What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 570 added, 828 removed, 146 unchanged (91% of the section changed)

Financial Statements

BALANCE SHEETS

INMUNE BIO, INC.

CONDENSED CONSOLIDATED BALANCE

(In thousands, except share and per share amounts)

4 unchanged sentences

Prepaid expenses

Prepaid expenses –

related party

Prepaid expenses – related party

TOTAL CURRENT ASSETS

Operating lease –

right of use asset –

related party

Operating lease – right of use asset – related party

Acquired in-process research and development intangible assets

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities –

related parties

Accounts payable and accrued liabilities – related parties

Deferred liabilities

Operating lease, current liability –

related party

Operating lease, current liability – related party

TOTAL CURRENT LIABILITIES

Long-term operating lease liability –

related party

Long-term debt, less debt discount

Long-term operating lease liability – related party

Accrued liabilities – long-term

TOTAL LIABILITIES

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ EQUITY

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

1 unchanged sentence

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Accumulated deficit

TOTAL STOCKHOLDERS’

TOTAL LIABILITIES AND STOCKHOLDERS’

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

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

INMUNE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

Three months ended

For the Three

OPERATING EXPENSES

4 unchanged sentences

OTHER (EXPENSE) INCOME

Other (expense) income

Total other (expense) income

Net loss per common share –

basic and diluted

Weighted average number of common shares outstanding –

basic and diluted

Net loss per common share – basic and diluted

Weighted average common shares outstanding - basic and diluted

COMPREHENSIVE LOSS

Other comprehensive income (loss) –

foreign currency translation

Other comprehensive income (loss) - foreign currency translation

Total comprehensive loss

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

STATEMENT OF CHANGES IN STOCKHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2021

The accompanying

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

INMUNE BIO, INC.

CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2021

(In thousands, except share amounts)

Comprehensive

Stockholders’

Balance as of December 31, 2020

4 unchanged sentences

Balance as of March 31, 2021

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

STATEMENT OF CHANGES IN STOCKHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2020

Stock-based compensation

Settlement of Xencor warrant for cash and common stock

Warrants issued to lenders as debt inducement

Loss on foreign currency translation

Balance as of June 30, 2021

The accompanying

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

CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2020

(In thousands, except share amounts)

Comprehensive

Stockholders’

Balance as of December 31, 2019

5 unchanged sentences

Balance as of March 31, 2020

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

STATEMENTS OF CASH FLOWS

For the Three Months

Ended March 31,

Issuance of common stock for cash, net

Stock-based compensation

Loss on foreign currency translation

Balance at June 30, 2020

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

INMUNE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Stock-based compensation

Accretion of debt discount

Changes in operating assets and liabilities:

2 unchanged sentences

Prepaid expenses

Prepaid expenses –

related party

Prepaid expenses – related party

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities –

related parties

Accounts payable and accrued liabilities – related parties

Deferred liabilities

Operating lease liability –

related party

Accrued liabilities – long term

Operating lease liability – related party

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

paid to Xencor to settle warrant for acquired research and development intangible assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from the issuance of debt

Net proceeds from sale of common stock

1 unchanged sentence

Purchase of common stock

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Impact on cash from foreign currency translation

6 unchanged sentences

NONCASH INVESTING AND FINANCING ACTIVITIES:

Common stock issued to Xencor to settle warrant issued for acquired research and development intangible assets

Warrants issued to lenders as debt inducement

Capital contribution

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

TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND DESCRIPTION OF BUSINESS

(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 has two product

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 (LIVNate).

The Natural Killer Cell

Priming Platform includes INKmune aimed at priming the patient’s NK cells to eliminate minimal residual disease in patients with

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 March 31, 2021, the Company had an accumulated deficit of approximately $37.9 million and experienced losses since its inception.

Losses 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

During March 2021, the Company entered into a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market (“ATM”) offering program of up to $45 million of common stock (the “2021 ATM”), subject to certain limitations on the amount of common stock that may be offered and sold by the Company set forth in the sales agreement.

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

INMUNE BIO, INC.

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –ORGANIZATION AND

DESCRIPTION OF BUSINESS

INmune Bio, Inc.

(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 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 (LIVNate).

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.

NOTE 2 – LIQUIDITY

As of June 30, 2021, the Company had an accumulated

deficit of approximately $ 44.6 million and experienced losses since its inception.

Losses 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.

To meet its current and future obligations the

Company has taken the following steps to capitalize the business and achieve its business plan:

● During July 2021, the Company completed a

registered direct public offering in which it sold 1,818,182 shares of common stock to investors for estimated net proceeds of $ 36.9

● During June 2021, the Company entered into a loan and security agreement and drew down a $ 15.0 million term loan.

● During March 2021, the Company entered into a sales agreement with BTIG, LLC (“BTIG”), as sales agent, to establish an At-The-Market (“ATM”) offering program of up to $ 45 million of common stock (the “2021 ATM”), subject to certain limitations on the amount of common stock that may be offered and sold by the Company set forth in the sales agreement.

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

There have been no sales of the Company’s common stock pursuant to the 2021 ATM.

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 $1.9 million in underwriting discounts and commissions

and offering expenses.

