

Certificate of Incorporation of Vallon Pharmaceuticals, Inc., as amended (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Bylaws of Vallon Pharmaceuticals, Inc (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Certificate of Amendment of Vallon Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, filed with the SEC on February 16, 2021)

certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1,

initially filed with the SEC on October 23, 2020, as amended on January, 28, 2021)

Convertible Promissory Note Purchase Agreement, dated as of April 11, 2019 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Convertible Promissory Note (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Underwriter Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on February 16, 2021)

Description of the securities of Vallon Pharmaceuticals, Inc.

registered under Section 12 of the Exchange Act.

Agreement, dated as of December 30, 2020, by and among Vallon Pharmaceuticals, Inc.

8-K 2/16/21 3.3

Specimen certificate evidencing shares of common stock

S-1 10/23/20 4.1

Convertible Promissory Note Purchase Agreement, dated as of April 11, 2019

S-1 10/23/20 4.2

Form of Convertible Promissory Note

S-1 10/23/20 4.3

Form of Representative ’ s Warrant

8-K 2/16/21 4.1

Description of the S ecurities of Vallon Pharmaceuticals, Inc.

10-K 3/29/21 4.5

Voting Agreement, dated as of December 30, 2020, by and among Vallon Pharmaceuticals, Inc.

and certain of its stockholders

(incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-1, initially filed with the SEC on

October 23, 2020, as amended)

S-1/A 1/14/21 10.17

Amended and Restated Asset Purchase Agreement, dated as of June 22, 2017, by and among Arcturus Therapeutics, Ltd.

1 unchanged sentence

and Vallon Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Consulting Agreement with Whitaker Biopharmaceutical Consulting LLC, dated April 2, 2018 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

S-1/A 1/14/21 10.1

Consulting Agreement with Whitaker Biopharmaceutical Consulting LLC, dated April 2, 2018

S-1/A 1/14/21 10.2

Employment Agreement between Vallon Pharmaceuticals, Inc.

Toren, dated April 2, 2018 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Toren, dated April 2, 2018

S-1/A 1/14/21 10.3

Employment Agreement between Vallon Pharmaceuticals, Inc.

and David Baker, dated January 15, 2019 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

and David Baker, dated January 15, 2019

S-1/A 1/14/21 10.4

Vallon Pharmaceuticals, Inc.

2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

2018 Equity Incentive Plan

S-1 10/23/20 10.5

Form of Stock Option Agreement under Vallon Pharmaceuticals, Inc.

2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

2018 Equity Incentive Plan

S-1 10/23/20 10.6

Form of Incentive Stock Option Agreement under Vallon Pharmaceuticals, Inc.

2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

2018 Equity Incentive Plan

S-1 10/23/20 10.7

Form of Nonqualified Stock Option Agreement under Vallon Pharmaceuticals, Inc.

2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Directors’ and Officers’ Indemnity Agreement (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

2018 Equity Incentive Plan

S-1/A 1/14/21 10.8

Form of Directors’ and Officers’ Indemnity Agreement

S-1/A 1/14/21 10.9

Patent and Patent Application Assignment Agreement between Arcturus Therapeutics, Ltd.

and Vallon Pharmaceuticals, Inc., dated June 22, 2018 (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Subscription Agreement (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

and Vallon Pharmaceuticals, Inc., dated June 22, 2018

S-1/A 1/14/21 10.10

Form of Subscription Agreement

S-1/A 1/14/21 10.11

Form of Stock Purchase Agreement, dated June 7, 2018, among Vallon Pharmaceuticals, Inc.

and the investors listed therein (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Stock Purchase Agreement, dated July 25, 2019, between Vallon Pharmaceuticals,

and SALMON Pharma GmbH (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1, initially

filed with the SEC on October 23, 2020, as amended)

and the investors listed therein

S-1/A 1/14/21 10.12

Form of Stock Purchase Agreement, dated July 25, 2019, between Vallon Pharmaceuticals, Inc.

and SALMON Pharma GmbH

S-1/A 1/14/21 10.13

Investor’s Rights Agreement, dated as of July 25, 2019, by and between Vallon Pharmaceuticals, Inc.

and SALMON Pharma GmbH (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

and SALMON Pharma GmbH

S-1/A 1/14/21 10.14

License Agreement, effective as of January 6, 2020, by and between Vallon Pharmaceuticals, Inc.

and MEDICE Arzneimittel Putter GmbH & Co.

KG (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Lock Up Agreement (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Convertible Promissory Note Purchase Agreement, dated as of January 11, 2021, by and among Vallon Pharmaceuticals and the investors named therein (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-1, initially filed with the SEC on October 23, 2020, as amended)

S-1/A 11/16/20 10.15

Form of Lock Up Agreement

S-1/A 1/14/21 10.16

Tabl e of Contents

Form of Convertible Promissory Note Purchase Agreement, dated as of January 11, 2021, by and among Vallon Pharmaceuticals and the investors named therein

S-1/A 1/14/21 10.18

Form of Convertible Promissory Note

S-1/A 1/14/21 10.19

10.19 Employment Agreement between Vallon Pharmaceuticals, Inc.

and David Baker , dated April 2 0, 2021

10-Q 5/13/21 10.1

10.20 Employment Agreement between Vallon Pharmaceuticals, Inc.

and Leanne M.

Kelly , dated May 10 , 20 21

10-Q 5/13/21 10.2

List of subsidiaries

S-1 10/23/20 21.1

23.1 Consent of Independent Registered Public Accounting Firm

Powers of Attorney for directors and certain executive officers (contained on the signature page)

Certification of Principal Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive and Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.

32.1+ Certification of Principal Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2+ Certification of Principal Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 INS XBRL Instance Document

101 SCH XBRL Taxonomy Extension Schema Linkbase Document

101 CAL XBRL Taxonomy Extension Calculation Linkbase Document

101 DEF XBRL Taxonomy Extension Definition Linkbase Document

101 LAB XBRL Taxonomy Extension Label Linkbase Document

101 PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101

Unless otherwise indicated, exhibits are filed herewith.

# Indicates a management contract or any compensatory plan, contract or arrangement.

† Indicates that portions of this exhibit (indicated by bracketed asterisks) are omitted in accordance with the rules of the

Securities and Exchange Commission because they are both (i) not material and (ii) would be competitively harmful if

publicly disclosed.

+ The certification attached as Exhibit 32.1 that accompany

this Annual Report on Form 10-K is not deemed filed with the Securities and Exchange Commission and is not to be incorporated

by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of

1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation

language contained in such filing.

Pursuant to the requirements of Section 13

or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf

by the undersigned, thereunto duly authorized.

† Indicates that portions of this exhibit (indicated by bracketed asterisks) are omitted in accordance with the rules of the Securities and Exchange Commission because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed.

+ The certification attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

Tabl e of Contents

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

VALLON PHARMACEUTICALS, INC.

March 29, 2021

February 14, 2022 By:

/s/ David Baker

1 unchanged sentence

SIGNATURES AND POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that

each person whose signature appears below constitutes and appoints David Baker as his or her true and lawful attorneys-in-fact

and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in

any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits

thereto and all documents in connection therewith, with the U.S.

Securities and Exchange Commission, granting unto said attorneys-in-fact

and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to

be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and

confirming all that such attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully

do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities

Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the

capacities and on the dates indicated.

/s/ David Baker

President, Chief Executive Officer and Director

March 29, 2021

(Principal Executive, Financial and Accounting Officer)

/s/ Ofir Levi

Director, Chairman of the Board

March 29, 2021

/s/ Joseph Payne

March 29, 2021

/s/ Richard Ammer

March 29, 2021

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Baker as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all documents in connection therewith, with the U.S.

Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ David Baker President, Chief Executive Officer and Director

(Principal Executive Officer)

February 14, 2022

/s/ Leanne Kelly Chief Financial Officer

(Principal Financial and Accounting Officer)

February 14, 2022

/s/ Ofir Levi Director, Chairman of the Board February 14, 2022

/s/ Joseph Payne Director February 14, 2022

/s/ Richard Ammer Director February 14, 2022

Richard Ammer

/s/ Marella Thorell

March 29, 2021

/s/ Marella Thorell Director February 14, 2022

Marella Thorell

Tabl e of Contents

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Balance Sheets at December 31, 2020 and December 31, 2019

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of

Stockholders’ (Deficit) Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Balance Sheets a s of December 31, 202 1 and December 31, 20 20

Statements of Operations and Comprehensive Loss for the y ears e nded December 31, 202 1 and 20 20

Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 20 20

Statements of Cash Flows for the y ears e nded December 31, 202 1 and 20 20

Notes to Financial Statements

Tabl e of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

To the Board of Directors and Stockholders of

Vallon Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance

sheets of Vallon Pharmaceuticals, Inc.

