IMMUNIC, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Management, with the participation of its Chief Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) of the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that, as of December 31, 2020, our disclosure controls and procedures were effective at the reasonable assurance level. Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, (b) our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) regarding the prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2020, our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 85 PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required by this item will be contained in our definitive proxy statement (the “Definitive Proxy Statement”), to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2020, under the headings “Election of Directors,” “Corporate Governance,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference. We have a written Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and our principal accounting officer and every other director, officer and employee of Immunic. The Code of Business Conduct and Ethics is available on our Internet website at www.imux.com. A copy of the Code of Business Conduct and Ethics will be provided free of charge by making a written request and mailing it to our corporate headquarters offices to the attention of the Investor Relations Department. If any amendment to, or a waiver from, a provision of the Code of Business Conduct and Ethics that applies to the principal executive officer, principal financial officer and principal accounting officer is made, such information will be posted on our Internet website within four business days at www.imux.com. Item 11. Executive Compensation. Information required by this item will be found in our Definitive Proxy Statement under the heading "Executive Compensation" and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information required by this item will be found in our Definitive Proxy Statement under the headings "Securities Authorized for Issuance Under Equity Compensation Plans," "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and Executive Officers" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information required by this item will be found in our Definitive Proxy Statement under the headings "The Board of Directors and Board Committees" and "Certain Relationships and Related-Party Transactions" and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services. Information required by this item will be found in our Definitive Proxy Statement under the heading "Proposal to Ratify the Appointment of Independent Registered Public Accounting Firm" and is incorporated herein by reference. 86 PART IV Item 15. Exhibits, Financial Statement Schedules. Page 1. Financial Statements . We have filed the following documents as part of this Annual Report: Report of Baker Tilly U.S, LLP, Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F- 4 Consolidated Statements of Operations F- 5 Consolidated Statements of Comprehensive Loss F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 2. Financial Statement Schedules. None. 3. Exhibits. The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the U.S. Securities and Exchange Commission. 87 EXHIBITS Incorporated by Reference Exhibit Number Exhibit Title Form Exhibit Filing Date 3.1 Amended and Restated Articles of Incorporation. 8-K 3.1 July 17, 2019 3.2 Third Amended and Restated Bylaws. 8-K 3.1 July 17, 2019 4.1 2019 Omnibus Equity Incentive Plan. S-8 4.1 September 20, 2019 4.2* Description of Registrant's Securities 10-Q 4.2 February 26, 2020 10.1 Sales Agreement, dated July 17, 2019, between Immunic, Inc. and SVB Leerink LLC. 8-K 10.1 July 17, 2019 10.2 Option and License Agreement, dated September 27, 2018, between Immunic AG and Daiichi Sankyo Company, Ltd. 8-K 10.2 July 17, 2019 10.3 Asset Purchase Agreement, dated May 13, 2016, between Immunic AG and 4SC AG. 8-K 10.3 July 17, 2019 10.4+ Form of Indemnification Agreement. 8-K 10.4 July 17, 2019 10.5+ Employment Agreement between Dr. Daniel Vitt and Immunic AG. 8-K 10.5 July 17, 2019 10.6+ Addendum to Service Agreement between Immunic AG and Dr. Daniel Vitt. 8-K 10.1 September 5, 2019 10.7+ Employment Agreement between Dr. Manfred Groeppel and Immunic AG. 8-K 10.6 July 17, 2019 10.8+ Addendum to Service Agreement between Immunic AG and Dr. Manfred Groeppel. 8-K 10.2 September 5, 2019 10.9+ Employment Agreement dated April 17, 2020, between Immunic, Inc. and Duane Nash. 8-K 10.2 April 20, 2020 10.10+ Addendum to Employment Agreement dated October 15, 2020, between Immunic, Inc. and Duane Nash. 10-Q 10.12 November 6, 2020 10.11 Placement Agency Agreement, dated April 23, 2020, between Immunic, Inc. and Roth Capital Partners, LLC 8-K 10.1 April 20, 2020 10.12 Form of Securities Purchase Agreement, dated April 23, 2020, between Immunic, Inc. and the investors party thereto. 8-K 10.2 April 20, 2020 10.13 Placement Agency Agreement, dated June 10, 2020, between Immunic, Inc. and the Roth Partners, LLC 8-K 10.1 June 12, 2020 10.14 Form of Securities Purchase Agreement, dated June 10, 2020, between Immunic, Inc. and the investors party thereto 8-K 10.2 June 12, 2020 10.15 Underwriting Agreement, dated August 4, 2020, by and between Immunic, Inc. and SVB Leerink LLC. 8-K 1.1 August 10, 2020 10.16 Finance Contract, dated October 19, 2020, between Immunic, Inc., Immunic AG and European Investment Bank 8-K 10.1 October 20, 2020 10.17 Form of Guarantee Agreement between Immunic, Inc., Immunic AG and European Investment Bank. 8-K 10.2 October 20, 2020 10.18 Sales Agreement, dated December 29, 2020 between Immunic, Inc. and SVB Leerink LLC 8-K 10.1 January 4, 2021 10.19 Amendment Letter, dated November 11, 2020 8-K 10.1 November 13, 2020 21.1* List of subsidiaries of the Registrant. 23.1* Consent of Baker Tilly U.S. LLP, Independent Registered Public Accounting Firm. 24.1* Power of Attorney (included on the signature page). 31.1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 88 31.2* Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1+ Employment Agreement, dated September 4, 2019, between Immunic, Inc. and Dr. Andreas Muehler. 8-K 99.3 September 5, 2019 99.2+ Addendum, dated September 4, 2019, to Service Agreement between Immunic AG and Dr. Andreas Muehler. 8-K 99.2 September 5, 2019 99.3+ Addendum, dated September 4, 2019, to Service Agreement between Immunic AG and Dr. Hella Kohlhof. 8-K 99.4 September 5, 2019 101.INS* XBRL Instance Document. 101.SCH* XBRL Taxonomy Extension Schema Document. 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* XBRL Taxonomy Extension Definition Linkbase Database. 101.LAB* XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File + Indicates a management contract or compensatory plan or arrangement. * Filed herewith. ** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. 89 IMMUNIC, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Baker Tilly U.S. LLP, Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Comprehensive Loss F-6 Consolidated Statements of Stockholders’ Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Immunic, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Immunic, Inc. (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of accrual for research and development costs related to clinical trial activities Critical Audit Matter Description As described in Notes 2 and 5 to the consolidated financial statements, the Company records expenses and accruals for estimated costs of research and development activities, including third party contract services costs for clinical research. Clinical trial activities performed by third parties are expensed based upon estimates of work completed in accordance with agreements with the respective Clinical Research Organization (“CRO”). Billing terms and payments are reviewed by management to ensure estimates of outstanding obligations are appropriate as of period end. Tracking the progress of completion for clinical trial activities performed by third parties allows the Company to record the appropriate expense and accruals under the terms of the agreements. Auditing the accounting for accrued clinical trial expenses is complex because of the high volume of data used in management’s estimates, the assumptions used by management to develop their estimates and the procedures necessary to verify the cost and extent of unbilled work performed during the reporting period. How We Addressed the Matter in Our Audit F- 2 We obtained an understanding of the Company’s process and evaluated the design and implementation of internal controls related to the completeness and valuation of accrued clinical trial expenses. To test the clinical trial accrual, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating and testing the significant assumptions used by management to estimate the accruals. To test the significant assumptions, we corroborated the progress of clinical trials and other research and development projects with the Company’s research and development personnel that oversee the clinical trials, and obtained information received directly from third parties, which included the third parties’ estimate of costs incurred to date. We also tested subsequent invoicing received from third parties. Baker Tilly US, LLP We have served as the Company's auditor since 2019. Minneapolis, MN February 26, 2021 F- 3 IMMUNIC, INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 127,452 $ 29,369 Other current assets and prepaid expenses 6,293 2,861 Total current assets 133,745 32,230 Property and equipment, net 203 80 Goodwill 32,970 32,970 Right of use asset, net 901 633 Other long-term assets 42 42 Total assets $ 167,861 $ 65,955 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,700 $ 2,423 Accrued expenses 4,318 3,298 Other current liabilities 379 1,351 Total current liabilities 8,397 7,072 Long-term liabilities: Operating lease liabilities 679 520 Total long-term liabilities 