During April 2020, the Company entered into a

sales agreement with BTIG, as sales agent, to establish an ATM offering program to sell up to $10.0 million of the Company’s common

stock (the “2020 ATM”).

In August 2020, the sales agreement was amended whereby the aggregate offering was increased from

$10.0 million to $30.0 million.

From April 2020 through December 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 million.

During the three months ended March 31, 2021, the Company sold

in aggregate 1,439,480 shares on common stock at an average price of $20.17 per share for net proceeds of $28.4 million.

31, 2021, sales of our common stock pursuant to the 2020 ATM have been completed.

Although it is difficult to predict the Company’s

liquidity requirements, as of March 31, 2021, 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 March 31, 2021.

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

During July 2021, the Company sold 713,192 shares of its common stock at an average price of $ 21.73 through the 2021 ATM for net proceeds of $ 15.0 million.

● 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 $ 1.9 million in underwriting discounts and commissions and offering expenses.

● During April 2020, the Company entered into a sales agreement with BTIG, as sales agent, to establish an ATM offering program to sell up to $ 10.0 million of the Company’s common stock (the “2020 ATM”).

In August 2020, the sales agreement was amended whereby the aggregate offering was increased from $ 10.0 million to $ 30.0 million.

From April 2020 through December 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 million.

During the six months ended June 30, 2021, the Company sold in aggregate 1,439,480 shares on common stock at an average price of $ 20.17 per share for net proceeds of $ 28.4 million.

As of June 30, 2021, sales of our common stock pursuant to the 2020 ATM have been completed.

Although it is difficult to predict the Company’s

liquidity requirements, as of June 30, 2021, 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 June 30, 2021.

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.

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

of Presentation

accompanying financial statements are presented in U.S.

dollars and have been prepared in accordance with accounting principles generally

accepted in the United States of America (“US GAAP”), and pursuant to the accounting and disclosure rules and regulations

Securities and Exchange Commission (“SEC”).

The consolidated financial statements include the accounts of INmune

The accompanying financial statements are presented

dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US

GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

The consolidated financial statements include the accounts of INmune Bio, Inc.

and its subsidiaries.

Intercompany transactions and balances have been eliminated.

opinion of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of

the results for the interim periods.

These unaudited consolidated interim financial statements should be read in conjunction with

the audited financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report

on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 4, 2021.

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.

site initiation and patient enrollment have and may continue to be delayed due to prioritization of hospital resources toward the COVID-19

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 amounts

of assets, liabilities, revenue, and expenses.

Actual results and outcomes may differ from management’s estimates and assumptions.

and Cash Equivalents

Company considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less

to be cash equivalents.

The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit

Insurance Corporation limits.

Intercompany transactions and balances

have been eliminated.

In the opinion

of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results

for the interim periods.

These unaudited consolidated interim financial statements should be read in conjunction with the audited

financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2020, filed with the SEC on March 4, 2021.

Risks and Uncertainties

The 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.

In 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.

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.

The 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.

Use of Estimates

Preparing financial statements in conformity with

US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, and the net realizable

value of research and development tax credit receivables.

Actual results and outcomes may differ from management’s estimates and

Cash and Cash Equivalents

considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash

The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation

The Company maintains its cash deposits with major financial institutions.

1 unchanged sentence

The Company, through its wholly-owned subsidiary

in Australia (“AUS”), 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

5 unchanged sentences

The Company, through its wholly-owned subsidiary

in the United Kingdom (“UK”), 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,

5 unchanged sentences

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 alternative

uses and such uses are not restricted under applicable license agreements;

patent applications (principally legal fees), patent purchases,

and trademarks related to its cell line as intangible assets.

Acquired in-process research and development costs that do not have alternative

uses are expensed as incurred.

Amortization is initiated for acquired in-process research and development intangible assets when their

useful lives have been determined.

These acquired in-process research and development intangible assets are tested at least annually

or when a triggering event occurs that could indicate a potential impairment.

and Diluted Loss per Share

loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common

shares during the period.

Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period.

Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

For all periods presented, there is no

difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

March 31, 2021 and 2020, the Company had potentially issuable shares as follows:

Intangible Assets

The Company capitalizes costs incurred in connection

with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under

applicable license agreements;

patent applications (principally legal fees), patent purchases, and trademarks related to its cell line

as intangible assets.

Acquired in-process research and development costs that do not have alternative uses are expensed as incurred.

is initiated for acquired in-process research and development intangible assets when their useful lives have been determined.

These acquired

in-process research and development intangible assets are tested at least annually or when a triggering event occurs that could indicate

a potential impairment.

Basic and Diluted Loss per Share

Basic loss per share is computed by dividing net

loss available to common shareholders by the weighted average number of outstanding common shares during the period.

Diluted loss per

share gives effect to all dilutive potential common shares outstanding during the period.

Dilutive loss per share excludes all potential

common shares if their effect is anti-dilutive.

For all periods presented, there is no difference in the number of shares used to calculate

basic and diluted shares outstanding due to the Company’s net loss position.

At June 30, 2021 and 2020, the Company had potentially

issuable shares as follows:

Stock options

Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration

the Company expects to receive in exchange for those goods or services.

