What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-05 · 798 added, 804 removed, 375 unchanged (81% of the section changed)

Financial Statements

INMUNE BIO, INC.

CONSOLIDATED BALANCE SHEETS

CURRENT ASSETS

Cash and cash equivalents

Research and development tax credit receivable

Other tax receivable

Prepaid expenses

Prepaid expenses –

BALANCE SHEETS

September 30,

and cash equivalents

and development tax incentive receivable

tax receivable

expenses –

related party

TOTAL CURRENT ASSETS

Operating lease –

CURRENT ASSETS

lease –

right of use asset –

related party

Acquired in-process research and development intangible assets

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities –

in-process research and development intangible assets

AND STOCKHOLDERS’

payable and accrued liabilities

payable and accrued liabilities –

related parties

Deferred liabilities

Operating lease, current liability –

lease, current liability –

related party

TOTAL CURRENT LIABILITIES

Long-term operating lease liability –

CURRENT LIABILITIES

operating lease liability –

related party

TOTAL LIABILITIES

COMMITMENTS AND CONTINGENCIES

AND CONTINGENCIES

STOCKHOLDERS’

Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding

Common stock, $0.001 par value, 200,000,000 shares authorized, 10,897,630 and 10,770,948 shares issued and outstanding, respectively

Additional paid-in capital

Common stock issuable

Accumulated other comprehensive loss

Accumulated deficit

stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding

stock, $0.001 par value, 200,000,000 shares authorized, 13,447,948 and 10,770,948 shares issued and outstanding, respectively

paid-in capital

stock issuable

other comprehensive loss

(30,171,054 )

(21,276,181 )

TOTAL STOCKHOLDERS' EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS' EQUITY

accompanying notes are an integral part of these unaudited consolidated financial statements.

STATEMENTS OF OPERATIONS

the Three Months Ended

September 30,

the Nine Months Ended

September 30,

and administrative

and development

of common stock issuable

operating expenses

General and administrative

Research and development

Waiver of common stock issuable

Total operating expenses

LOSS FROM OPERATIONS

OTHER (EXPENSE) INCOME

FROM OPERATIONS

$ (4,716,662 )

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$ (8,894,873 )

Net loss per common share –

basic and diluted

Weighted average common shares outstanding - basic and diluted

COMPREHENSIVE LOSS

$ (5,360,094 )

loss per common share –

basic and diluted

average common shares outstanding - basic and diluted

COMPREHENSIVE

$ (4,716,662 )

$ (3,066,966 )

Other comprehensive gain (loss) –

gain (loss) on foreign currency translation

Total comprehensive loss

$ (8,894,873 )

$ (5,360,094 )

comprehensive loss on foreign currency translation

comprehensive loss

$ (4,764,523 )

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

INMUNE BIO, INC.

CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS’

FOR THE THREE AND SIX MONTHS ENDED JUNE

Comprehensive

Stockholders’

Income (loss)

Balance as of January 1, 2020

$ (3,102,508 )

Issuance of common stock for cash

Acquisition and retirement of common stock

Capital contribution

Stock-based compensation

Loss on foreign currency translation

Balance as of March 31, 2020

$ (8,924,093 )

Issuance of common stock for cash, net

Stock-based compensation

Loss on foreign currency translation

Balance as of June 30, 2020

$ (5,421,372 )

accompanying notes are an integral part of these unaudited consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS’

FOR THE THREE AND SIX MONTHS ENDED JUNE

Comprehensive

STATEMENT OF CHANGES IN STOCKHOLDERS’

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

Other Comprehensive

Stockholders’

Income (loss)

Balance as of January 1, 2019

January 1, 2020

$ (21,276,181 )

Issuance of common stock and warrants for cash, net

Stock-based compensation

Loss on foreign currency translation

Balance as of March 31, 2019

of common stock for cash

and retirement of common stock

on foreign currency translation

March 31, 2020

(23,346,588 )

Issuance of common stock for cash, net

Stock-based compensation

Issuance of common stock issuable

Waiver of common stock issuable

Loss on foreign currency translation

Balance as of June 30, 2019

of common stock for cash, net

on foreign currency translation

June 30, 2020

(25,454,392 )

of common stock for cash, net

exercise of warrants

on foreign currency translation

September 30, 2020

$ (30,171,054 )

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

STATEMENT OF CHANGES IN STOCKHOLDERS’

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

Other Comprehensive

Stockholders’

January 1, 2019

$ (13,597,868 )

of common stock and warrants for cash, net

on foreign currency translation

March 31, 2019

(15,498,913 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Waiver of common stock issuable

Changes in operating assets and liabilities:

Research and development tax credit receivable

Other tax receivable

Joint development cost receivable

Prepaid expenses

Prepaid expenses –

of common stock for cash, net

of common stock issuable

on foreign currency translation

June 30, 2019

(15,890,996 )

on foreign currency translation

September 30, 2019

$ (18,957,962 )

accompanying notes are an integral part of these unaudited consolidated financial statements.

STATEMENTS OF CASH FLOWS

the Nine Months Ended

September 30,

FLOWS FROM OPERATING ACTIVITIES:

$ (8,894,873 )

$ (5,360,094 )

to reconcile net loss to net cash used in operating activities:

of common stock issuable

in operating assets and liabilities:

and development tax incentive receivable

tax receivable

development cost receivable

expenses –

related party

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities –

payable and accrued liabilities

payable and accrued liabilities –

related parties

Deferred liabilities

Operating lease liability –

lease liability –

related party

Net cash used in operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from sale of common stock

Purchase of common stock

Net cash provided by financing activities

Impact on cash from foreign currency translation

NET (DECREASE) INCREASE IN CASH

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

Cash paid for income taxes

Cash paid for interest expense

NONCASH INVESTING AND FINANCING ACTIVITIES:

Capital contribution

Issuance of warrants to placement agents

Issuance of common stock issuable

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

cash used in operating activities

FLOWS FROM FINANCING ACTIVITIES:

proceeds from sale of common stock

of common stock

cash provided by financing activities

on cash from foreign currency translation

INCREASE IN CASH

AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

AND CASH EQUIVALENTS AT END OF PERIOD

DISCLOSURE OF CASH FLOWS INFORMATION:

paid for income taxes

paid for interest expense

INVESTING AND FINANCING ACTIVITIES:

exercise of warrants

of warrants to placement agents

of common stock issuable

accompanying notes are an integral part of these unaudited consolidated financial statements.

TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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(the “Company”

or “INmune Bio”) was organized in the State of Nevada on September 25, 2015, and

is a clinical stage biotechnology pharmaceutical company focused on developing and commercializing its product candidates to treat

diseases where the innate immune system is not functioning normally and contributing to the patient’s disease.

INmune Bio’s

focus is on the innate immune system that include natural killer cells (“NK cells”), hepatic stellate cells of the

liver (HSC cells), myeloid derived suppressor cells (“MDSC cells”), microglial cells and dendritic cells (“DC

cells”), to offer unique therapeutic opportunities.

INmune Bio plans to develop their four existing drug platforms:

(“INKmune”) which primes NK cells, INB03 (“INB03”) which down regulates MDSC cells, LivNate, which targets

soluble TNF –

a key cytokine driving pathologic chronic inflammation, and XPro1595 that targets microglial cell activation

in the brain –

a cause of neuroinflammation.

INmune Bio is also initiating a clinical program to determine if the Company’s

TNF Inhibitor (“DN-TNF”) platform may prevent complications of cytokine storm from COVID-19.

Company has been actively monitoring the novel coronavirus (“COVID-19”) situation and its impact globally.

has continued to operate as it had prior to the COVID-19 pandemic with minimal change, other than for enhanced safety measures

intended to prevent the spread of the virus.

of June 30, 2020, the Company had an accumulated deficit of $25,454,392 and experienced losses since its inception.

principally occurred as a result of non-cash stock-based compensation expense and the

substantial resources required for research and development of the Company’s products which included the general and administrative

expenses associated with its organization and product development as well as the lack of sources of revenues until such time as

the Company’s products are commercialized.

or “INmune Bio”) was organized in the State of Nevada on September 25, 2015,

and is a clinical stage biotechnology pharmaceutical company focused on developing and commercializing its product candidates

to treat diseases where the innate immune system is not functioning normally and contributing to the patient’s disease.

INmune Bio has two product platforms.

The DN-TNF product platform utilizes dominant-negative technology to selectively neutralize

soluble TNF, a key driver of innate immune dysfunction and mechanistic target of many diseases.

DN-TNF is currently being developed

for COVID-19 complications (Quellor), cancer (INB03), Alzheimer’s and treatment resistant depression (XPro595), and NASH

The Natural Killer Cell Priming Platform includes INKmune aimed at priming the patient’s NK cells to eliminate

minimal residual disease in patients with cancer.

INmune Bio’s product platforms utilize a precision medicine approach for

the treatment of a wide variety of hematologic malignancies, solid tumors and chronic inflammation.

of September 30, 2020, the Company had an accumulated deficit of $30,171,054 and experienced losses since its inception.

have principally occurred as a result of non-cash stock-based compensation expense and the substantial resources required for

research and development of the Company’s products, which included the general and administrative expenses associated with

its organization and product development as well as the lack of sources of revenues until such time as the Company’s products

are commercialized.

meet its current and future obligations the Company has taken the following steps to capitalize the business and achieve its business

July 2020, the Company completed an underwritten public offering in which it sold 2,500,000

shares of common stock at a public offering price of $10.00 per share.

The 2,500,000

shares sold included the full exercise of the underwriters’

During July 2020,

the Company completed an underwritten public offering in which it sold 2,500,000 shares of common stock at a public offering

price of $10.00 per share.

The 2,500,000 shares sold included the full exercise of the underwriters’

option to purchase

326,086 shares at a price of $10.00 per share.

Aggregate net proceeds from the underwritten

public offering were approximately $23.1 million, net of approximately $1.9 million in

underwriting discounts and commissions and offering expenses.

April 2020, the Company entered into a sales agreement with BTIG, LLC (“BTIG”),

as sales agent, to establish an At-The-Market (“ATM”) offering program.

The Company was

required to pay BTIG a commission of 3% of the gross proceeds from the sale of shares.

The ATM program will remain in full force and effect until the earlier of the sale of

all of the shares under the ATM program or the termination of the sales agreement by

the Company or BTIG.

From April 2020 through June 2020, the Company sold 150,682 shares

of common stock at an average price of $5.44 per share for net proceeds of approximately

$0.7 million.

From July 1, 2020 through the date of the issuance of this Quarterly Report

on Form 10-Q, the Company sold 27,919 shares of common stock at an average price of $5.46

for net proceeds of approximately $0.1 million.

May 2019, the Company entered into a securities purchase agreement (“Purchase Agreement”)

with Lincoln Park Capital Fund LLC (“Lincoln Park”), pursuant to which Lincoln

Park has agreed to purchase from the Company up to an aggregate of $20.0 million of common

stock of the Company (subject to certain limitations) from time to time over the term

of the Purchase Agreement.

The extent we rely on Lincoln Park as a source of funding

will depend on a number of factors including, the prevailing market price of our common

stock and the extent to which we are able to secure working capital from other sources.

