GRI Bio, Inc. 10-Q

Item 1. Financial Statements. GRI Bio, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) June 30, 2024 December 31, 2023 Assets (unaudited) Current assets: Cash and cash equivalents $ 6,353 $ 1,808 Prepaid expenses and other current assets 531 1,126 Total current assets 6,884 2,934 Property and equipment, net 6 8 Operating lease right-of-use assets 141 14 Total assets $ 7,031 $ 2,956 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,236 $ 1,410 Accrued expenses 935 1,270 Warrant liability — 3 Operating lease liabilities, current 45 14 Total current liabilities 2,216 2,697 Operating lease liabilities, non-current 96 — Total liabilities 2,312 2,697 Commitments and contingencies (Note 11) Stockholders' equity (deficit): Common stock, 0.0001 par value; 250,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 801,914 and 49,663 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively — — Additional paid-in-capital 40,389 31,792 Accumulated deficit ( 35,670 ) ( 31,533 ) Total stockholders’ equity 4,719 259 Total liabilities and stockholders' equity $ 7,031 $ 2,956 See accompanying notes to unaudited interim consolidated financial statements. 3 Table of Contents GRI Bio, Inc. Consolidated Statements of Operations (in thousands, except share and per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Operating expenses: Research and development $ 877 $ 880 $ 1,811 $ 997 General and administrative 1,380 5,054 2,342 5,926 Total operating expenses 2,257 5,934 4,153 6,923 Loss from operations ( 2,257 ) ( 5,934 ) ( 4,153 ) ( 6,923 ) Change in fair value of warrant liability 1 122 3 122 Interest expense, net 6 ( 934 ) 13 ( 2,095 ) Net loss $ ( 2,250 ) $ ( 6,746 ) $ ( 4,137 ) $ ( 8,896 ) Net loss per share of common stock, basic and diluted $ ( 4.92 ) $ ( 239.37 ) $ ( 8.82 ) $ ( 433.14 ) Weighted-average common shares outstanding, basic and diluted 457,742 28,181 469,100 20,536 See accompanying notes to unaudited interim consolidated financial statements. 4 Table of Contents GRI Bio, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (in thousands, except shares) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Equity (Deficit) Shares Amount Balance, December 31, 2022 10,987 $ — $ 16,871 $ ( 18,496 ) $ ( 1,625 ) Stock-based compensation — — 13 — 13 Restricted stock vesting 5 — — — — Warrant issuance — — 532 — 532 Net loss — — — ( 2,150 ) ( 2,150 ) Balance, March 31, 2023 10,992 $ — $ 17,416 $ ( 20,646 ) $ ( 3,230 ) Stock-based compensation — — 13 — 13 Restricted stock vesting 1,802 — — — — Warrant exercise 480 — 12 — 12 Issuance of common stock in pre-closing financing 13,350 — 11,721 — 11,721 Issuance of common stock for settlement of bridge note 596 — 3,333 — 3,333 Issuance of common stock for reverse recapitalization expenses 335 — 1,875 — 1,875 Issuance of common stock to Vallon stockholders in reverse recapitalization 4,930 — ( 2,940 ) — ( 2,940 ) Net loss — — — ( 6,746 ) ( 6,746 ) Balance, June 30, 2023 32,485 $ — $ 31,430 $ ( 27,392 ) $ 4,038 Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Equity Shares Amount Balance, December 31, 2023 49,663 $ — $ 31,792 $ ( 31,533 ) $ 259 Stock-based compensation — — 37 — 37 Fractional share adjustment ( 19 ) — — — — Issuance of common stock and prefunded warrants in financing 25,419 — 4,389 — 4,389 Prefunded warrant exercise 170,812 — — — — Net loss — — — ( 1,887 ) ( 1,887 ) Balance, March 31, 2024 245,875 $ — $ 36,218 $ ( 33,420 ) $ 2,798 Stock-based compensation — — 37 — 37 Fractional share adjustment ( 187 ) — — — — Issuance of common stock and prefunded warrants in financing 353,892 — 4,134 — 4,134 Prefunded warrant exercise 202,334 — — — — Net loss — — — ( 2,250 ) ( 2,250 ) Balance, June 30, 2024 801,914 $ — $ 40,389 $ ( 35,670 ) $ 4,719 See accompanying notes to unaudited interim consolidated financial statements. 5 Table of Contents GRI Bio, Inc. Consolidated Statements of Cash Flows (in thousands) (Unaudited) Six Months Ended June 30, 2024 2023 Operating activities: Net loss $ ( 4,137 ) $ ( 8,896 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation expense 2 2 Amortization of debt discounts and issuance costs — 2,104 Stock-based compensation expense 74 26 Change in fair value of warrant liability ( 3 ) 63 Change in operating right of use assets ( 127 ) 26 Change in operating assets and liabilities: Prepaid expenses and other current assets 370 ( 750 ) Accounts payable ( 400 ) 4,179 Accrued expenses ( 250 ) 1,157 Operating lease liabilities 127 ( 30 ) Cash used in operating activities ( 4,344 ) ( 2,119 ) Investing activities: Purchase of property and equipment — ( 8 ) Cash used in investing activities — ( 8 ) Financing activities: Advances from employees — 190 Repayment of