679 520 Total liabilities 9,076 7,592 Commitments and contingencies (note 6) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 20,000,000 authorized and no shares issued or outstanding at December 31, 2020 and 2019 — — Common stock, $ 0.0001 par value; 130,000,000 shares authorized and 21,168,240 and 10,744,806 shares issued and outstanding at December 31, 2020 and 2019, respectively 2 1 Additional paid-in capital 266,823 119,646 Accumulated other comprehensive loss ( 4,112 ) ( 1,373 ) Accumulated deficit ( 103,928 ) ( 59,911 ) Total stockholders’ equity 158,785 58,363 Total liabilities and stockholders’ equity $ 167,861 $ 65,955 The accompanying notes are an integral part of these consolidated financial statements. F- 4 IMMUNIC, INC. Consolidated Statements of Operations (In thousands, except share and per share amounts) Years Ended December 31, 2020 2019 Operating expenses: Research and development $ 38,637 $ 22,512 General and administrative 10,334 14,520 Total operating expenses 48,971 37,032 Loss from operations ( 48,971 ) ( 37,032 ) Other income: Interest income 58 107 Other income, net 4,896 1,992 Total other income 4,954 2,099 Net loss $ ( 44,017 ) $ ( 34,933 ) Net loss per share, basic and diluted $ ( 2.81 ) $ ( 4.52 ) Weighted-average common shares outstanding, basic and diluted 15,663,826 7,722,269 The accompanying notes are an integral part of these consolidated financial statements. F- 5 IMMUNIC, INC. Consolidated Statements of Comprehensive Loss (In thousands) Years Ended December 31, 2020 2019 Net loss $ ( 44,017 ) $ ( 34,933 ) Other comprehensive loss: Foreign currency translation, net of tax ( 2,739 ) ( 554 ) Total comprehensive loss $ ( 46,756 ) $ ( 35,487 ) The accompanying notes are an integral part of these consolidated financial statements. F- 6 IMMUNIC, INC. Consolidated Statements of Stockholders’ Equity (In thousands, except shares) Series A-2 Preferred Stock Series A-1 Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Balance at December 31, 2018 299,456 34,313 13,541 2,879 846,953 — 56 ( 819 ) ( 24,978 ) ( 25,741 ) Net loss — — — — — — — — ( 34,933 ) ( 34,933 ) Foreign exchange translation adjustment — — — — — — — ( 554 ) — ( 554 ) Stock-based compensation — — — — — — 529 — — 529 Conversion of Series A Preferred Stock to common stock ( 299,456 ) ( 34,313 ) ( 13,541 ) ( 2,879 ) 5,302,029 1 37,192 — — 37,193 Issuance of common stock in pre-closing financing for cash, net of issuance costs of $ 61 — — — — 2,197,742 — 29,935 — — 29,935 Issuance of common stock - Bonus share agreement — — — — 460,336 — 6,014 — — 6,014 Issuance of common stock - settlement of contingent payment — — — — 120,070 — 1,540 — — 1,540 Exchange of common stock in connection with Transaction — — — — 1,059,269 — 39,400 — — 39,400 Issuance of common stock under restricted stock unit agreements — — — — 127,500 — — — — — Public offering of common stock - net of issuance costs $ 377 — — — — 630,907 — 4,980 — — 4,980 Balance at December 31, 2019 — $ — — $ — 10,744,806 $ 1 $ 119,646 $ ( 1,373 ) $ ( 59,911 ) $ 58,363 Net loss — — — — — — — — ( 44,017 ) ( 44,017 ) Foreign exchange translation adjustment — — — — — — — ( 2,739 ) — ( 2,739 ) Stock-based compensation — — — — — — 2,747 — — 2,747 Issuance of common stock - At The Market Sales Agreement net of issuance costs of $ 339 — — — — 733,728 — 10,925 — — 10,925 Issuance of common stock - April registered direct equity offering net of issuance costs of $ 1,082 — — — — 1,764,706 — 13,918 — — 13,918 Issuance of common stock - June public equity offering net of issuance costs of $ 1,752 — — — — 2,175,000 — 23,048 — — 23,048 Issuance of common stock - August public equity offering net of issuance costs of $ 6,960 — — — — 5,750,000 1 96,539 — — 96,540 Balance at December 31, 2020 — — — — 21,168,240 2 $ 266,823 $ ( 4,112 ) $ ( 103,928 ) $ 158,785 The accompanying notes are an integral part of these consolidated financial statements. F- 7 IMMUNIC, INC. Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ ( 44,017 ) $ ( 34,933 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 39 50 Gain on sale of ELAD Assets — ( 329 ) Gain on disposal of equipment — ( 26 ) Stock-based compensation 2,747 6,512 Unrealized foreign currency gain ( 2,528 ) — Contingent payment settled in common stock — 1,540 Changes in operating assets and liabilities: Prepaid expenses and other assets ( 2,779 ) ( 2,224 ) Accounts payable 1,000 ( 462 ) Other current liabilities ( 1,255 ) 1,102 Accrued expenses and other liabilities 669 225 Net cash used in operating activities ( 46,124 ) ( 28,545 ) Cash flows from investing activities: Purchases of property and equipment ( 146 ) ( 55 ) Cash distribution in connection with ELAD Assets sale — ( 75 ) Proceeds from sale of ELAD assets — 2,475 Cash acquired in connection with the Transaction — 8,151 Proceeds from sale of equipment — 40 Net cash (used in) provided by investing activities ( 146 ) 10,536 Cash flows from financing activities: Proceeds from issuance of preferred stock — Proceeds from issuance of common stock in pre-closing financing, net of issuance costs of $ 61 — 29,965 Proceeds from public offering of common stock through At The Market offering, net of issuance costs of $ 339 and $ 161 , respectively 10,925 5,200 Proceeds from April 2020 registered direct equity offering, net of issuance costs of $ 1,082 13,918 — Proceeds from June 2020 public equity offering, net of issuance costs of $ 1,752 23,048 — Proceeds from August 2020 public equity offering, net of issuance costs of $ 6,960 96,540 — Deferred financing costs — ( 270 ) Net cash provided by financing activities 144,431 34,895 Effect of exchange rate changes on cash and cash equivalents ( 78 ) ( 589 ) Net change in cash and cash equivalents 98,083 16,297 Cash and cash equivalents, beginning of period 29,369 13,072 Cash and cash equivalents, end of period $ 127,452 $ 29,369 Supplemental disclosure of noncash investing and financing activities: Stock issuance and deferred financing costs included in accounts payable and accrued expenses $ — $ 20 Conversion of convertible preferred stock to common stock $ — $ 37,193 Fair value of net assets acquired in the Transaction $ — $ 39,400 Offering costs in accrued expenses $ 114 $ — Purchases of property and equipment included in accounts payable $ — $ 19 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Notes to Consolidated Financial Statements 1. Description of Business and Basis of Financial Statements Description of Business Immunic, Inc. ("Immunic" or the "Company") a clinical-stage biopharmaceutical company developing a pipeline of selective oral immunology therapies aimed at treating chronic inflammatory and autoimmune diseases, including relapsing-remitting multiple sclerosis ("RRMS"), ulcerative colitis ("UC"), Crohn’s disease ("CD") and psoriasis. Immunic is headquartered in New York with its main operations in Gräfelfing, Germany. Immunic currently has 28 employees. Immunic is currently pursuing three development programs, all orally available small molecule inhibitors in the clinical development phase. These include the IMU-838 program, which is focused on the development of oral formulations of small molecule inhibitors of the enzyme dihydroorotate dehydrogenase (“DHODH”); the IMU-935 program, which is focused on an inverse agonist of RORγt, an immune cell-specific isoform of retinoic acid receptor-related orphan nuclear receptor gamma (“RORγ”), and the IMU-856 program, which involves the development of a drug targeting the restoration of intestinal barrier function. These product candidates are being developed to address diseases such as RRMS, UC, CD, and psoriasis. In addition to these large markets, these products are also being developed to address certain rare diseases with high unmet medical needs, such as primary sclerosing cholangitis (“PSC”), and Guillain-Barré syndrome (“GBS”). Immunic is also investigating IMU-838 as a potential treatment option for coronavirus disease 2019 (“COVID-19”). The Company’s business, operating results, financial condition and growth prospects are subject to significant risks and uncertainties, including the failure of its clinical trials to meet their endpoints, failure to obtain regulatory approval and needing additional funding to complete the development and commercialization of the Company's three development programs. Liquidity and Financial Condition Immunic has no products approved for commercial sale and has not generated any revenue from product sales. Immunic has never been profitable and has incurred operating losses in each year since inception (2016). Immunic has an accumulated deficit of approximately $ 103.9 million as of December 31, 2020 and approximately $ 59.9 million as of December 31, 2019. Substantially all of Immunic’s operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations. Immunic expects to incur significant expenses and increasing operating losses for the foreseeable future as it initiates and continues the preclinical and clinical development of its product candidates and adds personnel necessary to advance its clinical pipeline of product candidates. Immunic expects that its operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to timing of clinical development programs. From inception through December 31, 2020, Immunic has raised net cash of approximately $ 216.8 million from private and public offerings of preferred and common stock. As of December 31, 2020, Immunic had cash and cash equivalents of approximately $ 127.5 million. With these funds, Immunic expects to be able to fund its operations beyond twelve months from the date of the issuance of the accompanying audited consolidated financial statements. Reverse Acquisition On April 12, 2019, pursuant to the terms of the Agreement, dated as of January 6, 2019, between Vital Therapies, Inc., a Delaware corporation (“Vital”), Immunic AG, and the shareholders of Immunic AG party thereto (the “Agreement”), the holders of Immunic AG ordinary shares exchanged