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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 310 added, 201 removed, 134 unchanged (79% of the section changed)

1 unchanged sentence

GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

Balance Sheets

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Assets (unaudited)

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Prepaid expenses and other current assets 793 303

Total current assets 5,592 312

Property and equipment, net 9 4

Operating lease right-of-use assets 41 67

Total assets $ 5,642 $ 383

Liabilities and stockholders' equity

Liabilities and stockholders' equity (deficit)

Current liabilities:

1 unchanged sentence

Accrued expenses 1,193 36

Advances from employees — 5

Warrant liability 63 —

Bridge promissory note, net — 602

Operating lease liabilities, current 41 57

Total current liabilities 1,604 1,994

Operating lease liabilities, non-current — 14

Total liabilities 1,604 2,008

Commitments and contingencies (Note 11)

Stockholders' equity:

Stockholders' equity (deficit):

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

250,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

2,956,354 and 999,748 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in-capital 31,430 16,871

Accumulated deficit ( 27,392 ) ( 18,496 )

Total stockholders’ equity 31 2,342

Total liabilities and stockholders' equity $ 2,097 $ 4,152

See accompanying notes to unaudited interim financial statements.

Table of Content s

Total stockholders’ equity (deficit) 4,038 ( 1,625 )

Total liabilities and stockholders' equity (deficit) $ 5,642 $ 383

See accompanying notes to unaudited interim consolidated financial statements.

GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Operating expenses:

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Net loss $ ( 6,746 ) $ ( 295 ) $ ( 8,896 ) $ ( 597 )

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

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Weighted-average common shares outstanding, basic and diluted 2,417,785 851,419 1,701,864 851,419

See accompanying notes to unaudited interim financial statements.

Table of Content s

See accompanying notes to unaudited interim consolidated financial statements.

GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

Statements of Changes in Stockholders’ Equity

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands, except shares)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity

Redeemable Convertible Stock Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Deficit

Shares Amount Shares

Balance, December 31, 2021 7,816 $ 124 851,419 $ — $ 10,430 $ ( 15,278 ) $ ( 4,848 )

Stock-based compensation — — 181 — — 181

Unrealized loss on marketable securities, available-for-sale — — — ( 4 ) — ( 4 )

Net loss — — — — — ( 302 ) ( 302 )

Balance, March 31, 2022 7,816 $ 124 851,419 $ — $ 10,430 $ ( 15,580 ) $ ( 5,150 )

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity

Net loss — — — — — ( 295 ) ( 295 )

Balance, June 30, 2022 7,816 $ 124 851,419 $ — $ 10,430 $ ( 15,875 ) $ ( 5,445 )

Redeemable Convertible Stock Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Equity (Deficit)

Shares Amount Shares

Balance, December 31, 2022 — $ — 999,748 $ — $ 16,871 $ ( 18,496 ) $ ( 1,625 )

Stock-based compensation — — — — 13 — 13

Restricted stock vesting — — 467 — — — —

Warrant issuance — — — — 532 — 532

Net loss — — — — — ( 2,150 ) ( 2,150 )

Balance, March 31, 2023 — $ — 1,000,215 $ — $ 17,416 $ ( 20,646 ) $ ( 3,230 )

See accompanying notes to unaudited interim financial statements.

Table of Content s

Stock-based compensation — — — — 13 — 13

Restricted stock vesting — — 164,038 — — — —

Warrant exercise — — 43,682 — 12 — 12

Issuance of common stock in pre-closing financing — — 1,214,912 — 11,721 11,721

Issuance of common stock for settlement of bridge note — — 54,298 — 3,333 3,333

Issuance of common stock for reverse recapitalization expenses — — 30,542 — 1,875 1,875

Issuance of common stock to Vallon stockholders in reverse recapitalization — — 448,667 — ( 2,940 ) ( 2,940 )

Net loss — — ( 6,746 ) ( 6,746 )

Balance, June 30, 2023 — $ — 2,956,354 $ — $ 31,430 $ ( 27,392 ) $ 4,038

See accompanying notes to unaudited interim consolidated financial statements.

GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

Statements of Cash Flows

Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

Six Months Ended June 30,

Operating activities:

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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

Depreciation expense 2 1

Amortization of debt discounts and issuance costs 2,104 —

Stock-based compensation expense 26 —

Change in fair value of warrant liability 63 —

Reduction in operating right of use assets 26 23

Change in operating assets and liabilities:

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Accrued expenses 1,157 409

Operating lease liabilities ( 30 ) ( 23 )

Cash used in operating activities ( 2,119 ) ( 116 )

Investing activities:

Sale of marketable securities — 1,154

Cash provided by investing activities — 1,154

Purchase of property and equipment ( 8 ) —

Cash used in investing activities ( 8 ) —

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 )

Advances from employees 190 35

Repayment of advances from employees ( 195 ) —

Proceeds from issuance of common stock in pre-closing financing 12,250 —

Proceeds from issuance of bridge promissory note 1,250 —

Proceeds from warrant exercise 12 —

Net liabilities assumed in connection with reverse recapitalization ( 2,939 ) —

Payment of reverse recapitalization costs ( 2,984 ) —

Payment of deferred stock issuance costs ( 517 ) —

Payment of debt issuance costs ( 150 ) —

Cash provided by financing activities 6,917 35

Net increase (decrease) in cash and cash equivalents 4,790 ( 81 )

Cash and cash equivalents at beginning of period 9 90

Cash and cash equivalents at end of period $ 4,799 $ 9

See accompanying notes to unaudited interim financial statements.

Table of Content s

Supplemental disclosure of non-cash financing activities:

Issuance of stock for repayment of bridge promissory note $ 3,333 $ —

Recognition of debt discount and additional paid-in-capital for issuance of warrants in connection with the

issuance of promissory notes $ 532 $ —

Issuance of stock for payment of reverse recapitalization costs $ 1,875 $ —

Issuance of warrants for payment of stock issuance costs $ 18

Merger costs included in accounts payable $ 72 $ —

See accompanying notes to unaudited interim consolidated financial statements.

GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

Notes to Unaudited Interim Financial Statements

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

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 Bio, Inc.

(GRI or the Company), based in La Jolla, CA, was incorporated in Delaware in May 2009, which is the date of inception.

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.

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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).

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.

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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.

Reverse Merger with Vallon Pharmaceuticals, Inc.

On April 21, 2023, the Company (formerly Vallon Pharmaceuticals, Inc.(Vallon)) consummated a merger with GRI Bio Operations, Inc.

(formerly GRI Bio, Inc.) (Private GRI) pursuant to an Agreement and Plan of Merger, as amended (the Merger Agreement), by and among the Company, Private GRI and Vallon Merger Sub, Inc.

(Merger Sub), a Delaware corporation and wholly-owned subsidiary of the Company (Note 4).

The Merger Agreement provided for the merger of Merger Sub with and into Private GRI, with Private GRI surviving the merger as a wholly-owned subsidiary of the Company (the Merger).

In connection with the closing of the Merger (the Closing), the Company amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.” In addition, prior to the effective time of the Merger (the Effective Time), the Company effected a reverse stock split of the Company’s common stock at a ratio of 1 for 30 (the Reverse Stock Split).

At the Effective Time, each share of Private GRI’s common stock outstanding immediately prior to the Effective Time 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).

Except as otherwise indicated or as the context requires, references herein to “GRI Bio,” the “Company,” or the “Combined Company,” refer to GRI Bio, Inc.

on a post-Merger basis, and references to “Private GRI” refer to the business of GRI Bio, Inc.

prior to the completion of the Merger.

References to “Vallon” refer to Vallon Pharmaceuticals, Inc.

prior to the completion of the Merger.

Basis of Presentation

As discussed in Note 4, the Merger was accounted for as reverse recapitalization under which the historical financial statements of the Company prior to the Merger are the historical financial statements of the accounting acquirer, Private GRI.

All common stock, per share and related information presented in the consolidated financial statements and notes prior to the Merger has been retroactively adjusted to reflect the Exchange Ratio and Reverse Stock Split for all periods presented, to the extent applicable.

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 the 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 its inception in 2009 and as a result has incurred $ 27,392 in accumulated deficit through June 30, 2023.

The Company has financed its working capital requirements to date through the issuance of equity and debt securities.

As of June 30, 2023, the Company had cash of approximately $ 4,799 .

In connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered the Equity SPA pursuant to which the Investor agreed to invest $ 12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI common stock immediately prior to the consummation of the Merger.

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 Private GRI common stock (the Additional Shares) into escrow with an escrow agent for net proceeds of $ 11,704 , after deducting offering expenses of $ 546 .

At the closing, pursuant to the Merger, the Initial Shares converted into an aggregate of 253,842 shares of the Company’s common stock and the Additional Shares converted into an aggregate of 1,015,368 shares of the Company’s 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 the Company’s common stock issued in exchange for the Additional Shares.

Based on the Company’s current operating plan, the Company believes that its existing cash and cash equivalents, which include the proceeds from the Equity SPA, will be sufficient to fund its operating expenses and capital expenditure requirements for twelve months from the date of the Merger (Note 4), not including the exercise of the Series T Warrants (the Series T Warrant Exercises).

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 intends to raise capital through additional issuances of common stock and/or short-term or long-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.

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.

Any reference in the accompanying unaudited interim financial statements 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 the Company’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 Company’s financial position as of June 30, 2023, and the results of operations and stockholders’ deficit for the three and six months ended June 30, 2023 and 2022 and cash flows for the three and six months ended June 30, 2023 and 2022.

Results of operations for the three and six months ended June 30, 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.

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, which are included as Exhibit 99.2 of Amendment No.

2 to the Current Report on Form 8-K filed with the SEC on July 6, 2023.

Use of Estimates

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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.

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.

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 June 30, 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

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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.

The Company had an uninsured cash balances of $ 4,302 at June 30, 2023.

The Company’s cash balance as of December 31, 2022 was fully insured.

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 , (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:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

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.

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 June 30, 2023, the Company’s financial instruments included cash, cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and certain liability classified warrants.

The carrying amounts reported in the balance sheets for cash, 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.

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.

At June 30, 2023, there were no financial assets or liabilities measured at fair value on a recurring basis other than the liability classified warrants.

In May 2022, Vallon issued warrants in connection with a securities purchase agreement.

Vallon evaluated the warrants 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 a result, the warrants are recorded as a liability on the balance sheet.

Vallon recorded the fair value of the warrants upon issuance using a Black-Scholes valuation model.

The Company is required to revalue the warrants at each reporting date with any changes in fair value recorded in its statement of operations.

The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable.

The change in the fair value of the Level 3 warrants liabilities is reflected in the statement of operations for the six months ended June 30, 2023.

Deferred Stock Issuance Costs

Deferred stock issuance costs represent incremental legal costs incurred that are directly attributable to proposed offerings of securities.

The costs are charged against the gross proceeds of the respective offering upon closing.

Debt Discounts

The relative fair values of warrants and common shares issued and call option rights assigned in connection with principal advances under promissory notes, the increases in fair values of embedded conversion options in connection with convertible promissory note

modifications, and the intrinsic values of non-contingent beneficial conversion features were recorded as debt discounts that are amortized as additional interest expense over the estimated terms of the notes using the effective interest method.

Debt Issuance Costs

Debt issuance costs represent incremental legal costs and other costs incurred that are directly attributable to issuing debt.

The costs are included as a direct reduction of the carrying amount of the respective liability and are amortized as additional interest expense over the estimated term of the debt using the effective interest method.

Stock-Based Compensation

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The Company uses the expected term, rather than the contractual term, for both employee and consultant options issued.

Net Loss Per Common Share

Basic and diluted net loss per common share are calculated by dividing the net loss by the applicable weighted-average number of common shares outstanding during the period.

As the Company had a net loss in each of the three and six months ended June 30, 2023 and 2022, diluted net loss per common share is the same as basic net loss per common share for the period because the effects of potentially dilutive securities are antidilutive.

Common stock equivalents excluded from the diluted net loss per common share calculations are as follows:

Stock options 100,459 89,472

Warrants 3,688,449 10,067

Restricted stock with repurchase rights 164,038 164,038

Stock subject to put right — 7,816

Convertible promissory note

3,952,946 414,937

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.

FAIR VALUE MEASUREMENTS

The Company considered the applicability and impact of all ASUs issued during the quarter ended June 30, 2023 and each was determined to be either not applicable or expected to have minimal impact on these financial statements.

