GRI Bio, Inc. 10-Q

Item 1. Financial Statements. GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.) Balance Sheets (in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 1,665 $ 3,781 Prepaid expenses and other current assets 432 371 Total assets $ 2,097 $ 4,152 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 528 $ 977 Accrued expenses 1,353 711 Warrant liability 185 122 Total liabilities 2,066 1,810 Commitments and contingencies (Note 9) Stockholders' equity: Common stock, $ 0.0001 par value; 250,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 449,408 shares issued and outstanding as of March 31, 2023 and December 31, 2022 — — Additional paid-in-capital 31,353 31,268 Accumulated deficit ( 31,322 ) ( 28,926 ) Total stockholders’ equity 31 2,342 Total liabilities and stockholders' equity $ 2,097 $ 4,152 See accompanying notes to unaudited interim financial statements. 3 Table of Content s GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.) Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, 2023 2022 Operating expenses: Research and development $ ( 124 ) $ 1,271 General and administrative 2,473 1,363 Total operating expenses 2,349 2,634 Loss from operations ( 2,349 ) ( 2,634 ) Change in fair value of warrant liability ( 63 ) — Interest expense, net 16 ( 1 ) Net loss ( 2,396 ) ( 2,635 ) Other comprehensive loss: Unrealized loss on investments — ( 4 ) Total comprehensive loss $ ( 2,396 ) $ ( 2,639 ) Net loss per share of common stock, basic and diluted $ ( 5.33 ) $ ( 11.62 ) Weighted-average common shares outstanding, basic and diluted 449,408 227,093 See accompanying notes to unaudited interim financial statements. 4 Table of Content s GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.) Statements of Changes in Stockholders’ Equity (in thousands, except shares) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity Shares Amount Balance, December 31, 2021 227,093 $ — $ 27,722 $ ( 2 ) $ ( 21,902 ) $ 5,818 Stock-based compensation — — 181 — — 181 Unrealized loss on marketable securities, available-for-sale — — — ( 4 ) — ( 4 ) Net loss — — — — ( 2,635 ) ( 2,635 ) Balance, March 31, 2022 227,093 $ — $ 27,903 $ ( 6 ) $ ( 24,537 ) $ 3,360 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity Shares Amount Balance, December 31, 2022 449,408 $ — $ 31,268 $ — $ ( 28,926 ) $ 2,342 Stock-based compensation — — 85 — — 85 Net loss — — — — ( 2,396 ) ( 2,396 ) Balance, March 31, 2023 449,408 $ — $ 31,353 $ — $ ( 31,322 ) $ 31 See accompanying notes to unaudited interim financial statements. 5 Table of Content s GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.) Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Operating activities: Net loss $ ( 2,396 ) $ ( 2,635 ) Adjustments to reconcile net loss to cash used in operating activities: Amortization of finance lease right-of-use asset — 19 Amortization of marketable securities premiums — 16 Stock-based compensation expense 85 181 Change in fair value of warrant liability 63 — Change in operating assets and liabilities: Prepaid expenses and other current assets ( 62 ) 39 Accounts payable ( 448 ) 315 Accrued expenses 642 ( 225 ) Cash used in operating activities ( 2,116 ) ( 2,290 ) Investing activities: Sale of marketable securities — 1,154 Cash provided by investing activities — 1,154 Financing activities: Payment of finance lease liability — ( 23 ) Cash used in financing activities — ( 23 ) Net decrease in cash and cash equivalents ( 2,116 ) ( 1,159 ) Cash and cash equivalents, at beginning of period 3,781 3,702 Cash and cash equivalents, at end of period $ 1,665 $ 2,543 See accompanying notes to unaudited interim financial statements. 6 Table of Content s GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.) Notes to Unaudited Interim Financial Statements (in thousands, except share and per share data) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Merger with GRI Bio, Inc. On April 21, 2023, GRI Bio, Inc. (GRI or the Company), formerly known as Vallon Pharmaceuticals, Inc. (Vallon) completed its previously announced merger transaction with GRI Operations, Inc., formerly known as GRI Bio, Inc. (Private GRI) in accordance with the terms of the Agreement and Plan of Merger, dated as of December 13, 2022, and amended on February 17, 2023 (the Merger Agreement),by and among Vallon, Vallon Merger Sub, Inc. (Merger Sub), and Private GRI, pursuant to which Merger Sub merged with and into Private GRI, with Private GRI surviving as a wholly owned subsidiary of Vallon (the Merger)(Note 10). Immediately prior to the effective time of the Merger (the Effective Time), on April 21, 2023, the Company effected a 1-for-30 reverse stock split of its common stock (the Reverse Stock Split). Stockholders’ equity and all references to share and per share amounts in the accompanying financial statements