Inmune Bio, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock trades under the symbol “INMB” on the Nasdaq and has been publicly traded since February 4, 2019. Prior to this time, there was no public market for our common stock. As of December 31, 2020, there were 35 holders of record of our common stock. Because shares of our common stock are held by depositories, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of record holders. Purchases of Equity Securities by the Issuer During January 2020, the Company purchased and cancelled 220,000 shares of its common stock from a shareholder in exchange for $1,012,000 of cash. Immediately following the purchase, the investor owned less than 10% of the outstanding common stock of the Company. Dividend Policy We have not declared any cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant. Item 6. Selected Financial Data As a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act, and in Item 10(f)91) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information required by this item. 64 PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and notes thereto appearing elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Form 10-K, including those set forth under “Risk Factors” and “Forward-Looking Statements.” Overview We 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 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 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. 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 neuroinflammation in treatment resistant depression (“TRD”), 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 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. 65 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. 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. In addition, 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. We 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. Effective therapy for treatment resistant depression (TRD) is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels and treatment with infliximab treated their depression (Miller, 2011). The Company received a $2.9M USD award from the National Institute of Mental Health (NIMH) to treat TRD with XPro1595. The blinded, randomized Phase II trial will use a biomarkers of peripheral inflammation to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical and neuroimaging measures. The final trial design has is ongoing and discussions with the FDA are not complete. The Company anticipates receiving authorization to initiate the clinical trial in the second half of 2021. 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. 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 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. 66 As a company with less than $1.07 billion in revenue during our last fiscal year, we 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” disclosure; ● 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; and ● 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. Components of Operating Results Operating Expenses Research and Development Research 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. Our 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; and ● 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. We participate, through our wholly-owned subsidiary in Australia, 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. 67 We participate, through our wholly-owned subsidiary in the United Kingdom, 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. The United 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. 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 number of our product candidates through clinical development, including the conduct of our planned clinical trials and manufacturing drug to be used in those clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably 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; and ● the cost of manufacturing, finishing, labeling 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. 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; 68 ● 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; and ● 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; overhead, including rent and utilities; and other general operating expenses not otherwise classified as research and development expenses. Waiver of Common Stock Issuable Waiver of common stock issuable consists of a reversal of stock-based compensation for a consultant that permanently waived the Company issuing 200,000 shares owed to the consultant which were expensed in a prior period. Other income Other income primarily consists of income from a settlement in 2020. In addition, other income includes interest income on money market accounts during 2020 and 2019. Critical Accounting Policies and Significant Judgments and Estimates This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In-Process Research and Development The Company evaluates the carrying value of indefinite-lived intangible assets, which consists of in-process research and development (“IPR&D”), on an annual basis or more frequently when indicators of impairment exist. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value. Intangible assets with finite lives are tested for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances exist, the Company assesses for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected undiscounted cash flows. 69 IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. During the period the assets are considered indefinite-lived, they are tested for impairment. If the related project is terminated or abandoned, the Company may have a full or partial impairment related to the IPR&D assets, calculated as the excess of their carrying value over fair value. The valuation process is very complex and requires significant input and judgment using internal and external sources with respect to the Company’s future revenue and expense growth rates, changes in working capital use, the selection of an appropriate discount rate, and other assumptions and estimates. Research and Development (“R&D”) R&D expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, and other R&D expenses. Clinical studies and outside services costs relate primarily to services performed by clinical research organizations and related clinical or development manufacturing costs, materials and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses relate primarily to salaries, benefits and share-based compensation. R&D expenditures are charged to operations as incurred. We recognize R&D tax credits receivable from the United Kingdom and Australian government for spending on R&D as an offset of R&D expenses. Stock-Based Compensation We measure and recognize compensation expense for all stock-based awards granted to service providers. employees, and directors based on the estimated fair value of the award on the grant date. We calculate the estimated fair value of stock options on the date of grant using the Black-Scholes option-pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the market value of common stock on the grant date, the expected dividend yield, the expected term of the awards, the risk-free interest rates and the expected common stock price volatility over the term of the option awards. The expected volatility is based on the historical volatility of a few unrelated public companies within our industry over the most recent period commensurate with the estimated expected term of our stock options as we have insufficient historical information regarding the volatility of the share price of our common stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future. We recognize the fair value of stock options on a straight-line basis over the period during which a service provider is required to provide services in exchange for the award (generally the vesting period). We account for forfeitures as they occur. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements as defined under SEC rules. Licensing and Collaboration Agreements We anticipate that in-licensing, out-licensing and strategic collaborations will become an integral part of our operations, providing the company with opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies, product candidates and revenue streams. Xencor In October 2017, we licensed INB03 (also known as XPro1595, Quellor, and LIVNate) from Xencor. This exclusive, global, unrestricted license came with considerable know-how, intellectual property, pre-clinical data, regulatory documentation and product stocks. Currently, we are focused on the immune-oncology uses of this unique asset. In the future, we may develop the asset in a wide variety of therapeutic areas, with a variety of delivery techniques by ourselves or in conjunction with partners. 70 Results of Operations Comparison of the Years Ended December 31, 2020 and December 31, 2019 Year Ended December 31, 2020 December 31, 2019 Change Revenues $ (10,916 ) $ - $ (10,916 ) General and Administrative 6,321,097 6,016,056 305,041 Research and Development 5,917,495 3,281,945 2,635,550 Waiver of common stock issuable - (1,542,000 ) 1,542,000 Other Income (128,517 ) (77,688 ) (50,829 ) Net loss $ (12,099,159 ) $ (7,678,313 ) $ 4,420,846 Revenues During 2020, the Company sold MSC’s to one third-party and recognized $10,916 of revenues. There were no sales during 2019. General and Administrative General and administrative expenses were $6.3 million for the year ended December 31, 2020, compared to $6.0 million for the year ended December 31, 2019. The increase was primarily attributable to higher stock-compensation ($0.2 million higher in 2020), higher insurance expense ($0.2 million higher in 2020) and higher wages and benefits ($0.2 million higher in 2020) partially offset by lower professional fees ($0.4 million lower in 2020). Research and Development Research and development expenses increased to $5.9 million for the year ended December 31, 2020 from $3.3 million for the year ended December 31, 2019. During the years ended December 31, 2020 and 2019, the Company recorded stock-based compensation of $0.6 million and $1.8 million, respectively, within research and development expenses. The increase in research and development expenses during the year ending December 31, 2020 compared to December 31, 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. Waiver of Common Stock Issuable During the year ended December 31, 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 year ended December 31, 2020. Other Income Other income increased during the year ended December 31, 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, partially offset by earning lower interest in 2020 compared to 2019. 71 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 $12,099,159 and $7,678,313 for the years ended December 31, 2020 and 2019, respectively. Net cash used in operating activities was $8,943,646 and $5,384,656 for the years ended December 31, 2020 and 2019, respectively. Since inception, we have funded our operations primarily with proceeds from the sales of our common stock and from the receipts of grants. As of December 31, 2020, we had cash and cash equivalents of $22.0 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, costs incurred to manufacture our drugs under development, 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 December 31, 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. As of December 31, 2020, the Company had an accumulated deficit of $33,375,340 and working capital of $22,209,460. 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 material revenues until such time as the Company’s products are commercialized. As of December 31, 2020, we had cash and cash equivalents of $22.0 million. In addition, during January and February 2021, we raised an additional $29.0 million in gross proceeds through sales of common stock under the ATM program. As such, we believe our cash and cash equivalents, including the proceeds received in January and February 2021, will be sufficient to fund our operations for at least the next 12 months following the filing date of this Annual Report on Form 10-K. Initial Public Offering During the year ended December 31, 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 $8.2 million (net proceeds of $7.3 million). April and May sale of common stock During April and May 2019, the Company sold 522,212 shares of its common stock to certain investors for cash proceeds of $4.7 million, of which the Company’s CEO purchased 11,100 shares for $0.1 million of cash and the Company’s CFO purchased 5,000 shares for $0.1 million of cash. The Lincoln Park Transaction On May 15, 2019, the Company entered into the Lincoln Park Purchase Agreement pursuant to which Lincoln Park has agreed to purchase from us up to an aggregate of $20.0 million of the Company’s common stock (subject to certain limitations) from time to time over the 24-month term of the agreement. The Company also entered into a registration rights agreement with Lincoln Park pursuant to which the Company filed with the Securities and Exchange Commission (the “SEC”) the registration statement to register for resale under the Securities Act of 1933, as amended, or the Securities Act, the shares of common stock that have been or may be issued to Lincoln Park under the Purchase Agreement. The registration statement was effective as of July 2, 2019. 