The Company recognizes revenue following the five-step model

prescribed under ASC Topic 606:

(1) identify contract(s) with a customer;

Revenue Recognition

The Company recognizes revenue when the customer

obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange

for those goods or services.

The Company recognizes revenue following the five-step model prescribed under ASC Topic 606:

contract(s) with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize

revenues when (or as) the Company satisfies the performance obligations.

The Company records the expenses related to revenue in research

and development expense, in the periods such expenses were incurred.

Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable.

Company utilizes the Black-Scholes option pricing model to estimate the fair value of stock option awards at the date of grant, which

requires the input of highly subjective assumptions, including expected volatility and expected life.

Changes in these inputs and assumptions

can materially affect the measure of estimated fair value of our share-based compensation.

the transaction price to the performance obligations in the contract;

and (5) recognize revenues when (or as) the Company satisfies the

performance obligations.

The Company records the expenses related to revenue in research and development expense, in the periods such

expenses were incurred.

The Company records deferred revenues when cash

payments are received or due in advance of performance, including amounts which are refundable.

Stock-Based Compensation

utilizes the Black-Scholes option pricing model to estimate the fair value of stock option awards at the date of grant, which requires

the input of highly subjective assumptions, including expected volatility and expected life.

Changes in these inputs and assumptions can

materially affect the measure of estimated fair value of our share-based compensation.

These assumptions are subjective and generally

6 unchanged sentences

forfeitures of stock options as they occur.

and Development

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.

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

over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.

Company follows the liability method of accounting for income taxes.

Under this method, deferred income tax assets and liabilities are

recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective

income tax basis (temporary differences).

The effect on deferred income tax assets and liabilities of a change in tax rates is recognized

in income in the period that includes the enactment date.

Currency Translation

Company’s financial statements are presented in the U.S.

dollar (“$”), which is the Company’s reporting currency,

while its functional currencies are the U.S.

Dollar for its U.S.

based operations, British Pound (“GBP”) for its United Kingdom-based

operations and Australian Dollars (“AUD”) for its Australian-based operations.

All assets and liabilities are translated

at the exchange rate on the balance sheet date, stockholders’

equity is translated at historical rates and statement of operations

items are translated at the weighted average exchange rate for the period.

The resulting translation adjustments are reported under other

comprehensive income.

Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in

the statement of operations and comprehensive income (loss).

Adopted Accounting Pronouncements

were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on the

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

Company evaluates events that have occurred after the balance sheet date of March 31, 2021, through the date which the financial statements

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.

At March 31, 2021 and December 31, 2020, the Company recorded a research and development tax credit

receivable in the amount of $1,104,000 and $833,000, respectively.

During the three months ended March 31, 2021 and 2020, the Company

received $0 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 in

R&D subject to certain requirements.

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

and development expenses incurred.

At March 31, 2021 and December 31, 2020, the Company recorded a research and development tax credit

receivable of $1,086,000 and $853,000, respectively, for R&D expenses incurred in Australia.

During the three months ended March

31, 2021 and 2020, the Company received $0 R&D tax credit reimbursements from Australia.

License Agreement

October 3, 2017, the Company entered into a license agreement (“Xencor License Agreement”) with Xencor, Inc.

(“Xencor”),

which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor.

Pursuant to the license

agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and

licensed materials (as defined in the license agreement) to make, develop, use, sell and import any pharmaceutical product that comprises,

contains, or incorporates Xencor’s proprietary protein known as “XPro1595”

that inhibits soluble tumor necrosis factor

(or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or

in combination with one or more active ingredients, in any dosage or formulation (“Licensed Products”).

The Company believes

the protein has numerous medical applications.

Such additional alternative applications of the technology are available under the Xencor

License Agreement .

In connection with the Xencor License Agreement,

the Company paid Xencor a one-time non-creditable and non-refundable fee of $100,000 and issued Xencor 1,585,000 shares of the Company’s

common stock with a fair value of $12,221,000.

In addition, the Company issued Xencor fully vested warrants with a fair value of $4,193,000

to purchase an additional number of shares of common stock equal to 10% of the fully diluted company shares immediately following such

The aggregate purchase price for the full exercise of the option is $10,000,000 which purchase price shall be pro-rated for

any partial exercise of the warrant.

In August 2018, the Company entered into a First Amendment to Stock Issuance Agreement.

to the amendment, the purchase price for the additional shares may only be paid by cash.

The warrants expire on October 3, 2023.

Company recorded $16,514,000 for the acquisition of intangible assets for the in-process research and development as the fair value of

the cash, stock and warrants on the date of the License Agreement acquisition in accordance with Accounting Standards Codification 730

Research and Development

The Company has the license rights to pursue alternative applications of the technology as part

of its future development plans.

Company also agreed to pay Xencor a royalty on Net Sales of all Licensed Products in a given calendar year, which are payable on a country-by-

country and licensed product by licensed product basis until the date that is the later of (a) the expiration of the last to expire valid

claim covering such Licensed Product in such country or (b) ten years following the first sale to a third party of the licensed product

in such country.

the Xencor License Agreement, the Company also agreed to pay Xencor a percentage of any sublicensing revenue that it receives.

Research 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

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.

