IMMUNIC, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. 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 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, 2022, our Chief Executive Officer and Principal Financial Officer have concluded that, as of December 31, 2022, 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 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) that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, (b) that 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, 2022, 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, 2022, 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, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable 81 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 2023 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, 2022, under the headings “Election of Directors,” “Board of Directors and 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 heading "Security Ownership" 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 "Board of Directors and Corporate Governance" and "Related Person 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 "Ratification of Appointment of Independent Registered Public Accounting Firm" and is incorporated herein by reference. 82 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 US, 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. 83 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 8-K 4.2 February 26, 2020 4.3 Form of Pre-Funded Warrant 8-K 4.3 October 11, 2022 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+* Service Agreement dated August 22, 2016 between Immunic AG and Dr. Andreas Muehler 10.6+* Service Agreement dated September 29, 2016 between Immunic AG and Daniel Vitt 10.7+ Employment Agreement between Dr. Daniel Vitt and Immunic AG. 8-K 10.5 July 17, 2019 10.8+ Addendum to Service Agreement between Immunic AG and Dr. Daniel Vitt. 8-K 10.1 September 5, 2019 10.9+ Employment Agreement, dated September 4, 2019, between Immunic, Inc. and Dr. Andreas Muehler. 8-K 99.3 September 5, 2019 10.10+ Addendum, dated September 4, 2019, to Service Agreement between Immunic AG and Dr. Andreas Muehler. 8-K 99.2 September 5, 2019 10.11+ Addendum, dated September 4, 2019, to Service Agreement between Immunic AG and Dr. Hella Kohlhof. 8-K 99.4 September 5, 2019 10.12 Employment Agreement dated April 17, 2020, between Immunic, Inc. and Duane Nash. 8-K 10.2 April 20, 2020 10.13 Second Addendum to Employment Agreement dated October 15, 2020, between Immunic, Inc. and Duane Nash. 8-K 10.1 April 19, 2021 10.14 Placement Agency Agreement, dated April 23, 2020, between Immunic, Inc. and Roth Capital Partners, LLC 8-K 10.1 April 20, 2020 10.15 Form of Securities Purchase Agreement, dated April 23, 2020, between Immunic, Inc. and the investors party thereto. 8-K 10.2 April 20, 2020 10.16 Placement Agency Agreement, dated June 10, 2020, between Immunic, Inc. and the Roth Partners, LLC 8-K 10.1 June 12, 2020 10.17 Form of Securities Purchase Agreement, dated June 10, 2020, between Immunic, Inc. and the investors party thereto 8-K 10.2 June 12, 2020 10.18 Underwriting Agreement, dated August 4, 2020, by and between Immunic, Inc. and SVB Leerink LLC. 8-K 1.1 August 10, 2020 10.19 Finance Contract, dated October 19, 2020, between Immunic, Inc., Immunic AG and European Investment Bank 8-K 10.1 October 20, 2020 10.20 Form of Guarantee Agreement between Immunic, Inc., Immunic AG and European Investment Bank. 8-K 10.2 October 20, 2020 10.21+ Sales Agreement, dated December 29, 2020 between Immunic, Inc. and SVB Leerink LLC 8-K 10.1 January 4, 2021 10.22+ Amendment Letter, dated November 11, 2020 8-K 10.1 November 13, 2020 84 10.23+ Settlement Agreement, dated March 31, 2021, between Immunic AG and 4SC AG. 8-K 10.1 March 31, 2021 10.24+ Addendum No. 2 to Employment Agreement dated April 15, 2021 between Immunic, Inc. and Duane Nash 8-K 10.1 April 15, 2021 10.25+ Second Addendum to Service Agreement between Immunic AG and Dr. Daniel Vitt 8-K 10.1 June 10, 2021 10.26+ Second Addendum, dated June 10, 2021 to Service Agreement between Immunic AG and Dr. Andreas Muehler 8-K 10.2 June 10, 2021 10.27+ Employment Agreement, dated June 10, 2021 between Immunic, Inc. and Dr. Andreas Muehler 8-K 10.3 June 10, 2021 10.28+ Employment Agreement, dated June 10, 2021 between Immunic, Inc. and Glenn Whaley 8-K 10.4 June 10, 2021 10.29+ Second Addendum, dated June 10, 2021, to Service Agreement between Immunic AG and Dr. Hella Kohlhof 8-K 99.2 June 10, 2021 10.30+ Underwriting Agreement, dated July 15, 2021, by and between Immunic, Inc. and Piper Sandler & Co 8-K 1.1 July 15, 2021 10.31+ Employment Agreement, dated October 14, 2021, between Immunic, Inc. and Patrick Walsh 8-K 10.1 October 14, 2021 10.32+ Third Addendum, dated January 5, 2022, to Service Agreement between Immunic AG and Dr. Daniel Vitt 8-K 10.1 January 10, 2022 10.33+ Third Addendum, dated January 5, 2022, to Service Agreement between Immunic AG and Dr. Andreas Muehler 8-K 10.2 January 10, 2022 10.34+ Third Addendum, dated