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

operations, stockholders’

(deficit) equity, and cash flows for each of the years then ended, and the related notes

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

In our opinion, the financial statements present fairly, in

all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and

its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of

We have audited the accompanying balance sheets of Vallon Pharmaceuticals, Inc.

(the “Company”) as of December 31, 2021 and 2020, and the related statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have

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

As discussed in Note A[3] to the financial statements,

the Company has sustained a net loss and has experienced cash outflows from operations since inception 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 accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company has sustained a net loss and has experienced cash outflows from operations since inception 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 2.

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

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s 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 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 financial statements are the responsibility of the Company’s management.

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

We believe that our audits provide a

reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ EisnerAmper LLP

We have served as the Company’s auditors

We have served as the Company’s auditors since 2018.

EISNERAMPER LLP

Iselin, New Jersey

March 29, 2021

February 14, 2022

Tabl e of Contents

Vallon Pharmaceuticals, Inc.

Balance Sheets

(in thousands, except share and per share

(in thousands, except share and per share amounts)

Current assets:

Cash and cash equivalents $ 3,702 $ 109

Marketable securities, available-for-sale 3,808 —

Prepaid expenses and other current assets 619 565

Total current assets 8,129 674

Finance lease right-of-use asset, net

Other assets 206 279

Property and equipment, net — 2

Liabilities and Stockholders' (Deficit) Equity

Total assets $ 8,335 $ 955

Liabilities and stockholders' equity (deficit)

Current liabilities:

2 unchanged sentences

Note payable, current — 47

Finance lease liability, current

Total current liability

Other current liabilities 97 105

Total current liabilities 2,445 2,225

Note payable, non-current — 14

Finance lease liabilities, non-current

Other liabilities 72 170

Total liabilities 2,517 2,409

Commitments and contingencies (Note E)

Stockholders' (deficit) equity:

Commitments and contingencies (Note 9)

Stockholders' equity (deficit):

Common stock, $ 0.0001 par value;

250,000,000 shares authorized;

4,506,216 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively, which gives retroactive effect to the one-for-40 reverse stock split.

See Notes A and K to these financial statements.

6,812,836 and 4,506,216 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in-capital 27,722 11,145

Accumulated other comprehensive loss ( 2 ) —

Accumulated deficit ( 21,902 ) ( 12,599 )

Total stockholders' (deficit) equity

liabilities and stockholders' (deficit) equity

See accompanying notes to these financial

Total stockholders' equity (deficit) 5,818 ( 1,454 )

Total liabilities and stockholders' equity (deficit) $ 8,335 $ 955

See accompanying notes to financial statements.

Tabl e of Contents

Vallon Pharmaceuticals, Inc.

STATEMENTS OF OPERATIONS

(in thousands, except share and per share

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year Ended December 31,

Licensing revenue –

related party

Licensing revenue – related party $ — $ 100

Operating expenses:

3 unchanged sentences

Loss from operations ( 9,259 ) ( 4,788 )

Change in fair value of derivative liability

Other income 61 —

Revaluation of derivative liability ( 89 ) —

Interest expense, net ( 16 ) ( 34 )

Net loss per share attributable to common stockholders,

basic and diluted

Weighted-average common shares outstanding

basic and diluted

See accompanying notes to these financial

VALLON PHARMACEUITACLS

STATEMENTS OF STOCKHOLDERS’

(DEFICIT) EQUITY

Net loss $ ( 9,303 ) $ ( 4,822 )

Other comprehensive loss:

Unrealized loss on marketable securities, available-for-sale $ ( 2 ) $ —

Total comprehensive loss $ ( 9,305 ) $ ( 4,822 )

Net loss per share of common stock, basic and diluted $ ( 1.42 ) $ ( 1.07 )

Weighted-average common shares outstanding, basic and diluted 6,541,097 4,506,216

See accompanying notes to financial statements.

Tabl e of Contents

Vallon Pharmaceuticals, Inc.

Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands, except shares)

Stockholders’

Paid in Capital

Common Stock Additional

Paid-in Capital Accumulated Other Comprehensive Loss Accumulated

Deficit Stockholders’

Equity (Deficit)

Shares Amount

Balance, December 31, 2019

Issuance of common stock for convertible

Issuance of common stock for July 2019

Stock-based compensation

4,506,216 $ — $ 10,991 $ — $ ( 7,777 ) $ 3,214

Stock-based compensation expense — — 154 — — 154

Net loss — — — — ( 4,822 ) ( 4,822 )

Balance, December 31, 2020

Stock-based compensation

4,506,216 — 11,145 — ( 12,599 ) ( 1,454 )

Issuance of common stock for convertible notes 54,906 — 439 — — 439

Issuance of common stock for IPO, net of issuance expenses 2,250,000 — 15,104 — — 15,104

Issuance of common stock for services 1,714 — 9 — — 9

Issuance of Underwriters Warrants — 399 — — 399

Stock-based compensation expense — — 626 — — 626

Unrealized loss on marketable securities, available-for sale — — — ( 2 ) — ( 2 )

Net loss — — — — ( 9,303 ) ( 9,303 )

Balance, December 31, 2021

(1) The number of shares above give retroactive effect to the one-for-40 reverse stock split.

A and K to these financial statements.

See accompanying notes to these financial

6,812,836 $ — $ 27,722 $ ( 2 ) $ ( 21,902 ) $ 5,818

See accompanying notes to financial statements.

Tabl e of Contents

Vallon Pharmaceuticals, Inc.

3 unchanged sentences

Cash flows from operating activities:

Net loss $ ( 9,303 ) $ ( 4,822 )

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

Amortization of debt discount and deferred financing fees

Amortization of finance lease right-of-use asset 73 74

Change in fair value of derivative liability

Non-cash interest expense

Amortization of marketable securities premiums 32 —

Revaluation of derivative liability 89 —

Stock-based compensation expense 626 154

Depreciation expense

Forgiveness of PPP note ( 61 ) —

Non-cash interest, depreciation and other expense 12 1

Change in operating assets and liabilities:

2 unchanged sentences

Accrued expenses 583 371

Net cash used in operating activities

Cash flows from investing activities:

Cash used in operating activities ( 8,312 ) ( 3,706 )

Investing activities:

Purchase of marketable securities ( 3,842 ) —

Purchase of property and equipment — ( 2 )

Net cash used in investing activities

Cash flows from financing activities:

Cash used in investing activities ( 3,842 ) ( 2 )

Financing activities:

Proceeds from common stock issuance, net of offering expenses 15,104 —

Proceeds from notes payable

Proceeds from issuance of warrants 399 —

Proceeds from PPP loan — 61

Proceeds from convertible notes 350 —

Deferred financing fees related to convertible notes

Payment of finance lease liability ( 106 ) ( 65 )

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, at beginning of year

Cash and cash equivalents, at end of year

Supplemental disclosure of cash flows information:

Interest paid

Noncash financing activities:

Finance lease ROU asset obtained in exchange for lease obligation

Debt discount for derivative liability

See accompanying notes to these financial

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

Note A - Nature of

Operations, Business, Going Concern and Liquidity

[1] Nature of operations:

Cash provided by (used in) financing activities 15,747 ( 4 )

Net increase (decrease) in cash and cash equivalents 3,593 ( 3,712 )

Cash and cash equivalents at beginning of period 109 3,821

Cash and cash equivalents at end of period $ 3,702 $ 109

Supplemental disclosure of cash flow information:

Cash paid for interest $ 29 $ 41

Non-cash financing activities:

Conversion of convertible notes to common stock $ 350 $ —

See accompanying notes to financial statements

Vallon Pharmaceuticals, Inc.

("Vallon"

or the "Company"), a Delaware corporation, is a biopharmaceutical company based in Philadelphia,

PA, which is focused on the development and commercialization of proprietary biopharmaceutical products.

The Company’s only

clinical-stage product currently under development is ADAIR, a proprietary, abuse-deterrent oral formulation of immediate-release

(short-acting) dextroamphetamine for the treatment of Attention-deficit/hyperactivity disorder, or ADHD, and Narcolepsy.

plans to develop other abuse-deterrent products which have potential for abuse in their current forms, beginning with the development

of ADMIR, an abuse deterrent formulation of Ritalin, for which the Company is conducting formulation development work.

Notes to Financial Statements

(in thousands, except share and per share data)

ORGANIZATION AND DESCRIPTION OF BUSINESS

Vallon Pharmaceuticals, Inc.

was incorporated in Delaware on January 11, 2018, which is the date of inception.

The Company's fiscal-year ends on December 31.

prior to the closing of the IPO (as defined below), the Company effected a one-for-40 reverse stock split of its common

All share and per share amounts, excluding the number of authorized shares and par value, contained in these financial statements

and accompanying notes, and this Annual Report on Form 10-K give retroactive effect to the reverse split.

[2] Business formation:

On November 15, 2017, before

the Company’s formation, Amiservice Development Ltd., a BVI corporation (“Amiservice”) entered into an agreement

for the purchase of the ADAIR product rights for a payment of $250,000.