72 As a result, on May 15, 2019, 70,000 newly issued shares of the Company’s common stock were issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of the Company’s common stock under the agreement, and 30,000 newly issued shares of common stock, valued at $10.00 per share, were sold to Lincoln Park in an initial purchase for an aggregate gross purchase price of $0.3 million ($0.2 million net of offering costs). During the year ended December 31, 2020, the Company issued 196,000 shares of the Company’s common stock to Lincoln Park for gross proceeds of $1,002,644. Under the terms and subject to the conditions of the Lincoln Park Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to, an additional $18.7 million worth of shares of the Company’s common stock. Such future sales of common stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s option, over the 24-month term of the agreement. As contemplated by the Lincoln Park Purchase Agreement, 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 price per share for such purchases will be equal to the lower of: (i) the lowest sale price on the applicable purchase date and (ii) the arithmetic average of the three (3) lowest closing sale prices for the Company’s common stock during the twelve (12) consecutive business days ending on the business day immediately preceding such purchase date (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction that occurs on or after the date of 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. In 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 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. The Lincoln Park Purchase Agreement and the registration rights agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the purchase agreement at any time, at no cost or penalty. During any “event of default” under the purchase agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the purchase agreement; however, the Company may not initiate any regular or other purchase of shares by Lincoln Park, until such event of default is cured. In addition, in the event of bankruptcy proceedings by or against the Company, the purchase agreement will automatically terminate. Actual sales of shares of common stock to Lincoln Park under the purchase agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. Lincoln Park has no right to require any sales by the Company, but is obligated to make purchases from the Company as it directs in accordance with the purchase agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares. ATM 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 year ended December 31, 2020, we issued and sold 178,600 shares of common stock at an average price of $5.45 per share under the ATM program. The aggregate net proceeds were approximately $0.8 million after BTIG’s commission and other offering expenses. During January and February 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the ATM program. The aggregate net proceeds were approximately $28.4 million after offering expenses. 73 Public Offering 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. Grants During 2019, the Company was awarded a $1.0 million 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 years ended December 31, 2020 and 2019, the Company received $0.1 million and $0.9 million, respectively, related to the grant, which the Company recorded as a reduction of research and development expense. As of December 31, 2020, the Company has received $1.0 million of cash proceeds from the Alzheimer’s Association and no additional amounts are available to the Company pursuant to this grant. During the year ended December 31, 2020, the Company was awarded a $0.5 million 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 year ended December 31, 2020, the Company received $0.3 million of cash proceeds pursuant to this grant which the Company recorded as deferred liabilities. During the year ended December 31, 2020, the Company recorded $0.2 million as a reduction of research and development expense related to the ALS grant. As of December 31, 2020, the Company recorded $0.1 million 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”). As of December 31, 2020, the Company has not received any proceeds pursuant to this grant. Cash Flows The following table provides information regarding our cash flows for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Net cash used in operating activities $ (8,943,646 ) $ (5,384,656 ) Net cash provided by financing activities 23,895,781 12,209,021 Impact on cash from foreign currency translation 19,223 (15,044 ) Net increase in cash and cash equivalents $ 14,971,358 $ 6,809,321 Net Cash Used in Operating Activities Our cash used in operating activities was primarily driven by our net loss. Operating activities used $8.9 million of cash for the year ended December 31, 2020, primarily resulting from our net loss of $12.1 million, partially offset by non-cash stock-based compensation charges of $3.1 million. Operating activities used $5.4 million of cash for the year ended December 31, 2019, primarily resulting from our net loss of $7.7 million, a net cash outflow of $0.3 million for changes in our net operating assets and liabilities, offset by non-cash stock-based compensation charges of $4.1 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 due to a decrease in accounts payable and accrued liabilities of $0.2 million and a $0.1 million increase in prepaid expenses. 74 Net Cash Provided by Financing Activities 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. 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 the year ended December 31, 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 year ended December 31, 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 $0.8 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. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in foreign currency rates. 75