What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 121 added, 104 removed, 56 unchanged (80% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial statements (and notes thereto), and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022, included in Vallon’s Annual Report on Form 10-K that was filed with the SEC on February 24, 2023.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

All references in this section to “GRI,” the “Company,” “we,” “us,” or “our” mean GRI Bio, Inc.

and its subsidiary after completion of the Merger, unless stated otherwise or the context otherwise indicates.

In addition, references to “Vallon” refers to the Company prior to the completion of the Merger.

Pre-Merger Business

Historically, Vallon was primarily focused on the development and commercialization of novel abuse-deterrent medications for CNS disorders.

Vallon’s lead investigational product candidate, ADAIR, was a proprietary, abuse-deterrent oral formulation of immediate-release dextroamphetamine (the main active ingredient in Adderall®), which was being developed for the treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy.

In March 2022, Vallon announced that our Study to Evaluate the Abuse Liability, Pharmacokinetics, Safety and Tolerability of an Abuse-Deterrent d-Amphetamine Sulfate Immediate Release Formulation (SEAL) study for ADAIR did not reach its primary endpoint.

In addition to ADAIR, Vallon’s second product candidate, ADMIR, an abuse deterrent formulation of methylphenidate (Ritalin®), was also being developed for the treatment of ADHD.

While assessing the best path forward for the ADAIR and ADMIR development programs in relation to the results of the SEAL study, Vallon evaluated its strategic alternatives with the goal of maximizing stockholder value.

In conjunction with the exploration of strategic alternatives, Vallon streamlined operations to preserve its capital and cash resources.

After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, and following extensive negotiation with a number of possible candidates, on December 13, 2022, Vallon and Private GRI entered into the Merger Agreement.

Post-Merger 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 following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q, the audited financial statements (and notes thereto, management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022, included in Vallon’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023, and Private GRI’s financial statements and related notes which are filed as Exhibit 99.1 of Amendment No.

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

Some of the information contained in this discussion and analysis, including information with respect to GRI’s plans and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set out under the section entitled “Risk Factors” which is included in the Quarterly Report on Form 10-Q filed by the Combined Company, GRI’s actual results could differ materially from the results described in or implied by these forward-looking statements.

Except as otherwise indicated, 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.

We are 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.

Our 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.

GRI’s lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T (iNKT) cells.

Our lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T (iNKT) cells.

GRI-0621 is also an oral formulation of tazarotene, a synthetic retinoid acid receptor (RAR)-beta and gamma selective agonist, that is approved in the United States for topical treatment of psoriasis and acne.

As of December 31, 2022, it has been evaluated in over 1,700 patients as an oral product for up to 52-weeks.

GRI is developing GRI-0621 for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF), a life-threatening progressive fibrotic disease of the lung that affects approximately 140,000 people in the United States, with up to 40,000 new cases per year in the United States and some estimate that IPF affects 3 million globally.

As of March 31, 2023, it has been evaluated in over 1,700 patients as an oral product for up to 52-weeks.

We are developing GRI-0621 for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF), a life-threatening progressive fibrotic disease of the lung that affects approximately 140,000 people in the United States, with up to 40,000 new cases per year in the United States and some estimate that IPF affects 3 million globally.

While there are currently two approved therapies for the treatment of lung fibrosis, neither has been associated with improvements in overall survival, and both therapies have been associated with significant side effects leading to poor therapeutic adherence.

In preliminary data from GRI’s trials to date with GRI-0621, and earlier trials with oral tazarotene, GRI has observed GRI-0621 to be well-tolerated and to inhibit iNKT cell activity in subjects.

GRI and others have shown that activated iNKT are upregulated in IPF, primary sclerosing cholangitis (PSC), non-alcoholic steatohepatitis (NASH), alcoholic liver disease (ALD), Systemic Lupus Erythematosus Disease (SLE), multiple sclerosis (MS), ulcerative colitis (UC) patients as well as other indications.

In these patients activated iNKT

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cells are correlated with more severe disease.

GRI is initiating a Phase 2a trial in 36 IPF patients in the second half of 2023 and expects topline results from this trial to be available in the second half of 2024.

GRI’s product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds.