all of their outstanding shares for shares of Vital common stock, resulting in Immunic AG becoming a wholly-owned subsidiary of Vital (the “Transaction”). Immediately following the Transaction, Vital Therapies, Inc. changed its name to “Immunic, Inc.” and its ticker symbol to “IMUX”. Immediately prior to the closing of the Transaction, (i) each Immunic AG preferred share was converted into one Immunic AG ordinary share, and (ii) each Immunic AG ordinary share was converted into the right to receive 17.17 shares of Vital’s common stock, after giving effect to the Reverse Stock Split (as defined below). The exchange ratio was determined through arm’s-length negotiations between Vital and Immunic AG. The aggregate consideration issuable in the Transaction, after giving effect to the Reverse Stock Split, was 8,927,130 shares of Vital’s common stock. Following the Transaction and after giving effect to the Reverse Stock Split, the former shareholders of Immunic AG owned approximately 88.25 % of the fully diluted common stock of the Company, and the F- 9 shareholders of Vital immediately prior to the Transaction owned 1,059,269 shares (plus 127,500 restricted stock units (“RSUs”) all of which have been issued to date to former Vital officers) of the common stock of the Company or approximately 11.75 %. The issuance of shares of Vital’s common stock in the Transaction was registered with the Securities and Exchange Commission (“SEC”) on a Registration Statement on Form S-4 (Registration No. 333-229510). Immediately prior to the closing of the Transaction, Immunic AG issued, in a private placement transaction (the “Financing”), an aggregate of 2,197,742 ordinary shares to certain of its shareholders for aggregate consideration of € 26.7 million (approximately $ 29.9 million), pursuant to the terms of the Investment and Subscription Agreement, dated as of January 6, 2019, between Immunic and the shareholders and investors party thereto (the “Subscription Agreement”). The Transaction has been accounted for as a reverse acquisition under the acquisition method of accounting. Because Immunic AG’s pre-Transaction owners held an 88.25 % economic and voting interest in the combined company immediately following the closing of the Transaction, Immunic AG is considered to be the acquirer of Vital for accounting purposes. Additionally, Immunic AG is considered to be the predecessor for reporting purposes and the financial results of Immunic AG are reported in the historical comparable periods. Reverse Stock Split On April 12, 2019, immediately following the closing of the Transaction, the Company effected a 40-for-1 reverse stock split of its common stock (the “Reverse Stock Split”). Accordingly, all references to share and per share amounts in the accompanying audited consolidated financial statements and notes have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. No fractional shares were issued in connection with the Reverse Stock Split. Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the exchange ratio of 17.17 . Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles, ("U.S. GAAP") and include the accounts of Immunic and its wholly-owned subsidiaries, Immunic AG and Immunic Research GmbH (which both began operations in 2016), Immunic Australia Pty Ltd. (which began operations in 2018) and Vital Therapies (Beijing) Company Limited (“VTL China”), acquired through the Transaction (which began operations in 2005). VTL China was sold in September 2019 in connection with the sale of certain of Vital's clinical development-related intellectual property rights (the "ELAD Assets"). All intercompany accounts and transactions have been eliminated in consolidation. Immunic manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions. Certain prior period amounts have been reclassified to conform to the current basis of presentation. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements. The most significant estimates in the Company’s financial statements and accompanying notes relate to the application of the acquisition method of accounting related to the Transaction, clinical trial expenses, share-based compensation. Management believes its estimates to be reasonable under the circumstances. Actual results could differ materially from those estimates and assumptions. Foreign Currency Translation and Presentation The Company’s reporting currency is United States (“U.S.”) dollars. During the twelve months ended December 31, 2020 and 2019, Immunic AG and Immunic Research GmbH’s operations were located in Germany with the euro being its functional currency. Immunic Australia Pty Ltd.’s functional currency is the Australian dollar. All amounts in the financial statements where the functional currency is not the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows: • assets and liabilities at reporting period-end rates; • income statement accounts at average exchange rates for the reporting period; and • components of equity at historical rates. F- 10 Gains and losses from translation of the financial statements into U.S. dollars are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). Realized and unrealized gains and losses resulting from foreign currency transactions denominated in currencies other than the functional currency are reflected as general and administrative expenses in the Consolidated Statements of Operations. Foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future are recorded in Other Income. The Consolidated Statements of Cash Flows were prepared by using the average exchange rate in effect during the reporting period which reasonably approximates the timing of the cash flows. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on hand and deposits in banks located in the U.S., Germany and Australia. The Company maintains cash and cash equivalent balances denominated in Euro and U.S. dollars with major financial institutions in the U.S. and Germany in excess of the deposit limits insured by the government. Management periodically reviews the credit standing of these financial institutions and believes that the Company is not exposed to any significant credit risk. The Company currently deposits its cash and cash equivalents with two large financial institutions. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets consisted of money market funds for the periods presented. The Company had no Level 1 liabilities for the periods presented. Level 2— Inputs other than observable quoted prices for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. The Company had no Level 2 assets or liabilities for the periods presented. Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. The Company had no Level 3 assets or liabilities for the periods presented. The carrying value of cash and cash equivalents, other current assets and prepaid expenses, accounts payable, accrued expenses, and other current liabilities approximates fair value due to the short period of time to maturity. Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method based on the estimated service lives of the assets which range from three years to thirteen years . Depreciation and amortization expense was $ 39,000 and $ 50,000 for the years ended December 31, 2020 and 2019, respectively. Impairment of Long-Lived Assets The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Impaired assets are then recorded at their estimated fair value. There were no impairment losses during the years ended December 31, 2020 and 2019. Goodwill Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded F- 11 at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform a quantitative test that compares the fair value to its carrying value to determine the amount of any impairment. Impairment testing for goodwill is done at the reporting unit level. The Company has determined that it operates in a single operating segment and has a single reporting unit. The Company has determined there was no goodwill impairment as of December 31, 2020. Research and Development Expenses These costs primarily include external development expenses and internal personnel expenses for the three development programs, IMU-838, IMU-935 and IMU-856. Immunic has spent the majority of its research and development resources on IMU-838, the Company's lead development program for clinical trials in RRMS, UC, COVID-19, and PSC. IMU-935 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in September 2019. IMU-856 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in August 2020. Research and development expenses consist of expenses incurred in research and development activities, which include clinical trials, contract research services, certain milestone payments, salaries and related employee benefits, allocated facility costs and other outsourced services. Research and development expenses are charged to operations as incurred. The Company enters into agreements with contract research organizations (“CROs”) to provide clinical trial services for individual studies and projects by executing individual work orders governed by a Master Service Arrangement (“MSA”). The MSAs and associated work orders provide for regular recurrent payments and payments upon the completion of certain milestones. The Company regularly assesses the timing of payments against actual costs incurred to ensure a proper accrual of related expenses in the appropriate accounting period. Collaboration Arrangements Certain collaboration and license agreements may include payments to or from the Company of one or more of the following: non-refundable or partially refundable upfront or license fees; development, regulatory and commercial milestone payments; payment for manufacturing supply services; partial or complete reimbursement of research and development costs; and royalties on net sales of licensed products. The Company assesses whether such contracts are within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Update (“ASU”) 2014-09 “ Revenue from Contracts