January 5, 2022, to Service Agreement between Immunic AG and Dr. Hella Kohlhof 8-K 10.3 January 10, 2022 10.35+ Addendum No. 3 to Employment Agreement, dated March 15, 2022, between Immunic, Inc. and Duane Nash 8-K 10.1 March 15, 2022 10.36 Sales Agreement dated as of May 2, 2022, between SVB Securities LLC and Immunic, Inc. 8-K 10.1 May 2, 2022 10.37 Securities Purchase Agreement, dated October 10, 2022, by and among the Company and the Purchasers 8-K 10.1 October 11, 2022 10.38+ Addendum No. 4 dated December 28, 2022 to Employment Agreement, between Immunic, Inc. and Duane Nash 8-K 10.1 December 30, 2022 10.39+ Fourth Addendum dated January 16, 2023 to the Service Agreement, between Immunic AG and Dr. Daniel Vitt 8-K 10.1 January 16, 2023 10.40+ Fourth Addendum dated January 16, 2023 to the Service Agreement, between Immunic AG and Dr. Andreas Muehler 8-K 10.2 January 16, 2023 10.41+ Fourth Addendum dated January 16, 2023 to the Service Agreement, between Immunic AG and Dr. Hella Kohlhof 8-K 10.3 January 16, 2023 85 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. 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. 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. * 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. 86 IMMUNIC, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Baker Tilly U S LLP, Independent Registered Public Accounting Firm (PCAOB ID 23 ) 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 Matter 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 our 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 matters 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 Note 2 and 3 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. 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. F- 2 How We Addressed the Matter in Our Audit 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 23, 2023 F- 3 IMMUNIC, INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 106,745 $ 86,863 Investments - other 9,629 — Other current assets and prepaid expenses 9,490 18,125 Total current assets 125,864 104,988 Property and equipment, net 294 152 Goodwill (note 2) — 32,970 Right of use asset, net 1,552 948 Other long-term assets 43 42 Total assets $ 127,753 $ 139,100 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 4,281 $ 3,745 Accrued expenses 7,986 7,071 Other current liabilities 810 585 Total current liabilities 13,077 11,401 Long-term liabilities: Operating lease liabilities 992 584 Total long-term liabilities 992 584 Total liabilities 14,069 11,985 Commitments and contingencies (note 4) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 20,000,000 authorized and no shares issued or outstanding at December 31, 2022 and 2021 — — Common stock, $ 0.0001 par value; 130,000,000 shares authorized and 39,307,286 and 26,335,418 shares issued and outstanding at December 31, 2022 and 2021, respectively 4 3 Additional paid-in capital 427,925 324,237 Accumulated other comprehensive income (loss) 3,035 ( 252 ) Accumulated deficit ( 317,280 ) ( 196,873 ) Total stockholders’ equity 113,684 127,115 Total liabilities and stockholders’ equity $ 127,753 $ 139,100 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, 2022 2021 Operating expenses: Research and development $ 71,255 $ 61,115 General and administrative 15,263 13,300 Goodwill impairment (see Note 2) 32,970 — 4SC Royalty Settlement (See Note 4) — 17,250 Total operating expenses 119,488 91,665 Loss from operations ( 119,488 ) ( 91,665 ) Other income (expense): Interest income 1,041 66 Other expense, net ( 1,960 ) ( 1,346 ) Total other expense, net ( 919 ) ( 1,280 ) Net loss $ ( 120,407 ) $ ( 92,945 ) Net loss per share, basic and diluted $ ( 3.78 ) $ ( 3.93 ) Weighted-average common shares outstanding, basic and diluted 31,819,006 23,652,779 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, 2022 2021 Net loss $ ( 120,407 ) $ ( 92,945 ) Other comprehensive income: Foreign currency translation income, net of tax 3,287 3,860 Total comprehensive loss $ ( 117,120 ) $ ( 89,085 ) 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) Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 21,168,240 $ 2 $ 266,823 $ ( 4,112 ) $ ( 103,928 ) $ 158,785 Net loss — — — — ( 92,945 ) ( 92,945 ) Foreign exchange translation adjustment — — — 3,860 — 3,860 Stock-based compensation — — 5,949 — — 5,949 Issuance of common stock - July 2021 equity offering net of issuance costs of $ 2,980 4,500,000 1 42,019 — — 42,020 Issuance of common stock - At The Market Sales Agreement net of issuance costs of $ 23 73,221 — 729 — — 729 Shares issued in connection with the Company's employee stock purchase plan 12,758 — 92 — — 92 Issuance of common stock in connection with the 4SC royalty settlement (see note 4) 581,199 — 8,625 — — 8,625 Balance at December 31, 2021 26,335,418 3 $ 324,237 $ ( 252 ) $ ( 196,873 ) $ 127,115 Net loss — — — — ( 120,407 ) ( 120,407 ) Foreign exchange translation adjustment — — — 3,287 — 3,287 Stock-based compensation — — 7,929 — — 7,929 Issuance of common stock and Pre-funded Warrants - October 2022 PIPE