In preliminary data from our trials to date with GRI-0621, and earlier trials with oral tazarotene, we have observed GRI-0621 to be well-tolerated and to inhibit iNKT cell activity in subjects.

We and others have shown that activated iNKT are upregulated in IPF, primary sclerosing cholangitis (PSC), non-alcoholic steatohepatitis (NASH), alcoholic liver disease (ALD), Systemic Lupus Erythematosus Disease (SLE), multiple sclerosis (MS), ulcerative colitis (UC) patients as well as other indications.

In these patients activated iNKT cells are correlated with more severe disease.

We are initiating a Phase 2a trial in 36 IPF patients in the second half of 2023 and expects topline results from this trial to be available in the second half of 2024.

Our 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 (type 2 NKT) cells.

GRI is developing GRI-0803 for the treatment of autoimmune disorders, with much of our preclinical work in SLE or lupus and MS.

We are developing GRI-0803 for the treatment of autoimmune disorders, with much of our preclinical work in SLE or lupus and MS.

In lupus, the immune system mistakenly attacks its own healthy tissues, especially joints and skin, but can affect almost every organ and tissue of the body.

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Only two drugs have been approved for lupus in the past 50 years, and new treatment options are sorely needed.

Subject to IND clearance, GRI intends to evaluate GRI-0803 in a Phase 1a and 1b trial initially targeting SLE.

GRI expects to file an IND with respect to this Phase 1a and 1b trial in the first half of 2024.

GRI will continue to evaluate indications to select the best fit for further development of the program, but GRI’s initial focus is on lupus.

The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to our operations and business plan.

We have closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of various coronavirus strains such as the Delta variant, and supply chain and labor shortages.

In light of these developments, the full impact of the COVID-19 pandemic on our business, operations and clinical development plans remains uncertain and will vary depending on the pandemic’s future impact on our clinical trial enrollment, clinical trial sites, contract research organizations (CROs), third-party manufacturers, and other third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with most of our employees and consultants working remotely.

We will continue to actively monitor the COVID-19 pandemic and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

Subject to IND clearance, we intend to evaluate GRI-0803 in a Phase 1a and 1b trial initially targeting SLE.

We expect to file an IND with respect to this Phase 1a and 1b trial in the first half of 2024.

We will continue to evaluate indications to select the best fit for further development of the program, but our initial focus is on lupus.

Merger with Vallon Pharmaceuticals, Inc.

On April 21, 2023, the Company (formerly Vallon Pharmaceuticals, Inc.) 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.

The Merger Agreement provided for the merger of Merger Sub with and into Private GRI, with Private GRI continuing as a wholly-owned subsidiary of the Company and the surviving corporation of the merger (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 connection with signing the Merger Agreement, Private GRI entered into a Securities Purchase Agreement, dated as of 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 $3.3 million, in exchange for an aggregate purchase price of $2.5 million.

The Bridge Notes were issued in two closings:

(i) the first closing for $1.67 million in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) closed on December 14, 2022;

and (ii) the second closing for $1.67 million in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) closed on March 9, 2023.

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

In addition to the Bridge SPA, and also in connection with signing the Merger Agreement, the Company, Private GRI and the Investor entered into a Securities Purchase Agreement on December 13, 2022 (the Equity SPA) pursuant to which the Investor agreed to invest $12.25 million 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 Company 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 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.

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 with an initial exercise price of $13.51 per share, (ii) Series A-2 Warrants to purchase 1,142,289 shares of the Company’s 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 the Company’s 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 the Company’s common stock (collectively, the Equity Warrants).

Upon the completion of the Merger, the outstanding principal and accrued interest on the Bridge Notes was cancelled and the Bridge Warrants were exchanged for warrants (the Exchange Warrants) to purchase an aggregate of 421,589 shares of the Company’s common stock .

Financial Operations Overview

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Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials.

We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred.

Vallon’s research and development expenses have consisted primarily of in-process research and development expenses, costs related to the development program for ADAIR, commercial manufacturing of ADAIR and formulation development for ADMIR.

Research and development costs are expensed as incurred.

Our research and development expenses have consisted primarily of costs related to our development program for our lead product candidate GRI-0621.