As of the date of issuance of this Quarterly Report on Form 10-Q, the Company has already

received approximately $1.3 million from the Purchase Agreement from the sale of 296,000

shares of common stock to Lincoln Park from the inception of the Purchase Agreement through

the date of issuance of this Form 10-Q, leaving the Company an additional $18.7 million

to draw upon.

it is difficult to predict the Company’s liquidity requirements, as of June 30, 2020, and based upon the Company’s

current operating plan, the Company believes that it will have sufficient cash to meet its projected operating requirements for

at least the next 12 months following filing date of this Quarterly Report on Form 10-Q based on the balance of cash balance as

of June 30, 2020 and the proceeds received from the Company’s July 2020 underwritten offering (see Note 9).

The Company anticipates that

it will continue to incur net losses for the foreseeable future as it continues the development of its clinical drug candidates

and preclinical programs and incurs additional costs associated with being a public company.

Aggregate net proceeds from the underwritten public offering were approximately

$23.1 million, net of approximately $1.9 million in underwriting discounts and commissions and offering expenses.

During April 2020,

the Company entered into a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market

(“ATM”) offering program.

The Company was required to pay BTIG a commission of 3% of the gross proceeds from the

sale of shares.

The ATM program will remain in full force and effect until the earlier of the sale of all of the shares under

the ATM program or the termination of the sales agreement by the Company or BTIG.

From April 2020 through September 2020,

the Company sold 178,600 shares of common stock at an average price of $5.45 per share for net proceeds of approximately $0.8

During May 2019,

the Company entered into a securities purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund

LLC (“Lincoln Park”), pursuant to which Lincoln Park has agreed to purchase from the Company up to an aggregate

of $20.0 million of common stock of the Company (subject to certain limitations) from time to time over the term of the Purchase

The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing

market price of our common stock and the extent to which we are able to secure working capital from other sources.

date of issuance of this Quarterly Report on Form 10-Q, the Company has already received approximately $1.3 million from the

Purchase Agreement from the sale of 296,000 shares of common stock to Lincoln Park from the inception of the Purchase Agreement

through the date of issuance of this Form 10-Q, leaving the Company an additional $18.7 million to draw upon, subject to the

Company’s compliance with the terms and conditions of the Purchase Agreement.

Although it is difficult to predict the

Company’s liquidity requirements, as of September 30, 2020, and based upon the Company’s current operating plan, the

Company believes that it will have sufficient cash to meet its projected operating requirements for at least the next 12 months

following the filing date of this Quarterly Report on Form 10-Q based on the balance of cash available as of September 30, 2020.

The Company anticipates that it will continue to incur net losses for the foreseeable future as it continues the development of

its clinical drug candidates and preclinical programs and incurs additional costs associated with being a public company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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31, 2019, filed with the SEC on March 11, 2020.

and Uncertainties

Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic

on the Company’s business is highly uncertain and difficult to predict.

Also, economies worldwide have also been negatively

impacted by the COVID-19 pandemic, however policymakers around the globe have responded with fiscal policy actions to support

the healthcare industry and economy as a whole.

The magnitude and overall effectiveness of these actions remain uncertain.

addition, the Company’s clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment have and may continue to be delayed due to prioritization of hospital resources

toward the COVID-19 pandemic.

Some patients have not and others may not be able to comply with clinical trial protocols if quarantines

impede patient movement or interrupt healthcare services.

Similarly, the ability to recruit and retain patients and principal

investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the

Company’s clinical trial operations.

severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including,

but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s

service providers, suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all

of which are uncertain and cannot be predicted.

As of the date of issuance of Company’s financial statements, the extent

to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations

is uncertain.

financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported

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The Company maintains its cash deposits with major financial institutions.

currently consist of R&D tax credit receivable, value added tax (“VAT”) receivable, and a Goods and Services tax

(“GST”) receivable.

The R&D tax credit receivable is recorded when R&D is incurred.

At that time, the Company

records a receivable for the amount of the credit it expects to receive based on the expenses incurred.

VAT receivables and GST

receivables are recorded when the Company receives an invoice with VAT or GST.

The collectability of these receivables are evaluated

periodically based on the actual R&D credit returns submitted, the VAT returns submitted, and the GST returns submitted.

of June 30, 2020 and December 31, 2019, there were no trade receivables.

and Development Tax Incentive Receivable

Company, through its wholly-owned subsidiary in Australia, participates in the Australian research and development tax incentive

program, such that a percentage of our qualifying research and development expenditures are reimbursed by the Australian government,

and such incentives are reflected as a reduction of research and development expense.

The Australian research and development

tax incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has

been incurred and the amount of the consideration can be reliably measured.

At each period end, management estimates the reimbursement

available to the Company based on available information at the time.

Company, through its wholly-owned subsidiary in the United Kingdom, participates in the research and development program provided

by the United Kingdom tax relief program, such that a percentage of our qualifying research and development expenditures are reimbursed

by the United Kingdom government, and such incentives are reflected as a reduction of research and development expense.

Kingdom research and development tax incentive is recognized when there is reasonable assurance that the incentive will be received,

the relevant expenditure has been incurred and the amount of the consideration can be reliably measured.

At each period end, management

estimates the reimbursement available to the Company based on available information at the time.

Company capitalizes costs incurred in connection with in-process research and development purchased from others if the asset has

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net loss position.

June 30, 2020, the Company had 3,417,000 potentially issuable shares of common stock upon the exercise of stock options and 1,674,931

September 30, 2020, the Company had 3,457,000 potentially issuable shares of common stock upon the exercise of stock options and

1,955,922 potentially issuable shares of common stock upon the exercise of warrants.

June 30, 2019, the Company had 1,632,000 potentially issuable shares of common stock upon the exercise of stock options and 1,461,649

September 30, 2019, the Company had 1,632,000 potentially issuable shares of common stock upon the exercise of stock options and

1,461,649 potentially issuable shares of common stock upon the exercise of warrants.

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and development (“R&D”) costs are expensed as incurred.

Research and development credits are recorded by the Company

as a reduction of research and development costs.

Major components of research and development costs include cash compensation,

stock-based compensation, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development,

costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants

and other entities that conduct certain research and development activities on the Company’s behalf.

Research and development tax incentives are recorded by

the Company as a reduction of research and development costs.

Major components of research and development costs include cash

compensation, stock-based compensation, costs of preclinical studies, clinical trials and related clinical manufacturing, costs

of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees

paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf.

Company recognizes grants as contra research and development expense in the consolidated statement of operations on a systematic

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The impact of the CARES Act on the Company for

the period ending June 30, 2020 was not significant.

the period ending September 30, 2020 was not significant.

Currency Translation

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transactions and balances are reflected in the statement of operations and comprehensive income (loss).

Reclassifications

reclassifications have been made to the prior period financial statements to conform with the current period presentation.

Adopted Accounting Pronouncements

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on the Company´s consolidated financial position, operations, or cash flows.

Company evaluates events that have occurred after the balance sheet date of June 30, 2020, through the date which the financial

Company evaluates events that have occurred after the balance sheet date of September 30, 2020, through the date which the financial

statements are issued.

RESEARCH AND DEVELOPMENT ACTIVITY

to UK tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in the UK for expenses incurred

in R&D subject to certain requirements.

The Company’s UK subsidiary submits R&D tax credit requests annually for

research and development expenses incurred, and recorded a related receivable in the amount of $507,833 and $395,850 as of June

30, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020 and 2019, the Company received $0 and

$152,514, respectively, of R&D tax credit reimbursements from the UK.

to AUS tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in AUS for expenses incurred

to UK tax law, the Company is allowed an R&D tax incentive that reduces a company’s tax bill in the UK for expenses

incurred in R&D subject to certain requirements.

The Company’s UK subsidiary submits R&D tax incentive requests

annually for research and development expenses incurred and recorded a related receivable in the amount of $865,228 and $395,850

as of September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020 and 2019, the Company

received $0 and $152,514, respectively, of R&D tax incentive reimbursements from the UK.

to AUS tax law, the Company is allowed an R&D tax incentive that reduces a company’s tax bill in AUS for expenses incurred

in R&D subject to certain requirements.

The Company’s Australian subsidiary submits R&D tax credit requests annually

The Company’s Australian subsidiary submits R&D tax incentive requests annually

for research and development expenses incurred.

At June 30, 2020 and December 31, 2019, the Company recorded a research and development

tax credit receivable of $537,010 and $172,289, respectively, for R&D expenses incurred in Australia.

During the six months

ended June 30, 2020 and 2019, the Company received $0 R&D tax credit reimbursements from Australia.

Company is eligible to recover all VAT for all R&D expenses paid.

The Company’s UK subsidiary recorded other tax receivable

of $90,971 and $42,046 for VAT as of June 30, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020

and 2019, the Company received $24,392 and $113,580 of VAT reimbursements, respectively.

Company is eligible to recover all GST for all R&D expenses paid.

The Company’s Australian subsidiary recorded other

tax receivable of $64,029 and $35,179 for GST as of June 30, 2020 and December 31, 2019, respectively.

During the six months ended

June 30, 2020 and 2019, the Company received $45,266 and $0 of GST reimbursements, respectively.

On September 30, 2020 and December 31, 2019, the Company recorded a research and

development tax incentive receivable of $600,149 and $172,289, respectively, for R&D expenses incurred in Australia.

the nine months ended September 30, 2020 and 2019, the Company received $178,029 and $0, respectively, of R&D tax incentive

reimbursements from Australia.

License Agreement

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License Agreement

October 29, 2015, the Company entered into an exclusive license agreement with Immune Ventures, LLC (“Immune Ventures”),

owner of all of the rights related to our principal patent (the “INKmune License Agreement”).

Pursuant to the INKmune

License Agreement, the Company was granted exclusive worldwide rights to the patents, including rights to incorporate any improvements

or additions to the patents that may be developed in the future.

In consideration for the patent rights, the Company agreed to

the following milestone payments (of which none have been met as of June 30, 2020):

Each Phase I initiation

Each Phase II initiation

Each Phase III initiation

Each NDA/EMA filing

Each NDA/EMA awarded

October 29, 2015, the Company entered into an exclusive license agreement (the “INKmune License Agreement”) with Immune

Ventures, LLC (“Immune Ventures”).

Pursuant to the INKmune License Agreement, the Company was granted exclusive worldwide

rights to the patents, including rights to incorporate any improvements or additions to the patents that may be developed in the

In consideration for the patent rights, the Company agreed to the following milestone payments (of which none have been

met as of September 30, 2020):

Phase I initiation

Phase II initiation

Phase III initiation

NDA/EMA filing

NDA/EMA awarded

addition, the Company agreed to pay the licensor a royalty of 1% of net sales during the life of each patent granted to the Company.

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Officer and Treasurer and Mark Lowdell, its Chief Scientific Officer.

As of June 30, 2020, no sales had occurred under this license.

As of September 30, 2020, no sales had occurred under

this license.

term of the agreement began on October 29, 2015 and, if not terminated sooner pursuant to the agreement, ends on a country by

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On July 20, 2018, the parties

amended the agreement under which the Company is required achieve the following milestones:

amended the agreement under which the Company was required achieve milestones pursuant to the agreement.