have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. Substantially concurrent with the closing of the Merger, Vallon was renamed “GRI Bio, Inc.” Prior to the Merger, Private GRI was incorporated under the laws of the State of Delaware in May 2009 under the name Glycoregimmune, Inc. and changed its name to GRI Bio, Inc, in July 2015. GRI is based in La Jolla, California. The unaudited interim financial statements included in this Quarterly Report on Form 10-Q are representative of Vallon’s operations prior to the closing of the Merger, the adoption of Private GRI’s business plan and the commencement of conducting Private GRI’s business. Unless the context otherwise requires, references to the “Company” or “GRI” refer to GRI Bio, Inc. and its subsidiary after completion of the Merger. In addition, references to “Vallon” refer to the Company prior to the completion of the Merger. Nature of Business GRI is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing innovative therapies that target serious diseases associated with dysregulated immune responses leading to inflammatory, fibrotic, and autoimmune disorders. The Company’s goal is to be an industry leader in developing therapies to treat these diseases and to improve the lives of patients suffering from such diseases. The Company’s lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T (iNKT I) cells and is being developed for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF). The Company’s product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds. GRI-0803, the lead molecule selected from the library, is a novel oral agonist of type 2 Natural Killer T (NKT II) cells and is being developed for the treatment of autoimmune disorders, with much of its preclinical work in Systemic Lupus Erythematosus Disease (SLE) or lupus and multiple sclerosis (MS). 2. LIQUIDITY Vallon has not generated any significant revenues from operations since inception and does not expect to do so in the foreseeable future. Vallon has incurred operating losses since its inception and has incurred $ 31,322 in accumulated deficit through March 31, 2023. Vallon 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) promissory note. In January 2021, Vallon completed a $ 350 convertible note financing and in February 2021, Vallon completed the initial public offering (IPO) of the Company’s common stock, raising net proceeds of $ 15,500 . In May 2022, Vallon entered into a Securities Purchase Agreement with certain investors (the Securities Purchase Agreement) for the sale of up to 123,333 shares of the Company’s common stock, par value $ 0.0001 per share (the Shares), at a purchase price of $ 31.896 per Share in a registered direct offering (the Offering). In a concurrent private placement also pursuant to the Securities Purchase Agreement (the Private Placement), for each share of common stock purchased by an investor, such investor was entitled receive from the Company an unregistered warrant (the Warrant) to purchase one share of common stock. The gross proceeds from the Offering and Private Placement were approximately $ 3,900 , before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company of approximately $ 572 , of which $ 85 related to the Warrants was expensed. 7 Table of Content s As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of approximately $ 1,665 . Following the completion of the Merger (Note 10), management believes the combined organization’s existing resources will be sufficient to support the combined organization’s planned operations for at least the next twelve months. For the foreseeable future, the Company’s ability to continue its operations is dependent upon its ability to obtain additional capital. 3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial periods and pursuant to the rules of the Securities and Exchange Commission (the SEC). References in this Quarterly Report on Form 10-Q to “authoritative guidance” is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB). The December 31, 2022 balance sheet was derived from Vallon’s audited financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all normal and recurring adjustments considered necessary to present fairly the Vallon’s financial position as of March 31, 2023, and the results of operations and stockholders’ equity (deficit) for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. Results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2023. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2022, included in the Vallon’s Annual Report on Form 10-K filed with the SEC on February 24, 2023. Recapitalization Concurrent with the closing of the Merger (Note 10), on April 21, 2023, the Company effected a 1-for-30 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 Quarterly Report on Form 10-Q give retroactive effect to the reverse split. Use of Estimates 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 and subsequent revaluations, 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. Cash and 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 March 31, 2023 and December 31, 2022 included investments in money market funds. The Company maintains its cash and cash equivalent balances at domestic financial institutions. Bank deposits with US banks are insured up to $ 250 by the Federal Deposits Insurance Corporation. The Company had uninsured cash balances of $ 1,218 and $ 3,281 at March 31, 2023 and December 31, 2022, respectively. Warrant Liabilities, Change in Fair Value and Warrant Conversion The Company evaluated the warrants issued in connection with the Offering (Note 6) in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC 815-40), and concluded that a provision in the Warrants related to the reduction of the exercise price in certain circumstances precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Warrants are recorded as derivative liabilities on the accompanying Balance Sheets and measured at fair value at inception and at each reporting date in accordance with ASC 820, Fair 8 Table of Content s Value Measurement , with changes in fair value recognized in the accompanying Statements of Operations and Comprehensive Loss in the period of change. The derivative liabilities will ultimately be converted into the Company’s common stock when the Warrants are exercised, or will be extinguished upon expiry of the Warrant term. Upon exercise, the intrinsic value of the shares issued is transferred to stockholders’ equity. The difference between the intrinsic value of the stock issued and the fair value of the Warrants is recorded as gain or loss on the exchange in the accompanying Statements of Operations and Comprehensive Loss in the period of exercise. 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. Recent Accounting Pronouncements The Company considered the applicability and impact of all ASUs issued during the quarter ended March 31, 2023 and each was determined to be either not applicable or expected to have minimal impact on these financial statements. 4. FAIR VALUE MEASUREMENTS 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, Fair Value Measurement , 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: Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 : Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). As of March 31, 2023, the Vallon’s financial instruments included cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, and the warrant liability. The carrying amounts reported in the balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments. Vallon recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. 9 Table of Content s The following table presents, for each of the fair value hierarchy levels required under ASC 820, Vallon’s liabilities that are measured at fair value on a recurring basis at March 31, 2023: Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Liabilities: Warrant liability $ — $ — $ 185 On May 17, 2022, Vallon issued 123,333 shares of common stock pursuant to the Securities Purchase Agreement at a purchase price of $ 31.896 per share in the Offering (Note 6). In connection with the Offering, the Company issued Warrants to purchase an aggregate of 123,333 shares of common stock at an exercise price of $ 28.146 per share. The Warrants were classified as a liability in accordance with ASC 815-40 and the fair value of $ 185 is reflected in warrant liability on the accompanying Balance Sheets. The warrant liability was measured at fair value at inception and is revalued at each financial statement date, with changes in fair value presented within change in fair value of warrant liability in the accompanying Statements of Operations and Comprehensive Loss. The following table presents the changes is the fair value of the Level 3 liability: Warrant Liability Fair value as of December 31, 2022 $ 122 Change in valuation 63 Balance as of March 31, 2023 $ 185 The Black-Scholes valuation model was used to estimate the fair value of the Warrants with the following weighted-average assumptions: December 31, 2022 March 31, 2023 Volatility 139.9 % 159.4 % Expected term in years 2.5 2.5 Dividend rate 0.0 % 0.0 % Risk-free interest rate 4.32 % 3.94 % 5. ACCRUED EXPENSES Accrued expenses consist of the following: March 31, 2023 December 31, 2022 Research and development $ 2 $ 42 General and administrative 136 268 Payroll and related 1,215 401 Total accrued expenses $ 1,353 $ 711 10 Table of Content s 6. STOCKHOLDERS’ EQUITY Common Stock In February 2021, Vallon completed the IPO of 75,000 shares of common stock at a public offering price of $ 240.00 per share. The gross proceeds from the IPO, before deducting underwriting