advances from employees — ( 195 ) Proceeds from issuance of common stock in financing 9,499 12,250 Proceeds from issuance of common stock under ATM 961 — 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 ( 1,571 ) ( 517 ) Payment of debt issuance costs — ( 150 ) Cash provided by financing activities 8,889 6,917 Net increase in cash and cash equivalents 4,545 4,790 Cash and cash equivalents at beginning of period 1,808 9 Cash and cash equivalents at end of period $ 6,353 $ 4,799 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 Stock issuance costs in accounts payable and accrued expenses $ 367 $ — Merger costs included in accounts payable $ — $ 72 See accompanying notes to unaudited interim consolidated financial statements. 6 Table of Contents GRI Bio, Inc. Notes to Unaudited Interim Consolidated Financial Statements (in thousands, except share and per share data) 1. ORGANIZATION AND DESCRIPTION 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. The Company’s goal is to be an industry leader in developing therapies to treat these diseases and to improve the lives of patients suffering from such diseases. The Company’s lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T cells and is being developed for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF). The Company’s product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds. GRI-0803, the lead molecule selected from the library, is a novel oral agonist of type 2 Natural Killer T 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). Reverse Merger with Vallon Pharmaceuticals, Inc. On April 21, 2023, pursuant to an Agreement and Plan of Merger, dated as of December 13, 2022, as amended on February 17, 2023 (the Merger Agreement), by and among the Company, GRI Bio Operations, Inc., formerly known as GRI Bio, Inc. (GRI Operations), and Vallon Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (Merger Sub), Merger Sub was merged with and into GRI Operations (the Merger), with GRI Operations surviving the Merger as a wholly owned subsidiary of the Company (Note 4). In connection with the closing of the Merger (the Closing), the Company amended its certificate of incorporation and amended its bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.” Recapitalization In connection with the Merger, and immediately prior to the effective time of the Merger (the Effective Time), the Company effected a reverse stock split of its common stock, par value $ 0.0001 (Common Stock), at a ratio of one-for-thirty (the April 2023 Reverse Stock Split). On January 29, 2024, the Company effected a reverse stock split of its Common Stock at a ratio of one-for-seven (the January 2024 Reverse Stock Split). On June 17, 2024, the Company effected a reverse stock split of its Common Stock at a ratio of one-for-thirteen (the June 2024 Reverse Stock Split and together with the April 2023 Reverse Stock Split and the January 2024 Reverse Stock Split, the Reverse Stock Splits). Unless otherwise noted, all references to share and per share amounts in these consolidated financial statements reflect the Reverse Stock Splits. 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, GRI Operations. 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 (as defined below) and the Reverse Stock Splits for all periods presented, to the extent applicable. 2. LIQUIDITY These unaudited interim consolidated 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 $ 35,670 in accumulated deficit through June 30, 2024. The Company has financed its working capital requirements to date through the issuance of equity and debt securities. As of June 30, 2024, the Company had cash of approximately $ 6,353 . 7 Table of Contents In connection with signing the Merger Agreement, the Company, GRI Operations and Altium Growth Fund, LP (Altium) entered into a Securities Purchase Agreement, dated December 13, 2022 (the Equity SPA), pursuant to which Altium agreed to invest $ 12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes (as defined below) in return for the issuance of shares of GRI Operations common stock (GRI Operations Common Stock) immediately prior to the consummation of the Merger. Pursuant to the Equity SPA, immediately prior to the Closing, GRI Operations issued 74,584 shares of GRI Operations Common Stock (the Initial Shares) to Altium and 298,339 shares of GRI Operations 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 2,789 shares of the Company’s Common Stock and the Additional Shares converted into an aggregate of 11,157 shares of the Company’s Common Stock. On May 8, 2023, in accordance with the terms of the Equity SPA, the Company and Altium authorized the escrow agent to, subject to beneficial ownership