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

periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.

The Company follows the liability method of accounting

for income taxes.

Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable

to differences between the financial statement carrying values and their respective income tax basis (temporary differences).

on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment

Foreign Currency Translation

The Company’s financial statements are presented

dollar (“$”), which is the Company’s reporting currency, while its functional currencies are the U.S.

based operations, British Pound (“GBP”) for its United Kingdom-based operations and Australian Dollars (“AUD”)

for its Australian-based operations.

All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’

equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the

The resulting translation adjustments are reported under other comprehensive income.

Gains and losses resulting from the translations

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

Recently Adopted Accounting Pronouncements

various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on the Company´s

consolidated financial position, operations or cash flows.

Subsequent Events

evaluates events that have occurred after the balance sheet date of June 30, 2021, through the date which the financial statements are

NOTE 4 – RESEARCH AND DEVELOPMENT

According 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.

30, 2021 and December 31, 2020, the Company recorded a research and development tax credit receivable in the amount of $ 1,787,000 and

$ 833,000 , respectively.

During the six months ended June 30, 2021 and 2020, the Company received $ 0 of R&D tax credit reimbursements

The Company expects to receive R&D tax credit reimbursements during the second half of 2021.

According 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 in R&D subject to certain requirements.

The Company’s Australian subsidiary submits R&D tax credit requests annually for research and development expenses incurred.

At June 30, 2021 and December 31, 2020, the Company recorded a research and development tax credit receivable of $ 1,281,000 and $ 853,000 ,

respectively, for R&D expenses incurred in Australia.

During the six months ended June 30, 2021 and 2020, the Company received $ 0

R&D tax credit reimbursements from Australia.

The Company expects to receive R&D tax credit reimbursements during the second half of 2021.

License Agreement

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 future.

In consideration

for the patent rights, the Company agreed to the following milestone payments (of which none have been met as of March 31, 2021):

On October 3, 2017, the Company entered into a

license agreement (“Xencor License Agreement”) with Xencor, Inc.

(“Xencor”), which has discovered and developed

a proprietary biological molecule that inhibits soluble tumor necrosis factor.

During June 2021, the Company entered into the First Amendment

to License Agreement.

Pursuant to the license agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in

licensed patent rights, licensed know-how and licensed materials (as defined in the license agreement) to make, develop, use, sell and

import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPro1595”

that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically

bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation (“Licensed

The Company believes the protein has numerous medical applications.

Such additional alternative applications of the

technology are available under the Xencor License Agreement.

In connection with the Xencor License Agreement, the Company paid Xencor

a one-time non-creditable and non-refundable fee of $ 100,000 and issued Xencor 1,585,000 shares of the Company’s common stock with

a fair value of $ 12,221,000 .

In addition, the Company issued Xencor fully vested warrants with a fair value of $ 4,193,000 to purchase

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

aggregate purchase price for the full exercise of the option was $ 10,000,000 .

The Company recorded $ 16,514,000 for the acquisition

of intangible assets for the in-process research and development as the fair value of the cash, stock and warrants on the date of the

License Agreement acquisition in accordance with Accounting Standards Codification 730 – Research and Development .

has the license rights to pursue alternative applications of the technology as part of its future development plans.

The Company also agreed to pay Xencor a royalty

on Net Sales of all Licensed Products in a given calendar year, which are payable on a country-by- country and licensed product by licensed

product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering such Licensed Product

in such country or (b) ten years following the first sale to a third party of the licensed product in such country.

Under the Xencor License Agreement, the Company

also agreed to pay Xencor a percentage of any sublicensing revenue that it receives.

On June 10, 2021, the Company and Xencor entered

into an Option Cancellation Agreement whereby Xencor terminated its warrant to purchase 10 % of the fully diluted shares of the Company

in exchange for a cash payment of $ 15,000,000 and 192,533 shares of the Company’s common stock with a fair value of $ 3,300,000 based

on the market price of the common stock as of June 10, 2021, which the Company issued in June 2021.

The Company agreed to file a registration

statement covering the resale of these shares on or before the earlier to occur of September 8, 2021, or the date on which the Company

next files a registration statement (other than a registration statement on Form S-8 or any statement on Form S-3 previously filed) and

to keep the registration statement continuously effective until all such shares cease to be outstanding or otherwise cease to be registrable

securities as defined in the Option Cancellation Agreement.

The Company charged the cash consideration paid to Xencor to enter into the

Option Cancellation Agreement to equity as the fair value of the warrant immediately prior to the Option Cancellation Agreement was greater

than the consideration paid to Xencor.

INKmune License Agreement

On 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 future.

In consideration for the patent rights, the Company

agreed to the following milestone payments (of which none were met as of June 30, 2021):

(in thousands)

Each Phase I initiation

5 unchanged sentences

Ventures a royalty of 1 % of net sales during the life of each patent granted to the Company.

RJ Tesi, the Company’s President and

a member of our Board of Directors, David Moss, its Chief Financial Officer and Treasurer and Mark Lowdell, its Chief Scientific Officer,

are the owners of Immune Ventures.

As of March 31, 2021, 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-country

basis on the date of the expiration of the last to expire patent rights where patent rights exists.