transaction, net of issuance costs of $ 4,012 8,696,552 1 55,988 — — 55,989 Issuance of common stock - At The Market Sales Agreement net of issuance costs of $ 1,226 4,204,113 — 39,584 — — 39,584 Shares issued in connection with the Company's employee stock purchase plan 70,351 — 182 — — 182 Shares issued in connection with the Company's stock option plan 852 — 5 — — 5 Balance at December 31, 2022 39,307,286 4 $ 427,925 $ 3,035 $ ( 317,280 ) $ 113,684 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, 2022 2021 Cash flows from operating activities: Net loss $ ( 120,407 ) $ ( 92,945 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 77 85 Goodwill impairment (see Note 2) 32,970 — Stock-based compensation 7,929 5,949 Foreign currency loss 4,757 4,332 Common stock issued in connection with the 4SC royalty settlement (see Note 4) — 8,625 Changes in operating assets and liabilities: Prepaid expenses and other assets 7,493 ( 12,800 ) Accounts payable 799 176 Other liabilities ( 124 ) 170 Accrued expenses and other current liabilities 1,362 3,175 Net cash used in operating activities ( 65,144 ) ( 83,233 ) Cash flows from investing activities: Purchases of Investments-other ( 9,629 ) — Purchases of property and equipment ( 112 ) ( 67 ) Net cash used in investing activities ( 9,741 ) ( 67 ) Cash flows from financing activities: Proceeds from public offering of common stock through At The Market offering, net of issuance costs of $ 1,226 and $ 23 , respectively 39,584 729 Proceeds from shares issued in connection with the Company's employee stock purchase plan 182 92 Issuance of common stock and Pre-funded Warrants - October 2022 PIPE transaction, net of issuance costs of $ 4,012 and $ 0 , respectively 55,989 — Proceeds from the exercise of stock options 5 — Proceeds from July 2021 public equity offering, net of issuance costs of $ 2,980 — 42,020 Net cash provided by financing activities 95,760 42,841 Effect of exchange rate changes on cash and cash equivalents ( 993 ) ( 130 ) Net change in cash and cash equivalents 19,882 ( 40,589 ) Cash and cash equivalents, beginning of year 86,863 127,452 Cash and cash equivalents, end of year $ 106,745 $ 86,863 Supplemental disclosure of noncash investing and financing activities: Common stock issued in connection with the 4SC royalty settlement (see Note 4) $ — $ 8,625 Operating lease right-of use asset obtained in exchange for lease obligation $ 974 $ 435 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") is a clinical-stage biopharmaceutical company with a pipeline of selective oral immunology therapies focused on treating chronic inflammatory and autoimmune diseases. The Company is headquartered in New York City with its main operations in Gräfelfing near Munich, Germany. The Company currently has approximately 66 employees. The Company is currently pursuing clinical development of three orally administered, small molecule programs, each of which has unique features intended to directly address the unmet needs of patients with serious chronic inflammatory and autoimmune diseases. These include the vidofludimus calcium (IMU-838) program, which is in Phase 3 clinical development for patients with multiple sclerosis (“MS”); the izumerogant (proposed International Nonproprietary Name (“INN”) for IMU-935) program, which is an inverse agonist of retinoic acid receptor-related orphan nuclear receptor gamma truncated (“RORγt”) that inhibits the interleukin-17 (“IL-17”) pathway in diseases such as psoriasis; and the IMU-856 program, which is targeted to restore intestinal barrier function and regenerate bowel epithelium. 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 $ 317.3 million as of December 31, 2022 and approximately $ 196.9 million as of December 31, 2021. 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 development of its product candidates and adds personnel necessary to advance its 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 development programs. From inception through December 31, 2022, Immunic has raised net cash of approximately $ 355.5 million from private and public offerings of preferred and common stock. As of December 31, 2022, the Company had cash and cash equivalents of approximately $ 106.7 million and investments - other of $ 9.6 million. With these funds the Company expects to be able to fund its operations beyond twelve months from the date of the issuance of the accompanying financial statements. 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 (which began operations in 2016) and Immunic Australia Pty Ltd. (which began operations in 2018). 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. 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 recoverability of goodwill, clinical trial expenses and share-based compensation. Management believes its estimates to be reasonable under the circumstances. Actual results could differ materially from those estimates and assumptions. F- 9 Foreign Currency Translation and Presentation The Company’s reporting currency is United States (“U.S.”) dollars. Immunic AG is 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. 