limitations, disburse to Altium all of the shares of the Company’s Common Stock issued in exchange for the Additional Shares. On February 1, 2024, the Company entered into a securities purchase agreement (the February 2024 Purchase Agreement), pursuant to which the Company agreed to issue and sell, in a public offering, (i) 25,419 shares (the February 2024 Shares) of Common Stock, (ii) 359,196 pre-funded warrants (the February 2024 Pre-Funded Warrants) exercisable for an aggregate of 359,196 shares of Common Stock, (iii) 384,615 Series B-1 common warrants (the Series B-1 Common Warrants) exercisable for an aggregate of 384,615 shares of Common Stock, and (iv) 384,615 Series B-2 common warrants (the Series B-2 Common Warrants, and together with the Series B-1 Common Warrants, the Series B Common Warrants) exercisable for an aggregate of 384,615 shares of Common Stock for net proceeds of $ 4,389 , after deducting offering expenses of $ 1,110 . The Series B Common Warrants together with the February 2024 Pre-Funded Warrants are referred to in this Quarterly Report on Form 10-Q as the “February 2024 Warrants.” The securities were offered in combinations of (a) one February 2024 Share or one February 2024 Pre-Funded Warrant, together with (b) one Series B-1 Common Warrant and one Series B-2 Common Warrant, for a combined purchase price of $ 14.30 (less $ 0.0013 for each February 2024 Pre-Funded Warrant). Subject to certain ownership limitations, the February 2024 Warrants became exercisable upon issuance. Each February 2024 Pre-Funded Warrant was exercisable for one share of Common Stock at a price per share of $ 0.0013 and expired when exercised in full. Each Series B-1 Common Warrant is exercisable into one share of Common Stock at a price per share of $ 14.30 for a five-year period after February 6, 2024, the date of issuance. Each Series B-2 Common Warrant is exercisable into one share of Common Stock at a price per share of $ 14.30 for an 18 -month period after February 6, 2024 the date of issuance. As of June 30, 2024, all of the February 2024 Pre-Funded Warrants have been exercised. In connection with the issuance of the February 2024 Shares and February 2024 Warrants pursuant to the February 2024 Purchase Agreement, the exercise price of the Series A-1 Warrants was reduced to par, or $ 0.0001 , per share pursuant to the terms of the Series A-1 Warrants. On May 20, 2024, the Company entered into an At The Market Offering Agreement (the Sales Agreement) with H.C. Wainwright & Co., LLC (Wainwright), pursuant to which the Company may sell and issue, subject to the limitations in the Sales Agreement, shares up to $ 10.0 million of Common Stock from time to time through Wainwright as its sales agent (the ATM Offering). Under the Sales Agreement, Wainwright is entitled to compensation of 3.0 % of the gross offering proceeds of all shares of Common Stock sold through it pursuant to the Sales Agreement. As of June 30, 2024, the Company has sold 293,892 shares of Common Stock in the ATM Offering at a weighted-average price of $ 3.27 per share, raising $ 961 of gross proceeds and net proceeds of $ 923 , after deducting commissions to the sales agent and other ATM Offering related expenses. On July 26, 2024, the Company filed a prospectus supplement to its registration statement on Form S-1 (File No. 333-279348) to increase the amount of shares of Common Stock that the Company may offer and sell under the Sales Agreement and applicable registration statement to an aggregate offering price of up to $ 2,644 , which amount does not include the shares of Common Stock having an aggregate gross sales price of approximately $ 961 that have been sold under the ATM Offering. 8 Table of Contents On June 26, 2024, the Company entered into a securities purchase agreement (the June 2024 Purchase Agreement), pursuant to which the Company agreed to issue and sell, in a public offering (the June 2024 Offering), (i) 60,000 shares (the June 2024 Shares) of Common Stock, (ii) 2,125,793 pre-funded warrants (the June 2024 Pre-Funded Warrants) exercisable for an aggregate of 2,125,793 shares of Common Stock, (iii) 2,185,793 Series C-1 common warrants (the Series C-1 Common Warrants) exercisable for an aggregate of 2,185,793 shares of Common Stock, and (iv) 2,185,793 Series C-2 common warrants (the Series C-2 Common Warrants, and together with the Series C-1 Common Warrants, the Series C Common Warrants) exercisable for an aggregate of 2,185,793 shares of Common Stock for net proceeds of $ 3,172 , after deducting offering expenses of $ 1,057 . The Series C Common Warrants together with the June 2024 Pre-Funded Warrants are referred to in this Quarterly Report on Form 10-Q as the “June 2024 