The Asset Purchase Agreement (“the APA”), by

and between Amiservice and Arcturus Therapeutics Ltd.

(”Arcturus”), was subject to several closing conditions.

of the key terms and conditions of the APA was that the purchasers provide funding of at least $2.75 million towards the development

On February 11, 2018, Ofir Levi,

Chairman of the newly formed Vallon, purchased 196,875 common shares from the Company at par value for $788.

On June 7, 2018, Vallon

entered into a stock purchase agreement with several investors pursuant to which Vallon issued 1,771,881 common shares for $3.0

million (“Private Placement”).

Subsequently, on June 22, 2018, the Company executed the amended APA, by and between

Arcturus Therapeutics Ltd.

Such APA was amended and restated from the initial agreement discussed above, dated as of November 15,

In exchange for the ADAIR product rights, Vallon issued 843,750 common shares to Arcturus, valued at approximately $1.4 million

based upon the price at which the common shares were issued and sold in the Private Placement, which comprised approximately 30%

of the then-outstanding common stock of the Company, on a fully diluted basis.

In addition, Amiservice signed a consent and release

agreement to all rights to the APA in exchange for approximately $562,000 which represented a reimbursement for expenses Amiservice

incurred on Vallon’s behalf in the amount of approximately $310,000, the repayment of two promissory notes totaling approximately

$192,000 including interest, and approximately $60,000 of other operating expenses incurred.

The assets acquired in the ADAIR acquisition

are classified as in-process research and development (“IPR&D”).

Accounting for IPR&D assets in an asset acquisition

follows the guidance in Accounting Standards Codifications (“ASC”) 730, Research and Development , which requires

that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion

of the consideration transferred and charged to expense at the acquisition date.

The Company recorded $1.7 million to research

and development expense on June 22, 2018, the date of acquisition, which included $1.4 million of common shares issued for the

acquisition, as well as, the original $250,000 exclusivity payment and approximately $60,000 in transaction fees.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

Note A - Nature of

Operations, Business and Going Concern Liquidity (continued)

[3] Going Concern and Liquidity:

The accompanying financial statements

have been prepared on the basis that the Company is a going concern, which contemplates, among other things, the realization of

assets and satisfaction of liabilities in the normal course of business.

The Company has not generated any significant revenues

from operations since inception, and does not expect to do so in the foreseeable future.

The Company has incurred operating losses

in the amount of $4.8 million for the year ended December 31, 2020 and negative operating cash flows since inception, and

expects to continue to do so for at least the next few years.

The Company has financed its working capital requirements to date

through the issuance of common stock, convertible notes, short-term promissory notes, and a Paycheck Protection Program note (PPP)

as described in Note A[2] and C.

On December 31, 2020, the Company had cash and cash equivalents totaling approximately $109,000.

As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going

concern within one year of the date that the financial statements are being issued.

On January 11, 2021, the Company

completed a $350,000 convertible note financing and on February 12, 2021, the Company closed on its initial public offering (IPO)

raising net proceeds of $15.5 million as described in Note K.

The Company’s ability to

continue as a going concern is dependent on its ability to raise additional capital to fund its business activities, including

its research and development program.

The Company’s objective is to develop and commercialize biopharmaceutical products

that treat central nervous system disorders, but there can be no assurances that we will be successful in this regard.

the Company intends to raise capital through additional issuances of common stock and /or short-term notes.

Furthermore, the Company

may not be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its future operating

requirements.

If the Company is unable to obtain sufficient cash resources to fund its operations, it may be forced to reduce or

discontinue its operations entirely.

The accompanying financial statements do not include any adjustments relating to the recoverability

and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Note B - Summary of

Significant Accounting Policies

(Vallon or the Company) was incorporated in Delaware in January 2018 (inception) and is based in Philadelphia, PA.

The Company is a biopharmaceutical company focused on the development and commercialization of novel abuse-deterrent medications for central nervous system (CNS) disorders.

The Company’s lead investigational product candidate, ADAIR, is a proprietary, abuse-deterrent oral formulation of immediate-release dextroamphetamine (the main active ingredient in Adderall®) for the treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy.

The Company plans to develop other abuse-deterrent products, which have potential for abuse in their current forms, beginning with the development of ADMIR, an abuse deterrent formulation of Ritalin, for which the Company has completed formulation development work.

These financial statements have been prepared on the basis that the Company is a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has not generated any significant revenues from operations since inception, and does not expect to do so in the foreseeable future.

The Company has incurred operating losses since inception and has incurred $ 21,902 in accumulated deficit through December 31, 2021.

The Company has financed its working capital requirements to date through the issuance of common stock, convertible notes, short-term promissory notes, and a Paycheck Protection Program (PPP) note.

In January 2021, the Company completed a $ 350 convertible note financing and in February 2021, the Company closed on its initial public offering (IPO) raising net proceeds of approximately $ 15,500 .

As of December 31, 2021, the Company had cash, cash equivalents and marketable securities of approximately $ 7,510 , which management expects will provide funding for its ongoing business activities into the third quarter of 2022.

The Company’s ability to continue as a going concern is dependent on its ability to raise substantial additional capital to fund its business activities, including its research and development program.

The Company intends to raise capital through additional issuances of common stock and /or short-term notes, but there can be no assurances any such financing will be available when needed or that the Company’s research and development efforts will be successful.

If the Company is not able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its future operating requirements, it may be forced to reduce or discontinue its operations entirely.

Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References in this Annual Report on Form 10-K to “authoritative guidance” is meant to refer to accounting principles generally accepted in the United States of America (GAAP) as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).

Recapitalization

Immediately prior to the closing of the IPO (Note 10), the Company effected a one-for-40 reverse stock split of its common stock.

All share and per share amounts, excluding the number of authorized shares and par value, contained in these financial statements and accompanying notes, and this Annual Report on Form 10-K give retroactive effect to the reverse split.

Use of estimates

The preparation of financial

statements in conformity with accounting principles generally accepted in the United States of America requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

and assumptions are primarily made in relation to the valuation of share options, valuation allowances relating to deferred tax

assets, revenue recognition, accrued expenses and estimation of the incremental borrowing rate for the finance lease.

results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s

results of operations could either benefit from, or be adversely affected by, any such change in estimate.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

B - Summary of Significant Accounting Policies (continued)

[2] Revenue recognition:

The Company has accounted for

its license agreement with MEDICE Arzneimittel Pütter GmbH & Co.

KG, or Medice, described in Note

G in accordance with ASC 606– Revenue from Contracts with Customers (adopted by the Company in 2019) as it determined

that a contract does exist and Medice, a related party, is a customer in the context of the Company’s business.

determined there is a single performance obligation with respect to its involvement in the joint development committee and thus

the entire $100,000 allocable consideration was assigned to that accounting unit and recognized in the first quarter of 2020.

Company estimated the estimated costs of the Company’s participation on the JDC (which is estimated to occur from the first

quarter of 2020 through the first quarter of 2025), at $100,000 and accrued for this at the date of agreement.

The accrual will

be released on a straight-line basis of an initially estimated period of 5.25 years through the first quarter of 2025.

[3] Stock-based compensation:

The Company recognizes expense

for employee and non-employee stock-based compensation in accordance with Accounting Standards Codification (“ASC”)

Topic 718, Stock-Based Compensation .

ASC 718 requires that such transactions be accounted for using a fair value based method.

The estimated fair value of the options is amortized over the vesting period, based on the fair value of the options on the date

granted, and is calculated using the Black-Scholes option-pricing model.

The Company accounts for forfeitures as incurred.

In considering

the fair value of the underlying stock when the Company granted options, the Company considered several factors including the fair

values established by market transactions.

Stock option-based compensation includes estimates and judgments of when stock options

might be exercised and stock price volatility.

The timing of option exercises is out of the Company's control and depends upon

a number of factors including the Company's market value and the financial objectives of the option holders.

These estimates can

have a material impact on the stock compensation expense but will have no impact on the cash flows.

The estimation of share-based

awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original

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

The stock options granted,

other than the 61,250 granted to Mr.

Baker described in Note E[1], as of December 31, 2020 vest primarily upon specified performance

Baker’s stock option grant is pursuant to milestones associated with an underwritten public offering or

a listing on a national stock exchange, management determined that no expense should be recognized for this grant until such time

that the milestone becomes probable.

The options vested on February 12, 2021, concurrent with the closing of the Company’s

The Company elected to use the expected term, rather than the contractual term, for both employee and consultant options issued.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Estimates and assumptions are primarily made in relation to the valuation of share options, the embedded derivative of convertible notes, warrant issuance, valuation allowances relating to deferred tax assets, revenue recognition, accrued expenses and estimation of the incremental borrowing rate for the finance lease.

If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate.

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Concentration of credit risk

The Company from time to time

during the period covered by these financial statements may have had bank account balances in excess of federally insured limits.