Upon the termination of the agreement,

we shall have a fully paid up, perpetual, royalty-free license without further obligation to Immune Ventures.

The agreement can be terminated

by Immune Ventures if, after 60 days from the Company’s receipt of notice that the Company has not made a payment under the agreement,

and the Company still does not make this payment.

On July 20, 2018, the parties 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 the Company is required to achieve the following milestones:

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

of Phase II clinical trials or equivalent by October 29, 2023

of Phase III clinical trials or equivalent by October 29, 2025

of NDA or equivalent by October 29, 2026 or equivalent

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

it can either remedy the failure or achieve an alternate development.

If the Company fails to make any required efforts, or if the efforts

do not remedy the situation within 60 days of written notice by Immune Ventures, then Immune Ventures may provide notice to terminate

the license or convert it to a non-exclusive license.

of Pittsburg License Agreement

October 3, 2017, the Company entered into an Assignment and Assumption Agreement with Immune Ventures related to intellectual property

licensed from the University of Pittsburgh.

Pursuant to the Assignment and Assumption Agreement (“Assignment Agreement”),

Immune Ventures assigned all of its rights, obligations and liabilities under an Exclusive License Agreement between the University of

Pittsburgh –

Of the Commonwealth System of Higher Education (“Licensor”) and Immune Ventures to INmune Bio (“Licensee”),

(the “PITT Agreement”).

Consideration

under the PITT Agreement includes:

(i) annual maintenance fees, (ii) royalty payments based on the sale of products making use of the

licensed technology, and (iii) milestone payments.

maintenance fees under the PITT Agreement include the following:

As of June 30, 2021, no sales had occurred under this license.

The term of the agreement began on October 29,

2015 and, if not terminated sooner pursuant to the agreement, ends on a country-by-country basis on the date of the expiration of the

last to expire patent rights where patent rights exists.

Upon the termination of the agreement, we shall have a fully paid up, perpetual,

royalty-free license without further obligation to Immune Ventures.

The agreement can be terminated by Immune Ventures if, after 60 days

from the Company’s receipt of notice that the Company has not made a payment under the agreement, and the Company still does not

make this payment.

On July 20, 2018, the parties 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 the Company is required

to achieve the following milestones:

Initiation of Phase 1 clinical or equivalent trials

by October 29, 2021

Initiation of Phase II clinical trials or equivalent

by October 29, 2023

Initiation of Phase III clinical trials or equivalent

by October 29, 2025

Filing of NDA or equivalent by October 29, 2026

or equivalent

If the Company doesn’t achieve the above

milestones, it is required to negotiate in good faith with Immune Ventures to determine how it can either remedy the failure or achieve

an alternate development.

If the Company fails to make any required efforts, or if the efforts do not remedy the situation within 60 days

of written notice by Immune Ventures, then Immune Ventures may provide notice to terminate the license or convert it to a non-exclusive

During July 2021, the Company initiated a Phase

I clinical trial using INKmune and the Company paid Immune Ventures a $ 25,000 milestone payment.

University of Pittsburg License Agreement

On October 3, 2017, the Company entered into an

Assignment and Assumption Agreement with Immune Ventures related to intellectual property licensed from the University of Pittsburgh.

Pursuant to the Assignment and Assumption Agreement (“Assignment Agreement”), Immune Ventures assigned all of its rights,

obligations and liabilities under an Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System

of Higher Education (“Licensor”) and Immune Ventures to INmune Bio (“Licensee”), (the “PITT Agreement”).

Consideration under the PITT Agreement includes:

(i) annual maintenance fees, (ii) royalty payments based on the sale of products making use of the licensed technology, and (iii) milestone

Annual maintenance fees under the PITT Agreement

include the following:

(in thousands)

June 26 of each year 2021-2022

1 unchanged sentence

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 pay royalties

equal to 2.5% of Net Sales each calendar quarter.

under the PITT Agreement the Licensee is required to

make milestone payments as follows:

Phase I initiation

Upon first commercial sale of a product making

use of the licensed technology under the PITT Agreement, the Licensee is required to pay royalties equal to 2.5 % of Net Sales each calendar

Moreover, under the PITT Agreement the Licensee

is required to make milestone payments as follows:

(in thousands)

Each Phase I initiation

Each Phase III initiation

First commercial sale of

product making use of licensed technology

Company had no a mounts owed pursuant to the PITT Agreement

as of March 31, 2021.

PITT Agreement expires upon the earlier of:

(i) expiration of the last claim of the Patent Rights (as defined in the PITT Agreement) forming

the subject matter of the PITT Agreement;

First commercial sale of product making use of licensed technology

The Company had no amounts owed pursuant to the

PITT Agreement as of June 30, 2021.

The PITT Agreement expires upon the earlier of:

(i) expiration of the last claim of the Patent Rights (as defined in the PITT Agreement) forming the subject matter of the PITT Agreement;

or (ii) the date that is 20 years from the effective date of the agreement (June 26, 2037).

Licensee may terminate the PITT Agreement upon 3 months prior written notice provided all payments under the license are current.