These expenses include:

• employee -related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead related expenses and travel related expenses for research and development personnel;

• expenses incurred under agreements with CROs, as well as consultants that support the implementation of its clinical and non-clinical studies;

• manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support an NDA filing as well as manufacturing drug product for commercial launch;

• formulation, research and development expenses related to ADMIR;

and other products;

• costs for sponsored research.

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Vallon typically used its employee, consultant and infrastructure resources across its research and development programs.

Although Vallon tracked certain outsourced development costs by product candidate, it did not allocate personnel costs or other internal costs to specific product candidates.

• employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead-related expenses and travel-related expenses for our research and development personnel;

• expenses incurred under agreements with CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities as well as consultants that support the implementation of our clinical and non-clinical studies.

Although our direct research and development expenses are tracked by product candidate, we do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates as these costs are deployed across multiple programs.

We expect our research and development expenses to increase over the next several years as we conduct our planned clinical and preclinical activities for our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to formation and corporate matters.

Warrant Liability, Change in Fair Value and Warrant Conversion

Vallon evaluated the warrants issued in connection with the May 2022 registered direct financing 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 Balance Sheets and measured at fair value at inception and at each reporting date in accordance with ASC 820, Fair 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 warrant is recorded as gain or loss on the exchange in the accompanying Statements of Operations and Comprehensive Loss in the period of exercise.

Interest Income (Expense), net

Interest income (expense), net, consists of interest earned on Vallon’s cash and cash equivalents held with institutional banks, the amortization of discounts and accretion of premiums on marketable securities and interest expense on its finance lease of equipment utilized in the commercial scale manufacturing of ADAIR.

We expect our general and administrative expenses will increase substantially as we incur costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors’ and officers’ insurance, legal and accounting costs and investor relations costs, as well as an increase in personnel expenses as we hire additional personnel.

Warrant Liability

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 were measured the fair value upon issuance using a Black-Scholes valuation model and are recorded as a liability on the balance sheet.

The fair value of the warrants is measured at each reporting date and changes in fair value are recognized in the consolidated statements of operations in the period of change.

Interest Expense, net

Interest expense consists of amortization of debt discounts, debt issuance costs and interest expense related to the TEP Notes and the Bridge Notes.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes the results of Vallon’s operations for the periods indicated (in thousands):

Three Months Ended

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table summarizes the results of our operations for the periods indicated (in thousands):

Three Months Ended June 30,

Operating expenses:

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Research and Development Expenses

Research and development expenses were $(0.1) and $1.3 million for the three months ended March 31, 2023 and 2022, respectively.

The $1.4 million decrease in research and development expenses was primarily due to decreases of $1.1 million in expenses related to the registration development program of ADAIR, $0.2 million in consulting fees and $0.1 million in personnel expenses.

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Research and development expenses were $0.9 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively.

The $0.8 million increase in research and development expenses was primarily due to increases of $0.4 million in expenses related to the development program of GRI-0621, $0.2 million in consulting fees and $0.2 million in personnel expenses.

General and Administrative Expenses

General and administrative expenses were $2.5 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively.

The $1.1 million increase was primarily related to increased costs for personnel expenses of $1.0 million and professional fees of $0.3 million as a result of the Merger.

These increases were offset by a decrease in consulting fees of $0.1 million.

Change in Fair Value of Warrant Liability and Loss on Warrant Conversion

In May 2022, Vallon issued 123,333 shares of common stock pursuant to a securities purchase agreement at a purchase price of $31.896 per share in a registered direct offering.

In connection with the registered direct offering, Vallon 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 were classified as a liability in accordance with ASC 815-40 and the fair value of $1.3 million was recorded as a liability at inception.

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 (Applicable Holder) to effect an Alternate Cashless Exercise, in whole, by August 10, 2022 (the Expiration Date).

If the warrants held by the Applicable Holders were not exercised by the Expiration Date, they 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 change in fair value of $0.1 million represents an increase in the fair value of the warrants outstanding during the quarter ended March 31, 2023.

Interest Income (Expense), net

Interest income, net, was $16,000 for the three months ended March 31, 2023.