The Company from time to time during the period covered by these financial statements may have had bank account balances in excess of federally insured limits.

The Company has not experienced losses in such accounts.

The Company believes that it is not subject to unusual credit risk beyond

the normal credit risk associated with commercial banking relationships.

[5] Research and development:

Research and development costs

are expensed as incurred.

Research and development expenses include personnel costs associated with research and development activities,

including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials.

Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators,

based on its estimates of service performed and costs incurred.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

B - Summary of Significant Accounting Policies (continued)

[6] Deferred financing fees:

Deferred financing fees related

to a recognized debt liability are presented in the balance sheets as a direct deduction from the carrying amount of that debt

liability, consistent with debt discounts.

Debt discounts and deferred financing fees are amortized to interest expense over the

term of the related debt using the effective interest method.

The Company believes that it is not subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Cash equivalents

Cash equivalents are highly-liquid

investments that are readily convertible into cash with original maturities of three months or less when purchased and as of December

31, 2020 and 2019 included investment in money market funds.

[8] Fair value measurements:

The Company follows ASC 820,

Fair Value Measurements and Disclosures , to measure the fair value of its financial statements and disclosures about fair

value of its financial instruments.

ASC 820 establishes a framework for measuring fair value in GAAP, and expands disclosures about

fair value measurements.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date.

To increase consistency and comparability

in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to

valuation techniques used to measure fair value into three broad levels.

The three levels of fair value hierarchy defined by ASC

820 are described below:

market prices available in active markets for identical assets or liabilities as of the reporting date.

inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of

the reporting date.

inputs that are generally unobservable inputs and not corroborated by market data.

The fair value hierarchy gives

the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lower priority

to unobservable inputs.

If the inputs used to measure the financial assets and liabilities fall within more than one level described

above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Cash equivalents are highly-liquid investments that are readily convertible into cash with original maturities of three months or less when purchased and as of December 31, 2021 and 2020 included investment in money market funds.

Marketable Securities

Marketable securities consist of debt securities that are designated as available-for-sale.

Marketable debt securities are recorded at fair value and unrealized holding gains or losses are reported as a component of accumulated other comprehensive income (loss).

Amortization of premiums and discounts on marketable securities are included in interest expense, net on the statements of operations and comprehensive loss.

Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.

An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis is determined to be other-than-temporary.

The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the amortized cost basis, any adverse changes in the financial condition of the issuers and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Fair value of financial instruments

The Company follows ASC 820, Fair Value Measurements and Disclosures (ASC 820), to measure the fair value of its financial statements and disclosures about fair value of its financial instruments.

ASC 820 establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

The three levels of fair value hierarchy defined by ASC 820 are described below:

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Pricing inputs that are generally unobservable inputs and not corroborated by market data.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lower priority to unobservable inputs.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The Company uses this framework for measuring fair value and disclosures about fair value measurement.

The Company uses fair value

measurements in areas that include derivative instruments.

The Company recognizes transfers

between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

amounts reported in the balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable,

accrued expenses, and note payable approximate their fair value based on the short-term maturity of these instruments.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

B - Summary of Significant Accounting Policies (continued)

[9] Derivative Instruments:

The Company evaluated its convertible

notes to determine if those contracts or embedded components of those contracts qualified as derivatives to be separately accounted

for in accordance with ASC 815, Derivatives and Hedging .

The result of this accounting treatment is that the fair value

of the embedded derivative is marked to market each balance sheet date and recorded as a liability.

In the event that the fair

value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.

Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then

that fair value is reclassified to equity.

In circumstances where the embedded

conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments

in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a

single, compound derivative instrument.

Equity instruments that are

initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument

on the reclassification date.

Derivative instrument liabilities are classified in the balance sheets as current or non-current

to correspond with its host instrument.

[10] Income taxes:

The Company accounts for income

taxes using the asset-and-liability method in accordance with ASC Topic 740, Income Taxes .

Deferred tax assets and liabilities

are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of

existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets

and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

differences are expected to be recovered or settled.

The effect on the deferred tax assets and liabilities of a change in tax rate

is recognized in the period that includes the enactment date.

A valuation allowance is recorded if it is more-likely-than-not that

some portion or all of the deferred tax assets will not be realized in future periods.

The Company follows the guidance in ASC Topic 740-10

in assessing uncertain tax positions.

The standard applies to all tax positions and clarifies the recognition of tax benefits in

the financial statements by providing for a two-step approach of recognition and measurement.

The first step involves assessing

whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits.

The second step

involves measurement of the amount to be recognized.

Tax positions that meet the more-likely-than-not threshold are measured at

the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the taxing

The Company’s policy is

to record income tax related interest and penalties as a component of income tax expense, in which there were no amounts recorded

for the years ended December 31, 2020 or 2019.

The Company did not identify any uncertain tax positions taken or expected to be

taken that would require an adjustment or disclosure in the financial statements.

The Company uses fair value measurements in areas that include derivative instruments.

The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

The carrying amounts reported in the balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, and note payable approximate their fair value based on the short-term maturity of these instruments.

Property and equipment

Property and equipment are stated

Property and equipment are stated at cost.

The Company commences depreciation when the asset is placed in service.

Computers and peripheral equipment are depreciated

on a straight-line method over useful lives of three years.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

B - Summary of Significant Accounting Policies (continued)

[12] Loss per share:

Basic loss per share is computed

based on the weighted average number of shares of common stock outstanding during each year.

Diluted loss per share is computed

based on the weighted average number of shares of common stock outstanding during each year, plus the dilutive effect of options

considered to be outstanding during each year, in accordance with ASC 260, Earnings Per Share .

Computers and peripheral equipment are depreciated on a straight-line method over useful lives of three years .

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

The Company determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to use, or control the use of, identified property, plant, or equipment for a period of time in exchange for consideration.

Leases may be classified as finance leases or operating leases.

Lease right-of-use (ROU) assets and lease liabilities recognized in the accompanying balance sheet represent the right to use an underlying asset for the lease term and an obligation to make lease payments arising from the lease respectively.

At each reporting date, the finance lease liabilities are increased by interest and reduced by repayments made under the lease agreements.

The ROU asset is subsequently measured at the amount of the remeasured lease liability (i.e.

the present value of the remaining lease payments), any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, and any unamortized initial direct costs.

Licensing revenues

The Company has a license agreement (the Medice License Agreement) with MEDICE Arzneimittel Pütter GmbH & Co.

KG (Medice), a related party (Note 13).

The license agreement provides for an exclusive license to develop, use, manufacture, market and sell ADAIR throughout Europe, a non-refundable up-front payment, potential regulatory and sales milestones and potential royalty payments.

The Company analyzed the performance obligations under the license agreements, the consideration received to date and the consideration the Company could receive in the future as part of its analysis in accordance with ASC 606– Revenue from Contracts with Customers (ASC 606).

The Company recognized $ 100 as licensing revenue during the year ended December 31, 2020.

No licensing revenue was recognized during the year ended December 31, 2021.

Research and development

Research and development costs are expensed as incurred.

Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials.

The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred.

Stock-based compensation

The Company recognizes expense for employee and non-employee stock-based compensation in accordance with ASC Topic 718, Stock-Based Compensation (ASC 718).

ASC 718 requires that such transactions be accounted for using a fair value-based method.

The estimated fair value of the options is amortized over the vesting period, based on the fair value of the options on the date granted, and is calculated using the Black-Scholes option-pricing model.

The Company accounts for forfeitures as incurred.

In considering the fair value of the underlying stock when the Company granted options, the Company considered several factors including the fair values established by market transactions.

Stock option-based compensation includes estimates and judgments of when stock options might be exercised and stock price volatility.

The timing of option exercises is out of the Company's control and depends upon a number of factors including the Company's market value and the financial objectives of the option holders.

These estimates can have a material impact on the stock compensation expense but will have no impact on the cash flows.

The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period the estimates are revised.

The Company uses the expected term, rather than the contractual term, for both employee and consultant options issued.

Derivative instruments

The Company evaluated its convertible notes to determine if those contracts or embedded components of those contracts qualified as derivatives to be separately accounted for in accordance with ASC 815, Derivatives and Hedging .

The result of this accounting treatment is that the fair value of the embedded derivative is marked to market each balance sheet date and recorded as a liability.

In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.

Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date.

Derivative instrument liabilities are classified in the balance sheets as current or non-current to correspond with its host instrument.

Income taxes are accounted for under the asset and liability method.

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and the expected benefits of net operating loss carryforwards.

The impact of changes in tax rates and laws on deferred taxes, if any, applied during the period in which temporary differences are expected to be settled, is reflected in the Company's financial statements in the period of enactment.

The measurement of deferred tax assets is reduced, if necessary, if, based on the weight of the evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized.

As of December 31, 2021 and 2020, the Company concluded that a full valuation allowance was necessary for all of its net deferred tax assets.