with Customers ” and ASU No. 2018-18, “ Collaborative Arrangements”, ("ASU 2018-18"). ASU 2018-18, clarifies that certain elements of collaborative arrangements could qualify as transactions with customers in the scope of ASC 606. In October 2018, the Company entered into an option and license agreement (the "Daiichi Sankyo Agreement") with Daiichi Sankyo Co., Ltd. ("Daiichi Sankyo") which granted the Company the right to license a group of compounds, designated by the Company as IMU-856, as a potential new oral treatment option for diseases such as inflammatory bowel disease, irritable bowel syndrome with diarrhea, immune checkpoint inhibitor induced colitis and other barrier function associated diseases. During the option period, the Company performed agreed upon research and development activities for which it was reimbursed by Daiichi Sankyo up to a maximum agreed-upon limit. Such reimbursement was recorded as other income. There are no more research and development reimbursements expected under this agreement. General and Administrative Expenses F- 12 General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, business development and other support functions. Other general and administrative expenses include, but are not limited to, stock-based compensation, insurance costs, professional fees for legal, accounting and tax services, consulting, related facility costs and travel. Stock-Based Compensation The Company measures the cost of employee and non-employee services received in exchange for equity awards based on the grant-date fair value of the award recognized generally as an expense (i) on a straight-line basis over the requisite service period for those awards whose vesting is based upon a service condition, and (ii) on an accelerated method for awards whose vesting is based upon a performance condition, but only to the extent it is probable that the performance condition will be met. Stock-based compensation is (i) estimated at the date of grant based on the award’s fair value for equity classified awards and (ii) final measurement date for liability classified awards. Forfeitures are recorded in the period in which they occur. The Company estimates the fair value of stock options using the Black-Scholes-Merton option-pricing model ("BSM"), which requires the use of estimates and subjective assumptions, including the risk-free interest rate, the fair value of the underlying common stock, the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. Leases The Company leases office space and office equipment. The underlying lease agreements have lease terms of less than 12 months and up to 60 months. The short-term leases are deemed immaterial and have not been included in the operating lease right of use asset and operating lease liability. The Company has two existing leases for office space. At inception of a lease agreement, the Company determines whether an agreement represents a lease and at commencement each lease agreement is assessed as to classification as an operating or financing lease. The Company's two leases have been classified as operating leases and an operating lease right-of-use asset and an operating lease liability have been recorded on the Company’s balance sheet. A right-of-use lease asset represents the Company’s right to use the underlying asset for the lease term and the lease obligation represents its commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The lease term used in estimating future lease payments may include options to extend when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or changes in expectations regarding the lease term. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Accumulated other comprehensive income (loss) has been reflected as a separate component of stockholders’ equity in the accompanying Consolidated Balance Sheets and consists of foreign currency translation adjustments (net of tax). Income Taxes The Company is subject to corporate income tax laws and regulations in the U.S., Germany and Australia. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment in their application. The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the audited consolidated financial statements. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the F- 13 differences are expected to reverse. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or the entire deferred tax asset will not be realized. As of December 31, 2020, and December 31, 2019, the Company maintained a full valuation allowance against the balance of deferred tax assets. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Net Loss Per Share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss by the weighted-average number of common shares and, if dilutive, common stock equivalents outstanding for the period determined using the treasury-stock method. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Potentially dilutive securities, not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive, are as follows: As of December 31, 2020 2019 Options to purchase common stock 1,117,160 471,048 Recently Adopted Accounting Standards In January 2017, the FASB issued ASU 2017-04, " Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ." This guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. The Company adopted this ASU, as required, in the quarter ended March 31, 2020 on a prospective basis. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “ Fair Value Measurement - Disclosure Framework” ("ASU 2018-13.") ASU 2018-13 modifies the disclosure requirements for fair value measurements. The amendments relate to disclosures regarding unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty, and are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments must be applied retrospectively to all periods presented upon their effective date. The Company adopted this ASU, as required, in the quarter ended March 31, 2020. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements. In November 2018, the FASB issued ASU 2018-18, “ Collaborative Arrangements” ("ASU 2018-18"). ASU 2018-18, clarifies that elements of collaborative arrangements could qualify as transactions with customers in the scope of ASC 606. The Company adopted this ASU, as required, in the quarter ended March 31, 2020. The Company does not have any agreements that meet the definition of a collaboration arrangement at this time. F- 14 3. Accounting for the Transaction Based on the exchange ratio of 17.17 shares of Vital common stock for each share of Immunic AG, immediately following the Transaction, former Vital stockholders owned approximately 11.75 % of the capital stock of the combined organization on a fully diluted basis, and former Immunic AG stockholders owned approximately 88.25 % of the capital stock of the combined organization on a fully diluted basis. At the closing of the Transaction, all shares of Immunic AG common stock then outstanding were exchanged for Vital common stock. In addition, pursuant to the terms of the Agreement, the Company, for accounting purposes, assumed all outstanding stock options to purchase 16,987 shares of Vital common stock and 127,500 RSUs at the closing of the Transaction, after giving effect to the Reverse Stock Split. Since the exercise prices of the outstanding options to purchase common stock were less than the trading price on the day of the consummation of the Transaction, they were not included in the formula below in calculating the purchase price. The tangible and intangible assets and liabilities of Vital acquired in the Transaction are recorded based on their fair values as of the completion of the Transaction, with the excess of the purchase consideration over the fair value of net assets assigned to and recorded as goodwill. The following summarizes the purchase price paid in the Transaction (amounts in thousands except share and per share amounts): Number of shares owned by Vital stockholders (1) 1,059,269 RSUs (2) 127,500 Total fully-diluted shares 1,186,769 Multiplied by the fair value per share of Vital common stock (3) $ 33.20 Estimated purchase price $ 39,400 (1) The number of shares of 1,059,269 represents the historical 42,369,694 shares of Vital common stock outstanding immediately prior to the closing of the Transaction, adjusted for the Reverse Stock Split. (2) The number of RSUs of 127,500 represents the historical 5,100,000 Vital RSUs of which all have been issued to date to Vital former officers in 2019. (3) Based on the last reported sale price of Vital common stock on the Nasdaq Global Market on April 12, 2019, the closing of the Transaction, adjusted for the Reverse Stock Split. The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired: (in thousands) Cash and cash equivalents $ 8,151 Prepaid expenses and other assets 307 Supplies and working cell banks 1,000 Clinical development equipment 306 Other property and equipment 30 In-process research and development (“IPR&D ” ) 764 Accounts payable, accrued expenses and other liabilities ( 4,128 ) Goodwill 32,970 Purchase price $ 39,400 F- 15 The fair value of IPR&D was estimated based on the sales price of the ELAD Assets (including the present value of the promissory note issued by the ELAD buyer) less the fair value of the ELAD Assets. See Note 4 below for a description of the ELAD Assets transaction. The goodwill of $ 32.97 million is not tax deductible. Goodwill is mainly attributable to the enhanced value of the combined company, as reflected in the increase in market value of the Vital common shares following the announcement of the Transaction with Immunic AG. The Company incurred costs directly related to the Transaction of approximately $ 10.0 million for the year ended December 31, 2019, which were expensed as incurred ($ 7.5 million of such costs were non-cash charges related to the 4SC settlement share issuances and the Immunic exit bonus shares as described below in Note 6 and Note 9, respectively). 