Warrants.” The securities were offered in combinations of (a) one June 2024 Share or one June 2024 Pre-Funded Warrant, together with (b) one Series C-1 Common Warrant and one Series C-2 Common Warrant, for a combined purchase price of $ 1.83 (less $ 0.0001 for each June 2024 Pre-Funded Warrant). The June 2024 Pre-Funded Warrants are exercisable for one share of Common Stock at a price per share of $ 0.0001 , are exercisable immediately and will expire when exercised in full. Each Series C Common Warrant is exercisable into one share of Common Stock at a price per share of $ 1.83 and are exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the Series C Common Warrants (Warrant Stockholder Approval). The Series C-1 Common Warrants will expire on the five-year anniversary of the Warrant Stockholder Approval. The Series C-2 Common Warrants will expire on the 18 -month anniversary of the Warrant Stockholder Approval. Based on the Company’s current operating plan, the Company believes that its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements into the first quarter of 2025. 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 Series T Warrants issued in connection with the Merger are not presently subject to forced exercise by the Company as the equity conditions for their forced exercise, which include (among other things) a requirement that shares of Common Stock have a value weighted average price of at least $ 838.11 per share for the periods specified in the Series T Warrants, are not met. The Company intends to raise capital through additional issuances of equity securities and/or short-term or long-term debt arrangements, but there can be no assurances any such financing will be available when needed, even if the Company’s research and development efforts are 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 for a period of one year from the issuance of these financial statements. 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 . 3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial periods and pursuant to the rules of the Securities and Exchange Commission (the SEC). 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, 2023 balance sheet was derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of June 30, 2024, and the consolidated results of operations and consolidated stockholders’ deficit for the three and six months ended June 30, 2024 and 2023 and consolidated cash flows for the three and six months ended June 30, 2024 and 2023. Consolidated results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2024. The unaudited interim consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2024. 9 Table of Contents Principles of Consolidation The unaudited interim consolidated financial statements include the accounts of GRI Bio, Inc. and its wholly-owned subsidiary, GRI Bio Operations, Inc. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates and assumptions are primarily made in relation to the valuation of share options, warrant issuance and subsequent revaluations, valuation allowances relating to deferred tax assets, accrued expenses and estimation of the incremental borrowing rate for the operating lease. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s consolidated results of operations could either benefit from, or be adversely affected by, any such change in estimate. 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: Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 : Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). As of June 30, 2024, 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, 2024, 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 Pharmaceuticals, Inc. (Vallon) issued warrants (the May 2022 Warrants) in connection with a securities purchase agreement. Vallon evaluated the May 2022 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 May 2022 Warrants related to the reduction of the exercise price in certain circumstances precluded the May 2022 Warrants from being accounted for as components of equity. As a result, the May 2022 Warrants were recorded as a liability on the balance sheet. Vallon recorded the fair value of the May 2022 Warrants upon issuance using a Black-Scholes valuation model. The Company is required to revalue the May 2022 Warrants at each reporting date with any changes in fair value recorded in its statement of operations. The valuation of the May 2022 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 warrant liability is reflected in the statement of operations for the six months ended June 30, 2024. Deferred Stock Issuance Costs Deferred stock issuance costs represent incremental 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. 