The Company had no amounts recorded for uncertain tax positions, interest or penalties in the accompanying consolidated financial statements.

Net loss per common share

Basic net loss per common share is computed based on the weighted average number of shares of common stock outstanding during each year.

Diluted net loss per common share is computed based on the weighted average number of shares of common stock outstanding during each year, plus the dilutive effect of options considered to be outstanding during each year, in accordance with ASC 260, Earnings Per Share .

Recent accounting pronouncements

The Company considers the applicability

and impact of all Accounting Standards Updates (“ASUs”).

ASUs not discussed below were assessed and determined to be

either not applicable or are expected to have minimal impact on the financial statements.

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

This new standard was issued to increase transparency and

comparability among entities by recognizing for all leases lease assets and lease liabilities on the balance sheet and disclosing

key information about lease arrangements.

This new standard is effective for public

companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

Subsequently, in

July of 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases , and ASU 2018-11, Leases (Topic

Targeted Improvements , both of which clarify and enhance the certain amendments made in ASU 2016-02.

The Company adopted

these standards on January 1, 2019.

Refer to Note H for further detail.

On January 1, 2020, the Company adopted ASU 2018-13

– Fair Value Measurement (Topic 820) - Disclosure Framework— Changes to the Disclosure Requirements for Fair Value

Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

amendments apply prospectively with all other amendments applied retrospectively to all periods presented upon their effective

The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements.

On January 1, 2020, the Company adopted ASU 2018-18

– Collaborative Arrangements — Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain

transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative

arrangement participant is a customer in the context of a unit of account.

In those situations, all the guidance in Topic 606 should

be applied, including recognition, measurement, presentation, and disclosure requirements.

The guidance has been applied retrospectively

to all contracts that were not completed at the date of initial application of Topic 606.

The adoption of this standard effective

January 1, 2020 did not have a material impact on the Company’s financial statements.

Accounting pronouncements

yet to be adopted:

In December 2019, the FASB issued

ASU 2019-12, "Income Taxes (Topic 740):

The Company considers the applicability and impact of all ASUs.

ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the financial statements.

On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 simplifies the accounting

for income taxes by removing certain exceptions to the general principals in Topic 740.

The amendments also improve consistent

application of and simplify generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending

the existing guidance.

For public business entities, the guidance is effective for annual periods, and interim periods within those

annual periods, beginning after December 15, 2020.

Early adoption is permitted, including adoption in any interim period.

is currently assessing the impact of ASU 2019-12 on the Company’s financial statements.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

B - Summary of Significant Accounting Policies (continued)

determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to use, or

control the use of, identified property, plant, or equipment for a period of time in exchange for consideration.

Leases may be

classified as finance leases or operating leases.

Lease right-of-use (ROU) assets and lease liabilities recognized in the accompanying

balance sheet represent the right to use an underlying asset for the lease term and an obligation to make lease payments arising

from the lease respectively.

has a finance lease in relation to equipment that will be utilized in its commercial product manufacturing process.

Financing lease

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments

over the lease term.

The Company utilized the interest rate implicit in the lease.

The lease term is based on the non-cancellable

period in the lease contract.

Any termination fees are included in the calculation of the ROU asset and lease liability when it

is assumed that the lease will be terminated.

At each reporting

date, the finance lease liabilities are increased by interest and reduced by repayments made under the lease agreements.

asset is subsequently measured at the amount of the remeasured lease liability (i.e.

the present value of the remaining lease payments),

any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, and any unamortized initial

direct costs.

Note and Convertible Notes

There were no notes payable

outstanding as of December 31, 2019.

In May 2020, the Company entered into a note under the PPP totaling $61,000.

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

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

MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

Marketable Securities

The following is a summary of the Company’s available-for-sale securities as of the dates indicated:

As of December 31, 2021

31, 2020, the Company has utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health

care benefits and rent payments.

As such, the Company believes the note meets the requirements for forgiveness under the program

and intends to seek such note forgiveness.

The Company has accounted for the note under ASC 470.

The note has a stated interest

rate of 1% and has a two year maturity.

Payments are required to be made over a 1.5 year period beginning November 1, 2020 unless

The Company has not imputed interest on the note as the rate is determined to be a below-market rate due to the scope

exception in ASC 835-30-15-3(e) for government-mandated interest rates.

If all or a portion of the PPP note is ultimately forgiven,

the Company will record income from the extinguishment of its obligation when it is legally released from being the primary obligor

in accordance with ASC 405-20-40-1.

Amounts due under the next twelve months are presented as notes payable – current on

the Company’s balance sheet.

In January 2021, the PPP note was entirely forgiven.

In April 2019, the Company entered

into Convertible Promissory Note Purchase Agreements with certain existing stockholders and SALMON Pharma GmbH (“

Pharma ”), an affiliate of Medice, pursuant to which the Company issued Convertible Notes for cash proceeds of $1,150,000.

The Convertible Notes had an interest rate of 7.0% per annum, non-compounding, and had a maturity date of January 1, 2020.

the maturity date, the principal amount was due and payable to the note holder in one lump sum.

Accrued interest on these Convertible

Notes as of July 25, 2019 was $22,000.

These notes contained a mandatory conversion feature of the notes into a variable number

of shares of the identical equity security issued to the investors upon future qualified financing at a price per share equal

to 90% of the price per share paid by other investors purchasing the securities in the qualified financing if the qualified financing

occurred on or prior to the 45 th day after April 11, 2019 and 80% of the price per share paid by other investors purchasing

the securities in the qualified financing if the qualified financing occurred after the 45 th day after April 11, 2019.

On July 25, 2019, the Company entered into a Stock Purchase Agreement with Salmon Pharma pursuant to which the Company sold and

issued 1,309,861 shares of its common stock for aggregate cash proceeds of $5.0 million, the “July 2019 Financing”.

Pursuant to the terms of the Convertible Notes, the Convertible Notes, inclusive of accrued interest, converted into an aggregate

of 383,849 shares of the Company’s common stock at a conversion price of $3.04 per share upon closing of the July 2019 Financing.

The Company identified the mandatory conversion into shares as a redemption feature, which requires bifurcation from the notes

and treated it as a derivative liability under ASC 815 as the redemption feature is not clearly and closely related to the debt

The Company evaluated the fair value of the derivative liability at inception and determined the value was $180,000.

amounts are reflected at its fair value at the end of each reporting period.

Each of the series of notes were subject to a conversion

discount of 10% or 20%, respectively.

The discounts have been accounted for as a debt discount and were amortized using the effective

interest method over the term of the notes.

Upon the closing of the July 2019 Financing, the embedded derivative liability was

remeasured and then adjusted to zero as part of the conversion of the Convertible Notes to the Company’s common stock.

Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Marketable Securities:

Debt securities:

Corporate bonds $ 1,153 $ — $ ( 1 ) $ 1,152

Municipal bonds 2,657 — ( 1 ) 2,656

Total $ 3,810 $ — $ ( 2 ) $ 3,808

All of the Company’s investments in marketable debt securities are accounted for as available-for-sale securities and have contractual maturity dates of one year or less.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As of December 31, 2021, all of the Company’s marketable securities were classified as Level 2 assets.

Vallon Pharmaceuticals, Inc.

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note D - Fair Value

The fair value of the embedded

derivative liability identified in Convertible Notes was estimated using a Monte Carlo simulation.

The derivative liability was

a Level 3 fair value measurement.

The significant probability is that of a qualified financing occurring.

At the fair value determination

date, the Company estimated a 65% probability of a qualified financing occurring before the 45 th day from April 11,

2019 and a 25% probability of a qualified financing occurring after the 45 th day from April 11, 2019.

An increase (decrease)

in the probability of a qualified financing occurring would result in an increase (decrease) to the fair value.

As of July 25,

2019, the embedded derivative was remeasured based upon the conversion price of $3.04 per share upon closing of the July 2019 Financing.

As such, an additional expense of $28,000 was recorded in the third quarter of 2019.

For the year ended December

31, 2019, the Company recognized amortization of the debt discount as an additional interest charge in the amount of $180,000.

The following table presents

the activity for the liability measured at estimated fair value using unobservable inputs for the year ended December 31, 2019

(in thousands):

Beginning balance at January 1, 2019

Additions during the year

Change in fair value

Transfer in and/or out of Level 3

Notes to Financial Statements

(in thousands, except share and per share data)

The fair value of the embedded derivative liability identified in the 2021 Convertible Notes was a Level 3 fair value measurement.

As of February 12, 2021, the embedded derivative was remeasured based upon the conversion price of $ 8.00 per share upon closing of the IPO.

As such, an expense of $ 89 was recorded in the first quarter of 2021.

The following table presents the activity for the liability measured at estimated fair value using unobservable inputs for the year ended December 31, 2021:

Beginning balance, January 1, 2021 $ —

Additions during the year ended December 31, 2021 89

Transfer out of Level 3 89

Balance at December 31, 2021 $ —

VALLON PHARMACEUTICALS, INC.