MERGER WITH VALLON

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 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 outstanding immediately prior to the Effective Time, including any shares of Private GRI’s common stock issued pursuant to the Equity SPA automatically converted solely into the right to receive a number of shares of the Company’s common stock equal to the Exchange Ratio.

(b) Each option to purchase shares of Private GRI’s 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 he Company’s common stock subject to each Assumed Option was determined by multiplying (i) the number of shares of Private GRI’s 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 he Company’s common stock.

The per share exercise price for the he Company’s 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’s 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’s 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 the Company’s 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 Private GRI’s 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 (Note 8) 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.

The Merger is accounted for as a reverse recapitalization under U.S.

GAAP because the primary assets of Vallon were cash and cash equivalents.

For accounting purposes, GRI has been determined to be the accounting acquirer based upon the terms of the Merger and other factors including:

(i) the equity holders of Private GRI immediately prior to the Merger owned, or held rights to acquire, in the aggregate approximately 85 % of the outstanding shares of the Company’s common stock and the Company’s stockholders immediately prior to the Merger owned approximately 15 % of the outstanding shares of the Company’s common stock (ii) Private GRI holds the majority (4 out of 5) of board seats of the combined company, and (iii) Private GRI’s management holds the majority of

key positions in the management of the combined company.

Immediately after the Merger, there were 2,956,354 shares of the Company’s common stock outstanding.

The following table shows the net liabilities assumed in the Merger:

April 21, 2023

Cash and cash equivalents $ 941

Prepaid and other assets 310

Accounts payable and accrued expenses ( 4,190 )

Total net liabilities assumed ( 2,939 )

Transaction costs ( 2,984 )

Total net liabilities assumed plus transaction costs $ ( 5,923 )

In addition to the transactions costs noted above, at the Effective Time, 30,542 shares of the Company’s common stock were issued to Private GRI’s financial advisor for services related to the Merger.

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:

The Company applies the guidance in ASC 820 to account for financial assets and liabilities measured on a recurring basis.

Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs).

The guidance requires that fair value measurements be classified and disclosed in one of the following 3 categories:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

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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.

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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:

Determining which category an asset or liability falls within the hierarchy requires significant judgment.

The Company evaluates its hierarchy disclosures each reporting period.

There were no transfers between Level 1, 2 and 3 during the six months ended June 30, 2023.

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s liabilities that are measured at fair value on a recurring basis at June 30, 2023:

Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3)

Warrant liability $ — $ — $ 63

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.

Total liabilities $ — $ — $ 63

The following table presents the changes is the fair value of the Level 3 liability:

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Change in valuation ( 122 )

Balance as of March 31, 2023 $ 185

Fair value as of June 30, 2023

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

June 30, 2023 December 31, 2022

Volatility 167.1 % 139.9 %

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Risk-free interest rate 4.68 % 4.32 %

PROPERTY AND EQUIPMENT

June 30, 2023 December 31, 2022

Computer equipment $ 21 $ 13

Furniture and fixtures 12 13

Accumulated depreciation ( 24 ) ( 22 )

Depreciation expense related to property and equipment was $ 2 and $ 1 for the six months ended June 30, 2023 and 2022, respectively.

ACCRUED EXPENSES

Accrued expenses consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Research and development $ 143 $ —

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Total accrued expenses $ 1,193 $ 36

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PROMISSORY NOTES

Bridge Financing

In connection with signing the Merger Agreement, Private GRI entered into a Securities Purchase Agreement, dated as of December 13, 2022 (Bridge SPA), with Altium Growth Fund, LP (the Investor), pursuant to which Private GRI issued senior secured promissory notes (Bridge Notes) in the aggregate principal amount of $ 3,333 , in exchange for an aggregate purchase price of $ 2,500 .

The Bridge Notes were issued in two closings:

(i) the first closing for $ 1,667 in aggregate principal amount (in exchange for an aggregate purchase price of $ 1,250 ) closed on December 14, 2022;

and (ii) the second closing for $ 1,667 in aggregate principal amount (in exchange for an aggregate purchase price of $ 1,250 ) closed on March 9, 2023.

The Bridge Notes were secured by a lien on all of the Company’s assets.

In addition, upon the funding of each tranche, the Investor received warrants to purchase an aggregate of 1,252,490 shares of the Company’s common stock (the Bridge Warrants).