4. ELAD Sales Agreement In March 2019, Vital entered into an asset purchase agreement (the “Vital APA ” ) to sell certain of Vital’s clinical development-related assets and related intellectual property rights to RH Cell Therapeutics (the “Purchaser”) for approximately $ 2.5 million. The assets sold were clinical development equipment, supplies, intellectual property and working cell banks in addition to the equity interest in VTL China (collectively the “ELAD Assets ” ). The Purchaser deposited $ 1.1 million into escrow and paid the Company $ 50,000 prior to the Transaction. The Vital APA was amended and restated on May 28, 2019, to allow for two closings. In the first closing which occurred on May 28, 2019, the $ 1.1 million was released from escrow to the Company. In addition, the Purchaser executed a promissory note with a face amount of $ 1.325 million, which accrues simple interest of 10 % per annum. The fair value of the promissory note was estimated to be $ 920,000 . Therefore, the fair value of the ELAD Assets was based on the cash in escrow, the $ 50,000 deposit and the fair value of the promissory note. The estimated fair value of the ELAD Assets was included in the purchase accounting allocation as follows (in thousands): Clinical development equipment 306 Supplies and working cell banks 1,000 In process research & development (“IPR&D”) 764 Total $ 2,070 In the first closing, the Company transferred title of the clinical development equipment and supplies to the Purchaser. Also, the fair value of the promissory note was recorded as a note receivable and the fair value of the IPR&D and working cell banks assets were removed from the Company’s audited consolidated balance sheet. The promissory note was paid in full upon the second closing on September 4, 2019, at which time the Company transferred title to the intellectual property and working cell banks as well as its equity interest in VTL China. The difference of $ 405,000 between the $ 1.325 million face value of the promissory note collected and the fair value of $ 920,000 was recorded as other income in the accompanying consolidated statements of operations for the year ended December 31, 2019. The Purchaser is not a related party. F- 16 5. Balance Sheet Details Prepaid Expenses and Other Current Assets Prepaid Expense and Other Current Assets consist of (in thousands): December 31, 2020 2019 Prepaid clinical and related costs $ 3,416 $ 1,307 VAT receivable 295 408 Australian research and development tax incentive 1,348 350 Other 1,234 796 Total $ 6,293 $ 2,861 Accounts Payable Accounts Payable consist of (in thousands): December 31, 2020 2019 Clinical costs $ 3,408 $ 1,981 Legal and audit costs 139 226 Other 153 216 Total $ 3,700 $ 2,423 Accrued Expenses Accrued expenses consist of (in thousands): December 31, 2020 2019 Accrued clinical and related costs $ 3,301 $ 2,863 Accrued legal and audit costs 114 211 Accrued compensation 658 — Accrued other 245 224 Total $ 4,318 $ 3,298 Other Current Liabilities Other Current Liabilities consist of (in thousands): December 31, 2020 2019 Deferred income $ — $ 1,008 Other 379 343 Total $ 379 $ 1,351 Deferred income represents cash reimbursement on invoices received from third party billings, prior to the related services being performed. F- 17 6. Commitments and Contingencies Operating Lease The Company leases certain office space under non-cancelable operating leases. The leases terminate on April 30, 2023 for the New York City office and June 30, 2025 for the Gräfelfing, Germany office. The Company formerly leased office space in Martinsried, Germany pursuant to a modified lease that terminated on August 31, 2020. These leases include both lease (e.g., fixed rent) and non-lease components (e.g., common-area and other maintenance costs). The non-lease components are deemed to be executory costs and are therefore excluded from the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-use asset. The New York City lease has renewal options but they were not included in calculating the right of use asset and liabilities. On April 7, 2020, the Company signed a five year lease for its new facility in Gräfelfing, Germany. Renewal options were not included in calculating the right of use asset and liabilities for this facility. The leases do not have concessions, leasehold improvement incentives or other build-out clauses. Further, the leases do not contain contingent rent provisions. The New York City lease had a six month rent holiday at the beginning of the lease. There were net additions to right of use assets of $ 427,000 as a result of signing the Gräfelfing lease and shortening the term of the Martinsried lease during the year ended December 31, 2020. The leases do not provide an implicit rate and, due to the lack of a commercially salable product, the Company is generally considered unable to obtain commercial credit. Therefore, the Company estimated its incremental interest rate to be 6%, considering the quoted rates for the lowest investment-grade debt and the interest rates implicit in recent financing leases. Immunic used its estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments. Immunic’s operating lease costs and variable lease costs were $ 354,000 and $ 135,000 for the years ended December 31, 2020 and 2019, respectively. Variable lease costs consist primarily of common area maintenance costs, insurance and taxes which are paid based upon actual costs incurred by the lessor. Maturities of the operating lease obligation are as follows as of December 31, 2020 (in thousands): 2021 $ 348 2022 $ 348 2023 $ 198 2024 $ 124 2025 $ 62 Thereafter $ — Total lease payments $ 1,080 Less: interest portion $ 107 Present value of lease obligation $ 973 Contractual Obligations As of December 31, 2020, the Company has non-cancelable contractual obligations under certain agreements related to its development programs IMU-838, IMU-935 and IMU-856 totaling approximately $ 1.2 million, all of which is expected to be paid in 2021. Other Commitments and Obligations In May 2016 the Company entered into a purchase agreement (the “Agreement”) with 4SC AG whereby the Company acquired certain assets, including the rights to patents and patent applications, trademarks and know-how. This transaction has been accounted for as an asset acquisition under Accounting Standards Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The Agreement included payments (Tranches III and IV) that were contingent upon the occurrence of certain events and required the Company to pay royalties equal to 4.4 % of the aggregated net sales for a certain period as defined in the Agreement (Tranche III) upon commercialization of the acquired assets. Effective April 12, 2019, the parties agreed to settle Tranche IV by issuing 120,070 shares of the Company’s common stock, immediately following the Transaction, to 4SC AG while keeping Tranche III in effect. Approximately $ 1.5 million of expense was recorded as a result of F- 18 the issuance of these shares on April 12, 2019. No royalties are payable as of December 31, 2020 or 2019 as sales have not commenced. Daiichi Sankyo Agreement On January 5, 2020, the Company exercised its option to obtain the exclusive worldwide right to commercialization of IMU-856. Among other things, the option exercise grants Immunic AG the rights to Daiichi Sankyo’s patent application related to IMU-856. In connection with the option exercise, the Company paid a one-time upfront licensing fee to Daiichi Sankyo. Under the Daiichi Sankyo Agreement, Daiichi Sankyo is also eligible to receive future development, regulatory and sales milestone payments, as well as royalties related to IMU-856. Legal Proceedings The Company is not currently a party to any litigation, nor is it aware of any pending or threatened litigation, that it believes would materially affect its business, operating results, financial condition or cash flows. However, its industry is characterized by frequent claims and litigation including securities litigation, claims regarding patent and other intellectual property rights and claims for product liability. As a result, in the future, the Company may be involved in various legal proceedings from time to time. 7. Fair Value The following fair value hierarchy table present information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands): Fair Value Measurement at December 31, 2020 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 39,615 $ 39,615 $ — $ — Fair Value Measurement at December 31, 2019 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 4,491 $ 4,491 $ — $ — There were no transfers between Level 1, Level 2 or Level 3 assets during the periods presented. For the Company’s money market funds, which are included as a component of cash and cash equivalents on the consolidated balance sheet, realized gains and losses are included in interest income (expense) on the consolidated statements of operations. The carrying amounts of other current assets and prepaid expenses, accounts payable, accrued expenses, and other current liabilities approximate their fair values due to their short-term nature. The fair value and book value of the money market funds presented in the table above are the same. 8. Common Stock and Preferred Stock (Converted into Common Stock) Shelf Registration Statements In May 2018, Vital filed a shelf registration statement on Form S-3, (the “2018 Shelf Registration Statement”), which became effective in June 2018. The 2018 Shelf Registration Statement permits the offering, issuance and sale of up to $ 200.0 million of common stock, preferred stock, warrants, debt securities, and/or units in one or more offerings and in any combination. F- 19 In November 2020, Immunic filed a shelf registration statement on Form S-3. The 2020 Shelf Registration Statement permits the offering, issuance and sale of up to $ 250.0 million of common stock, preferred stock, warrants, debt securities, and/or units in one or more offerings and in any combination of the foregoing. In