On October 30, 2020,

the parties executed an additional amendment to the agreement under which which the Company is required to achieve the following

of Phase 1 clinical or equivalent trials by October 29, 2021

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of NDA or equivalent by October 29, 2026 or equivalent

The Company intends to initiate a Phase I clinical trial during

the 2 nd half of 2020.

the Company doesn’t achieve the above milestones, it is required to negotiate in good faith with Immune Ventures to determine

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June 26 of each year 2023-2024

June 26 of each year 2025 until first commercial sale

June 26 of each year 2025 until first

commercial sale

first commercial sale of a product making use of the licensed technology under the PITT Agreement, the Licensee is required to

3 unchanged sentences

Each Phase III initiation

First commercial sale of product making use of licensed technology

First commercial sale of product

making use of licensed technology

Company made a $50,000 milestone payment in March 2019 pursuant to the PITT Agreement as a result of a Phase I initiation.

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the technology and know-how.

May 2019, the Company signed a sublease agreement with a related party for office space in La Jolla, California, which serves

as the headquarters of the Company.

The lease has a 61-month term, which corresponds to the lease term of the lessor.

is CTI Clinical Trial & Consulting Services (“CTI”).

CTI is majority-owned by a member of the Company’s

Board of Directors.

The lessor may extend its lease for an additional 5 years, and, if it does, the Company may also extend its

sublease for 5 years.

The Company did not include the option to extend in the calculation of the lease liabilities as such extension

is not reasonably certain to occur.

Variable lease costs for the Company’s lease consists of operating expenses for the

Below is a summary of the Company’s right-of-use assets and liabilities as of June 30, 2020:

In May 2019, the Company signed a sublease

agreement with a related party for office space in La Jolla, California, which serves as the headquarters of the Company.

lease has a 61-month term, which corresponds to the lease term of the lessor.

The lessor is CTI Clinical Trial & Consulting

Services (“CTI”).

CTI is majority-owned by a member of the Company’s Board of Directors.

The lessor may extend

its lease for an additional 5 years, and, if it does, the Company may also extend its sublease for 5 years.

The Company did not

include the option to extend in the calculation of the lease liabilities as such extension is not reasonably certain to occur.

Variable lease costs for the Company’s lease consists of operating expenses for the spaces.

Below is a summary of the Company’s

right-of-use assets and liabilities:

December 31, 2019

September 30, 2020

Right-of-use asset –

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Weighted-average discount rate

the six months ended June 30, 2020, the Company recognized $26,214 in operating lease expense, which is included in general and

administrative expenses in the Company’s consolidated statement of operations.

the nine months ended September 30, 2020, the Company recognized $39,321 in operating lease expense, which is included in general

and administrative expenses in the Company’s consolidated statement of operations.

RELATED PARTY TRANSACTIONS

June 30, 2020 and December 31, 2019, the Company owed UCL Consultants Limited (“UCL”) $223,562 and $9,379, respectively,

September 30, 2020 and December 31, 2019, the Company owed UCL Consultants Limited (“UCL”) $9,132 and $9,379, respectively,

in connection with medical research performed on behalf of the Company.

During the six months ending June 30, 2020 and 2019, the

Company paid UCL $0 and $77,328, respectively, for medical research performed on behalf of the Company.

UCL is a wholly owned

subsidiary of the University of London.

The Company’s Chief Scientific and Manufacturing Officer is a professor at the University

June 30, 2020 and December 31, 2019, the Company owed CTI $0 and $280,723, respectively, for medical research performed on behalf

of the Company.

During the six months ending June 30, 2020 and 2019, the Company paid CTI $126,850 and $993,052, respectively,

for medical research performed on behalf of the Company.

During the six months ended June 30, 2020 and 2019, the Company paid

CTI $25,392 and $24,653, respectively, pursuant to its sublease agreement with CTI.

During the six months ended June

30, 2020, the Company recorded a capital contribution of $215,761 for the forgiveness of certain accounts payable due to CTI.

During the nine months ending September 30, 2020 and 2019,

the Company paid UCL $334,738 and $291,622, respectively, for medical research performed on behalf of the Company.

UCL is a wholly

owned subsidiary of the University of London.

The Company’s Chief Scientific and Manufacturing Officer is a professor at

the University of London.

September 30, 2020 and December 31, 2019, the Company owed CTI $0 and $280,723, respectively, for medical research performed on

behalf of the Company.

During the nine months ending September 30, 2020 and 2019, the Company paid CTI $126,850 and $1,060,110,

respectively, for medical research performed on behalf of the Company.

During the nine months ended September 30, 2020 and 2019,

the Company paid CTI $25,392 and $24,653, respectively, pursuant to its sublease agreement with CTI.

During the nine

months ended September 30, 2020, the Company recorded a capital contribution of $215,761 for the forgiveness of certain accounts

payable due to CTI.

STOCKHOLDERS’

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of offering costs).

the six months ended June 30, 2020, the Company issued 196,000 shares of its common stock to Lincoln Park for $1,002,644 of cash.

At June 30, 2020, Lincoln Park is obligated to purchase up to $18.7 million worth of the Company’s common stock.

the nine months ended September 30, 2020, the Company issued 196,000 shares of its common stock to Lincoln Park for $1,002,644

At September 30, 2020, Lincoln Park is obligated to purchase up to $18.7 million worth of the Company’s common

contemplated by the securities purchase agreement with Lincoln Park, and so long as the closing price of the Company’s common

stock exceeds $3.50 per share, then the Company may direct Lincoln Park, at its sole discretion to purchase up to 20,000 shares

of its common stock on any business day.

The purchase price will be based on the market prices of the common stock at the time

of such purchases as set forth in the securities purchase agreement.

addition to regular purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or

as additional purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the purchase

There are no trading volume requirements or restrictions under the purchase agreement nor any upper limits on the price

per share that Lincoln Park must pay for shares of common stock.

stock exceeds $3.50 per share, then the Company may, subject to the terms and conditions of the Agreement, direct Lincoln Park,

at its sole discretion to purchase up to 20,000 shares of its common stock on any business day.

The purchase price will be based

on the market prices of the common stock at the time of such purchases as set forth in the securities purchase agreement.

addition to regular purchases, the Company may, subject to the terms and conditions of the Agreement, also direct Lincoln Park

to purchase other amounts as accelerated purchases or as additional purchases if the closing sale price of the common stock exceeds

certain threshold prices as set forth in the purchase agreement.

There are no trading volume requirements or restrictions under

the purchase agreement nor any upper limits on the price per share that Lincoln Park must pay for shares of common stock.

and retirement of common stock

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At the Market Offering

April 2020, the Company entered into a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market

(“ATM”) offering program.

During April 2020, the Company entered into

a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market (“ATM”) offering

The sales agreement with BTIG was subsequently amended during August 2020.

The Company was required to pay BTIG a commission

2 unchanged sentences

the sale of all of the shares under the ATM program or the termination of the sales agreement by the Company or BTIG.

inception of the agreement through June 30, 2020, the Company sold 150,682 shares of common stock at an average price of $5.44

per share for gross proceeds of approximately $0.8 million (net proceeds of $0.7 million).

inception of the agreement through September 30, 2020, the Company sold 178,600 shares of common stock at an average price of

$5.45 per share for gross proceeds of $972,879 (net proceeds of $812,828), of which 150,682 shares were sold for gross proceeds

of $820,319 (net proceeds $664,845) during the three months ended June 30, 2020 and 27,918 shares were sold for gross proceeds

of $152,560 (net proceeds of $147,983) during the three months ended September 30, 2020.

Pursuant to the ATM, the Company paid

BTIG commissions and fees of $74,610 during the three months ended June 30, 2020 and $4,577 during the three months ended September

Stock Offering

July 2020, the Company completed an underwritten public offering in which it sold 2,500,000 shares of common stock at a public

offering price of $10.00 per share.

The 2,500,000 shares sold included the full exercise of the underwriters’

purchase 326,086 shares at a price of $10.00 per share.

Aggregate net proceeds from the underwritten public offering were $23.1

million, net of approximately $1.9 million in underwriting discounts and commissions and offering expenses.

Stock Issued for Services

During July 2020, the Company granted a consultant

50,000 fully vested warrants with a 5-year term, of which 25,000 warrants had an exercise price of $5.50 per share and 25,000

warrants had an exercise price of $10.00 per share.

The fair value of these warrants was $356,874 based on the Black-Scholes Option

Pricing Model and was recorded within general and administrative expense.

The assumptions used for these warrants consist of the

exercise prices, expected dividends of 0%, expected volatility of 111.67% based on the trading history of similar companies, risk-free

rate of 0.30% based on the applicable US Treasury bill rate and an expected life of 5.0 years.

During July 2020, the Company issued

the consultant 20,000 shares of common stock and cancelled the 50,000 warrants.

The 20,000 shares were issued from the Company’s

2019 Incentive Stock Plan and had a fair value of approximately $230,000 based on the market value of the Company’s common

stock on the grant date.

The Company accounted for the exchange of the warrants for shares of common stock as a modification and

recorded no additional expense in connection with the exchange as the fair value of warrants exceeded the fair value of the shares

Stock Issuable

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its initial public offering, which occurred during February 2019, after which the Company will deliver the shares to the individual.

The obligation was recorded as common stock issuable of $50,000 as of June 30, 2020 and December 31, 2019, respectively, pending

delivery of the shares to the individual after the restriction period expires.

following table summarizes stock option activity during the six months ended June 30, 2020:

Weighted- average

The obligation was recorded as common stock issuable of $50,000 as of September 30, 2020 and December 31, 2019, respectively,

pending delivery of the shares to the individual after the restriction period expires.

September 2020, the Company granted an employee options to purchase 40,000 shares of its common stock pursuant to the 2019 Incentive

The stock options have a fair value of $339,731 that was calculated using the Black-Scholes option-pricing model.

Variables used in the Black-Scholes option-pricing model include:

(1) discount rate of 0.46% based on the applicable US Treasury

bill rate (2) expected life of 6.25 years, (3) expected volatility of approximately 106% based on the trading history of similar

companies, and (4) zero expected dividends.

following table summarizes stock option activity during the nine months ended September 30, 2020:

Weighted-average

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Options cancelled

Outstanding at June 30, 2020

Exercisable at June 30, 2020

the six months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $1,363,410 and $1,949,395,

at September 30, 2020

the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $2,052,192 and $2,924,091,

respectively, related to stock options.

As of June 30, 2020, there was $5,129,479 of total unrecognized compensation cost related

to non-vested stock options which is expected to be recognized over a weighted-average period of 2.24 years.

As of September 30, 2020, there was $4,780,427 of total unrecognized compensation cost

related to non-vested stock options which is expected to be recognized over a weighted-average period of 2.17 years.

connection with the Company’s initial public offering in February 2019, the Company issued warrants to the placement agents

1 unchanged sentence

exercisable until December 19, 2023.

These warrants had no intrinsic value as of June 30, 2020.

During July 2020, 6,147 of these warrants were exercised on a cashless basis in exchange

for 2,400 shares of the Company’s common stock.

At September 30, 2020, 34,835 of these warrants are outstanding and the

intrinsic value is $24,733.

October 2017, in connection with the Xencor License Agreement, the Company issued fully vested warrants to purchase an additional

number of shares of common stock equal to 10% of the fully diluted Company shares immediately following such purchase.

These warrants had no intrinsic value as of June 30, 2020.

These warrants had an intrinsic value of $9,479,920 as of September 30, 2020.