The Bridge Warrants had an exercise price of $ 1.33 per share, were exercisable at any time on or after the applicable issuance date and had a term of 60 months from the date all shares underlying the Bridge Warrants were freely tradable.

The $ 1,250 of proceeds from the first closing were allocated to the Bridge Notes and Bridge Warrants based on their relative fair values as of the commitment date, resulting in an allocation of $ 679 and $ 571 , respectively.

The $ 1,250 of proceeds from the second closing were allocated to the Bridge Notes and Bridge Warrants based on their relative fair values as of the commitment date, resulting in an allocation of $ 718 and $ 532 , respectively.

In addition to the Bridge SPA, and also in connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered into the Equity SPA (Note 9) pursuant to which the Investor agreed to invest $ 12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI’s common stock immediately prior to the consummation of the Merger.

On April 21, 2023, the Company completed the Merger and the outstanding principal and accrued interest on the Bridge Notes was cancelled and the Bridge Warrants were exchanged for the Exchange Warrants.

The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $ 14.73 per share subject to adjustments for splits and recapitalization events.

The Bridge Notes were accounted for as share-settled debt under the accounting guidance in ASC 835-30 and, as such, the initial net carrying amounts were accreted to the redemption amounts using the effective interest method.

The Company incurred debt issuance costs of $ 205 during the year ended December 31, 2022 and $ 90 during the six months ended June 30, 2023 related to its issuance of debt under the Bridge SPA.

Unamortized debt discounts and debt issuance costs totaled $ 1,065 as of December 31, 2022.

Interest expense stemming from amortization of debt discounts and issuance costs was $ 1,161 and $ 2,104 for the three and six months ended June 30, 2023, respectively.

In November 2018, Private GRI and TEP Biotech, LLC (TEP) entered into a convertible note and warrant purchase agreement pursuant to which TEP agreed to fund up to $ 5,000 to Private GRI in exchange for a convertible promissory note (the TEP Note) and a warrant to purchase up to 25,245 shares of Private GRI’s common stock at an exercise price of $ 0.27 per share.

The TEP Note was secured by Private GRI’s assets and accrued simple interest on the outstanding principal balance at a rate of 12 % per annum.

The total outstanding principal and accrued interest balance was initially due on the earlier of Private GRI’s next financing, as defined, and May 2, 2020.

The initial $ 2,500 tranche under the TEP Note was funded upon execution of the agreement in November 2018.

In December 2019, Private GRI and TEP amended the TEP Note.

In lieu of TEP funding the second $ 2,500 tranche, TEP made a first additional advance of $ 500 to Private GRI in exchange for a convertible promissory note, a warrant to purchase up to 17,269 shares of Private GRI’s common stock at an exercise price of $ 0.27 per share, and the assignment of Private GRI’s rights under a certain call option agreement.

The call option agreement, which was entered into in 2015, provided Private GRI with the right to repurchase up to 39,720 shares of Private GRI’s common stock held by the counterparty for $ 26.74 per share at any time before April 1, 2025.

In July 2020, the TEP Note maturity date was extended to August 31, 2020, and in March 2021, TEP agreed to forbear on its available right to exercise remedies on account of Private GRI’s failure to pay the past due principal and accrued interest balance until October 31, 2021.

In May 2021, Private GRI and TEP amended the TEP Note, and TEP agreed to make a second additional advance of $ 500 to Private GRI in exchange for a convertible promissory note with separate, modified conversion options.

In July 2022, Private GRI and TEP further amended the TEP Note, and TEP agreed to make a third additional advance of $ 125 to Private GRI in exchange for a convertible promissory note and a warrant to purchase up to 1,169 shares of Private GRI’s common stock at an exercise price of $ 0.27 per share.

In October 2022, Private GRI and TEP entered into a conversion agreement pursuant to which, effective upon the full execution of the Merger Agreement (Note 4), $ 3,500 of outstanding principal under the TEP Note together with $ 650 of related accrued interest was to

automatically convert into 155,210 shares of Private GRI’s common stock at a conversion price of $ 26.74 per share.

Further, upon the closing of the first tranche of the Bridge Notes, Private GRI was to repay, in cash, the $ 125 third additional advance under the TEP Note along with the $ 15 of related accrued interest.