discounts, commissions and other offering expenses payable by Vallon, were $ 18,000 . Underwriting discounts and expenses totaled $ 1,600 and Vallon incurred approximately $ 905 of additional expenses related to completing the IPO for aggregate net proceeds of approximately $ 15,500 . On May 17, 2022, Vallon completed the Offering, pursuant to which it sold 123,333 shares of common stock pursuant to the Securities Purchase Agreement at a purchase price of $ 31.896 per share . The gross proceeds from the Offering were approximately $ 3,900 before deducting fees payable to the placement agent and other estimated offering expenses payable by Vallon of approximately $ 572 of which $ 85 related to the Warrants was expensed. Common Stock Warrants In connection with the IPO, Vallon granted the underwriters warrants (the Underwriters' Warrants) to purchase an aggregate of 3,758 shares of common stock at an exercise price of $ 300.00 per share. The Underwriters’ Warrants have a five-year term and were not exercisable prior to August 12, 2021. All of the Underwriters’ Warrants were outstanding as of March 31, 2023. The Underwriters’ Warrants were classified as equity and the fair value of $ 399 is reflected as additional paid-in capital. The Black-Scholes option-pricing model was used to estimate the fair value of the Underwriters’ 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 % In connection with the Offering, the Company issued Warrants to purchase an aggregate of 123,333 shares of common stock at an exercise price of $ 28.146 per share (May 2022 Warrant Agreement). The Warrants have a five-year term. The Warrants were classified as a liability and are revalued at each balance sheet date. The May 2022 Warrant Agreement entitled the holders to receive one share of common stock for each Warrant in lieu of the aggregate number of shares of common stock that would have been received using the cashless exercise formula set forth in the May 2022 Warrant Agreement (Alternate Cashless Exercise). In July 2022, Vallon amended the terms of the May 2022 Warrant Agreement to obligate each Warrant holder who signed the warrant amendment (each, an Applicable Holder) to effect an Alternate Cashless Exercise, in whole, by August 10, 2022 (the Expiration Date). The Warrants held by the Applicable Holders that were not exercised by the Expiration Date, were automatically exercised pursuant to the Alternate Cashless Exercise. A total of 74,000 Warrants were exercised pursuant to the May 2022 Warrant Agreement amendment. In December 2022, an additional 24,666 Warrants were exercised pursuant to the Alternate Cashless Exercise under the original terms of the May 2022 Warrant Agreement. The fair value of the Warrants of $ 185 as of March 31, 2023 is reflected in warrant liability on the accompanying Balance Sheets (Note 4). As of March 31, 2023, Vallon had the following warrants outstanding to purchase common stock. Number of Shares Exercise Price per Share Expiration Date 3,758 $ 300.00 February 12, 2026 24,667 $ 28.146 May 17, 2027 11 Table of Content s 7. STOCK-BASED COMPENSATION Vallon recorded stock-based compensation related to stock options issued under the Vallon’s 2018 Equity Incentive Plan (2018 Plan) in the following expense categories of its accompanying statements of operations for the three months ended March 31, 2023 and 2022: For the Three Months Ended March 31, 2023 2022 Research and development $ 6 $ 18 General and administrative 79 163 Total $ 85 $ 181 Vallon has granted stock options to purchase its common stock to employees and consultants under the 2018 Plan, under which Vallon may issue stock options, restricted stock and other equity-based awards. Vallon has also granted certain stock options outside of the 2018 Plan. Stock options granted by Vallon generally have a contractual life of up to 10 years. As of March 31, 2023, 47,761 shares of the Company's common stock were authorized to be issued under the 2018 Plan, and 24,303 shares were reserved for future awards under the 2018 Plan. Vallon 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 service-based 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 for certain performance-based awards. The Company records expense for performance-based 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 three months ended March 31, 2023: Number of options Weighted average exercise price Weighted average remaining contractual term (years) Outstanding at December 31, 2022 23,142 $ 118.05 8.05 Granted — — Exercised — — Forfeited — — Outstanding at March 31, 2023 23,142 $ 118.05 7.80 Exercisable at March 31, 2023 13,112 $ 106.79 7.53 12 Table of Content s 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 Three Months Ended March 31, 2022 Volatility 88.65 % Expected term in years 6.06 Dividend rate 0.00 % Risk-free interest rate 1.95 % Fair value of option on grant date $ 128.70 No options were granted during the three months ended March 31, 2023. As of March 31, 2023, the unrecognized compensation cost related to unvested stock options expected to vest was $ 753 . This unrecognized compensation is expected to be recognized over a weighted-average amortization period of 2.39 years. 