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note E – Commitments,

Contingencies and Uncertainties

[1] Employment agreements:

On January 15, 2019, the

Company entered into an employment agreement with David Baker (the “Baker Agreement”), to serve as its President

and Chief Executive Officer.

The Baker Agreement includes a severance benefit equal to four months of base salary or one year

of base salary after the listing of the Company’s common stock on a securities exchange, plus one additional month for

each year of completed employment during the period commencing on the date of the first Exchange Listing (up to a maximum of

nine additional months, so that total severance does not ever exceed twelve months), and twelve months after a change in

control, with continued medical benefits during the applicable severance period and an opportunity to earn a pro-rated bonus

in the year of termination.

In addition, the Baker Agreement also provided for the acceleration of vesting of the stock

options granted to Mr.

Baker on October 1, 2018 covering 31,250 unvested shares of the Company’s common stock;

grant of an additional option to purchase up to 2.0% of the fully diluted shares of common stock of the Company at an

exercise price per share of $2.20, that shall vest in installments and become exercisable as follows:

50.0% on the date the

Company closes a firm-commitment underwritten public offering of its common stock pursuant to an effective registration

statement, and 50.0% on the earlier of (a) an Exchange Listing (which occurred on February 9, 2021), or (b) the achievement

of a market capitalization for the Company equal to $50.0 million or more, with accelerated vesting on a change in control.

Such options totaling 61,250 were granted on February 5, 2019.

The acceleration of vesting of the stock options granted on

October 1, 2018 resulted in stock compensation expense of $54,000 for the year ended December 31, 2019.

Pursuant to the

completion of the Company’s IPO discussed in Note K, the February 5, 2019 options were fully vested.

[2] Clinical trial agreements :

In May 2019, the Company entered

into a service agreement with a clinical research organization to provide clinical trial management services to the Company to

assist the Company in its now completed Phase 1 clinical trial of ADAIR, Study VAL-103.

Approximately $50,000 and $592,000 was

expensed under the agreement during the years ended December 31, 2020 and 2019, respectively.

In January 2020, the Company

entered into a service agreement, amended August 2020, with a clinical research organization to provide clinical trial management

services to the Company to assist the Company in its Phase 3 clinical trial of ADAIR, Study VAL-104.

The agreement may be terminated

by either party upon thirty days prior written notice.

The total clinical trial cost is expected to be $2.5 million of which approximately

$870,000 and $6,000 was expensed to research and development under the agreement during the years ended December 31, 2020 and 2019,

respectively.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note E - Commitments,

Contingencies and Uncertainties (Continued)

[3] Consulting agreements :

Effective January 15, 2018,

the Company entered into a consulting agreement with a consultant to serve in the lead commercial and operating role in the development

Pursuant to the consulting agreement, the Company paid for monthly services and agreed to pay $150,000 in cash bonuses

upon the achievement of certain development milestones.

In addition, the Company granted the consultant 46,875 options.

January 1, 2019 the consultant became an employee of the Company as described in Note E[1].

Effective April 2, 2018, the

Company entered into a consulting agreement with a consultant to serve as the Chief Medical Officer for the Company.

the consulting agreement, the consultant is paid $10,000 per month for his services.

On October 1, 2018, the Company granted the

consultant 15,625 options.

For the years ended December 31, 2020 and 2019, the Company has incurred consulting fees in the amount

of approximately $122,000 and $121,000, respectively, under the agreement.

The agreement may be terminated by either party with

30 days’ notice.

[4] Manufacturing agreements:

In August 2019, the Company

entered into an agreement with a contract manufacturer for the commercial scale up and registration batches for ADAIR.

contract is estimated at $1.4 million of which approximately $423,000 and $179,000 was expensed under the agreement during the

years ended December 31, 2020 and 2019, respectively.

In October 2019, the Company entered

into an agreement with a contract manufacturer for the formulation and development for an abuse-deterrent formulation of Ritalin.

The total contract is estimated at $232,000, of which $182,000 and $5,000 was expensed during the years ended December 31, 2020

and 2019, respectively.

[5] Pre-clinical agreement included in research and development

In November 2019, the Company

entered into an agreement with a clinical research organization for pre-clinical services.

The total contract currently authorized

is estimated at $1.1 million of which $808,000 and $6,000 was expensed during the year ended December 31, 2020 and 2019, respectively.

[6] COVID-19 impact

The global COVID-19 pandemic

continues to rapidly evolve, and the Company continues to monitor the COVID-19 situation closely.

The COVID-19 pandemic caused

some delays at the Company’s clinical trial sites, contract research organizations, or CROs, and third-party manufacturers,

which in turn resulted in some delays in the FDA approval process;

however, these delays have been largely remediated.

the extent of the impact of the COVID-19 on the Company’s business, operations and clinical development timelines and plans

remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its future impact

on the Company’s clinical trial enrollment, clinical trial sites, CROs, third-party manufacturers, and other third parties

with whom it does business, as well as its impact on regulatory authorities and the Company’s key scientific and management

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel

and with many of its employees and consultants working remotely.

The Company will continue to actively monitor the rapidly evolving

situation related to COVID-19 and may take further actions that alter its operations, including those that may be required by federal,

state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom

the Company does business.

At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations

and clinical development timelines and plans, including the resulting impact on its expenditures and capital needs, remains uncertain.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

F - Equity Incentive Plan

On October 1, 2018, the Company

adopted the 2018 Equity Incentive Plan (the "Plan").

The Plan provides for the granting of stock options, restricted

stock, or restricted stock units (collectively, the "Awards").

The Plan gives authority to the Board of Directors to

administer and implement the Plan, including authority to determine the terms and conditions for all grants of Awards.

and conditions of each Award are determined by the Board or a committee designated by the Board.

Under the Plan, the administrator

may grant incentive stock options or non-qualified stock options with a term not to exceed 10 years from the grant date and at

an exercise price per share that shall not be less than 100% of the fair market value of the share on the date of the grant.

stock may be issued either alone or in conjunction with other awards.

Any awards that expire, terminate or are cancelled or forfeited

for any reason without having been exercised in full will again become available for grant under the Plan.

The original maximum number

of shares that may be subject to Awards under the Plan is 148,025.

On January 1, 2020 and 2019 the Board authorized an increase

to the Awards under the Plan by 4% of the then outstanding common shares pursuant to the terms of the Plan, totaling 180,248 and

112,500, respectively;

thus the total number of shares authorized under the Plan as of December 31, 2020 was 440,773.

On October 1, 2018, the Company

granted 46,875 options to a consultant, who as of January 15, 2019 became an employee, which were to vest upon certain milestone

events and one-sixth of which vested on grant;

15,625 options to a second outside consultant which vest upon certain milestone

events and 46,875 options to a third outside consultant which vest upon certain milestone events.

On January 15, 2019, the Company

accelerated the 31,250 unvested options granted to the outside consultant pursuant to an employment agreement with the consultant.

The weighted average grant date fair value of options granted under the Plan

in October 2018, using the Finnerty option-pricing model and taking into account the lack of marketability was approximately $1.84

per share which the Company utilized for the exercise price of the granted options.

The Company utilized an outside valuation

firm to determine the overall value of the Company based upon a discounted cash flow analysis and a market approach.

February 5, 2019, pursuant to the January 15, 2019 employment agreement, the Company granted the employee 61,250 options.

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

F - Equity Incentive Plan (continued)

the calculation of the fair value of stock option awards upon grant, the Company utilized the Black-Scholes option valuation

Expected stock price volatility was calculated based on the

weighted-average of historical information of similar public entities.

The risk-free rate was based on the U.S.

yield curve in effect at the time of grant commensurate with the expected life assumption.

The average expected life was

determined based on anticipated exercise strategy and cancellation behavior for employees and nonemployees.

The Company has

not paid and does not anticipate paying cash dividends;

therefore, the expected dividend rate was assumed to be 0%.

The following

table provides the assumptions used for each grant date.

Weighted-average

Expected term

Risk-free interest

(1) Options granted outside the Plan.

(2) 2,500 of the options were granted outside of the Plan.

The table below represents the activity of stock options

granted to employees and consultants:

Period from December 31, 2018 through December 31, 2020

Weighted average

terms (years)

Outstanding at December 31, 2018

Granted during 2019

Outstanding at December 31, 2019

Granted during 2020

Outstanding at December 31, 2020

Exercisable at December 31, 2020

VALLON PHARMACEUTICALS,

NOTES TO DECEMBER

31, 2020 AND 2019 FINANCIAL STATEMENTS

F - Equity Incentive Plan (continued)

As of December 31, 2020, there

was approximately $229,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements

granted to employees.

Of that amount $131,000 is expected to be recognized over a weighted-average period of one year.