Upon issuance of the 155,210 conversion shares and payment of the $ 140 principal and accrued interest balance, Private GRI would fully satisfy all of its obligations under the TEP Note.

In December 2022, upon the full execution of the Merger Agreement and the closing of the first tranche of the Bridge Notes Private GRI issued the 155,210 conversion shares and paid the $ 140 principal and accrued interest balance as per the terms of the conversion agreement.

The share numbers and exercise or conversion prices in this section of Note 8 entitled “TEP Note” reflect the Exchange Ratio retroactively.

As part of the conversion, the $ 4,150 of converted principal and accrued interest, along with $ 863 of related forfeited accrued interest through the conversion date, were credited to stockholders’ deficit.

Interest expense recognized on the TEP Note was $ 107 and $ 210 for the three and six months ended June 30, 2022.

STOCKHOLDERS’ EQUITY

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.

In connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered the Equity SPA pursuant to which the Investor agreed to invest $ 12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI’s common stock immediately prior to the consummation of the Merger.

Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI’s common stock (the Initial Shares) to the Investor and 27,148,877 shares of Private GRI’s common stock (the Additional Shares) into escrow with an escrow agent for net proceeds of $ 11,704 , after deducting offering expenses of $ 546 .

Redeemable Common Stock

In November 2018, Private GRI entered into an agreement with a stockholder pursuant to which the stockholder had the right to require Private GRI to purchase all or a portion of 7,816 shares of Private GRI’s common stock held by the stockholder for $ 15.88 per share (the Put Right).

The Put Right was exercisable (i) for a period commencing thirty days prior to the day Private GRI completed an equity or debt financing and ending fifteen business days thereafter, or (ii) at any time following a breach of the agreement by Private GRI.

Management assessed the Put Right and determined that (i) it was not freestanding and, therefore, was not required to be classified as a liability and (ii) it could be exercised by the stockholder at any time, which was not within Private GRI’s control.

Therefore, the common shares subject to the Put Right were classified in mezzanine equity.

In December 2022, the stockholder exercised the Put Right and Private GRI redeemed the 7,816 shares of Private GRI’s common stock for $ 124 ($ 15.88 per share).

The redeemed shares were retired by Private GRI.

The share numbers and exercise or conversion prices in this section of Note 9 entitled “Redeemable Common Stock” reflect the Exchange Ratio retroactively.

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:

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 the Company’s common stock at an exercise price of $ 13.51 , (ii) Series A-2 Warrants to purchase 1,142,289 shares of the Company’s common stock at an exercise price of $ 14.74 , and (iii) Series T Warrants to purchase (x) 814,467 shares of the Company’s common stock at an exercise price of $ 12.28 and (y) upon exercise of the Series T Warrants, 814,467 additional Series

A-1 Warrants and Series A-2 Warrants, each to purchase 814,467 shares of the Company’s common stock at an exercise price of $ 13.51 and $ 14.74 , respectively (collectively, the Equity Warrants).

The Series A-1 Warrants have a term of 60 months from the date all shares underlying the Series A-1 Warrants are freely tradable.

The A-2 warrants have a 2-year term and expire in June 2025.

Series T Warrants have a term of 24 months from the date all shares underlying Series T Warrants are freely tradable.

The Company may force the exercise of the Series T Warrants subject to the satisfaction of certain equity conditions.

The Equity Warrants include certain contingent cashless exercise features and contain certain other rights with regard to asset distributions and fundamental transactions.

The exercise price of the Series A-1 Warrants is subject to adjustment for certain dilutive issuances, and all of the Equity Warrants are subject to standard antidilution adjustments.

All of the Equity Warrants were outstanding as of June 30, 2023.

The Equity Warrants were classified as equity and the allocated fair value of $ 5,675 is included in additional paid in capital.

Pursuant to the Bridge SPA, upon the funding of each tranche of the Bridge Note, the Investor received the Bridge Warrants.

Upon the completion of the Merger the Bridge Warrants were exchanged for the Exchange Warrants to purchase an aggregate of 421,589 shares of the Company’s common stock.

All of the Bridge Warrants were outstanding as of June 30, 2023.

The Bridge Warrants were classified as equity and the allocated fair value of $ 2,860 is included in additional paid in capital.