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 (Expense). 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 and Investments- other The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Time Deposits with an original maturity greater than three months are classified as Investments-other Cash and cash equivalents consist of cash on hand and deposits in banks located in the U.S of approximately $ 85.7 million, Germany of approximately $ 19.1 million and Australia of approximately $ 1.9 million. 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. Our Cash and Cash equivalents in the U.S. is primarily held in a U.S. Government money market fund account and was earning interest at a rate of 4.3 %. Our cash and cash equivalents in Germany and Australia were earning interest at a rate of — % to 0.87 % Investments - other consists of the following as of (in thousands): December 31, 2022 December 31, 2021 Time Deposits $ 9,629 $ 0 $ 9,629 $ 0 The time deposit accounts are held in our bank in Germany and are held in Euros and are earning interest at a rate of 0.61 % to 0.87 % and have a remaining maturity 3 - 4 months. 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. F- 10 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 $ 77,000 and $ 85,000 for the years ended December 31, 2022 and 2021, 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, 2022 and 2021 other than goodwill which is described below. 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 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, an unfavorable clinical trial result, a significant adverse change in legal or business climate, industry market conditions, an adverse regulatory action, sustained decrease in stock price or unanticipated competition. On October 20, 2022, the Company announced the outcome of a significant interim analysis of its Phase 1b clinical trial of izumerogant in patients with moderate-to-severe psoriasis that were not deemed positive progress. On October 21, 2022, the Company experienced a significant decrease in the Company's market capitalization. The Company considered this to be a triggering event indicating that it is more likely than not that goodwill was impaired. The Company performed an analysis of the fair value compared to the Company's book value, utilizing the Company's traded stock price (a level 1 fair value input). As a result of that analysis, the Company recorded an approximately $ 33.0 million non-cash goodwill impairment charge in the fourth quarter of 2022, which represents a full write down of its previous goodwill balance. The Company did not have any goodwill impairment during the year ended December 31, 2021. The changes in the carrying amount of goodwill for the years presented are as follows (amounts in thousands): Carrying amount of goodwill at December 31, 2021 $ 32,970 Impairment of goodwill during the year ended December 31, 2022 ( 32,970 ) Carrying amount of goodwill at December 31, 2022 $ — Research and Development Expenses These costs primarily include external development expenses and internal personnel expenses for the three development programs, vidofludimus calcium, izumerogant and IMU-856. Immunic has spent the majority of its research and development resources on vidofludimus calcium, the Company's lead development program for clinical trials in RRMS, UC and COVID-19. 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. F- 11 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 gastrointestinal diseases such as celiac disease, inflammatory bowel disease, irritable bowel syndrome with diarrhea 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 additional research and development reimbursements expected under this 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, for which the Company received a notice of allowance from the US Patent & Trademark Office in August 2022. 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. Government assistance Government assistance relating to research and development performed by Immunic Australia is recorded as a component of other (income) expense. Government assistance is recognized at a rate of 43.5 % of the qualified research and development expenditures which are incurred. We recognized $ 2.3 million and $ 1.7 million of other income related to research activities performed during the years ended December 31, 2022 and 2021, respectively. General and Administrative Expenses 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 F- 12 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. Leases with terms of 12 months or less at inception are not 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 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, 2022 and 2021, 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. 