June 30, 2017, the Company issued fully vested warrants with a maturity date of June 30, 2022 and an exercise price of $1.50 to

purchase 31,667 shares of the Company’s common stock to a third party in conjunction with common stock sold for cash.

warrants had an intrinsic value of $118,751 as of June 30, 2020.

warrants had an intrinsic value of $278,986 as of September 30, 2020.

Compensation by Class of Expense

following summarizes the components of stock-based compensation expense in the consolidated statements of operations for the three

and six months ended June 30, 2020 and 2019 respectively:

Six Months Ended

and nine months ended September 30, 2020 and 2019 respectively:

September 30,

Research and development

4 unchanged sentences

The endowment was awarded under the Part the Cloud to RESCUE grant.

During the six months ending June 30, 2020 and 2019, the Company received $0 and $600,000, respectively, related to the grant,

which the Company recorded as a reduction of research and development expense.

As of June 30, 2020, the Company has received $850,000

of cash proceeds pursuant to this grant.

During July 2020, the Company received the final payment tranche of $150,000 from the

Alzheimer’s Association.

the six months ended June 30, 2020, the Company was awarded a $500,000 grant from the Amyotrophic Lateral Sclerosis (ALS)

Association to fund a study of the efficacy of XPro1595 to reverse ALS in vitro and to fund a study of the efficacy of

XPro1595 to protect against ALS model phenotypes in vivo.

During the six months ended June 30, 2020, the Company received

$300,000 of cash proceeds pursuant to this grant which the Company recorded as deferred liabilities on the balance sheet as

of June 30, 2020.

The Company expects to incur costs in connection with the ALS research beginning in the third quarter of

2020, of which the expenses will be offset by the grant.

In the event costs incurred for the ALS research are less than the

grant, the remainder would be returned to the ALS Association.

SUBSEQUENT EVENTS

From July 1, 2020 through the date of the issuance of this Quarterly Report on Form 10-Q, the Company sold 27,919 shares of common

stock at an average price of $5.46 for net proceeds of approximately $0.1 million under the ATM offering.

July 2020, the Company completed an underwritten public offering in which it sold 2,500,000 shares of common stock at a public

offering price of $10.00 per share.

The 2,500,000 shares sold included the full exercise of the underwriters’

purchase 326,086 shares at a price of $10.00 per share.

Aggregate net proceeds from the underwritten public offering were $23.1

million, net of approximately $1.9 million in underwriting discounts and commissions and offering expenses.

During July 2020, the Company granted a consultant

50,000 fully vested warrants with a 5-year term, of which 25,000 warrants had an exercise price of $5.50 per share and 25,000 warrants

had an exercise price of $10.00 per share.

The fair value of these warrants was approximately $0.4 million.

During July 2020, the

Company issued the consultant 20,000 shares of common stock with a fair value of approximately $0.2 million and cancelled the 50,000

The 20,000 shares were issued from the Company’s 2019 Incentive

Stock Plan of which the Stock Plan was approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders

held on September 12, 2019.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains

certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

For this purpose,

any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements.

During the nine months ending September 30, 2020 and 2019, the Company received $150,000 and $600,000, respectively, related to

the grant, which the Company recorded as a reduction of research and development expense.

As of September 30, 2020, the Company

has received $1,000,000 of cash proceeds from the Alzheimer’s Association and no additional amounts are available to the

Company pursuant to this grant.

the nine months ended September 30, 2020, the Company was awarded a $500,000 grant from the Amyotrophic Lateral Sclerosis (“ALS”)

Association to fund a study of the efficacy of XPro1595 to reverse ALS in vitro and to fund a study of the efficacy of XPro1595

to protect against ALS model phenotypes in vivo.

During the nine months ended September 30, 2020, the Company received $300,000

of cash proceeds pursuant to this grant which the Company recorded as deferred liabilities.

During the three and nine months ended

September 30, 2020, the Company recorded $110,878 as a reduction of deferred liabilities as a result of incurring costs related

to the ALS grant.

As of September 30, 2020, the Company recorded $189,122 as deferred liabilities in the consolidated balance

sheet related to the ALS grant.

During September 2020, the Company was awarded

a grant of up to $2.9 million from the National Institutes of Health (NIH), of which the Company expects to receive approximately

$0.7 million in 2020, approximately $1.2 million in 20201 and approximately $1.0 million in 2022.

The grant will support a Phase

2 study of XPro1595 in patients with treatment resistant depression.

As of September 30, 2020, the Company has not received any

proceeds pursuant to this grant.

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

Forward-Looking

Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking

Without limiting the foregoing, words such as “may,”

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or “continue”

or comparable terminology are intended to identify forward-looking

These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially

depending on a variety of factors, many of which are not within our control.

These factors include but are not limited to economic

conditions generally and in the industries in which we may participate;

competition within our chosen industry, including competition

from much larger competitors;

or comparable terminology are intended to identify

forward-looking statements.

These statements by their nature involve substantial risks and uncertainties, and actual results may

differ materially depending on a variety of factors, many of which are not within our control.

These factors include but are not

limited to economic conditions generally and in the industries in which we may participate;

competition within our chosen industry,

including competition from much larger competitors;

technological advances and failure to successfully develop business relationships.

Description of Business

We are a clinical-stage

immunotherapy company focused on reprogramming the patient’s innate immune system to treat disease.

We do this by targeting

cells of the innate immune system that cause acute and chronic inflammation and are involved in the immune dysfunction associated

with chronic diseases such as cancer, neurodegenerative, metabolic and infectious diseases.

The Company has two therapeutic platforms

dominant-negative TNF platform (“DN-TNF”) and the Natural Killer (“NK”) platform.

The DN-TNF platform

neutralizes soluble TNF (“sTNF”) without affecting trans-membrane TNF (“tmTNF”) or the receptors TNFR1

This unique biologic mechanism differentiates the DN-TNF drugs from currently approved non-selective TNF inhibitors

that inhibit the function of both sTNF and tmTNF.

Protecting the function of tmTNF while neutralizing the function of sTNF is a

potent anti-inflammatory drug that does not cause immunosuppression or demyelination.

Currently approved non-selective TNF inhibitors

are approved to treat autoimmune disease, however they are contraindicated in patients with infection, cancer and neurologic diseases

because they increase the risk of infection, cancer and demyelinating neurologic diseases, respectively, because of off-target

effects on inhibiting tmTNF.

The NK platform targets the dysfunctional natural killer cells (“NK cells”) in patients

NK cells are part of the normal immunologic response to cancer with important roles in immunosurveillance to prevent

cancer and in preventing relapse by clearing residual disease.

Residual disease is the cancer left behind, often undetected, that

can grow and cause relapse.

The NK cells of cancer patients have the ability to kill cancer cells but are not effective because

cancer cells mutate to evade NK cell immune surveillance.

INKmune provides the missing signals needed to prime NK cells to overcome

the immune evasion mutation to allow NK cells to kill the cancer cell.

We believe INKmune is best used to eliminate residual disease

after the patient has completed other cancer therapies.

Both the DN-TNF platform and the INKmune platform can be used to treat

multiple diseases.

The DN-TNF platform will be used as an immunotherapy for the treatment of cancer, neurodegenerative, metabolic

and infectious diseases.

INKmune is being developed to treat NK sensitive hematologic malignancies and solid tumors.

We believe our DN-TNF

platform can be used to reverse resistance in immunotherapy, to target glial activation to prevent progression of Alzheimer’s

disease (“AD”), to target intestinal leak and inflammation to treat non-alcoholic steatohepatitis (“NASH”)

and to treat complications of the cytokine storm associated with COVID-19 infection.

The drug is named differently for each indication;

are a clinical-stage immunotherapy company focused on developing drugs that may reprogram the patient’s innate immune system

to treat disease.

We believe this may be done by targeting cells of the innate immune system that cause acute and chronic inflammation

and are involved in the immune dysfunction associated with chronic diseases such as cancer, neurodegenerative, metabolic and infectious

The Company has two therapeutic platforms –

dominant-negative TNF platform (“DN-TNF”) and the Natural

Killer (“NK”) platform.

The DN-TNF platform neutralizes soluble TNF (“sTNF”) without affecting trans-membrane

TNF (“tmTNF”) or the receptors TNFR1 and TNFR2.

This unique biologic mechanism differentiates the DN-TNF drugs from

currently approved non-selective TNF inhibitors that inhibit the function of both sTNF and tmTNF.

Protecting the function of tmTNF

while neutralizing the function of sTNF is a potent anti-inflammatory drug that does not cause immunosuppression or demyelination.

Currently approved non-selective TNF inhibitors are approved to treat autoimmune disease, however they are contraindicated in

patients with infection, cancer and neurologic diseases because they increase the risk of infection, cancer and demyelinating

neurologic diseases, respectively, because of off-target effects on inhibiting tmTNF.

The NK platform targets the dysfunctional

natural killer cells (“NK cells”) in patients with cancer.

NK cells are part of the normal immunologic response to

cancer with important roles in immunosurveillance to prevent cancer and in preventing relapse by clearing residual disease.

disease is the cancer left behind, often undetected, that can grow and cause relapse.

The NK cells of cancer patients have the

ability to kill cancer cells but are not effective because cancer cells mutate to evade NK cell immune surveillance.

INKmune provides

the missing signals needed to prime NK cells to overcome the immune evasion mutation to allow NK cells to kill the cancer cell.

We believe INKmune is best used to eliminate residual disease after the patient has completed other cancer therapies.

DN-TNF platform and the INKmune platform can be used to treat multiple diseases.

The DN-TNF platform will be used as an immunotherapy

for the treatment of cancer, neurodegenerative, metabolic and infectious diseases.

INKmune is being developed to treat NK sensitive

hematologic malignancies and solid tumors.

believe our DN-TNF platform can be used to reverse resistance in immunotherapy, to target glial activation to prevent progression

of Alzheimer’s disease (“AD”), to target intestinal leak and inflammation to treat non-alcoholic steatohepatitis

(“NASH”) and to treat complications of the cytokine storm associated with COVID-19 infection.

The drug is named differently

for each indication;

INB03, XPro1595, LIVNate and Quellor, respectively, but it is the same drug product.

In each case, we believe neutralizing sTNF

is a cornerstone to the treatment of each of these diseases.

As an immunotherapy for cancer, we are using INB03 to neutralize sTNF

produced by HER2+ trastuzumab resistant breast cancers to reverse resistance to therapy.

sTNF causes an up-regulation of MUC4 expression

that causes steric hindrance of trastuzumab binding to the HER2/Neu receptor on HER2+ breast cancer cells.

Without binding, trastuzumab

is not effective.

In addition, INB03 changes the immunobiology of the tumor microenvironment by decreasing the number of immunosuppressive

myeloid cells, both myeloid derived suppressor cells and tumor active macrophages, and increasing the number of cytotoxic lymphocytes

The Company has completed an open label dose escalation trial in cancer patients with metastatic solid tumors that

have failed multiple lines of therapy.

The trial informs the design of the Phase II trial by demonstrating that INB03 was safe

and well tolerated, defined the dose of INB03 to carry into Phase II trials, and demonstrated a pharmacodynamic end-point.

II trial is planned in women with advanced HER2+ breast cancer with metastasis.