10 Table of Contents Net Loss Per Common Share Basic and diluted net loss per common share is computed based on the weighted average number of shares of common stock outstanding during each year. Diluted net loss per common share is computed based on the weighted average number of shares of common stock outstanding during each year, plus the dilutive effect of options considered to be outstanding during each year, in accordance with ASC 260, Earnings Per Share . As the Company had a net loss in each of the three and six months ended June 30, 2024 and 2023, 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: June 30, 2024 2023 Stock options 2,503 1,094 Warrants 5,302,813 40,253 5,305,316 41,347 Recent Accounting Pronouncements The Company considered the applicability and impact of all ASUs issued during the quarter ended June 30, 2024 and each was determined to be either not applicable or expected to have minimal impact on these financial statements. 4. MERGER WITH VALLON On April 21, 2023, pursuant to the Merger Agreement, Merger Sub was merged with and into GRI Operations, with GRI Operations 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 GRI Operations Common Stock outstanding immediately prior to the Effective Time, including any shares of GRI Operations 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 0.0374 (the Exchange Ratio). (b) Each option to purchase shares of GRI Operations Common Stock (each, a GRI Operations Option) outstanding and unexercised immediately prior to the Effective Time under the GRI Bio, Inc. 2015 Equity Incentive Plan, as amended (the GRI Operations 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 Operations Plan and each such GRI Operations Option in accordance with the terms of the GRI Operations Plan (the Assumed Options). The number of shares of Common Stock subject to each Assumed Option was determined by multiplying (i) the number of shares of GRI Operations Common Stock that were subject to such GRI Operations 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 Common Stock. The per share exercise price for the 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 GRI Operations Common Stock (the GRI Operations Warrants) outstanding immediately prior to the Effective Time was assumed by the Company and converted into a warrant to purchase shares of Common Stock (the Assumed Warrants) and thereafter (i) each Assumed Warrant became exercisable solely for shares of the Common Stock; (ii) the number of shares of Common Stock subject to each Assumed Warrant was determined by multiplying (A) the number of shares of GRI Operations Common Stock that were subject to such GRI Operations Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting number down to the nearest 11 Table of Contents whole number of shares of Common Stock; and (iii) the per share exercise price for shares of Common Stock issuable upon exercise of each Assumed Warrant was determined by dividing (A) the exercise price per share of GRI Operations Common Stock subject to such GRI Operations 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 4,632 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 $ 1,340.43 per share. (e) All rights with respect to GRI Operations 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 GRI Operations restricted stock awards otherwise remained unchanged. The Merger was accounted for as a reverse recapitalization under GAAP because the primary assets of Vallon were cash and cash equivalents. For accounting purposes, GRI Operations was determined to be the accounting acquirer based upon the terms of the Merger and other factors including: (i) the equity holders of GRI Operations 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) GRI Operations holds the majority (4 out of 5) of board seats of the combined company, and (iii) GRI Operations’ management holds the majority of key positions in the management of the combined company. 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 ) Plus: Transaction costs ( 2,984 ) Total net liabilities assumed plus transaction costs $ ( 5,923 ) In addition to the transaction costs noted above, at the Effective Time, 4,363 shares of Common Stock were issued to GRI Operations’ financial advisor for services related to the Merger. 5. FAIR VALUE MEASUREMENTS 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: Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 : Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities; and 12 Table of Contents Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). 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, 2024. 