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 2021 are subject to audit by German and Australian tax authorities. The Company is not currently under examination by any tax jurisdictions. Warrants The Company accounts for issued warrants either as a liability or equity in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”) or ASC 815-40, Accounting F- 13 for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, warrants are considered a liability if they are mandatorily redeemable and they require settlement in cash, other assets, or a variable number of shares. If warrants do not meet liability classification under ASC 480-10, the Company considers the requirements of ASC 815-40 to determine whether the warrants should be classified as a liability or as equity. Under ASC 815-40, contracts that may require settlement for cash are liabilities, regardless of the probability of the occurrence of the triggering event. Liability-classified warrants are measured at fair value on the issuance date and at the end of each reporting period. Any change in the fair value of the warrants after the issuance date is recorded in the consolidated statements of operations as a gain or loss. If warrants do not require liability classification under ASC 815-40, in order to conclude warrants should be classified as equity, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP standard. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date. 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, 2022 2021 Options to purchase common stock 3,791,688 2,157,460 Prefunded stock warrants 5,096,552 — 8,888,240 2,157,460 Recently Adopted Accounting Standards There are no recently issued accounting standards that would have a significant impact on the Company's consolidated financial statements. F- 14 3. Balance Sheet Details Prepaid Expenses and Other Current Assets Prepaid Expense and Other Current Assets consist of (in thousands): December 31, 2022 2021 Prepaid clinical and related costs $ 5,608 $ 14,853 VAT receivable 296 279 Australian research and development tax incentive 2,361 1,871 Other 1,225 1,122 Total $ 9,490 $ 18,125 Accounts Payable Accounts Payable consist of (in thousands): December 31, 2022 2021 Clinical and related costs $ 3,749 $ 3,427 Legal and audit costs 288 72 Other 244 246 Total $ 4,281 $ 3,745 Accrued Expenses Accrued Expenses consist of (in thousands): December 31, 2022 2021 Accrued clinical and related costs $ 6,807 $ 6,214 Accrued legal and audit costs 169 96 Accrued compensation 890 674 Accrued other 120 87 Total $ 7,986 $ 7,071 Other Current Liabilities Other Current Liabilities consist of (in thousands): December 31, 2022 2021 Lease liabilities $ 571 $ 408 Other 239 177 Total $ 810 $ 585 4. Commitments and Contingencies Operating Lease The Company leases certain office space under non-cancelable operating leases. The leases terminate on July 31, 2025 for the New York City office and June 30, 2025 for the Gräfelfing, Germany office. The Company formerly leased office space in F- 15 Planegg-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 was extended on December 22, 2022 for an additional 27 months resulting in the new lease termination date of July 31, 2025. The New York City lease has a renewal option, but this was not included in calculating the right of use asset and liabilities. On April 7, 2020, the Company signed a five year lease for its facility in Gräfelfing, Germany. On March 1, 2021 and August 1, 2022 the Company added additional lease space at the Gräfelfing, Germany office. 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 as well as a three month rent holiday upon the 27 month extension starting May 2023. There were net additions to right of use assets of $ 435,000 and $ 642,000 as a result of signing for additional lease space at the Gräfelfing, Germany office in March 2021 and August 2022, respectively. There were net additions to right of use assets of $ 332,000 as a result of extending the New York City lease in December 2022. 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 % for the original leases and 8 % for the New York City extension, 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 $ 727,000 and $ 503,000 for the years ended December 31, 2022 and 2021, 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, 2022 (in thousands): 2023 $ 647 2024 $ 680 2025 $ 355 2026 $ — 2027 $ — Thereafter $ — Total lease payments $ 1,682 Less: interest portion $ 147 Present value of lease obligation $ 1,535 Contractual Obligations As of December 31, 2022, the Company has non-cancelable contractual obligations under certain agreements related to its development programs in vidofludimus calcium, izumerogant and IMU-856 totaling approximately $ 4.5 million, all of which is expected to be paid in 2023. 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 the issuance of these shares on April 12, 2019. On March 31, 2021, Immunic AG, a wholly-owned subsidiary of the Company, and 4SC AG entered into a Settlement Agreement, pursuant to which Immunic AG settled its remaining obligation of the 4.4 % royalty on net sales for $ 17.25 million F- 16 (Tranche III of the Agreement). The payment was made 50 % in cash and 50 % in shares of Immunic’s common stock (the “Shares”). Pursuant to the Agreement, the Company filed a resale shelf registration statement on Form S-3 covering the resale of the Shares. With the execution of the Agreement, no further payment obligations remain between Immunic AG and 4SC AG. 