Licensor may terminate the PITT Agreement upon written notice if:

(i) Licensee defaults as to performance of material obligations which

have not been cured within 60 days after receiving written notice;

or (ii) Licensee ceases to carry out its business, becomes bankrupt

or insolvent, applies for or consents to the appointment of a trustee, receiver or liquidator of its assets or seeks relief under any

law for the aid of debtors.

College London License Agreement –

July 19, 2019, the Company entered into license agreement with UCL Business PLC (“UCLB”) with a ten (10) year term.

to the license agreement, the Company acquired an exclusive license (and a right to sub-license) to the technology and know-how relating

to an isolation and commercial scale expansion methodology of GMP grade human umbilical cord mesenchymal stem/stromal cells (“MSC”).

exchange for the license agreement, the Company paid UCLB an initial license fee of $10,000 and shall pay annual licensing fees of approximately

$13,000 per year for the remaining term of the agreement.

The Company will pay UCLB a royalty of 3-3.5%% of the net sales value (as defined

in the agreement) of all licensed products sold or used by the Company.

In the event the Company sub-licenses the technology and know-how,

the Company will pay UCLB a royalty of twelve (12) percent of consideration (cash or non-cash) received by the Company in relation to

the development or sub-licensing of any of 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

new headquarters of the Company.

The 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.

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

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 as of March 31, 2021:

thousands, except years and rate)

Right-of-use asset –

related party

Operating lease, current liability –

related party

Long-term operating lease liability –

related party

The Licensee may terminate the PITT Agreement

upon 3 months prior written notice provided all payments under the license are current.

The Licensor may terminate the PITT Agreement

upon written notice if:

(i) Licensee defaults as to performance of material obligations which have not been cured within 60 days after

receiving written notice;

or (ii) Licensee ceases to carry out its business, becomes bankrupt or insolvent, applies for or consents to

the appointment of a trustee, receiver or liquidator of its assets or seeks relief under any law for the aid of debtors.

University College London License Agreement

On July 19, 2019, the Company entered into license

agreement with UCL Business PLC (“UCLB”) with a ten ( 10 ) year term.

Pursuant to the license agreement, the Company acquired

an exclusive license (and a right to sub-license) to the technology and know-how relating to an isolation and commercial scale expansion

methodology of GMP grade human umbilical cord mesenchymal stem/stromal cells (“MSC”).

In exchange for the license agreement, the Company

paid UCLB an initial license fee of $10,000 and shall pay annual licensing fees of approximately $13,000 per year for the remaining term

of the agreement.

The Company will pay UCLB a royalty of 3-3.5% of the net sales value (as defined in the agreement) of all licensed

products sold or used by the Company.

In the event the Company sub-licenses the technology and know-how, the Company will pay UCLB a royalty

of twelve (12) percent of consideration (cash or non-cash) received by the Company in relation to the development or sub-licensing of

any of the technology and know-how.

On July 15, 2021, the Company notified UCLB of its intent to terminate

the license agreement.

NOTE 5 – LEASE

In May 2019, the Company signed a sublease agreement

with a related party for office space in La Jolla, California.

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

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

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 as of June 30, 2021:

(in thousands, except years and rate)

Right-of-use asset – related party

Operating lease, current liability – related party

Long-term operating lease liability – related party

Total lease liability

1 unchanged sentence

Weighted-average discount rate

the three months ended March 31, 2021, the Company recognized $13,000 in operating lease expense, which is included in general and administrative

expenses in the Company’s consolidated statement of operations.

RELATED PARTY TRANSACTIONS

At March 31, 2021 and December 31, 2020, the

Company owed UCL Consultants Limited (“UCL”) $10,000 and $34,000, respectively, in connection with medical research performed

on behalf of the Company.

At March 31, 2021 and December 31, 2020, the Company recorded prepaid expenses of $15,000 and $0, respectively,

for medical research to be performed on behalf of the Company by UCL.

During the three months ending March 31, 2021 and 2020, the Company

paid UCL $88,000 and $0, 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.

the three months ending March 31, 2021 and 2020, the Company paid CTI $0 and $79,000, respectively, for medical research performed on

behalf of the Company.

During the three months ended March 31, 2020, the Company recorded a capital contribution of $216,000 for the

forgiveness of certain accounts payable due to CTI.

The Company had no amounts payable to CTI as of March 31, 2021 and December 31, 2020.

STOCKHOLDERS’

May 15, 2019, the Company entered into both a securities purchase agreement and registration rights agreement with Lincoln Park Capital

Fund, LLC (“Lincoln Park”).

Under the terms and subject to the conditions of the securities purchase agreement, the Company

had the right to sell to Lincoln Park, and Lincoln Park was obligated to purchase, up to $20.0 million in shares of the Company’s

common stock, subject to certain limitations, over the 24-month period that commenced on May 15, 2019.

During the three months ended

March 31, 2020, the Company issued 196,000 shares of its common stock to Lincoln Park for approximately $1.0 million of cash.

April 2021, the Company terminated the securities purchase agreement with Lincoln Park.

and retirement of common stock

January 2020, the Company purchased and cancelled 220,000 shares of its common stock from a shareholder in exchange for approximately

$1.0 million of cash.