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, 2024: Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Liabilities: Warrant liability $ — $ — $ — Total liabilities $ — $ — $ — The following table presents the changes in the fair value of the Level 3 liability: Warrant Liability Fair value as of December 31, 2023 $ 3 Change in valuation ( 3 ) Fair value as of June 30, 2024 $ — The Black-Scholes valuation model was used to estimate the fair value of the May 2022 Warrants with the following weighted-average assumptions: June 30, 2024 December 31, 2023 Volatility 172.8 % 171.0 % Expected term in years 2.5 2.5 Dividend rate 0.0 % 0.0 % Risk-free interest rate 4.62 % 4.12 % 6. PROPERTY AND EQUIPMENT June 30, 2024 December 31, 2023 Computer equipment $ 21 $ 21 Furniture and fixtures 13 13 34 34 Accumulated depreciation ( 28 ) ( 26 ) $ 6 $ 8 Depreciation expense related to property and equipment was $ 2 for each of the six-month periods ended June 30, 2024 and 2023. 13 Table of Contents 7. ACCRUED EXPENSES Accrued expenses consist of the following: June 30, 2024 December 31, 2023 Research and development $ 236 $ 93 General and administrative 67 441 Payroll and related 632 736 Total accrued expenses $ 935 $ 1,270 8. PROMISSORY NOTES Bridge Financing In connection with signing the Merger Agreement, GRI Operations entered into a Securities Purchase Agreement, dated as of December 13, 2022 (the Bridge SPA), with Altium, pursuant to which GRI Operations 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, Altium received warrants to purchase an aggregate of 13,763 shares of Common Stock (the Bridge Warrants). The Bridge Warrants had an exercise price of $ 121.03 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, the Company, GRI Operations and Altium entered into the Equity SPA (Note 9) pursuant to which Altium 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 GRI Operations’ 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 $ 1,340.43 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 $ 205 of debt issuance costs related to its issuance of debt under the Bridge SPA, of which $ 90 was incurred during the six months ended June 30, 2023 related to its issuance of debt under the Bridge SPA. 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. 14 Table of Contents 9. STOCKHOLDERS’ EQUITY Equity Securities Purchase Agreement In connection with signing the Merger Agreement, the Company, GRI Operations and Altium entered the Equity SPA pursuant to which Altium 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 GRI Operations’ Common Stock immediately prior to the consummation of the Merger. Pursuant to the Equity SPA, immediately prior to the Closing, GRI Operations issued the Initial Shares to Altium and 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 2,789 shares of Common Stock and the Additional Shares converted into an aggregate of 11,157 shares of Common Stock. On May 8, 2023, in accordance with the terms of the Equity SPA, the Company and Altium authorized the escrow agent to, subject to beneficial ownership limitations, disburse to Altium all of the shares of the Common Stock issued in exchange for the Additional Shares. February 2024 Securities Purchase Agreement On February 1, 2024, the Company entered into the February 2024 Purchase Agreement, pursuant to which the Company agreed to issue and sell, in the February 2024 Offering, (i) 25,419 February 2024 Shares, (ii) 359,196 February 2024 Pre-Funded Warrants exercisable for an aggregate of 359,196 shares of Common Stock, (iii) 384,615 Series B-1 Common Warrants exercisable for an aggregate of 384,615 shares of Common Stock and (iv) 384,615 Series B-2 Common Warrants exercisable for an aggregate of 384,615 shares of Common Stock for net proceeds of $ 4,389 , after deducting offering expenses of $ 1,110 . The securities were offered in combinations of (a) one February 2024 Share or one February 2024 Pre-Funded Warrant, together with (b) one Series B-1 Common Warrant and one Series B-2 Common Warrant, for a combined purchase price of $ 14.30 (less $ 0.0013 for each February 2024 Pre-Funded Warrant). Subject to certain ownership limitations, the February 2024 Warrants were exercisable upon issuance. Each February 2024 Pre-Funded Warrant was exercisable for one share of Common Stock at a price per share of $ 0.0013 and expired when exercised in full. Each Series B-1 Common Warrant is exercisable into one share of Common Stock at a price per share of $ 14.30 for a five-year period after February 6, 2024, the date of issuance. Each Series B-2 Common Warrant is exercisable into one share of Common Stock at a price per share of $ 14.30 for an 18 -month period after February 6, 2024, the date of issuance. The February 2024 Warrants were classified as equity and the allocated fair value of $ 4,279 is included