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. 5. 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, 2022 Fair Value Level 1 Level 2 Level 3 Assets Money market funds 85,521 85,521 — — Total assets at fair value $ 85,521 $ 85,521 $ — $ — Fair Value Measurement at December 31, 2021 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 31,630 $ 31,630 $ — $ — Total assets at fair value $ 31,630 $ 31,630 $ — $ — 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. Our money market fund account is held in our bank in the U.S. and was earning interest at a rate of 4.3 % in a U.S. Government money market fund. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2022. The Company has not historically experienced any credit losses with balances in excess of FDIC limits. 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. For the assessment of the fair value of goodwill and the related impairment of goodwill we used a level one assessment in our testing of goodwill. See Note 2, Summary of significant accounting policies "Goodwill". 6. Common Stock Shelf Registration Statements F- 17 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. As of February 17, 2023, there is $ 75.0 million remaining on this shelf registration statement In December 2020, the Company filed a 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 an at-the-market sales agreement ("December 2020 ATM") with SVB Leerink as agent. The Company has used, and intends to continue 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 February 17, 2023, $ 8.4 million in capacity remains under the December 2020 ATM. In May 2022, the Company filed a Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $ 80.0 million of common stock that may be issued and sold under another at-the-market sales agreement ("May 2022 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 May 2022 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 May 2022 ATM or (ii) termination of the May 2022 ATM as otherwise permitted thereby. The May 2022 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 February 17, 2023, $ 80.0 million in capacity remains under the May 2022 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, 2022, the Company raised gross proceeds of $ 40.9 million pursuant to the December 2020 ATM through the sale of 4,204,113 shares of common stock at a weighted average price of $ 9.72 per share. The net proceeds from the December 2020 ATM were $ 39.6 million after deducting underwriter commissions of $ 1.2 million. For the year ended December 31, 2021, the Company raised gross proceeds of $ 0.8 million pursuant to the December 2020 ATM through the sale of 73,221 shares of common stock at a weighted average price of $ 10.27 per share. The net proceeds from the December 2020 ATM were $ 0.7 million after deducting underwriter commissions of $ 22,555 . F- 18 Equity Offerings $60 Million Private Placement Equity Financing On October 10, 2022, Immunic entered into a Securities Purchase Agreement (the “Purchase Agreement”) for a private placement (the “Private Placement”) with select accredited investors and certain existing investors (each, a “Purchaser” and collectively, the “Purchasers”). Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchasers (i) 8,696,552 shares of the Company’s common stock, par value $ 0.0001 per share (the “Shares”), at a purchase price of $ 4.35 per Share, and (ii) 5,096,552 pre-funded warrants (the “Pre-Funded Warrants”) to purchase Common Stock (the “Warrant Shares” and together with the Shares and the Pre-Funded Warrants, the “Securities”), at a purchase price of $ 4.34 per Pre-Funded Warrant. The Pre-Funded Warrants have an exercise price of $ 0.01 per share of Common Stock, be immediately exercisable and remain exercisable until exercised in full. The holders of Pre-Funded Warrants may not exercise a Pre-Funded Warrant if the holder, together with its affiliates, would beneficially own more than 9.99 % of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. The holders of Pre-Funded Warrants may increase or decrease such percentages not in excess of 19.99 % by providing at least 61 days’ prior notice to the Company. The Pre-Funded Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Pre-Funded Warrants do not provide any guarantee of value or return. All of the pre-funded warrants were exercised in January of 2023. The Private Placement closed on October 12, 2022. The gross proceeds of the Private Placement were approximately $ 60.0 million, before deducting offering expenses payable by the Company of approximately $4.0 million. The Company intends to use the net proceeds from the Private Placement to fund the ongoing clinical development of its three lead product candidates, vidofludimus calcium (IMU-838), izumerogant (IMU-935) and IMU-856, and for other general corporate purposes. The registration statement for these securities was deemed effective by Securities and Exchange Commission on December 20, 2022. July 2021 Public Equity Offering On July 15, 2021, the Company entered into an underwriting agreement with Piper Sandler & Co., in connection with the Company’s public offering of 4,500,000 shares of the Company’s common stock, $ 0.0001 par value per share, at a public offering price of $ 10.00 per share. On July 19, 2021, the Company closed the Offering. The net proceeds to the Company from the Offering was approximately $ 42.