The unrecognized

compensation cost related to one employee’s options totaling $98,000 will be recognized once the milestone events become

Upon the closing of the Company’s IPO, this milestone was achieved and therefore the $98,000 will be recognized

in the first quarter of 2021.

The aggregate intrinsic value of options is calculated as the difference between the exercise price

of the underlying options and the deemed fair value of the Company’s common stock for those shares that had exercise prices

lower than the deemed fair value of the Company’s common stock.

As of December 31, 2020, there was approximately $51,000

of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to consultants.

cost is expected to be recognized over a weighted-average period of one year.

Stock compensation expense included within the statement

of operations includes ($ in thousands):

Research and development

General and administrative

G - Related Party Transactions

The Company expensed approximately

$186,000 for certain consulting services provided by O2 Capital Advisors which is owned by Ofir Levi, a member of the Company’s

board of directors and a shareholder of the Company for the year ended December 31, 2019.

Of these amounts $96,000 was included

in accounts payable as of December 31, 2019.

In April 2020, the Company’s board authorized payments of $6,000 per month,

for four months, to Mr.

Levi for his board work to the Company of which $24,000 was incurred and expensed for the year

ended December 31, 2020.

On January 6, 2020, the

Company entered into a license agreement with Medice which grants Medice an exclusive license, with the right to

grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe.

Medice is responsible

for obtaining regulatory approval of ADAIR in the licensed territory.

Under the license agreement, Medice paid Vallon a

$100,000 upfront payment and is required to pay milestone payments upon first obtaining regulatory approval to market and

sell ADAIR in any country, territory or region in the licensed territory and upon achieving certain annual net sales thresholds.

also pay tiered royalties on annual net sales of ADAIR at rates in the low double-digits.

The initial term of the license agreement

will expire five years after the date on which Medice first obtains regulatory approval in any country, territory or

region in the licensed territory.

VALLON PHARMACEUTICALS,

TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note H - Finance Lease

Company entered into a finance lease in October 2019 in relation to equipment utilized in the commercial scale manufacturing of

ADAIR ($ in thousands).

Initial lease right-of-use asset

Accumulated amortization

Weighted-average remaining lease term - finance lease

The Company has a financing lease in relation to equipment utilized in the commercial scale manufacturing of ADAIR .

The Company evaluates renewal options at lease inception on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

Financing lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term.

The Company utilized the interest rate implicit in the lease.

The lease term is based on the non-cancellable period in the lease contract.

Any termination fees are included in the calculation of the ROU asset and lease liability when it is assumed that the lease will be terminated.

The table below presents the finance lease assets and liabilities recognized on the Company's balance sheets:

Balance Sheet Line Item 2021 2020

Non-current finance lease assets Other assets $ 206 $ 279

Finance lease liabilities:

Current finance lease liabilities Other current liabilities 97 105

Non-current finance lease liabilities Other liabilities 72 170

Total finance lease liabilities $ 169 $ 275

The Company’s weighted average remaining lease term and weighted average discount rate for its financing lease as of December 31, 2021 are:

December 31, 2021

Weighted-average remaining lease term - finance lease 1.75 years

Weighted-average discount rate - finance lease 13.50 %

Other information (in thousands):

Cash flows related to the measurement of financing lease assets and liabilities were as follows:

Year Ended December 31,

1 unchanged sentence

Financing cash flows from finance lease payments $ 106 $ 65

maturities of the finance lease liability as of December 31, 2020 (in thousands):

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

The maturities of the finance lease liability as of December 31, 2021 are as follows:

December 31, 2021

Total lease payments 190

1 unchanged sentence

Present value of lease liability $ 169

PHARMACEUTICALS, INC.

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note I - Accrued Expenses

(In thousands)

ACCRUED EXPENSES

Accrued expenses consisted of:

Accrued expenses:

Research and development $ 894 $ 259

General and administrative 183 156

Payroll and related 291 342

Clinical and preclinical trial and regulatory related

Chemistry and manufacturing related

Financing related

Licensing related 62 81

Total accrued

PHARMACEUTICALS, INC.

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note J - Income Tax

The reconciliation

of federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Total accrued expenses $ 1,430 $ 847

PPP NOTE AND CONVERTIBLE NOTES

In May 2020, the Company issued a promissory note under the PPP (the PPP Note) totaling $ 61 .

The note had a stated interest rate of 1 % and had a two -year maturity.

Payments were required to be made over a 1.5 years period beginning in November 2020 unless forgiven.

In January 2021, the Company was notified that the loan along with accumulated interest had been forgiven.

As a result, the Company recorded income from the extinguishment of its obligation in the amount of $ 61 as other income on the accompanying statements of operations and comprehensive loss.

In January 2021, the Company entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate of Medice, and David Baker, the Company’s Chief Executive Officer, pursuant to which the Company issued the 2021 Convertible Notes, for cash proceeds of $ 350 .

The 2021 Convertible Notes bore an interest rate of 7.0 % per annum, non-compounding, and had a maturity date of September 30, 2021.

The 2021 Convertible Notes converted into 54,906 shares of the Company’s common stock upon completion of the IPO.

The Company identified the mandatory conversion into shares of the Company’s common stock as a redemption feature, which requires bifurcation from the 2021 Convertible Notes and treated it as a derivative liability under ASC 815 as the redemption feature was not clearly and closely related to the debt.

The Company evaluated the fair value of the derivative liability.

Upon the conversion of the 2021 Convertible Notes to common stock at the closing of the IPO, the embedded derivative liability was remeasured and removed from the balance sheet.

EMPLOYEE BENEFIT PLANS

The Company maintains a tax-qualified SIMPLE IRA retirement plan which covers all employees.

Pursuant to the SIMPLE IRA program, employees are eligible to contribute to an individual SIMPLE IRA account on a tax-deferred basis.

The Company makes matching contributions to the employee’s SIMPLE IRA account in an amount up to 3 % of the employee’s base salary (subject to applicable IRS compensation limits).

Expenses related to Company contributions were $ 24 and $ 17 for the years ended December 31, 2021 and 2020, respectively.

COMMITMENTS AND CONTINGENCIES

Employment agreements

The Company has entered into employment contracts with its officers that provide for severance and continuation of benefits in the event of termination of employment by the Company without cause or by the employee for good reason.

In addition, in the event of termination of employment following a change in control, the vesting of certain equity awards may be accelerated.

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

In November 2021, the Company was named as a defendant in a putative class action lawsuit filed in the California Superior Court, County of Los Angeles, styled Rendon v.

Vallon, Inc., et al .

The complaint brought one claim for violation of California’s Unruh Civil Rights Act (Unruh Act), alleging that the Company’s website is not compatible with software used by vision-impaired individuals.

The Company settled the lawsuit for an immaterial amount .

COVID-19 Impact

The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to the Company’s operations and business plan.

The Company has closely monitored recent COVID-19 developments, including states’ lifting COVID-19 safety measures, drops in vaccination rates, and the spread of various coronavirus strains such as the Delta and Omicron variants.

In light of these developments, the full impact of the COVID-19 pandemic on the Company’s business, operations and clinical development plans remains uncertain and will vary depending on the pandemic’s future impact on its clinical trial enrollment, clinical trial sites, clinical research organizations (CROs), third-party manufacturers, and other third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom.

To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with most of its employees and consultants working remotely.

The Company will continue to actively monitor the COVID-19 situation and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that it determines is in the best interests of its employees and other third parties with whom the Company does business.

STOCKHOLDERS EQUITY (DEFICIT)

In February 2021, the Company completed its IPO of 2,250,000 shares of common stock at a public offering price of $ 8.00 per share.

As a result of the IPO, the Company received approximately $ 15,500 in net proceeds, after deducting discounts and commissions of $ 1,600 and offering expenses of approximately $ 905 .

Common Stock Warrants

In connection with the IPO, the Company granted the underwriters warrants (the Underwriters' Warrants) to purchase an aggregate of 112,500 shares of common stock at an exercise price of $ 10.00 per share.

The Underwriters’ Warrants have a five -year term and became exercisable after August 12, 2021.

The Black-Scholes option-pricing model was used to estimate the fair value of the warrants with the following weighted-average assumptions:

Volatility 85.0 %

Expected term in years 2.5

Dividend rate 0.0 %

Risk-free interest rate 0.155 %

As of December 31, 2021, all of the Underwriters’ Warrants were outstanding.

STOCK-BASED COMPENSATION

The Company issues stock-based awards pursuant to its 2018 Equity Incentive Plan (the 2018 Plan).

The 2018 Plan provides for the granting of stock options, restricted stock, or restricted stock units.

The Company's employees, officers, directors and other persons are eligible to receive awards under the Plan.

The number of shares of the Company's common stock authorized under the 2018 Plan will automatically increase on January 1st of each year until the expiration of the 2018 Plan, in an amount equal to four percent of the total number of shares of the Company's common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the Company's board of directors or compensation committee to determine a lesser number of shares shall be added for such year.