Likewise, we believe

the DN-TNF platform can be used to treat selected neurodegenerative diseases.

XPro1595 is being used to treat patients with Alzheimer’s

disease in a Phase I trial partially funded by a Part-the-Clouds Award from the Alzheimer’s Association.

XPro1595 targets

activated microglia and astrocytes of the brain that produce sTNF that promotes nerve cell loss and synaptic dysfunction, key elements

in the development of dementia.

In animal models, elimination of sTNF prevents nerve cell dysfunction and reverses synaptic pruning.

In each case, we believe

neutralizing sTNF is a cornerstone to the treatment of each of these diseases.

As an immunotherapy for cancer, we are using INB03

to neutralize sTNF produced by HER2+ trastuzumab resistant breast cancers to reverse resistance to therapy.

sTNF causes an up-regulation

of MUC4 expression that causes steric hindrance of trastuzumab binding to the HER2/Neu receptor on HER2+ breast cancer cells.

Without binding, trastuzumab is not effective.

In addition, INB03 changes the immunobiology of the tumor microenvironment by decreasing

the number of immunosuppressive myeloid cells, both myeloid derived suppressor cells and tumor active macrophages, and increasing

the number of cytotoxic lymphocytes in the TME.

The Company has completed an open label dose escalation trial in cancer patients

with metastatic solid tumors that have failed multiple lines of therapy.

The trial informs the design of the Phase II trial by

demonstrating that INB03 was safe and well tolerated, defined the dose of INB03 to carry into Phase II trials, and demonstrated

a pharmacodynamic end-point.

A Phase II trial is planned in women with advanced HER2+ breast cancer with metastasis.

we believe the DN-TNF platform can be used to treat selected neurodegenerative diseases.

XPro1595 is being used to treat patients

with Alzheimer’s disease in a Phase I trial partially funded by a Part-the-Clouds Award from the Alzheimer’s Association.

XPro1595 targets activated microglia and astrocytes of the brain that produce sTNF that promotes nerve cell loss and synaptic

dysfunction, key elements in the development of dementia.

In animal models, elimination of sTNF prevents nerve cell dysfunction

and reverses synaptic pruning.

The Phase I trial in patients with biomarkers of inflammation with AD is enrolling patients.

The open label, dose escalation trial

is designed to demonstrate that XPro1595 decreases neuroinflammation in patients with AD.

This end-points of the trial are measures

of neuroinflammation and neurodegeneration in blood and cerebral spinal fluid, measures of neuroinflammation by MRI by measuring

white matter free water and breath by measuring volatile organic compounds in exhaled breath and by monitoring neuropsychiatric

symptoms known to be associated with neuroinflammation including depression, apathy, aggression, hallucinations and sleep disorders.

Likewise, we believe

the DN-TNF platform can be used to treat selected metabolic diseases.

LIVNate is being developed to treat NASH.

NASH is a pleiotropic

disease caused by a complex mix of metabolic, inflammatory and fibrotic pathophysiology.

We believe targeting inflammation caused

by intestinal leak, mesenteric and peripheral fat will prevent lipotoxicity, hepatic stellate cell activation and hepatocyte death

that causes fibrosis and liver dysfunction associated with advanced disease.

sTNF is elevated in obesity and is believed to cause

intestinal leak.

Intestinal leak combined with cytokines coming from mesenteric fat may dramatically increase the concentration

of inflammatory cytokines in portal blood destined for the liver.

The cytokine load contributes to the development of non-alcoholic

fatty liver disease (“NAFLD”) and progression to NASH.

LIVNate, by neutralizing sTNF improves insulin sensitivity,

decreases the inflammation in peripheral and mesenteric fat and may also seal the intestinal leak.

This combination prevents development

of NAFLD or NASH in animal models.

The Company is planning a Phase II open label randomized study using non-invasive measures to

enroll patients with NASH in a study using a fixed dose of LIVNate delivered as a once a week sub-cutaneous injection.

Likewise, we believe

the DN-TNF platform can be used to treat the complications associated with the cytokine storm caused by coronavirus disease 2019

(“COVID-19”).

Three inflammatory cytokines make up the cytokine storm associated with COVID19 infection –

IL-6 and IL-1β.

Targeting sTNF with Quellor may have advantages because IL-6 and IL-1 expression occur after sTNF expression;

sTNF promotes endothelial activation causing expression of proteins that promote trafficking of immune cells from the blood vessel

to the tissue and expression of Tissue Factor that stimulates the coagulopathy that is a prominent pathology of COVID-19 infection.

open label, dose escalation trial is designed to demonstrate that XPro1595 decreases neuroinflammation in patients with AD.

end-points of the trial are measures of neuroinflammation and neurodegeneration in blood and cerebral spinal fluid, measures of

neuroinflammation by MRI by measuring white matter free water and breath by measuring volatile organic compounds in exhaled breath

and by monitoring neuropsychiatric symptoms known to be associated with neuroinflammation including depression, apathy, aggression,

hallucinations and sleep disorders.

addition, we believe the DN-TNF platform can be used to treat selected metabolic diseases.

LIVNate is being developed to treat

NASH is a pleiotropic disease caused by a complex mix of metabolic, inflammatory and fibrotic pathophysiology.

targeting inflammation caused by intestinal leak, mesenteric and peripheral fat will prevent lipotoxicity, hepatic stellate cell

activation and hepatocyte death that causes fibrosis and liver dysfunction associated with advanced disease.

sTNF is elevated

in obesity and is believed to cause intestinal leak.

Intestinal leak combined with cytokines coming from mesenteric fat may dramatically

increase the concentration of inflammatory cytokines in portal blood destined for the liver.

The cytokine load contributes to

the development of non-alcoholic fatty liver disease (“NAFLD”) and progression to NASH.

LIVNate, by neutralizing sTNF

improves insulin sensitivity, decreases the inflammation in peripheral and mesenteric fat and may also seal the intestinal leak.

This combination prevents development of NAFLD or NASH in animal models.

The Company is planning a Phase II open label randomized

study using non-invasive measures to enroll patients with NASH in a study using a fixed dose of LIVNate delivered as a once a

week sub-cutaneous injection.

also believe the DN-TNF platform may be used to treat the complications associated with the cytokine storm caused by coronavirus

disease 2019 (“COVID-19”).

Three inflammatory cytokines make up the cytokine storm associated with COVID19 infection

sTNF, IL-6 and IL-1β.

Targeting sTNF with Quellor may have advantages because IL-6 and IL-1 expression occur after

sTNF expression;

sTNF promotes endothelial activation causing expression of proteins that promote trafficking of immune cells

from the blood vessel to the tissue and expression of Tissue Factor that stimulates the coagulopathy that is a prominent pathology

of COVID-19 infection.

The Company plans a Phase II trial in patients with symptomatic COVID-19 infection and hypoxia.

The goal of the study is to prevent

the catastrophic complications of advanced COVID-19 infection including one or more of the need for mechanical ventilation, new

onset of cardiovascular, neurologic or thromboembolic disease, admission to an intensive care unit or death.

The randomized trial

will treat patients requiring hospitalization because of their disease.

We believe that INKmune

improves the ability of the patient’s own NK cells to attack their tumor.

INKmune interacts with the patient’s NK cells

to convert them from inert resting NK cells that ignores the cancer into primed NK cells that kill the cancer cell.

a replication incompetent proprietary cell line we have named INB16 that is given to the patient after determining that i) the

patient has adequate NK cells in their circulation and ii) those NK cells are functional when exposed to INKmune in vitro.

is designed to be given to patients after their immune system has recovered after cytotoxic chemotherapy to target the residual

disease the remains after treatment with cytotoxic therapy.

INKmune can be used to treat numerous hematologic malignancies

and solid tumors including leukemia, multiple myeloma, lymphoma, lung, ovary, breast, renal and prostate cancer.

The Company plans

Phase I trials using INKmune to treat patients with high risk MDS, a form of leukemia and women with relapsed refractory ovarian.

Since our inception

in 2015, we have devoted substantially all of our resources to the discovery and development of our product candidates, including

clinical trials and preclinical studies as well as general and administrative support for these operations.

To date, we have generated

We have incurred net losses in each year since our inception and, as of June 30, 2020, we had an accumulated deficit

of $25,454,392.

Our net losses were $4,178,211 and $2,293,128 for the six months ended June 30, 2020 and 2019, respectively.

Substantially

all of our net losses resulted from costs incurred in connection with our research and development programs and from general and

administrative costs associated with our operations, including stock-based compensation.

We classify our operating

expenses into two categories:

of the study is to prevent the catastrophic complications of advanced COVID-19 infection including one or more of the need for

mechanical ventilation, new onset of cardiovascular, neurologic or thromboembolic disease, admission to an intensive care unit

The randomized trial will treat patients requiring hospitalization because of their disease.

believe that INKmune improves the ability of the patient’s own NK cells to attack their tumor.

INKmune interacts with the

patient’s NK cells to convert them from inert resting NK cells that ignores the cancer into primed NK cells that kill the

INKmune is a replication incompetent proprietary cell line we have named INB16 that is given to the patient after

determining that i) the patient has adequate NK cells in their circulation and ii) those NK cells are functional when exposed

to INKmune in vitro.

INKmune is designed to be given to patients after their immune system has recovered after cytotoxic chemotherapy

to target the residual disease the remains after treatment with cytotoxic therapy.

INKmune can be used to treat numerous

hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung, ovary, breast, renal and prostate

The Company plans Phase I trials using INKmune to treat patients with high risk MDS, a form of leukemia and women with

relapsed refractory ovarian.

our inception in 2015, we have devoted substantially all of our resources to the discovery and development of our product candidates,

including clinical trials and preclinical studies as well as general and administrative support for these operations.

we have generated no revenue.

We have incurred net losses in each year since our inception and, as of September 30, 2020, we had

an accumulated deficit of $30,171,054.

Our net losses were $8,894,873 and $5,360,094 for the nine months ended September 30, 2020

and 2019, respectively.

Substantially all of our net losses resulted from costs incurred in connection with our research and development

programs and from general and administrative costs associated with our operations, including stock-based compensation.

Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic

on the Company’s business is highly uncertain and difficult to predict.

Also, economies worldwide have also been negatively

impacted by the COVID-19 pandemic, however policymakers around the globe have responded with fiscal policy actions to support

the healthcare industry and economy as a whole.

The magnitude and overall effectiveness of these actions remain uncertain.

addition, the Company’s clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment have and may continue to be delayed due to prioritization of hospital resources

toward the COVID-19 pandemic.

Some patients have not and others may not be able to comply with clinical trial protocols if quarantines

impede patient movement or interrupt healthcare services.

Similarly, the ability to recruit and retain patients and principal

investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the

Company’s clinical trial operations.

severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including,

but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s

service providers, suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all

of which are uncertain and cannot be predicted.

As of the date of issuance of Company’s financial statements, the extent

to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations

is uncertain.

classify our operating expenses into two categories:

research and development;

and general and administrative expenses.

Personnel costs including salaries,

benefits and stock-based compensation expense comprise a significant component of our research and development and general and

administrative expense categories.

We qualify as an “emerging

growth company”

costs including salaries, benefits and stock-based compensation expense comprise a significant component of our research and development

and general and administrative expense categories.

qualify as an “emerging growth company”

under the JOBS Act.