July 2019, the Company filed a Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $ 40.0 million of common stock that may be issued and sold under an at-the-market sales agreement ("July 2019 ATM") with SVB Leerink LLC (“SVB Leerink”) as agent. The Company intends to use the net proceeds from the offering to continue to fund the ongoing clinical development of its product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates. The July 2019 ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through SVB Leerink on the terms and subject to the conditions set forth in the July 2019 ATM or (ii) termination of the July 2019 ATM as otherwise permitted thereby. The July 2019 ATM may be terminated at any time by either party upon ten days’ prior notice, or by SVB Leerink at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. As of December 31, 2020, $ 23.3 million in capacity remains under the July 2019 ATM. In December 2020, the Company filed another Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $ 50.0 million of common stock that may be issued and sold under another at-the-market sales agreement ("December 2020 ATM") with SVB Leerink as agent. The Company intends to use the net proceeds from the offering to continue to fund the ongoing clinical development of its product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates. The December 2020 ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through SVB Leerink on the terms and subject to the conditions set forth in the December 2020 ATM or (ii) termination of the December 2020 ATM as otherwise permitted thereby. The December 2020 ATM may be terminated at any time by either party upon ten days’ prior notice, or by SVB Leerink at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. As of December 31, 2020, $ 50.0 million in capacity remains under the December 2020 ATM. The Company has agreed to pay SVB Leerink a commission equal to 3.0 % of the gross proceeds from the sales of common shares pursuant to both ATM's and has agreed to provide SVB Leerink with customary indemnification and contribution rights. For the year ended December 31, 2020, the Company raised gross proceeds of $ 11.3 million pursuant to the July 2019 ATM through the sale of 733,728 shares of common stock at a weighted average price of $ 15.42 per share. The net proceeds from the July 2019 ATM were $ 11.0 million after deducting underwriter commissions of $ 339,356 . For the year ended December 31, 2019, the Company raised gross proceeds of $ 5.4 million pursuant to the July 2019 ATM through the sale of 630,907 shares of common stock at a weighted average price of $ 8.49 per share. The net proceeds from the July 2019 ATM were $ 4.9 million after deducting underwriter commissions of $ 161,000 and estimated offering expenses of $ 305,000 . As of December 31, 2019, there was $ 34.6 million available under the July 2019 ATM. F- 20 Public Equity Offerings April 2020 Registered Direct Offering On April 23, 2020, the Company entered into an engagement letter with ROTH Capital Partners, LLC ("RCP") relating to the Company’s registered direct offering of common stock to select institutional investors. Pursuant to this agreement, the Company agreed to pay RCP a cash fee of 6.5 % of the gross proceeds from the offering raised from investors and to reimburse RCP for certain costs incurred in connection therewith. In addition, on April 23, 2020, the Company and the investors entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 1,764,706 shares of common stock. The purchase price per share was $ 8.50 for aggregate gross proceeds to the Company of approximately $ 15.0 million. The net proceeds to the Company from this offering, after deducting the Company’s offering expenses, were approximately $ 13.9 million. June 2020 Offering On June 10, 2020, the Company entered into a placement agency agreement with RCP and Ladenburg Thalmann & Co. Inc. relating to the Company’s public offering of 2,175,000 shares of common stock. Pursuant to this agreement, the Company agreed to pay the placement agents a cash fee of 6.5 % of the gross proceeds from the offering raised from investors and to reimburse the placement agents for certain costs incurred in connection therewith. In addition, on June 10, 2020, the Company and certain institutional investors entered into securities purchase agreements relating to the issuance and sale of an aggregate of 2,175,000 shares of the Company’s common stock. The purchase price per share in the Offering was $ 11.40 for aggregate gross proceeds to the Company of approximately $ 25.0 million. The net proceeds to the Company from this offering, after deducting the Company’s offering expenses, were approximately $ 23.0 million. August 2020 Offering On August 4, 2020, the Company entered into an underwriting agreement with SVB Leerink LLC, as representative of the several underwriters in connection with the Company’s public offering of 5,000,000 shares of common stock, at a public offering price of $ 18.00 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 750,000 shares of Common Stock at the public offering price, less underwriting discounts and commissions, which was exercised in full on August 6, 2020. On August 7, 2020, the Company closed the Offering. The net proceeds to the Company from the Offering, after giving effect to the exercise in full by the Underwriters of their option to purchase the Option Shares, was approximately $ 96.5 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. Stock Subscription Not Yet Issued On March 27, 2019, stockholders of the Company resolved to increase the Company’s share capital by an additional 156,920 ordinary shares, par value € 1.00 per share, of which 27,176 shares related to bonuses for executive officers of the Company. Under German law a capital increase is valid as soon as the consummation of the capital increase has been officially registered with the commercial register, which occurred on April 3, 2019. Therefore, the capital increase became effective subsequent to March 31, 2019. Common Stock Immunic AG, a non-public company as of December 31, 2018, had authorized 846,953 shares of common stock, par value € 1.00 per share, which were issued in March 2016 for approximately $ 56,000 . As of December 31, 2020, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 130,000,000 shares of common stock, par value of $ 0.0001 . F- 21 Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any. Through December 31, 2020, no cash dividends had been declared or paid. Preferred Stock From inception (2016) through 2018, Immunic AG issued 13,541 Series A-1 Convertible and 299,456 Series A-2 Convertible preferred shares, par value € 1.00 per share, to investors as part of its growth financing plan in the total amount of € 31.7 million (approximately $ 37.2 million). Series A-1 Convertible and Series A-2 Convertible preferred shares were converted into Immunic AG’s ordinary shares immediately prior to the Transaction and were then exchanged for Immunic (former Vital) common shares at the consummation of the Transaction. The Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue 20,000,000 shares of $ 0.0001 par value preferred stock, rights and preferences to be set by the board of directors. No preferred shares were outstanding as of December 31, 2020. Stock Warrants The Company issued warrants to purchase common stock in connection with financing activities and for consulting services in 2011. Warrants for 6,015 shares of common stock at an exercise price of $ 3,719.60 expired on September 25, 2019. Stock Reserved for Future Issuance Shares reserved for future issuance as of December 31, 2020 are as follows: Number of Shares Common stock reserved for issuance for: Outstanding stock options 1,117,160 Common stock options available for future grant: 2014 Equity Incentive Plan 43,311 2017 Inducement Equity Incentive Plan 46,250 2019 Omnibus Equity Incentive Plan 831,474 Total common shares reserved for future issuance 2,038,195 9. Stock Compensation Plans Stock Option Programs Under German law, (i) a company’s management board consists of employee members and is responsible for overseeing its daily business, and (ii) a company’s supervisory board supervises the management board and serves a role equivalent to the board of directors of an American corporation. Under two stock option programs, the Company granted stock options to the members of the Immunic AG supervisory board (the “Supervisory Board”) and to key employees in 2018 and in 2019 prior to the Transaction. The programs were intended to incentivize the beneficiaries to dedicate their working capabilities in the best manner possible to the benefit of the Company. The stock options vest if and when an exit event occurs. An exit event is defined as a direct initial public offering has taken place, or an indirect initial public offering has taken place, or a trade sale has been consummated, or a disposal of the Company’s assets has been consummated, or another financially equivalent realization event has occurred. Under the stock option program for the members of the Supervisory Board (the “VSOP SB”), the Company granted stock options of the Company to members of the Company’s Supervisory Board for the time period of their service as members of the Supervisory Board. The shareholders’ approved the VSOP SB with a total of 31,593 stock options, corresponding to approximately 0.5 % of the Company’s issued share capital at the time of the decision. Under the stock option program for key employees (the “VSOP”), the Company granted stock options of the Company to certain key employees. With the approval of the Supervisory Board, Immunic AG’s management board determined how many stock options were granted and how they were allocated to the respective beneficiaries up to a total of 31,593 . F- 22 Further terms and conditions of both programs, the VSOP SB and the VSOP, were substantially similar. The following information is therefore shown