The total number of shares authorized for issuance under the 2018 Plan was 621,022 as of December 31, 2021.

The amount, terms of grants, and exercisability provisions are determined and set by the Company's board of directors or compensation committee.

The Company measures employee stock-based awards at grant-date fair value and records compensation

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

expense on a straight-line basis over the vesting period of the award.

Stock-based awards issued to non-employees are revalued until the award vests.

The Company recorded stock-based compensation related to stock options issued under the 2018 Plan in the following expense categories of its accompanying statements of operations for the years ended December 31, 2021 and 2020 :

For the Year Ended December 31,

Research and development $ 83 $ 103

General and administrative 543 51

Total $ 626 $ 154

The Company has granted stock options to purchase its common stock to employees and consultants under the 2018 Plan that generally have a contractual life of up to 10 years.

The Company has also granted certain stock options outside of the 2018 Plan.

As of December 31, 2021, all equity awards granted from the 2018 Plan were in the form of stock options.

The Company measures equity-based awards granted to employees, and non-employees based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period or performance-based period, which is generally the vesting period of the respective award.

The measurement date for equity awards is the date of grant, and equity-based compensation costs are recognized as expense over the requisite service period, which is the vesting period or for certain performance-based awards.

The Company records the expense for these awards if it concludes that it is probable that the performance condition will be achieved.

The table below represents the activity of stock options granted to employees and non-employees for the year ended December 31, 2021:

Number of options Weighted average exercise price Weighted average remaining contractual term (years)

Outstanding at December 31, 2020 266,250 $ 2.94 8.22

Granted 442,240 $ 4.00

Exercised — —

Forfeited — —

Outstanding at December 31, 2021 708,490 $ 3.60 8.64

Exercisable at December 31, 2021 205,888 $ 2.94 7.80

Vested and expected to vest at December 31, 2021 708,490 $ 3.60 8.64

The Black-Scholes option-pricing model was used to estimate the grant date fair value of each stock option grant at the time of grant using the following weighted-average assumptions:

For the Year Ended December 31,

Volatility 83.78 % 85.00 %

Expected term in years 5.85 5.80

Dividend rate 0.00 % 0.00 %

Risk-free interest rate 1.01 % 0.64 %

Fair value of common stock on grant date $ 4.00 $ 4.72

The aggregate intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2021 was $ 1,716 and $ 640 , respectively.

At December 31, 2021, the unrecognized compensation cost related to unvested stock options expected to vest was $ 885 .

This unrecognized compensation is expected to be recognized over a weighted-average amortization period of 2.49 years.

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

A reconciliation of income tax expense (benefit) at the US federal statutory income tax rate and the income tax provision in the financial statements is as follows:

Expected income tax benefit at the federal statutory rate 21.0 % 21.0 %

State and local taxes, net of federal benefit 10.6 12.8

Non-deductible items

Non-deductible items and other ( 0.5 ) —

Prior year provision to return adjustments — 6.4

Valuation allowance

Deferred income taxes reflect

the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes

and the amounts used for income tax purposes.

The principal components of the

Company’s deferred tax assets consisted of the following as of December 31, 2020 and 2019 (in thousands):

Change in valuation allowance ( 31.1 ) ( 40.2 )

Total — % — %

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The principal components of the Company’s deferred tax assets and liabilities are as follows:

Deferred tax assets:

7 unchanged sentences

Net deferred tax assets $ — $ —

Based on the Company’s

history of losses, the Company recorded a full valuation allowance against its deferred tax assets as of December 31, 2020

The Company increased its valuation allowance by approximately $1.9 million for the year ended December 31,

The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support a reversal of

the allowance.

As of December 31, 2020,

the Company had federal, state and local net operating loss carryforwards of $11.6 million.

The federal net operating loss

carryforwards do not expire.

Based on the Company’s history of losses, the Company recorded a full valuation allowance against its deferred tax assets as of December 31, 2021 and 2020.

The Company increased its valuation allowance by approximately $ 2,864 for the year ended December 31, 2021.

The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support a reversal of the allowance.

As of December 31, 2021, the Company had federal, state and local net operating loss carryforwards of $ 20,125 , $ 20,362 , and $ 15,866 , respectively.

The federal net operating loss carryforwards do not expire.

The state and local losses begin to expire in the year ending December 31, 2038.

Under the provisions of Sections 382

and 383 of the Internal Revenue Code (the “IRC”), certain substantial changes in the Company’s ownership may

have limited, or may limit in the future, the amount of net operating loss and credit carryforwards that can be used to reduce

future income taxes if there has been a significant change in ownership of the Company, as defined by the IRC.

Future owner or

equity shifts could result in limitations on net operating loss and credit carryforwards.

PHARMACEUTICALS, INC.

NOTES TO DECEMBER 31, 2020 AND 2019 FINANCIAL STATEMENTS

Note J - Income Tax

The Company evaluates tax positions

for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition

are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement

with a taxing authority that has full knowledge of all relevant information.

As of December 31, 2020 and 2019, the Company

had no unrecognized income tax benefits that would affect the Company’s effective tax rate if recognized.

The Company would

recognize both accrued interest and penalties related to unrecognized benefits in income tax expense.

The Company’s uncertain

tax positions yet to be determined would be related to years that remain subject to examination by relevant tax authorities.

the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S.

federal, state and

local income tax authorities for all tax years in which a loss carryforward is available.

Subsequent Events

On January 1, 2021, the Company’s

Board authorized an increase to Awards under the Plan by 4% of the then outstanding common shares pursuant to the terms of the

Plan totaling 180,249 and thus the number of Awards available for issuance under the Plan as of January 1, 2021 totals 621,022.

On January 5, 2021, the Company was notified that its

PPP loan had been forgiven for the full $61,000 plus accrued interest.

On January 11, 2021, the Company entered into a Convertible

Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate

of Medice, and David Baker, our Chief Executive Officer, pursuant to which we issued convertible promissory notes, or the 2021

Convertible Notes, for cash proceeds of $350,000.

The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding,

and had a maturity date of September 30, 2021.

The 2021 Convertible Notes are convertible into shares of our capital stock that

are offered to investors in any subsequent equity financing after the date of their issuance in which we issued any of our equity

securities, or a Qualified Financing, and are convertible at a twenty percent (20%) discount to the price per share offered in

such Qualified Financing.

Upon the closing of the IPO, described below, the 2021 Convertible Notes were converted into 54,906 shares

of the Company’s common stock.

On February 12, 2021, the Company completed its IPO

of 2,250,000 shares of common stock at a public price offering of $8.00 per share.

The gross proceeds from the offering,

before deducting underwriting discounts, commissions and other offering expenses payable by Vallon, were $18.0 million.

Underwriting discounts, commissions and expenses totaled $1.6 million and the Company incurred approximately $895,000 of

additional expenses related to completing the IPO, of which $494,000 were incurred as of December 31, 2020 and included in

prepaids and other current assets on the Company’s balance sheet;

thus aggregate net proceeds are estimated at $15.5

Immediately prior to the closing of the IPO, the Company effected a one-for-40 reverse stock split of its

common stock.

All share and per share amounts, excluding the number of authorized shares and par value, contained in these

financial statements and accompanying notes, and this Annual Report on Form 10-K give retroactive effect to the reverse

Under the provisions of Sections 382 and 383 of the Internal Revenue Code (IRC), certain substantial changes in the Company’s ownership may have limited, or may limit in the future, the amount of net operating loss and credit carryforwards that can be used to reduce future income taxes if there has been a significant change in ownership of the Company, as defined by the IRC.

Future owner or equity shifts could result in limitations on net operating loss and credit carryforwards.

The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.

As of December 31, 2021 and 2020, the Company had no unrecognized income tax benefits that would affect the Company’s effective tax rate if recognized.

The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense.

The Company’s uncertain tax positions yet to be determined would be related to years that remain subject to examination by relevant tax authorities.

Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S.

federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

Vallon Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

RELATED PARTY TRANSACTIONS

On January 2020, the Company entered into a license agreement with Medice which grants Medice an exclusive license, with the right to grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe.

Medice is responsible for obtaining regulatory approval of ADAIR in the licensed territory.

Under the license agreement, Medice paid Vallon a $ 100 upfront payment and is required to pay milestone payments upon first obtaining regulatory approval to market and sell ADAIR in any country, territory or region in the licensed territory and upon achieving certain annual net sales thresholds.

Medice will also pay tiered royalties on annual net sales of ADAIR at rates in the low double-digits.

The initial term of the license agreement will expire five years after the date on which Medice first obtains regulatory approval in any country, territory or region in the licensed territory.

The 2021 Convertible Notes bore an interest rate of 7.0 % per annum, non-compounding, and had a maturity date of September 30, 2021.

The 2021 Convertible Notes converted into 54,906 shares of the Company’s common stock upon completion of the IPO.

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 9A. Controls and Procedures