As an emerging growth company, we may take advantage of specified reduced disclosure

and other requirements that are otherwise applicable generally to public companies.

These provisions include:

only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

reduced disclosure about our executive compensation arrangements;

no non-binding advisory votes on executive compensation or golden parachute arrangements;

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

delaying the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

We have elected to

take advantage of the above-referenced exemptions and we may take advantage of these exemptions for up to five years or such earlier

time that we are no longer an emerging growth company.

We would cease to be an emerging growth company if we have more than $1.07

billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more

than $1 billion of non-convertible debt over a three-year period.

We may choose to take advantage of some but not all of these

reduced burdens.

first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020.

As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served.

considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts

on the Company’s results of operations and financial position at June 30, 2020.

The full extent of the future impacts of

COVID-19 on the Company’s operations is uncertain.

A prolonged outbreak could have a material adverse impact on financial

results and business operations of the Company, including the timing and ability of Company to complete certain clinical trials

and other efforts required to advance the development of its drug platforms.

Bio is also initiating a clinical program to determine if the Company’s TNF Inhibitor (DN-TNF) platform may prevent complications

of cytokine storm from COVID-19.

Research and Development

Research and development

expense consists of expenses incurred while performing research and development activities to discover and develop our product

This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities

related to regulatory filings for product candidates.

As an emerging growth company, we may take advantage of

specified reduced disclosure and other requirements that are otherwise applicable generally to public companies.

These provisions

only two years of

audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced

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

reduced disclosure

about our executive compensation arrangements;

no non-binding advisory

votes on executive compensation or golden parachute arrangements;

exemption from the

auditor attestation requirement in the assessment of our internal control over financial reporting;

delaying the adoption

of new or revised accounting standards that have different effective dates for public and private companies until those standards

apply to private companies.

have elected to take advantage of the above-referenced exemptions and we may take advantage of these exemptions for up to five

years or such earlier time that we are no longer an emerging growth company.

We would cease to be an emerging growth company if

we have more than $1.07 billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates,

or we issue more than $1 billion of non-convertible debt over a three-year period.

We may choose to take advantage of some but

not all of these reduced burdens.

and Development

and development expense consists of expenses incurred while performing research and development activities to discover and develop

our product candidates.

This includes conducting preclinical studies and clinical trials, manufacturing development efforts and

activities related to regulatory filings for product candidates.

We recognize research and development expenses as they are incurred.

research and development expense primarily consist of:

clinical trial and regulatory-related costs;

expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials;

manufacturing and testing costs and related supplies and materials;

employee-related expenses, including salaries, benefits, travel and stock-based compensation

We typically use our

employee, consultant and infrastructure resources across our development programs.

We track outsourced development costs by product

candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to

specific product candidates or development programs.

Our research and development expense primarily consist of:

trial and regulatory-related costs;

incurred under agreements with investigative sites and consultants that conduct our clinical trials;

manufacturing

and testing costs and related supplies and materials;

employee-related

expenses, including salaries, benefits, travel and stock-based compensation.

typically use our employee, consultant and infrastructure resources across our development programs.

We track outsourced development

costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant

costs to specific product candidates or development programs.

participate, through our wholly-owned subsidiary in Australia, in the Australian research and development tax incentive program,

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such incentives are reflected as a reduction of research and development expense.

The Australian research and development tax incentive

is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred

and the amount of the consideration can be reliably measured.

The Australian research and development tax

incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been

incurred and the amount of the consideration can be reliably measured.

participate, through our wholly-owned subsidiary in the United Kingdom, in the research and development program provided by the

3 unchanged sentences

the relevant expenditure has been incurred and the amount of the consideration can be reliably measured.

Substantially all of

our research and development expenses to date have been incurred in connection with our current and future product candidates.

Substantially

all of our research and development expenses to date have been incurred in connection with our current and future product candidates.

We expect our research and development expenses to increase significantly for the foreseeable future as we advance an increased

6 unchanged sentences

estimate the nature, timing or costs required to complete the remaining development of any product candidates.

This is due to the

numerous risks and uncertainties associated with the development of product candidates.

The costs of clinical

trials may vary significantly over the life of a project owing to, but not limited to, the following:

per patient trial costs;

the number of sites included in the clinical trials;

the countries in which the clinical trials are conducted;

the length of time required to enroll eligible patients;

the number of patients that participate in the clinical trials;

the number of doses that patients receive;

the cost of comparative agents used in clinical trials;

the drop-out or discontinuation rates of patients;

potential additional safety monitoring or other studies requested by regulatory agencies;

the duration of patient follow-up;

the efficacy and safety profile of the product candidate;

the cost of manufacturing, finishing, labelling and storage drug used in the clinical trial

We do not expect any

of our product candidates to be commercially available for at least the next several years, if ever.

We expect to continue to incur

significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter

and year-to-year.

This is due to

the numerous risks and uncertainties associated with the development of product candidates.

costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

patient trial costs;

number of sites included in the clinical trials;

countries in which the clinical trials are conducted;

length of time required to enroll eligible patients;

number of patients that participate in the clinical trials;

number of doses that patients receive;

cost of comparative agents used in clinical trials;

drop-out or discontinuation rates of patients;

additional safety monitoring or other studies requested by regulatory agencies;

duration of patient follow-up;

efficacy and safety profile of the product candidate;

cost of manufacturing, finishing, labelling and storage drug used in the clinical trial.

do not expect any of our product candidates to be commercially available for at least the next several years, if ever.

to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly

from quarter-to-quarter and year-to-year.

We anticipate that our expenses will increase substantially as we:

continue research and development, including preclinical and clinical development of our existing product candidates;

potentially seek regulatory approval for our product candidates;

seek to discover and develop additional product candidates;

establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval;

seek to comply with regulatory standards and laws;

maintain, leverage and expand our intellectual property portfolio;

hire clinical, manufacturing, scientific and other personnel to support our product candidates development and future commercialization efforts;

add operational, financial and management information systems and personnel;

incur additional legal, accounting and other expenses in operating as a public company.

General and Administrative Expenses

General and administrative

expenses consist principally of payroll and personnel expenses, including stock-based compensation;

professional fees for legal,

consulting, accounting and tax services;

research and development, including preclinical and clinical development of our existing product candidates;

seek regulatory approval for our product candidates;

to discover and develop additional product candidates;

a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our

product candidates for which we may obtain regulatory approval;

to comply with regulatory standards and laws;

leverage and expand our intellectual property portfolio;

clinical, manufacturing, scientific and other personnel to support our product candidates development and future commercialization

operational, financial and management information systems and personnel;

additional legal, accounting and other expenses in operating as a public company.

and Administrative Expenses

and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation;

fees for legal, consulting, accounting and tax services;

overhead, including rent and utilities;

and other general operating expenses not otherwise

classified as research and development expenses.

Other income primarily consists of interest

income on money market accounts.

Results of Operations

Comparison of the Three Months Ended

June 30, 2020 and 2019

The following table summarizes our results

of operations for the periods indicated:

and other general operating expenses

not otherwise classified as research and development expenses.

income primarily consists of interest income on money market accounts, foreign exchange gain (loss) and other non-operating income

of Operations

of the Three Months Ended September 30, 2020 and 2019

following table summarizes our results of operations for the periods indicated:

Three Months Ended

September 30,

Operating expenses:

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Research and development

Waiver of common stock issuable

Total operating expenses

Loss from operations

Other (expense) income

General and Administrative

General and administrative expenses were

$1.2 million during the three months ended June 30, 2020, compared to $1.3 million during the three months ended June 30, 2019,

reflecting a decrease of approximately $0.1 million.

The decrease was largely attributable to the Company incurring lower investor

relations expense during the three months ended June 30, 2020, partially offset by higher salaries and benefits expense and higher

insurance expense during the three months ended June 30, 2020.

Research and Development

development expenses were approximately $0.9 million during the three months ended June 30, 2020, compared to

approximately $0.6 million during the three months ended June 30, 2019.

During the three months ended June 30, 2020 and

2019, the Company incurred approximately $0.1 million and $0.4 million, respectively of stock-based compensation which the

Company classified as research and development expenses.

Also, during the three months ending June 30, 2020 and 2019, the

Company recorded Nil and $0.3 million, respectively of grants which the Company recorded as a reduction of research and

development expenses.

The increase in research and development expenses during the three months ending June 30, 2020 compared

to the three months ending June 30, 2019 is largely due to additional amounts incurred for the advancement of our drug

Waiver of Common Stock Issuable

During the three

months ended June 30, 2019, the Company reversed $1.5 million of expense as a result of a consultant permanently waiving the

Company’s obligation to issue 200,000 shares owed to the consultant which were expensed in a prior period.

No similar transaction occurred during the three months ended June 30, 2020.

Other Expense (Income)

The Company incurred other

expense of $395 during the three months ended June 30, 2020 compared to other income of $36,340 during the three months ended June

30, 2019 as a result of foreign exchange losses and a decline in the amount the Company invested in money market accounts in addition

to a decline in the interest rates the Company earns on its money market accounts during the three months ended June 30, 2020.

Comparison of the Six Months Ended

June 30, 2020 and 2019

The following table summarizes our results

of operations for the periods indicated:

Six Months Ended

$ (4,716,662 )

$ (3,066,966 )

$ (1,649,696 )

and Administrative

and administrative expenses were $2.5 million during the three months ended September 30, 2020, compared to $1.9 million during

the three months ended September 30, 2019, reflecting an increase of approximately $0.6 million.

The increase was largely attributable

to the Company incurring additional professional fees ($0.6 million) and stock-based compensation ($0.4 million), partially offset

by lower investor relations expense ($0.5 million) during the three months ended September 30, 2020 compared to the three months

ended September 30, 2019.

and Development

and development expenses were approximately $2.4 million during the three months ended September 30, 2020, compared to approximately

$1.2 million during the three months ended September 30, 2019.

During the three months ended September 30, 2020 and 2019,

the Company incurred approximately $0.1 million and $0.4 million, respectively, of stock-based compensation, which the Company

classified as research and development expenses.

Also, during the three months ending September 30, 2020 and 2019, the Company

recorded $0.2 million and $Nil, respectively, of grants which the Company recorded as a reduction of research and development

The increase in research and development expenses during the three months ending September 30, 2020 compared to the

three months ending September 30, 2019 is due to additional amounts incurred for the advancement of our drug platform and due

to the Company incurring manufacturing costs in connection with producing its DN-TNF product.

income increased during the three months ended September 30, 2020 compared to 2019 as a result of the Company receiving a refund

pursuant to a release and settlement agreement from a third-party vendor of approximately $0.1 million for services provided in

a previous year.

of the Nine Months Ended September 30, 2020 and 2019

following table summarizes our results of operations for the periods indicated:

Nine Months Ended

September 30,

Operating expenses:

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Loss from operations

General and Administrative

General and administrative expenses were

$2.5 million during the six months ended June 30, 2020, compared to $2.6 million during the six months ended June 30, 2019, reflecting

a decrease of approximately $0.1 million.

The decrease was largely attributable to the Company incurring lower investor relations

expense during the six months ended June 30, 2020, partially offset by higher salaries and benefits expense and higher insurance

expense during the six months ended June 30, 2020.