aggregated for both programs. The Company accounts for both programs as cash-settled options and classifies their fair value as a liability upon vesting. Vesting of options granted under the VSOP SB and VSOP was contingent upon an exit event. Upon consummation of the Transaction, which occurred on April 12, 2019, all of the awards vested and were settled for cash of $ 508,000 based on their fair value. As a result, the Company recorded $ 508,000 in compensation expense related to these stock options in the twelve months ended December 31, 2019. In July 2019, the Company’s stockholders approved the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) which was adopted by the Board with an effective date of June 14, 2019. The 2019 Plan allows for the grant of equity awards to employees, consultants and non-employee directors. An initial maximum of 1,500,000 shares of the Company’s common stock are available for grant under the 2019 Plan. The 2019 Plan includes an evergreen provision that allows for the annual addition of up to 4 % of the Company’s fully-diluted outstanding stock, with a maximum allowable increase of 4,900,000 shares over the term of the 2019 Plan. In accordance with this provision, the shares available for grant were increased by 448,634 shares effective April 1, 2020. The 2019 Plan is currently administered by the Board, or, at the discretion of the Board, by a committee of the Board, which determines the exercise prices, vesting schedules and other restrictions of awards under the 2019 Plan at its discretion. Options to purchase stock may not have an exercise price that is less than the fair market value of underlying shares on the date of grant, and may not have a term greater than ten years . Incentive stock options granted to employees typically vest over four years . Non-statutory options granted to employees, officers, members of the Board, advisors, and consultants of the Company typically vest over three or four years . Shares that are expired, terminated, surrendered or canceled under the 2019 Plan without having been fully exercised will be available for future awards. Movements during the year The following table illustrates the number and weighted average exercise prices of, and movements in, stock options for the VSOP SB and VSOP during the year ended December 31, 2019. There were no awards granted or outstanding after the awards settled in 2019: 2019 Unvested Awards Weighted-Average Fair Value Outstanding as of January 1 6,937 $ 12.87 Granted during the period 32,177 $ 12.87 Forfeited during the period — $ — Settled in cash during the period ( 39,114 ) $ 12.87 Expired during the period — $ — Outstanding at December 31 — $ — Exercisable at December 31 — $ — No expense was recognized during the year ended December 31, 2020. There was $ 508,000 of expense recognized in 2019 upon the vesting of the awards as a result of closing the Transaction. There were no cancellations or modifications to the awards in 2019. F- 23 The following table summarizes stock option activity since January 1, 2019 under the 2019 Plan: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2019 — $ — Granted 456,645 $ 12.57 Exercised — $ — Forfeited or expired — $ — Outstanding as of December 31, 2019 456,645 $ 12.57 9.63 $ 114,399 Options vested and expected to vest as of December 31, 2019 456,645 $ 12.57 9.63 $ 114,399 Options exercisable as of December 31, 2019 31,956 $ 13.00 9.59 $ 3,382 Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2020 456,645 $ 12.57 Granted 744,406 $ 13.24 Exercised — $ — Forfeited or expired ( 83,891 ) $ 13.32 Outstanding as of December 31, 2020 1,117,160 $ 12.96 9.24 $ 2,894,754 Options vested and expected to vest as of December 31, 2020 1,117,160 $ 12.96 9.24 $ 2,894,754 Options exercisable as of December 31, 2020 263,507 $ 13.04 8.92 $ 661,952 Measurement The fair value of the Company’s stock for purposes of determining the exercise price of options granted under the VSOP for the year ended December 31, 2019 was $ 12.87 , which was determined based on prices negotiated with investors participating in the Financing as noted above. The fair value of the zero-cost VSOP SB and the VSOP options was equal to the fair value of the underlying stock. The weighted-average assumptions used in the BSM option pricing model to determine the fair value of the employee and non-employee stock option grants relating to the 2019 Plan were as follows: Risk-Free Interest Rate The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the stock options. Expected Dividend Yield The Company has not issued any dividends and does not expect to issue dividends over the life of the options. As a result, the Company has estimated the dividend yield to be zero. Expected Volatility Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimates expected volatility based on the historical volatility of a group of comparable companies that are publicly F- 24 traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. Expected Term The expected term of options is estimated considering the vesting period at the grant date, the life of the option and the average length of time similar grants have remained outstanding in the past. The weighted-average grant date fair value of stock options granted under the 2019 Plan during the years ended December 31, 2020 and 2019 was $ 9.50 and $ 8.28 , respectively. The following are the underlying assumptions used in the Black-Scholes-Merton option pricing model to determine the fair value of stock options granted to employees and to non-employees under this stock plan: 2020 2019 Risk-free interest rate 0.42 % 1.71 % Expected dividend yield 0 % 0 % Expected volatility 88.5 % 75.3 % Expected term of options (years) 5.8 5.9 Early Exit Bonus Share Agreement (Anti-Dilution Adjustment) In accordance with an Early Exit Bonus Share Agreement (Anti-Dilution Adjustment) between the shareholders of Immunic AG dated August 2017, each of the four members of the Management Board of Immunic AG, through a limited liability company controlled by the respective board member, received new shares in Immunic AG as a form of anti-dilution protection. The AG shares were subscribed by the Management Board members at a price corresponding to their nominal value in the course of the Additional Financing of Immunic AG, which was carried out in March 2019. As part of the closing of the share exchange with Vital, Therapies, Inc., now Immunic, Inc., in April 2019, the AG shares were exchanged for 460,336 restricted shares in with Vital, Therapies, Inc., now Immunic, Inc., which were issued to the members of the management Board. Upon consummation of the Transaction, compensation cost of € 5.3 million (approximately $ 6.0 million) was recognized. Stock-Based Compensation Expense Total stock-based compensation expense for all stock awards recognized in the accompanying audited consolidated statements of operations is as follows (in thousands): Year Ended December 31, 2020 2019 Research and development $ 731 $ 1,824 General and administrative 2,016 6,736 Total $ 2,747 $ 8,560 As of December 31, 2020 there was $ 7.0 million in total unrecognized compensation expense relating to the 2019 Plan to be recognized over a weighted average period of 2.72 years. General and administrative expenses for the year ended December 31, 2019 include $ 6.0 million of stock compensation expense related to the Early Exit Bonus Share Agreement disclosed above. Research and development expense for the year ended December 31, 2019 includes $ 1.5 million of stock compensation expense as a result of the settlement of Tranche IV with 4SC AG as explained in Note 6. Summary of Equity Incentive Plans Assumed from Vital Upon completion of the Transaction with Vital on April 12, 2019, Vital’s 2012 Stock Option Plan (the “2012 Plan”), Vital’s 2014 Equity Incentive Plan (the “2014 Plan”) and Vital’s 2017 Inducement Equity Incentive Plan (the “Inducement Plan”), were assumed by the Company. All awards granted under these plans have either been forfeited or expired. F- 25 There remain 43,311 shares available for grant under the 2014 Plan as of December 31, 2020. In September 2017, Vital’s board of directors approved the Inducement Plan, which was amended and restated in November 2017. Under the Inducement Plan 46,250 shares of Vital’s common stock were reserved to be used exclusively for non-qualified grants to individuals who were not previously employees or directors as an inducement material to a grantee's entry into employment within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. No expense was recorded for the plans assumed from Vital during the years ended December 31, 2020 and 2019. The following table summarizes stock option activity since January 1, 2019 under the plans assumed from Vital: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2019 — $ — Assumed in the Transaction with Vital 17,117 $ 306.99 Granted — $ — Exercised — $ — Forfeited or expired ( 2,714 ) $ 312.18 Outstanding as of December 31, 2019 14,403 $ 306.01 2.58 $ — Options vested and expected to vest as of December 31, 2019 14,403 $ 306.01 2.58 $ — Options exercisable as of December 31, 2019 14,403 $ 306.01 2.58 $ — Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2020 14,403 $ 306.01 Granted — $ — Exercised — $ — Forfeited or expired ( 14,403 ) $ 306.01 Outstanding as of December 31, 2020 — $ — Options vested and expected to vest as of December 31, 2020 — $ — 0.00 $ — Options exercisable as of December 31, 2020 — $ — 0.00 $ — — $ — 0.00 $ — In an effort to maximize the cash on Vital’s balance sheet for the Transaction, Vital restructured existing change of control and severance agreements with certain of its executive officers in January 2019. At the same time, Vital canceled options granted to such officers and granted them a total of 127,500 RSUs. The primary effect of the amendments and the RSU grants was to substitute stock awards for cash payments owed upon a change of control. The RSUs vested in full upon