8. RELATED PARTY TRANSACTIONS In January 2020, Vallon entered into a license agreement with MEDICE Arzneimittel Pütter GmbH & Co. K ( Medice), a Vallon stockholder, 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. 9. 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. COVID-19 Impact The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to the Company’s operations and business plan. Vallon 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 Vallon’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 Vallon does business, as well as any legal or regulatory consequences resulting therefrom. 13 Table of Content s 10. SUBSEQUENT EVENTS Merger with GRI Bio, Inc. On April 21, 2023, pursuant to the Merger Agreement, Merger Sub was merged with and into Private GRI, with Private GRI surviving the Merger as a wholly owned subsidiary of the Company. In connection with the Merger, and prior to the Effective Time, the Company effected the Reverse Split. Also, in connection with the Closing), the Company amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.” At the Effective Time: (a) Each share of Private GRI’s common stock (Private GRI Common Stock) outstanding immediately prior to the Effective Time, including any shares of Private GRI Common Stock issued pursuant to the Equity SPA (as defined below) automatically converted solely into the right to receive a number of shares of the Company’s common stock equal to 0.0374 (the Exchange Ratio). (b) Each option to purchase shares of Private GRI Common Stock (each, a GRI Option) outstanding and unexercised immediately prior to the Effective Time under the GRI Bio, Inc. 2015 Equity Incentive Plan (the GRI Plan), whether or not vested, converted into and became an option to purchase shares of the Company’s common stock, and the Company assumed the GRI Plan and each such GRI Option in accordance with the terms of the GRI Plan (the Assumed Options). The number of shares of Company Common Stock subject to each Assumed Option was determined by multiplying (i) the number of shares of GRI Common Stock that were subject to such GRI Option, as in effect immediately prior to the Effective Time, by (ii) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Company Common Stock. The per share exercise price for the Company Common Stock issuable upon exercise of each Assumed Option was determined by dividing (A) the per share exercise price of such Assumed Option, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio and rounding the resulting per share exercise price up to the nearest whole cent. Any restriction on the exercise of any Assumed Option continued in full force and effect and the term, exercisability, vesting schedule, and any other provisions of such Assumed Option otherwise remained unchanged. (c) Each warrant to purchase shares of Private GRI Common Stock outstanding immediately prior to the Effective Time other than the Bridge Warrants (as defined below) (the GRI Warrants), was assumed by the Company and converted into a warrant to purchase shares of the Company’s common stock (the Assumed Warrants) and thereafter (i) each Assumed Warrant became exercisable solely for shares of the Company’s common stock; (ii) the number of shares of the Company’s common stock subject to each Assumed Warrant was determined by multiplying (A) the number of shares of Private GRI Common Stock that were subject to such GRI Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Company Common Stock; (iii) the per share exercise price for shares of the Company’s common stock issuable upon exercise of each Assumed Warrant was determined by dividing (A) the exercise price per share of the GRI Common Stock subject to such GRI Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting exercise price up to the nearest whole cent. (d) The Bridge Warrants were exchanged for warrants (the Exchange Warrants) to purchase an aggregate of 421,589 shares of the Company’s common stock. The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $ 14.73 per share. (e) All rights with respect to Private GRI restricted stock awards were assumed by the Company and converted into Company restricted stock awards with the number of shares subject to each restricted stock award multiplied by the Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of the Company’s common stock. The term, exercisability, vesting schedule and other provisions of the Private GRI restricted stock awards otherwise remained unchanged. In