Stock –

At the Market Offering

During the three months ended March 31, 2021, the

Company sold 1,439,480 shares of its common stock for aggregate gross proceeds of approximately $29.0 million (net proceeds of approximately

$28.4 million) under the 2020 ATM program.

The Company paid BTIG commissions and fees of $582,000 in connection with the sale of these

January 2021, the Company granted certain employees and directors options to purchase 198,549 shares of its common stock pursuant to

the 2017 and 2019 Incentive Stock Plans.

The stock options have a fair value of approximately $4.2 million that was calculated using

the Black-Scholes option-pricing model.

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

(1) discount rate of 0.78%

based on the applicable US Treasury bill rate (2) expected life of 6.0 - 6.25 years, (3) expected volatility of approximately 113% -

114% based on the trading history of similar companies, and (4) zero expected dividends.

following table summarizes stock option activity during the three months ended March 31, 2021:

NOTE 6 – RELATED PARTY TRANSACTIONS

At June 30, 2021 and December 31, 2020, the Company

owed UCL Consultants Limited (“UCL”) $ 9,000 and $ 34,000 , respectively, in connection with medical research performed on behalf

of the Company.

At June 30, 2021 and December 31, 2020, the Company recorded prepaid expenses of $ 15,000 and $ 0 , respectively, for medical

research to be performed on behalf of the Company by UCL.

During the six months ended June 30, 2021 and 2020, the Company paid UCL $ 132,000

and $ 0 , 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.

During the six months ended June 30, 2021 and

2020, the Company paid CTI $ 0 and $ 127,000 , respectively, for medical research performed on behalf of the Company.

During the six months

ended June 30, 2020, the Company recorded a capital contribution of $ 216,000 for the forgiveness of certain accounts payable due to CTI.

The Company had no amounts payable to CTI as of June 30, 2021 and December 31, 2020.

NOTE 7 – DEBT

On June 10, 2021, the Company entered into a

Loan and Security Agreement (the “Term Loan”) with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., together

(the “Lenders”).

The Term Loan provides for a $ 15.0 million term loan, of which the Company borrowed the entire

amount on June 10, 2021, and is secured by the Company’s assets.

The Term Loan also provides for the Company to request an

additional $ 5.0 million term loan from the Lenders, which may be granted or denied at the sole discretion of the Lenders.

The Company paid the Lenders $ 47,000 to access

the term loan, which has been included as a component of the debt discount and is amortized to interest expense over the term of the

The term loan and debt discount are as follows as of June 30, 2021:

(in thousands)

debt discount and financing costs, net

current portion

Long-term debt

three and six months ended June 30, 2021 the Company recognized interest expense of $ 0.1 million related to the Term Loan.

The term loan repayment schedule provides for

interest only payments beginning on July 1, 2021, and continuing for 12 months, followed by 30 consecutive equal monthly installments

of principal, plus monthly payments of accrued interest, starting on July 1, 2022 and continuing through the maturity date of January

The interest-only period may be extended for one year upon the achievement of an equity

milestone as fully defined in the Term Loan .

All outstanding principal and accrued and unpaid interest will be due and payable

on the maturity date.

The Term Loan provides for an annual interest rate equal to the greater of (i) the prime rate then in effect

as reported in The Wall Street Journal plus 4.50 % and (ii) 7.75 %.

At June 30, 2021, the interest rate was 7.75 %.

The Term Loan includes a final payment fee equal

to 6.5 % of the original principal amount borrowed payable on the earlier of the repayment of the loan in full and the maturity date.

The Company has the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3 %

of the original principal amount borrowed for any prepayment on or prior to the first anniversary of the loan, (ii) 2 % of the original

principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of the loan or (iii) 1 %

of the original principal amount borrowed for any prepayment after the second anniversary of the loan but before the maturity date.

expected repayment of the $ 15.0 million Term loan principal is as follows as of June 30, 2021:

(in thousands, except years)

occurrence of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Term

Loan, the breach of certain of its other covenants under the Term Loan, or the occurrence of a material adverse change, the Lenders will

have the right, among other remedies, to declare all principal and interest immediately due and payable, and will have the right to receive

the final payment fee and, if the payment of principal and interest is due prior to maturity, the applicable prepayment fee.

Term Loan, the Company agreed to issue the Lenders warrants to purchase shares of its common stock.

On June 10, 2021, upon the draw of

the term loan, the Company issued to the Lenders warrants to purchase in aggregate 45,386 shares of common stock at a per share exercise

price of $ 14.05 .

The warrants were immediately exercisable upon issuance, and other than in connection with certain mergers or acquisitions,

will expire on the ten-year anniversary of the date of issuance.

The fair value of the warrants was estimated at $ 0.6 million

using a Black-Scholes model and assuming:

(i) expected volatility of 103 % based on the trading history of similar companies ,

(ii) discount rate of 1.45 % based on the applicable US Treasury bill rate , (iii) an expected

life of 10 years and (iv) zero expected dividends.

The fair value of the warrants was included as a discount to

the term loan and also as a component of additional paid-in capital at June 30, 2021.

NOTE 8 – STOCKHOLDERS’

On May 15, 2019, the Company entered into both

a securities purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”).

the terms and subject to the conditions of the securities purchase agreement, the Company had the right to sell to Lincoln Park, and Lincoln

Park was obligated to purchase, up to $ 20.0 million in shares of the Company’s common stock, subject to certain limitations, over

the 24-month period that commenced on May 15, 2019.