consummation of the Transaction. As of December 31, 2019, all RSUs were settled. F- 26 10. Income Taxes Net loss before income tax was subject to tax in the following jurisdictions for the following periods (in thousands): Years Ended December 31, 2020 2019 United States $ ( 8,681 ) $ ( 20,258 ) Germany ( 33,617 ) ( 23,674 ) Foreign ( 1,719 ) ( 827 ) $ ( 44,017 ) $ ( 44,759 ) The rate reconciliation consists of the following: Years Ended December 31, 2020 2019 Federal statutory rate 21.0 % 21.0 % State tax (net of federal benefit) 0.0 % 0.0 % Foreign rate differential 3.0 % 3.3 % Stock options ( 0.9 ) % ( 1.1 ) % Tax effect of rate change ( 1.9 ) % 0.0 % Other ( 0.9 ) % ( 3.0 ) % Change in valuation allowance ( 20.3 ) % ( 20.2 ) % Effective tax rate 0.0 % 0.0 % Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As tax laws and rates change, deferred tax assets and liabilities are adjusted through income tax expense. There is no current or deferred income tax expense in the years ended December 31, 2020 and 2019, respectively. Significant components of the Company's net deferred tax assets are shown below. A valuation allowance has been established as realization of such net deferred tax assets has not met the more likely-than-not threshold requirement. If the Company's judgment changes and it is determined that the Company will be able to realize these net deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on the net deferred tax assets will be accounted for as a reduction to income tax expense. F- 27 December 31, 2020 2019 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 17,369 $ 16,357 Federal and state tax credits — — Stock-based compensation 125 — Foreign net operating loss carryforwards 18,998 12,237 Other, net 30 72 Total deferred tax assets 36,522 28,666 Deferred tax liabilities: Property, plant and equipment ( 5 ) ( 311 ) Total deferred tax liability ( 5 ) ( 311 ) Net deferred tax assets 36,517 28,355 Less valuation allowance ( 36,517 ) ( 28,355 ) $ — $ — The Company has incurred net operating losses each year since inception due to its history as a development stage company with no realized revenues from its planned principal operations. These cumulative operating losses provide significant negative evidence in the determination of whether or not the Company will be able to realize deferred tax assets such as net operating losses and other favorable temporary differences. There can be no assurance that it will ever generate taxable income. As a result, the Company has maintained a full valuation allowance against the entire balance of its net deferred tax assets since the date of inception. The valuation allowance has increased by $ 6.8 million and $ 23.7 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, Immunic had available NOLs of approximately $ 75.7 million in Germany and Australia. These NOLs do not expire. The U.S. federal NOL carryforwards of $ 15.6 million were generated prior to 2018 and expire over 20 years beginning in 2023. The $ 67.1 million of post 2017 federal NOL carryforwards do not expire. Section 382 of the Internal Revenue Code of 1986, as amended, subject the future utilization of net operating losses, to an annual limitation in the event of certain ownership changes, as defined thereunder. The Company may have undergone such an ownership change and therefore may be limited in the amount of net operating losses available for utilization in the future. The Company did not have any uncertain tax positions for the years ended December 31, 2020 and 2019, respectively. Due to the full valuation allowance that the Company has on its net deferred tax asset balance, there are no uncertain tax positions that would impact the effective tax rate if recognized. The Company is subject to U.S. federal, New York, California, Texas, German and Australian income taxes. The Company is subject to U.S. federal or state income tax examination by tax authorities for tax returns filed for the years 2003 and forward due to the carryforward of NOLs. Tax years 2016 through 2019 are subject to audit by German and Australian tax authorities. The Company is not currently under examination by any tax jurisdictions. Immunic, Inc. recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. There were no such interest or penalties for any of the years presented. 11. EIB Loan On October 19, 2020, Immunic, Inc. (the “Company”) and Immunic AG, its wholly-owned subsidiary, entered into a Finance Contract (the “Loan Agreement”) with the European Investment Bank (“EIB”), pursuant to which EIB agreed to provide Immunic AG with a term loan in an aggregate amount of up to € 24.5 million to support the development of Immunic’s lead asset, IMU-838, in moderate coronavirus disease 2019 (“COVID-19”), to be made available to be drawn in three tranches, F- 28 with the second and third tranches subject to the completion of certain pre-defined milestones. The Company has the right to defer payment of principal and interest on the first and second tranches until five years after the respective borrowing dates, at which point such tranches must be repaid in full. The third tranche is repayable in annual installments commencing one year after its respective borrowing date and must be repaid in full no later than five years after such date. Any outstanding borrowings under the Loan Agreement will accrue interest as provided in the Loan Agreement. From January 1, 2021 until December 31, 2030, the Company and Immunic AG are also obligated to pay EIB a very low single digit percentage of their revenue, as set forth in the Loan Agreement, subject to certain conditions and limitations tied to the total amount drawn under the Loan Agreement and subject to a cap of € 8.6 million if only the first tranche is drawn and subject to a cap of € 30 million if the full loan amount is drawn. The Loan Agreement also includes certain prepayment penalties that may be triggered by certain prepayments prior to the maturity date. As of December 31, 2020, nothing was drawn down under this loan agreement. The Company will guarantee Immunic AG’s obligations to EIB pursuant to a Guarantee Agreement to be executed by the Company, Immunic AG and EIB (the “Guarantee Agreement”, and together with the Loan Agreement, the “Agreements”). 12. Related Party Transactions As previously disclosed, on April 15, 2020, the compensation committee of the Company’s Board independently reviewed and approved entering into an employment agreement with the Company’s current Chairman of the Board, Duane Nash, MD, JD, MBA (the “Executive Chairman Agreement”) and pursuant to such approval, on April 17, 2020, the Company and Mr. Nash entered into the Executive Chairman Agreement. Pursuant to the Executive Chairman Agreement, Mr. Nash serves as the Executive Chairman of the Board as long as he is a member of the Board, or until termination of the Executive Chairman Agreement (as described below) or upon his earlier death, incapacity, removal, or resignation. Pursuant to the Executive Chairman Agreement, Mr. Nash is entitled to receive: (i) a monthly base salary of $ 25,417 (it being agreed that such fee is inclusive of any fees associated with Mr. Nash’s services as both a director of the Company and in the capacity of Executive Chairman), (ii) employee benefits including, health insurance, dental insurance, basic life and accidental death and dismemberment insurance, long and short term disability insurance and participation in the Company’s 401(k) Plan, and (iii) reimbursements for pre-approved reasonable business-related expenses incurred in good faith in the performance of the Mr. Nash’s duties for the Company. The Executive Chairman Agreement establishes an “at will” employment relationship pursuant to which Mr. Nash serves as Executive Chairman. The Executive Chairman Agreement contemplated a term that ended on October 15, 2020 and was subsequently extend. On October 15, 2020, the Company and Mr. Nash entered into an addendum to the Executive Chairman Agreement, pursuant to which the term of the agreement was extended to April 15, 2021. The Company made a one-time award to Mr. Nash of 120,000 stock options, which vest monthly starting on November 15, 2020. All other terms of the employment agreement remained the same. F- 29 13. Selected Quarterly Data (unaudited) The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for 2020 and 2019 are as follows (in thousands, except per share data): For the Quarters Ended March 31 June 30 September 30 December 31 Total Year 2020 Operating expenses $ 9,014 $ 12,222 $ 13,545 $ 14,190 $ 48,971 Net loss $ ( 8,487 ) $ ( 11,458 ) $ ( 12,913 ) $ ( 11,159 ) $ ( 44,017 ) Basic and diluted net loss per share (1) $ ( 0.79 ) $ ( 0.90 ) $ ( 0.70 ) $ ( 0.53 ) $ ( 2.81 ) 2019 Operating expenses $ 4,662 $ 15,007 $ 9,177 $ 8,186 $ 37,032 Net loss $ ( 4,313 ) $ ( 14,714 ) $ ( 8,215 ) $ ( 7,691 ) $ ( 34,933 ) Basic and diluted net loss per share (1) $ ( 5.09 ) $ ( 1.52 ) $ ( 0.82 ) $ ( 0.75 ) $ ( 4.52 ) (1) Net loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share calculations will not necessarily equal the annual per share calculation. F- 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Immunic, Inc. Date: February 26, 2021 By: /s/ DANIEL VITT Daniel Vitt Chief Executive Officer and President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel Vitt and Glenn Whaley, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ DANIEL VITT Director, Chief Executive Officer and President February 26, 2021 Daniel Vitt /s/ GLENN WHALEY Principal Financial and Accounting Officer February 26, 2021 Glenn Whaley /s/ DUANE D. NASH Executive Chairman February 26, 2021 Duane D. Nash /s/ TAMAR HOWSON Director February 26, 2021 Tamar Howson /s/ JOERG NEERMANN Director February 26, 2021 Joerg Neermann /s/ VINCENT OSSIPOW Director February 26, 2021 Vincent Ossipow /s/ BARCLAY A. PHILLIPS Director February 26, 2021 Barclay A. Phillips /s/ JAN VAN DEN BOSSCHE Director February 26, 2021 Jan Van den Bossche