Research and Development

Research and development expenses were

approximately $1.7 million during the six months ended June 30, 2020, compared to approximately $1.2 million during the six months

ended June 30, 2019.

During the six months ended June 30, 2020 and 2019, the Company incurred approximately $0.3 million

$ (8,894,873 )

$ (5,360,094 )

$ (3,534,779 )

and Administrative

and administrative expenses were $5.0 million during the nine months ended September 30, 2020, compared to $4.6 million during

the nine months ended September 30, 2019, reflecting an increase of approximately $0.4 million.

The increase was largely attributable

to the Company incurring higher professional fees ($0.6 million), stock-based compensation ($0.3 million) and salary and benefits

expense ($0.2 million), partially offset by lower investor relations expense ($1.0 million) during the nine months ended September

30, 2020 compared to the nine months ended September 30, 2019.

and Development

Research and development expenses were approximately

$4.1 million during the nine months ended September 30, 2020, compared to approximately $2.4 million during the nine months ended

September 30, 2019.

During the nine months ended September 30, 2020 and 2019, the Company incurred approximately $0.4 million

and $1.3 million, respectively, of stock-based compensation, which the Company classified as research and development expenses.

during the six months ending June 30, 2020 and 2019, the Company recorded Nil and $0.6 million, respectively of grants which the

Company recorded as a reduction of research and development expenses.

The increase in research and development expenses during

the six months ending June 30, 2020 compared to the six months ending June 30, 2019 is largely due to additional amounts incurred

for the advancement of our drug platform.

Waiver of Common Stock Issuable

During the six months ended June 30, 2019,

the Company reversed $1.5 million of expense as a result of a consultant permanently waiving the Company’s obligation to issue 200,000 shares

owed to the consultant which were expensed in a prior period.

No similar transaction occurred during the six months ended June 30, 2020.

Other income largely declined during the

six months ended June 30, 2020 compared to 2019 as a result of a decline in the amount the Company invested in money market accounts

in addition to a decline in the interest rates the Company earns on its money market accounts.

Liquidity and Capital Resources

Liquidity is the ability

of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an

ongoing basis.

We incurred a net loss

of $4,178,211 and $2,293,128 for the six months ended June 30, 2020 and 2019, respectively.

Net cash used in operating activities

was $2,853,094 and $3,005,525 for the six months ended June 30, 2020 and 2019, respectively.

inception, we have funded our operations primarily with proceeds from the sales of our common stock.

As of June 30, 2020, we had

Also, during the nine months ending September 30, 2020 and 2019, the Company recorded $0.2 and $0.6 million, respectively, of grants

which the Company recorded as a reduction of research and development expenses.

The increase in research and development expenses

during the nine months ending September 30, 2020 compared to the nine months ending September 30, 2019 is largely due to additional

amounts incurred for the advancement of our drug platform and due to the Company incurring manufacturing costs in connection with

producing its DN-TNF product.

of Common Stock Issuable

the nine months ended September 30, 2019, the Company reversed $1.5 million of expense as a result of a consultant permanently

waiving the Company’s obligation to issue 200,000 shares owed to the consultant which were expensed in a prior period.

similar transaction occurred during the nine months ended September 30, 2020.

income increased during the nine months ended September 30, 2020 compared to 2019 as a result of the Company receiving a refund

from a third-party vendor pursuant to a release and settlement agreement of approximately $0.1 million for services provided in

a previous year.

and Capital Resources

is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise

operate on an ongoing basis.

incurred a net loss of $8,894,873 and $5,360,094 for the nine months ended September 30, 2020 and 2019, respectively.

used in operating activities was $6,550,933 and $4,951,286 for the nine months ended September 30, 2020 and 2019, respectively.

Since inception, we have funded our operations primarily with proceeds from the sales of our common stock.

As of September 30,

2020, we had cash and cash equivalents of $24.3 million.

We anticipate that operating losses and net cash used in operating activities

will increase over the next few years as we advance our products under development.

primary uses of capital are, and we expect will continue to be, third-party clinical and preclinical research and development

services, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs.

our use of CROs provides us with flexibility in managing our spending.

Company incurs the majority of its research and development expenses in Australia and the United Kingdom.

Fluctuations in the

rate of exchange between the United States dollar and the pound sterling as well as the Australian dollar could adversely

affect our financial results, including our expenses as well as assets and liabilities.

We currently do not hedge foreign currencies

but will continue to assess whether that strategy is appropriate.

As of September 30, 2020, the cash balance held by our foreign

subsidiaries with currencies other than the United States dollar was approximately $0.6 million.

We do not have any material financial

exposure to one customer or one country that would significantly hinder our liquidity.

a publicly traded company, we incur significant legal, accounting and other expenses.

In addition, the Sarbanes-Oxley Act

of 2002, as well as rules adopted by the SEC and The Nasdaq Stock Market, require public companies to implement specified

corporate governance practices that were inapplicable to us as a private company.

We expect these rules and regulations will

increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

As of September 30, 2020, the Company had

an accumulated deficit of $30,171,054 and working capital of $24,662,948.

Losses have principally occurred as a result of stock-based

compensation expense as well as the substantial resources required for research and development of the Company’s products

which included the general and administrative expenses associated with its organization and product development, as well as the

lack of sources of revenues until such time as the Company’s products are commercialized.

As of September 30, 2020, we had

cash and cash equivalents of $24.3 million.

We anticipate that operating losses and net cash used in operating activities will increase

over the next few years as we advance our products under development.

Our primary uses of

capital are, and we expect will continue to be, third-party clinical and preclinical research and development services, compensation

and related expenses, legal, patent and other regulatory expenses and general overhead costs.

We believe our use of CROs provides

us with flexibility in managing our spending.

The Company incurs

the majority of its research and development expenses in Australia and the United Kingdom.

Fluctuations in the rate of exchange

between the United States dollar and the pound sterling as well as the Australian dollar could adversely affect our financial

results, including our expenses as well as assets and liabilities.

We currently do not hedge foreign currencies but will continue

to assess whether that strategy is appropriate.

As of June 30, 2020, the cash balance held by our foreign subsidiaries with currencies

other than the United States dollar was approximately $0.1 million.

We do not have any material financial exposure to one customer

or one country that would significantly hinder our liquidity.

As a publicly traded

company, we incur significant legal, accounting and other expenses.

In addition, the Sarbanes-Oxley Act of 2002, as well as

rules adopted by the SEC and The Nasdaq Stock Market, require public companies to implement specified corporate governance

practices that were inapplicable to us as a private company.

We expect these rules and regulations will increase our legal

and financial compliance costs and will make some activities more time-consuming and costly.

As of June 30, 2020, the

Company had an accumulated deficit of $25,454,392 and working capital of $5,141,649.

Losses have principally occurred as a result

of stock-based compensation expense as well as the substantial resources required for research and development of the Company’s

products which included the general and administrative expenses associated with its organization and product development, as well

as the lack of sources of revenues until such time as the Company’s products are commercialized.

As of June 30, 2020, we

had cash and cash equivalents of $4.8 million.

In addition, in July 2020 we raised an additional $25.0 million in gross proceeds

through a public offering of 2,500,000 shares of our common stock at $10.00 per share.

As such, we believe our cash

and cash equivalents, including the proceeds received in July 2020, will be sufficient to fund our operations for

at least the next 12 months following filing date of this Quarterly Report on Form 10-Q based on the balance of cash balance as

of June 30, 2020.

Initial Public Offering

During February 2019,

the Company completed its initial public offering in which the Company sold 1,020,820 shares of its common stock for gross proceeds

of $8,166,560 (net proceeds of $7,251,142).

April and May sale of common stock

April and May 2019, the Company sold 522,212 shares of its common stock to certain investors for cash proceeds of $4,727,879, of

which the Company’s CEO purchased 11,100 shares for $119,325 of cash and the Company’s CFO purchased 5,000 shares for

$53,550 of cash.

The Lincoln Park Transaction

On May 15, 2019, the

Company and Lincoln Park entered a purchase agreement (the “Purchase Agreement”) pursuant to which the Company has

the right to sell to Lincoln Park up to $20.0 million in shares of the Company’s common stock, subject to certain limitations

and conditions set forth in the Purchase Agreement.

The Company has the right, from time to time at its sole discretion over the

24-month Purchase Agreement, to direct Lincoln Park to purchase up to 20,000 shares of common stock on any business day (subject

to certain limitations contained in the Purchase Agreement), with such amounts increasing based on certain threshold prices set

forth in the Purchase Agreement.

The maximum amount of shares subject to any single regular

purchase increases as the Company’s share price increases, subject to a maximum of $1.0 million.

The purchase price

of shares of common stock that the Company elects to sell to Lincoln Park pursuant to the Purchase Agreement will be based on the

market prices of the common stock at the time of such purchases as set forth in the Purchase Agreement.

In addition to regular

purchases, as described above, the Company may also direct Lincoln Park to purchase additional amounts as accelerated purchases

or as additional purchases if the closing sale price of the common stock is not below certain threshold prices, as set forth in

the Purchase Agreement.

From inception of the Purchase Agreement through December 31, 2019, 100,000 shares were issued pursuant

to the Purchase Agreement resulting in aggregate gross proceeds of $300,000 (net proceeds of $230,000) to the Company.

the six months ended June 30, 2020, the Company issued 196,000 shares of the Company’s common stock to Lincoln Park for gross

proceeds of $1,002,644.

We believe our cash and cash equivalents will be sufficient to fund our operations

for at least the next 12 months following the filing date of this Quarterly Report on Form 10-Q based on the balance of cash available

as of September 30, 2020.

Public Offering

February 2019, the Company completed its initial public offering in which the Company sold 1,020,820 shares of its common stock

for gross proceeds of $8,166,560 (net proceeds of $7,251,142).

and May sale of common stock

April and May 2019, the Company sold 522,212 shares of its common stock to certain investors for cash proceeds of $4,727,879,

of which the Company’s CEO purchased 11,100 shares for $119,325 of cash and the Company’s CFO purchased 5,000 shares

for $53,550 of cash.

Lincoln Park Transaction

May 15, 2019, the Company and Lincoln Park entered a purchase agreement (the “Purchase Agreement”) pursuant to which

the Company has the right to sell to Lincoln Park up to $20.0 million in shares of the Company’s common stock, subject to

certain limitations and conditions set forth in the Purchase Agreement.

The Company has the right, from time to time at its sole

discretion, subject to the terms and conditions of the Agreement, over the 24-month Purchase Agreement, to direct Lincoln Park

to purchase up to 20,000 shares of common stock on any business day (subject to certain limitations contained in the Purchase

Agreement), with such amounts increasing based on certain threshold prices set forth in the Purchase Agreement.

The maximum amount

of shares subject to any single regular purchase increases as the Company’s share price increases, subject to a maximum

of $1.0 million.

The purchase price of shares of common stock that the Company elects to sell to Lincoln Park pursuant to the

Purchase Agreement will be based on the market prices of the common stock at the time of such purchases as set forth in the Purchase

In addition to regular purchases, as described above, the Company may also direct Lincoln Park to purchase additional

amounts as accelerated purchases or as additional purchases if the closing sale price of the common stock is not below certain

threshold prices, as set forth in the Purchase Agreement.