In connection with the Closing, Private GRI granted its financial advisor warrants (the Advisor Warrants) to purchase shares of Private GRI’s common stock, which, at the Effective Time, became exercisable for an aggregate of 2,402 shares of the Company’s common stock at an exercise price of $ 61.39 per share.

The Advisor Warrants have a five-year term.

All of the Advisor Warrants were outstanding as of June 30, 2023.

The Advisor Warrants were classified as equity and the fair value of $ 18 is included in additional paid in capital.

The Black-Scholes option-pricing model was used to estimate the fair value of the Equity Warrants, the Exchange Warrants and the Advisor Warrants with the following weighted-average assumptions:

Volatility 167.6 %

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Risk-free interest rate 4.37 %

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.

As of June 30, 2023, the Company had the following warrants outstanding to purchase common stock.

Number of Shares Exercise Price per Share Expiration Date

8,629 $ 34.76 November 2023

1,438 $ 34.76 December 2023

1,142,289 $ 14.74 June 2025

3,758 $ 300.00 February 2026

24,667 $ 28.15 May 2027

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1,168 $ 0.01 July 2027

2,402 $ 61.39 April 2028

421,590 $ 14.73 60 months after registration date

1,269,210 $ 13.51 60 months after registration date

814,467 $ 12.28 24 months after registration date

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,

2015 Equity Incentive Plan

Private GRI adopted the GRI Bio, Inc.

2015 Equity Incentive Plan, as amended (the Private GRI Plan), that provided Private GRI with the ability to grant stock options, restricted stock awards and other equity-based awards to employees, directors, and consultants.

Stock options granted under the Private GRI Plan generally had a contractual life of up to 10 years.

Upon completion of the Merger, the Company assumed the Private GRI Plan and the outstanding and unexercised options issued thereunder, and ceased granting awards under the Private GRI Plan.

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 the Company’s 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.

The A&R 2018 Plan provides the Company with the ability to grant stock options, restricted stock and other equity-based awards to employees, directors and consultants.

Stock options granted by Vallon generally have a contractual life of up to 10 years.

As of June 30, 2023, 100,459 shares of the Company's common stock were authorized to be issued under the A&R 2018 Plan, and 116,207 shares were reserved for future awards under the A&R 2018 Plan.

The Company recorded stock-based compensation related to stock options issued under the A&R 2018 Plan in the following expense categories of its accompanying statements of operations for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended June 30, For the Six Months Ended June 30,

2023 2022 2023 2022

Research and development $ — $ — $ — $ —

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Total $ 13 $ — $ 26 $ —

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 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.

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:

The table below represents the activity of stock options granted to employees and non-employees for the six months ended June 30, 2023:

Number of options Weighted average exercise price Weighted average remaining contractual term (years)

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Exercised — —

Forfeited — —

Outstanding at March 31, 2023 23,142 $ 118.05 7.80

Exercisable at March 31, 2023 13,112 $ 106.79 7.53

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Forfeited/Cancelled ( 12,153 ) $ 130.84

Outstanding at June 30, 2023 100,459 $ 28.75 4.73

Exercisable at June 30, 2023 100,459 $ 28.75 4.73

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

For the Six Months Ended June 30, 2022

Volatility 90.39 %

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Fair value of option on grant date $ 3.86

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 .

No options were granted during the six months ended June 30, 2023.

As of June 30, 2023, the unrecognized compensation cost related to unvested stock options expected to vest was $ 280 .

This unrecognized compensation is expected to be recognized over a weighted-average amortization period of 3.35 years.

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.

COMMITMENTS AND CONTINGENCIES

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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.

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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.

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.

(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.

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

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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.

Separation and Release Agreement

In connection with the resignation of David Baker, the Company’s Former Chief Executive Officer, pursuant to the Merger, 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.

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.

Table of Content s

Pursuant to the terms of the Separation Agreement and his employment agreement, Mr.

Baker will receive continuation of his current salary and certain COBRA benefits for 18 months payable in accordance with the Company’s payroll practices.

Baker also received a lump sum payment equal to 150 % of his target bonus and agreed to reduce amounts payable with respect to certain future milestone payments.

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

What changed 10-Q

Item 1. Financial Statements