Interest expense, net, was $1,000 for the three months ended March 31, 2022.

General and administrative expenses were $5.1 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively.

The $5.0 million increase was primarily related to increased costs for professional fees, including legal, accounting and investment banking fees associated with the Merger of $3.8 million, personnel expenses of $0.8 million as a result of increased headcount, and increases in consulting, administrative and insurance expenses of $0.3 million as a result of operating as a public company.

Change in Fair Value of Warrant Liability

The change in fair value of $0.1 million represents a decrease in the fair value of the warrants outstanding during the three months ended June 30, 2023.

Interest Expense, net

Interest expense, net, was $0.9 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively and related to the outstanding promissory notes.

The increase in interest expense, net, was due to interest related to the Bridge Notes.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table summarizes the results of our operations for the periods indicated (in thousands):

Six Months Ended June 30,

Operating expenses:

Research and development $ 997 $ 119

General and administrative 5,926 268

Total operating expenses 6,923 387

Loss from operations (6,923) (387)

Change in fair value of warrant liability 122 —

Interest expense, net (2,095) (210)

Net loss $ (8,896) $ (597)

Research and Development Expenses

Research and development expenses were $1.0 million and $0.1 million for the six months ended June 30, 2023 and 2022, respectively.

The $0.9 million increase in research and development expenses was primarily due to i ncreases of $0.4 million in expenses related to the development program of GRI-0621, $0.3 million in consulting fees and $0.2 million in personnel expenses.

General and Administrative Expenses

General and administrative expenses were $5.9 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively.

The $5.6 million increase was primarily related to increased costs for professional fees, including legal, accounting and investment banking fees associated with the Merger of $4.5 million, personnel expenses of $0.8 million as a result of increased headcount, and increases in consulting, administrative and insurance expenses of $0.3 million as a result of operating as a public company.

Change in Fair Value of Warrant Liability

The change in fair value of $0.1 million represents an increase in the fair value of the warrants outstanding during the six months ended June 30, 2023.

Interest Expense, net

Interest expense, net, was $2.1 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively, and related to the outstanding promissory notes.

The increase in interest expense, net, was due to interest related to the Bridge Notes.

Liquidity and Capital Resources

Vallon has incurred losses since inception and incurred net losses of $2.4 million for each the three months ended March 31, 2023 and 2022.

As of March 31, 2023, Vallon had an accumulated deficit of $31.3 million.

Vallon has financed its working capital requirements to date through the issuance of common stock, convertible notes, short-term promissory notes, and a PPP promissory note.

As of March 31, 2023, Vallon had $1.7 million in cash and cash equivalents.

The following table summarizes Vallon’s cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future.

We incurred net losses of $8.9 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $27.4 million.

We have financed our working capital requirements to date through the issuance of common stock, warrants, convertible notes and promissory notes.

As of June 30, 2023, we had $4.8 million in cash.

The following table summarizes our cash flows for the periods indicated (in thousands):

Six Months Ended June 30,

Net cash provided by (used in):

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Financing activities 6,917 35

Net decrease in cash and cash equivalents $ (2,116) $ (1,159)

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

Cash Flows from Operating Activities

For the three months ended March 31, 2023 and 2022, $2.1 million and $2.3 million were used in operating activities, respectively.

The $0.2 million decrease was primarily due to a $0.1 million increase in prepaid and other current assets and a $0.8 million increase in accounts payable, offset by decreases accrued expenses of $0.9 million.

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For the six months ended June 30, 2023 and 2022, $2.1 million was provided by and $0.1 million was used in operating activities, respectively.

The $2.0 million increase was primarily due to a $8.3 million increase in net loss and a $0.7 million decrease in prepaid and other assets, offset by an increase in non-cash adjustments of $2.1 million related to the amortization of debt discounts and debt issuance costs and $0.1 million related to the revaluation of the warrant liability, as well as a $4.1 million increase in accounts payable and a $0.7 million increase in accrued expenses.

Cash Flows from Investing Activities

Net cash provided by investing activities was $1.2 million for the three months ended March 31, 2022, which was related to the sale of marketable securities.