in additional paid in capital. As of June 30, 2024, all of the February 2024 Pre-Funded Warrants have been exercised. The Company determined that the amount paid for the February 2024 Pre-Funded Warrants approximates their fair value. The Black-Scholes option-pricing model was used to estimate the fair value of the Series B-1 Common and Series B-2 Common Warrants with the following weighted-average assumptions: Volatility 156.3 % Expected term in years 1.63 Dividend rate 0.0 % Risk-free interest rate 4.65 % In connection with the issuance of the securities pursuant to the February 2024 Purchase Agreement, the exercise price of the Series A-1 Warrants issued in connection with the Merger was reduced to par, or $ 0.0001 , per share pursuant to the terms of the Series A-1 Warrants. May 2024 At The Market Offering On May 20, 2024, the Company entered into the Sales Agreement with Wainwright, pursuant to which the Company may sell and issue, subject to the limitations in the Sales Agreement, shares up to $ 10.0 million of Common Stock from time to time in the ATM Offering. Under the Sales Agreement, Wainwright is entitled to compensation of 3.0 % of the gross offering proceeds of all shares of Common Stock sold through it pursuant to the Sales Agreement. 15 Table of Contents As of June 30, 2024, the Company has sold 293,892 shares of Common Stock in the ATM Offering at a weighted-average price of $ 3.27 per share, raising $ 961 of gross proceeds and net proceeds of $ 923 , after deducting commissions to the sales agent and other ATM Offering related expenses. On July 26, 2024, the Company filed a prospectus supplement to its registration statement on Form S-1 (File No. 333-279348) to increase the amount of shares of Common Stock that the Company may offer and sell under the Sales Agreement and applicable registration statement to an aggregate offering price of up to $ 2,644 , which amount does not include the shares of Common Stock having an aggregate gross sales price of approximately $ 961 that have been sold under the ATM Offering. June 2024 Securities Purchase Agreement On June 26, 2024, the Company entered into the June 2024 Purchase Agreement, pursuant to which the Company agreed to issue and sell, in the June 2024 Offering, (i) 60,000 June 2024 Shares, (ii) 2,125,793 June 2024 Pre-Funded Warrants exercisable for an aggregate of 2,125,793 shares of Common Stock, (iii) 2,185,793 Series C-1 Common Warrants exercisable for an aggregate of 2,185,793 shares of Common Stock, and (iv) 2,185,793 Series C-2 Common Warrants, exercisable for an aggregate of 2,185,793 shares of Common Stock for net proceeds of $ 3,172 , after deducting offering expenses of $ 1,057 . The securities were offered in combinations of (a) one June 2024 Share or one June 2024 Pre-Funded Warrant, together with (b) one Series C-1 Common Warrant and one Series C-2 Common Warrant, for a combined purchase price of $ 1.83 (less $ 0.0001 for each June 2024 Pre-Funded Warrant). The June 2024 Pre-Funded Warrants are exercisable for one share of Common Stock at a price per share of $ 0.0001 , are exercisable immediately and expire when exercised in full. Each Series C Common Warrant is exercisable into one share of Common Stock at a price per share of $ 1.83 and are exercisable beginning on the effective date of the Warrant Stockholder Approval. The Series C-1 Common Warrants will expire on the five-year anniversary of the Warrant Stockholder Approval. The Series C-2 Common Warrants will expire on the 18 -month anniversary of the Warrant Stockholder Approval. The June 2024 Pre-Funded Warrants and the Series C Common Warrants were classified as equity and the allocated fair value of $ 2,908 is included in additional paid in capital. Pursuant to an engagement agreement (the Engagement Agreement) with Wainwright, the Company, in connection with the June 2024 Offering, agreed to issue to Wainwright, or its designees, warrants to purchase up to an aggregate of 153,006 shares of Common Stock (the Placement Agent Warrants). The Placement Agent Warrants have an exercise price of $ 2.2875 per share, will expire on June 26, 2029 and are exercisable following the Warrant Stockholder Approval. The Placement Agent Warrants were classified as equity and the fair value of $ 229 is included in additional paid in capital. The Company determined that the amount paid for the June 2024 Pre-Funded Warrants approximates their fair value. The Black-Scholes option-pricing model was used to estimate the fair value of the Series C-1 Common Warrants, the Series C-2 Common Warrants and the Placement Agent Warrants with the following weighted-average assumptions: Volatility 159.1 % Expected term in years 1.65 Dividend rate 0.0 % Risk-free interest rate 4.92 % 16 Table of Contents Warrants As of June 30, 2024, the Company had the following warrants outstanding to purchase Common Stock. Number of Shares Exercise Price per Share Expiration Date 2,125,793 $ 0.00 Do not expire 384,615 $ 14.30 August 2025 8,950 $ 1,117.48 December 2025 42 $ 27,300.00 February 2026 271 $ 2,561.65 May 2027 13 $ 0.01 July 2027 26 $ 5,586.49 April 2028 384,615 $ 14.30 February 2029 153,006 $ 2.29 June 2029 2,185,793 $ 1.83 18 months after the Warrant Stockholder Approval 2,185,793 $ 1.83 60 months after the Warrant Stockholder Approval 17 Table of Contents 10. STOCK-BASED COMPENSATION 2015 Equity Incentive Plan GRI Operations adopted the GRI Operations Plan, which provided GRI Operations with the ability to grant stock options, restricted stock awards and other equity-based awards to employees, directors, and consultants. Upon completion of the Merger, the Company assumed the GRI Operations Plan and 982 outstanding and unexercised options issued thereunder, and ceased granting awards under the GRI Operations Plan. As of June 30, 2024, no options remain outstanding under the GRI Operations 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 an amendment to the A&R 2018 Plan to, among other things, (i) to increase the aggregate number of shares by 1,856 shares to 2,381 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 the Company under the A&R 2018 Plan generally have a contractual life of up to 10 years. As of June 30, 2024, awards granted under the A&R 2018 Plan representing the right to purchase or contingent right to receive up to an aggregate of 2,503 shares of the Company's Common Stock were outstanding and 4,367 shares of the Company’s Common Stock were reserved for issuance under the A&R 2018 Plan. The number of shares reserved for issuance under the A&R 2018 Plan may be increased pursuant to the A&R 2018 Plan’s “evergreen” provision on the first day of each calendar year beginning January 1, 2024 and ending on and including January 1, 2033, by a number of shares not to exceed 4 % of the aggregate number of shares of the Company’s Common Stock outstanding on the final day of the immediately preceding calendar year. The Company recorded stock-based compensation related to equity-based awards issued under the GRI Operations Plan and the A&R 2018 Plan in the following expense categories of its accompanying consolidated statements of operations for the three and six months ended June 30, 2024 and 2023: For the Three Months Ended June 30, For the Six Months Ended June 30, 2024 2023 2024 2023 Research and development $ — $ — $ — $ — General and administrative 37 13 74 25 Total $ 37 $ 13 $ 74 $ 25 The Company measures equity-based awards granted to employees and non-employees based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period or performance-based period, which is generally the vesting period of the respective award. The measurement date for service-based equity awards is the date of grant, and 18 Table of Contents equity-based compensation costs are recognized as expense over the requisite service period. The Company records expense for performance-based awards if the Company 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 six months ended June 30, 2024: Number of options Weighted average exercise price Weighted average remaining contractual term (years) Outstanding at December 31, 2023 2,503 $ 471.45 9.55 Granted — Exercised — Forfeited/Cancelled — Outstanding at June 30, 2024 2,503 $ 471.45 9.06 Exercisable at June 30, 2024 456 $ 1,655.14 8.56 Vested and expected to vest at June 30, 2024 2,503 $ 471.45 9.06 As of June 30, 2024, all of the outstanding and exercisable stock options were out of the money and therefore had no intrinsic value. At June 30, 2024, the unrecognized compensation cost related to unvested stock options expected to vest was $ 313 . This unrecognized compensation is expected to be recognized over a weighted-average amortization period of 2.47 years No equity-based awards were granted during each of the three-month periods ended June 30, 2024 and 2023. 11. COMMITMENTS AND CONTINGENCIES Employment Agreements The Company has entered into employment contracts with its officers that provide for severance and continuation of benefits in the event of termination of employment by the Company without cause or by the employee for good reason. In addition, in the event of termination of employment following a change in control, the vesting of certain equity awards may be accelerated. 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 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. Mr. 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. 19 Table of Contents