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Common Stock As of December 31, 2022, 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 . The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of any holders of preferred stock. 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, 2022, no cash dividends had been declared or paid. Preferred Stock 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, 2022. F- 19 Stock Reserved for Future Issuance Shares reserved for future issuance as of December 31, 2022 are as follows: Number of Shares Common stock reserved for issuance for: 2021 Employee stock purchase plan 116,891 Prefunded stock warrants 5,096,552 Outstanding stock options 3,791,688 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 188,655 Total common shares reserved for future issuance 9,283,347 7. Stock-based Compensation Plans 2021 Employee Stock Purchase Plan On April 25, 2021, the Company adopted the 2021 Employee Stock Purchase Plan ("ESPP"), which was approved by stockholder vote at the 2021 Annual Meeting of Stockholders held on June 10, 2021. The ESPP provides eligible employees of the Company with an opportunity to purchase common stock of the Company through accumulated payroll deductions, which are included in other current liabilities until they are used to purchase Company shares. Eligible employees participating in the bi-annual offering period can choose to have up to the lesser of 15 % of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase shares of the Company’s common stock. The purchase price of the stock is the lesser of (i) 85 % of the closing market price on the date of purchase and (ii) the closing market price at the beginning of the bi-annual offering period. The maximum number of shares reserved for delivery under the plan is 200,000 shares. The Company has issued 70,351 and 12,758 shares under the ESPP for the twelve months ended December 31, 2022 and 2021, respectively. The Company recognized $ 96,000 and $ 46,000 of expense related to the plan in the twelve months ended December 31, 2022 and 2021, respectively. Stock Option Programs 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 were 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 in 2020 through 2023 by a total of 4,408,871 shares. 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. F- 20 Movements during the year The following table summarizes stock option activity for the twelve months ended December 31, 2022 and 2021 under the 2019 Plan: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2022 2,157,460 $ 13.54 Granted 1,886,263 $ 8.73 Exercised ( 852 ) $ 5.67 Forfeited or expired ( 251,183 ) $ 10.79 Outstanding as of December 31, 2022 3,791,688 $ 11.33 8.35 $ 375 Options vested and expected to vest as of December 31, 2022 3,791,688 $ 11.33 8.35 $ 375 Options exercisable as of December 31, 2022 1,398,490 $ 13.33 7.50 $ — Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of January 1, 2021 1,117,160 $ 12.96 Granted 1,193,809 $ 14.08 Exercised — $ — Forfeited or expired ( 153,509 ) $ 13.50 Outstanding as of December 31, 2021 2,157,460 $ 13.54 8.74 $ 302,155 Options vested and expected to vest as of December 31, 2021 2,157,460 $ 13.54 8.74 $ 302,155 Options exercisable as of December 31, 2021 752,954 $ 13.48 8.15 $ 79,431 Measurement 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 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 its own stock combined with a group of comparable companies that are publicly 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. F- 21 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, 2022 and 2021 was $ 6.81 and $ 10.52 , 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: 2022 2021 Risk-free interest rate 2.09 % 0.93 % Expected dividend yield 0 % 0 % Expected volatility 97.8 % 93.0 % Expected term of options (years) 6.0 6.0 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, 2022 2021 Research and development $ 3,219 $ 1,760 General and administrative 4,710 4,189 Total $ 7,929 $ 5,949 As of December 31, 2022 there was $ 15.6 million in total unrecognized compensation expense relating to the 2019 Plan to be recognized over a weighted average period of 2.74 years. Summary of Equity Incentive Plans Assumed from Vital Upon completion of the Transaction with Vital Therapies ("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. There remain 43,311 shares available for grant under the 2014 Plan as of December 31, 2022. 