Net cash used in investing activities was $8 thousand for the six months ended June 30, 2023, which was related to the purchase of computer equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $23,000 for the three months ended March 31, 2022, which was related to payments of Vallon’s finance lease.

Net cash provided by financing activities was $6.9 million for the six months ended June 30, 2023.

The $6.9 million increase was primarily due to $12.3 million of proceeds from the Equity SPA and $1.3 million of proceeds from the funding of the second tranche of the Bridge Notes.

The increase was offset by $2.9 million of net liabilities assumed in the connection with the Merger, $3.0 million in costs associated with the Merger, the payment of $0.5 million of debt issuance costs related to the Bridge Notes and $0.1 million of stock issuance costs related the Equity SPA.

Equity Securities Purchase Agreement

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.

On May 8, 2023, in accordance with the terms of the Equity SPA, we, along with 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.

Future Funding Requirements

Vallon’s net losses were $2.4 million and $2.6 million for the quarters ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, Vallon had $1.7 million in cash and cash equivalents and an accumulated deficit of $31.3 million.

Our net losses were $8.9 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had $4.8 million in cash and an accumulated deficit of $27.4 million.

We expect to devote substantial financial resources to our planned activities, particularly as we prepare for, initiate, and conduct our planned clinical trials of GRI-0621 and GRI-0803, advance our discovery programs and continue our product development efforts.

In addition, we expect to incur additional costs associated with operating as a public company.

Based on our current operating plan, we believe that our existing cash will be sufficient to fund our operating expenses and capital expenditure requirements for at least the twelve months following the Merger and financing contemplated by the Securities Purchase Agreement, dated as of December 13, 2022, by and between the Company and Altium Growth Fund, LP (the Equity Financing), not including the exercise of the Series T Warrants (the Series T Warrant Exercises).

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

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

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In addition, attempting to secure additional financing may divert the time and attention of management from day-to-day activities and distract from our discovery and product development efforts.

See the “Risk Factors” section on this Quarterly Report on Form 10-Q for additional risks associated with our substantial capital requirements.

As a result, there is substantial doubt about our ability to continue as a going concern.

We expect to continue to incur significant and increasing operating losses at least for the foreseeable future.

We do not expect to generate product revenue unless and until we successfully complete development, obtain regulatory approval for, and successfully commercialize our current, or any future, product candidates.

Off-Balance Sheet Arrangements

Vallon did not have during the periods presented, and the Company does not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

We are not party to any off-balance sheet transactions.

We have no guarantees or obligations other than those which arise out of normal business operations.

Critical Accounting Policies and Estimates

The Company’s management’s discussion and analysis of its financial condition and results of operations is based on its unaudited interim financial statements, which have been prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Our management’s discussion and analysis of its financial condition and results of operations is based on its unaudited interim financial statements, which have been prepared in accordance with GAAP.

The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Management evaluates these estimates and judgments on an ongoing basis.

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Actual results could differ from those estimates.

Vallon’s critical accounting policies are described in Note 3, “Summary of Significant Accounting Policies,” in Vallon’s Annual Report on Form 10-K filed with the SEC on February 24, 2023.

There have been no material changes to the significant accounting policies during the three months ended March 31, 2023, except for items mentioned in Note 3 of the unaudited interim financial statements in this Quarterly Report on Form 10-Q.

Our significant accounting policies are described in more detail in Note 1, “The Company and a Summary of its Significant Accounting Policies”, in the notes to its financial statements as of and for the years ended December 31, 2022 and 2021, which is Exhibit 99.2 of Amendment No.

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

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years.

For so long as it remains an emerging growth company, it is permitted and

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intends to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not applicable to emerging growth companies.

These exemptions include:

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• exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We have taken advantage of reduced reporting requirements in this report and may continue to do so until such time that it is no longer an emerging growth company.

We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which it has total annual gross revenues of $1.235 billion or more, (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the completion of the IPO, (c) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three years or (d) the date on which it is deemed to be a large accelerated filer under the rules of the SEC.

We have taken advantage of reduced reporting requirements in this report and may continue to do so until such time that we are no longer an emerging growth company.

We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the completion of the IPO, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards.

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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 2. Management’s Discussion and Analysis