From inception of the Purchase Agreement through December 31, 2019,

100,000 shares were issued pursuant to the Purchase Agreement resulting in aggregate gross proceeds of $300,000 (net proceeds

of $230,000) to the Company.

During the nine months ended September 30, 2020, the Company issued 196,000 shares of

the Company’s common stock to Lincoln Park for gross proceeds of $1,002,644.

Sales Agreement

On April 16, 2020,

we entered into a sales agreement with BTIG, as sales agent, to establish an ATM offering program.

We were required to pay BTIG a commission of 3% of the gross proceeds from the sale of shares.

During the six months ended June

April 16, 2020, we entered into a sales agreement with BTIG, as sales agent, to establish an ATM offering program.

We were required

to pay BTIG a commission of 3% of the gross proceeds from the sale of shares.

During the nine months ended September 30, 2020,

we issued and sold 178,600 shares of common stock at an average price of $5.45 per share under the ATM program.

1 unchanged sentence

net proceeds were approximately $0.8 million after BTIG’s commission and other offering expenses.

During the period from July 1,

2020 through the date of this filing, we issued and sold 27,919 shares at an average price of $5.46 per share under the ATM program

for net proceeds of approximately $0.1 million after BTIG’s commission.

July 2020, the Company completed an underwritten public offering in which it sold 2,500,000 shares of common stock at a public

1 unchanged sentence

The 2,500,000 shares sold included the full exercise of the underwriters’

option to purchase

326,086 shares at a price of $10.00 per share.

purchase 326,086 shares at a price of $10.00 per share.

Aggregate net proceeds from the underwritten public offering were approximately

$23.1 million, net of approximately $1.9 million in underwriting discounts and commissions and offering expenses.

During 2019, the Company

was awarded a $1,000,000 grant from the Alzheimer’s Association to advance XPro1595, a novel therapy targeting neuroinflammation

as a cause of Alzheimer’s disease.

2019, the Company was awarded a $1,000,000 grant from the Alzheimer’s Association to advance XPro1595, a novel therapy targeting

neuroinflammation as a cause of Alzheimer’s disease.

The endowment was awarded under the Part the Cloud to RESCUE grant.

During the six months

ending June 30, 2020 and 2019, the Company received $0 and $600,000, respectively, related to the grant which the Company recorded

as a reduction of research and development expense.

As of June 30, 2020, the Company has received $850,000 of cash proceeds pursuant

to this grant.

During July 2020, the Company received the final payment tranche pursuant to this award of $150,000.

During the six months

ended June 30, 2020, the Company was awarded a $500,000 grant from the Amyotrophic Lateral Sclerosis Association to fund a study

of the efficacy of XPro1595 to reverse ALS in vitro and to fund a study of the efficacy of XPro1595 to protect against ALS model

phenotypes in vivo.

During the six months ended June 30, 2020, the Company received $300,000 of cash proceeds pursuant to this

grant which the Company recorded within deferred liabilities on the balance sheet as of June 30, 2020.

The Company expects to

incur costs in connection with the ALS research beginning in the third quarter of 2020, of which the expenses will be offset by

In the event costs incurred for the ALS research are less than the grant, the remainder would be returned to the ALS

The following table

summarizes our cash flows for the periods indicated:

Six Months Ended

Net cash and cash equivalents (used in) provided by:

During the nine months ending September 30, 2020 and 2019, the Company received $150,000 and $600,000, respectively, related to

the grant, which the Company recorded as a reduction of research and development expense.

As of September 30, 2020, the Company

has received $1,000,000 of cash proceeds from the Alzheimer’s Association and no additional amounts are available to the

Company pursuant to this grant.

the nine months ended September 30, 2020, the Company was awarded a $500,000 grant from the Amyotrophic Lateral Sclerosis (ALS)

Association to fund a study of the efficacy of XPro1595 to reverse ALS in vitro and to fund a study of the efficacy of XPro1595

to protect against ALS model phenotypes in vivo.

During the nine months ended September 30, 2020, the Company received $300,000

of cash proceeds pursuant to this grant which the Company recorded as deferred liabilities.

During the three and nine months ended

September 30, 2020, the Company recorded $110,878 as a reduction of research and development expense related to the ALS grant.

As of September 30, 2020, the Company recorded $189,122 as deferred liabilities in the consolidated balance sheet related

to the ALS grant.

During September 2020, the Company was awarded

a grant of up to $2.9 million from the National Institutes of Health (NIH), of which the Company expects to receive approximately

$0.7 million in 2020, approximately $1.2 million in 20201 and approximately $1.0 million in 2022.

The grant will support a Phase

2 study of XPro1595 in patients with treatment resistant depression.

As of September 30, 2020, the Company has not received any

proceeds pursuant to this grant.

following table summarizes our cash flows for the periods indicated:

September 30,

Net cash and cash equivalents (used

in) provided by:

Operating activities

1 unchanged sentence

$ (4,951,286 )

Financing activities

Change in cash and cash equivalents

Impact on cash from foreign currency translation

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Operating Activities

Our cash used in operating

activities was primarily driven by our net loss.

Operating activities

used approximately $2.9 million of cash for the six months ended June 30, 2020, primarily resulting from our net loss of approximately

$4.2 million, a net cash outflow of approximately $0.1 million for changes in our net operating assets and liabilities, and non-cash

stock-based compensation charges of approximately $1.4 million.

The change in our net operating assets and liabilities was primarily

driven by an increase in research and development tax credit receivable of approximately $0.5 million, and an increase in prepaid

expenses of approximately $0.2 million, partially offset by an increase in deferred liabilities of approximately $0.4 million and

an increase in accounts payable and accrued liabilities of $0.2 million.

Operating activities

used $3.0 million of cash for the six months ended June 30, 2019, primarily resulting from our net loss of $2.3 million, a net

cash outflow of $1.1 million for changes in our net operating assets and liabilities, offset by non-cash stock-based compensation

charges of $0.4 million.

The change in our net operating assets and liabilities was primarily driven by a decrease in accounts

payable and accrued liabilities - related parties of $0.2 million –

related parties, an increase in the research and development

tax credit receivable of $0.3 million, an increase in prepaid expenses –

related party of $0.2 million and an increase in

prepaid expenses of $0.2 million.

Financing Activities

During the six months

ended June 30, 2020, the Company purchased 220,000 shares from an investor for approximately $1.0 million.

In addition, the Company

sold 196,000 shares of its common stock to Lincoln Park for cash proceeds of approximately $1.0 million.

During the six months

ended June 30, 2020, the Company issued and sold 150,682 shares of common stock at an average price of $5.44 per share under the

ATM program for net cash proceeds of approximately $0.7 million.

During February 2019,

the Company completed its initial public offering in which the Company sold 1,020,820 shares of its common stock for gross proceeds

of approximately $8.2 million (net proceeds of approximately $7.3 million).

During April and May

2019, the Company sold 522,212 shares of its common stock to certain investors for cash proceeds of approximately $4.7 million

of which the Company’s CEO purchased 11,100 shares for $119,325 of cash and the Company’s CFO purchased 5,000 shares

for $53,550 of cash.

On May 15, 2019, the

Company sold 30,000 shares of its common stock to Lincoln Park for $300,000 in gross cash proceeds (net cash proceeds of $230,000)

and issued 70,000 shares of its common stock to Lincoln Park pursuant to the terms of the purchase agreement as consideration for

its commitment to purchase shares under the purchase agreement.

Critical Accounting Policies

Our discussion and

analysis of our financial condition and results of operations is based upon our unaudited consolidated financial statements, which

have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of

these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities

and expenses.

Impact on cash from foreign currency

Cash and cash

equivalents, beginning of period

Cash and cash

equivalents, end of period

cash used in operating activities was primarily driven by our net loss.

activities used approximately $6.6 million of cash for the nine months ended September 30, 2020, primarily resulting from our

net loss of approximately $8.9 million, a net cash outflow of approximately $0.1 million for changes in our net operating assets

and liabilities, and non-cash stock-based compensation charges of approximately $2.4 million.

The change in our net operating

assets and liabilities was primarily driven by an increase in research and development tax incentive receivable of approximately

$0.9 million, partially offset by an increase in accounts payable and accrued liabilities of approximately $0.8 million.

activities used $5.0 million of cash for the nine months ended September 30, 2019, primarily resulting from our net loss of $5.4

million, a net cash outflow of $1.0 million for changes in our net operating assets and liabilities, offset by non-cash stock-based

compensation charges of $2.9 million, partially offset by a waiver of common stock issuable of $1.5 million.

The change in our

net operating assets and liabilities was primarily driven by an increase in our research and development tax incentive receivable

of $0.4 million, a decrease in accounts payable and accrued liabilities of $0.2 million, a decrease in accounts payable and accrued

liabilities –

related parties of $0.1 million, an increase in other tax receivable of $0.1 million, an increase in prepaid

expenses –

related party of $0.1 million and an increase in prepaid expenses of $0.1 million.

July 2020, the Company completed an underwritten public offering in which it sold 2,500,000 shares of common stock at a public

offering price of $10.00 per share.

Aggregate net proceeds from the underwritten public offering were approximately $23.1 million,

net of approximately $1.9 million in underwriting discounts and commissions and offering expenses.

the nine months ended September 30, 2020, the Company purchased 220,000 shares from an investor for approximately $1.0 million.

In addition, the Company sold 196,000 shares of its common stock to Lincoln Park for cash proceeds of approximately $1.0 million.

the nine months ended September 30, 2020, the Company issued and sold 178,600 shares of common stock at an average price of $5.45

per share under the ATM program for net cash proceeds of approximately $0.9 million.

February 2019, the Company completed its initial public offering in which the Company sold 1,020,820 shares of its common stock

for gross proceeds of approximately $8.2 million (net proceeds of approximately $7.3 million).

April and May 2019, the Company sold 522,212 shares of its common stock to certain investors for cash proceeds of approximately

$4.7 million of which the Company’s CEO purchased 11,100 shares for $119,325 of cash and the Company’s CFO purchased

5,000 shares for $53,550 of cash.

May 15, 2019, the Company sold 30,000 shares of its common stock to Lincoln Park for $300,000 in gross cash proceeds (net cash

proceeds of $230,000) and issued 70,000 shares of its common stock to Lincoln Park pursuant to the terms of the purchase agreement

as consideration for its commitment to purchase shares under the purchase agreement.

Accounting Policies

discussion and analysis of our financial condition and results of operations is based upon our unaudited consolidated financial

statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of

assets, liabilities and expenses.

Actual results may differ from these estimates.

Our critical accounting policies and estimates are discussed in our

Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and there have been no material changes during the six months

ended June 30, 2020.

Quantitative and Qualitative

Disclosures About Market Risk

As of June 30, 2020,

there has been no material change in our assessment of our sensitivity to market risk since our statement set forth in Item 7A,

“Quantitative and Qualitative Disclosures About Market Risk”, in our Annual Report on Form 10-K for the year ended

December 31, 2019.

Our critical accounting policies and estimates

are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and there have been no material changes

during the nine months ended September 30, 2020.

Quantitative and Qualitative Disclosures About Market Risk

to Item 305(e) of Regulation S-K (§

229.305(e)), the Company is not required to provide the information required by this

Item as it is a “smaller reporting company,”

as defined by Rule 229.10(f)(1).

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

What changed 10-Q

Item 1. Financial Statements