connection with the signing of the Merger Agreement, Private GRI entered into a securities purchase agreement dated December 13, 2022 (the Bridge SPA) with Altium Growth Fund, LP (the Investor) pursuant to which Private GRI issued senior secured promissory notes (the Bridge Notes) in the aggregate principal amount of $ 3,333 in exchange for an aggregate purchase price of $ 2,500 . In addition, Private GRI issued the Investor warrants to purchase an aggregate of 2,504,980 shares of Private GRI Common 14 Table of Content s Stock (the Bridge Warrants). As a result of the Merger, at the Effective Time, the Bridge Warrants were exchanged for the Exchange Warrants to purchase an aggregate of 421,589 shares of Company Common Stock. The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $ 14.73 per share. The exercise price of the Exchange Warrants is subject to adjustment for splits and similar recapitalization events. In addition to the Bridge SPA and in connection with signing the Merger Agreement, on December 13, 2022, the Company, Private GRI and the Investor entered into a Securities Purchase Agreement (the Equity SPA) pursuant to which the Investor agreed to invest $ 12,250 in cash. Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI Common Stock (the Initial Shares) to the Investor and 27,148,877 shares of GRI Common Stock (the Additional Shares) into escrow with an escrow agent. At the closing, pursuant to the Merger, the Initial Shares converted into an aggregate of 253,842 shares of Company Common Stock and the Additional Shares converted into an aggregate of 1,015,368 shares of Company Common Stock. On May 8,2023, in accordance with the terms of the Equity SPA, the Company and the Investor authorized the escrow agent to, subject to beneficial ownership limitations, disburse to the Investor all of the shares of Company Common Stock issued in exchange for the Additional Shares. Pursuant to the Equity SPA, on May 8, 2023, the Company issued to the Investor (i) Series A-1 Warrants to purchase 1,269,210 shares of Company Common Stock with an initial exercise price of $ 13.51 per share, (ii) Series A-2 Warrants to purchase 1,142,289 shares of Company Common Stock with an initial exercise price of $ 14.74 per share, and (iii) Series T Warrants to purchase at an exercise price of $ 12.28 per share (x) 814,467 shares of Company Common Stock and (y) upon exercise of the Series T Warrants, an additional amount of Series A-1 Warrants and Series A-2 Warrants, each to purchase 814,467 shares of Company Common Stock (collectively, the Equity Warrants). Immediately following the Effective Time, there were approximately 2,918,954 shares of Company Common Stock outstanding, of which 1,201,077 shares were held by the former stockholders of GRI (excluding the Investor). Resignation of Officers and Separation and Release Agreement In accordance with the Merger Agreement and effective as of the Effective Time, all of the Company’s executive officers other than Leanne Kelly, the Company’s Chief Financial Officer, resigned from the Company. The resignations were not the result of any disagreements with the Company relating to the Company’s operations, policies or practices. In connection with the resignation of David Baker, the Company’s Chief Executive Officer, the Company and Mr. Baker entered into a Separation and Release Agreement on April 21, 2023 (the Separation Agreement). Pursuant to the terms of the Separation Agreement and his current employment agreement, Mr. Baker will receive continuation of his current salary for 18 months payable in accordance with the Company’s payroll practices and a lump sum payment equal to 150 % of his target bonus within 15 days of execution of his release and certain COBRA benefits. Mr. Baker also agreed to reduce amounts payable with respect to certain future milestone payments. Amended and Restated 2018 Equity Incentive Plan On April 21, 2023, the stockholders of the Company approved the Amended and Restated GRI Bio, Inc. 2018 Equity Incentive Plan, formerly the Vallon Pharmaceuticals, Inc. 2018 Equity Incentive Plan (the A&R 2018 Plan). The A&R 2018 Plan had previously been approved by the Company’s board of directors, subject to stockholder approval. The A&R 2018 Plan became effective on April 21, 2023, with the stockholders approving the amendment to the A&R 2018 Plan to, among other things, (i) to increase the aggregate number of shares by 168,905 shares to 216,666 shares of Company Common Stock for issuance as awards under the A&R 2018 Plan, (ii) to extend the term of the A&R 2018 Plan through January 1, 2033, (iii) to prohibit any action that would be treated as a “repricing” of an award without further approval by the stockholders of Company, and (iv) to revise the limits on awards to non-employee directors. 15 Table of Content s