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 twelve months ended December 31, 2022 and 2021, respectively. F- 22 8. 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, 2022 2021 United States $ ( 47,049 ) $ ( 11,222 ) Germany ( 67,448 ) ( 78,869 ) Foreign ( 5,911 ) ( 2,854 ) $ ( 120,408 ) $ ( 92,945 ) The rate reconciliation consists of the following: Years Ended December 31, 2022 2021 Federal statutory rate 21.0 % 21.0 % Foreign rate differential 2.2 % 3.2 % Stock options ( 1.1 ) % ( 0.9 ) % Tax effect of rate change 0.0 % 0.0 % Goodwill impairment ( 5.7 ) % 0.0 % Other ( 0.7 ) % ( 0.4 ) % Change in valuation allowance ( 15.7 ) % ( 22.9 ) % 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, 2022 and 2021, 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- 23 December 31, 2022 2021 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 19,830 $ 18,437 Stock-based compensation 742 576 Intangible Assets 2,923 3,848 Foreign net operating loss carryforwards 47,179 34,819 Unrealized gain or loss 1,686 1,130 Other, net 693 9 Total deferred tax assets 73,053 58,819 Deferred tax liabilities: Property, plant and equipment — ( 2 ) Total deferred tax liability — ( 2 ) Net deferred tax assets 73,053 58,817 Less valuation allowance ( 73,053 ) ( 58,817 ) $ — $ — 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 $ 14.2 million and $ 22.3 million and for the years ended December 31, 2021 and 20, respectively. As of December 31, 2022, Immunic had available NOLs of approximately $ 190.2 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 $ 78.9 million of post 2017 federal NOL carryforwards do not expire. Sections 382 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses, to an annual limitation in the event of certain ownership changes, as defined. The Company may have undergone ownership changes and therefore may be limited in the amount of net operating losses available for utilization in the future. The Company did no t have any uncertain tax positions for the years ended December 31, 2022 and 2021, 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 2018 through 2021 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. 9. Related Party Transactions F- 24 Executive Chairman Agreement with Duane Nash On April 15, 2020, the compensation committee of the Board of Directors of the Company independently reviewed and approved entering into an employment agreement with the Executive 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 Dr. Nash entered into the Executive Chairman Agreement. The Executive Chairman Agreement establishes an “at will” employment relationship with a base salary of $ 25,417 per month pursuant to which Dr. Nash serves as Executive Chairman and contemplated a term that ends on October 15, 2020. On October 15, 2020, the Company and Dr. Nash entered into an addendum (the “First Addendum”) to extend the term of the Executive Chairman Agreement to April 15, 2021. In connection with the First Addendum, the Company made a one-time award to Dr. Nash of an option to purchase 120,000 shares of Company common stock, which vests monthly over six months commencing on November 15, 2020. On April 15, 2021, the Company and Dr. Nash entered into Addendum No. Two (the “Second Addendum”) to extend the term of the Executive Chairman Agreement to April 15, 2022. In connection with the Second Addendum, the Company made a one-time award to Dr. Nash of an option to purchase 90,000 shares of Company common stock, which vests monthly over 12 months commencing on May 15, 2021, and to increase Dr. Nash’s monthly base salary to $ 27,960 from $ 25,417 . On March 15, 2022, the Company and Dr. Nash entered into Addendum No. Three (the “Third Addendum”), which extended the term of employment from April 15, 2022 to December 31, 2022 with a base salary of $ 29,358 per month. In connection with the Third Addendum, the Company made a one-time award to Dr. Nash of an option to purchase 75,000 shares of the Company’s common stock, which vests monthly over 12 months commencing on April 10, 2022. On December 28, 2022, the Company and Dr. Nash entered into Addendum No. Four, which extended the term of employment from December 31, 2022 to December 31, 2023 with a base salary of $ 30,250 per month (which includes the cash retainer payable for serving on the Company’s Board or for acting as the Chairman of the Board). All other terms of the Executive Chairman Agreement remain the same. F- 25 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 23, 2023 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 23, 2023 Daniel Vitt /s/ GLENN WHALEY Chief Financial Officer February 23, 2023 Glenn Whaley /s/ DUANE D. NASH Executive Chairman February 23, 2023 Duane D. Nash /s/ TAMAR HOWSON Director February 23, 2023 Tamar Howson /s/ JOERG NEERMANN Director February 23, 2023 Joerg Neermann /s/ VINCENT OSSIPOW Director February 23, 2023 Vincent Ossipow /s/ BARCLAY A. PHILLIPS Director February 23, 2023 Barclay A. Phillips /s/ MARIA TORNSEN Director February 23, 2023 Maria Tornsen