During the six months ended June 30, 2020, the Company issued 196,000 shares of its

common stock to Lincoln Park for approximately $ 1.0 million of cash.

During April 2021, the Company terminated the

securities purchase agreement with Lincoln Park.

Purchase and retirement of common stock

During January 2020, the Company purchased and

cancelled 220,000 shares of its common stock from a shareholder in exchange for approximately $ 1.0 million of cash.

Common Stock – At the Market Offering

During the six months ended June 30, 2020, we

issued and sold 150,682 shares of common stock at an average price of $ 5.44 per share under the 2020 ATM program.

The aggregate net proceeds

were approximately $ 0.7 million after BTIG’s commission and other offering expenses.

During the six months ended June 30, 2021, the

Company sold 1,439,480 shares of its common stock at an average price of $ 20.17 per share under the 2020 ATM program.

The aggregate net

proceeds were approximately $ 28.4 million after BTIG’s commission and other offering expenses.

Issuance of shares to Xencor

On June 10, 2021, the Company and Xencor entered

into an Option Cancellation Agreement whereby the Company issued 192,533 shares of its common stock to Xencor (See Note 4).

Stock options

During January 2021, the Company granted certain

employees and directors options to purchase 198,549 shares of its common stock pursuant to the 2017 and 2019 Incentive Stock Plans.

stock options have a fair value of approximately $ 4.2 million that was calculated using the Black-Scholes option-pricing model.

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

(1) discount rate of 0.78 % based on the applicable US Treasury bill rate (2) expected

life of 6.0 - 6.25 years, (3) expected volatility of approximately 113 % - 114 % based on the trading history of similar companies, and

(4) zero expected dividends.

During June 2021, the Company granted certain

employees and directors options to purchase 236,451 shares of its common stock pursuant to the 2021 Incentive Stock Plan.

The stock options

have a fair value of approximately $ 3.3 million that was calculated using the Black-Scholes option-pricing model.

Variables used in the

Black-Scholes option-pricing model include:

(1) discount rate of 1.23 % based on the applicable US Treasury bill rate (2) expected life

of 6.0 - 6.25 years, (3) expected volatility of approximately 107 % - 108 % based on the trading history of similar companies, and (4) zero

expected dividends.

The following

table summarizes stock option activity during the six months ended June 30, 2021:

(in thousands, except share and per share amounts)

Weighted- average

Weighted-average

Outstanding at January 1, 2021

2 unchanged sentences

Options cancelled

Outstanding at March 31, 2021

Exercisable at March 31, 2021

During the three months ended March 31, 2021 and

Outstanding at June 30, 2021

Exercisable at June 30, 2021

During the six months ended June 30, 2021 and

2020, the Company recognized stock-based compensation expense of approximately $ 1.7 million and $ 1.4 million, respectively, related to

the vesting of stock options.

As of March 31, 2021, there was approximately $7.3 million of total unrecognized compensation cost related

As of June 30, 2021, there was approximately $ 9.9 million of total unrecognized compensation cost related

to non-vested stock options which is expected to be recognized over a weighted-average period of 2.87 years.

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

purchase the Company’s common stock at an exercise price of $9.60 per common share, which warrants are exercisable until December

At March 31, 2021, 34,835 of these warrants are outstanding and the intrinsic value is $79,000.

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 an intrinsic value of approximately $14.6 million as of March 31, 2021.

The Company issued 45,386 warrants to the Company’s lenders upon

obtaining its loan in June 2021.

The warrants have a 10-year term and an exercise price of $ 14.05 .

The warrants have a fair value of approximately

$ 0.6 million that was calculated using the Black-Scholes option-pricing model.

Variables used in the Black-Scholes option-pricing model

(1) discount rate of 1.45 % based on the applicable US Treasury bill rate (2) expected life of 10.0 years, (3) expected volatility

of approximately 103 % based on the trading history of similar companies, and (4) zero expected dividends.

At June 30, 2021, the intrinsic

value of these warrants is $ 160,000 .

In connection with the Company’s initial

public offering in February 2019, the Company issued warrants to the placement agents to purchase the Company’s common stock at

an exercise price of $ 9.60 per common share, which warrants are exercisable until December 19, 2023.

At June 30, 2021, 34,835 of these

warrants are outstanding and the intrinsic value is $ 278,000 .

On June 30, 2017, the Company issued fully vested

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

The warrants have a $ 1.50 exercise price and expire on June 30, 2022 .

During the three months ended March 31, 2021, 11,875 of these

During the six months ended June 30, 2021, 11,875 of these

warrants were exercised for cash proceeds of $ 18,000 .

At March 31, 2021, 19,792 of these warrants are outstanding, with an intrinsic value

Compensation by Class of Expense

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

ended March 31, 2021 and 2020 respectively:

At June 30, 2021, 19,792 of these warrants are outstanding, with an intrinsic value

of $ 318,000 .

Stock-based Compensation by Class of Expense

The following summarizes the components of stock-based

compensation expense in the consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 respectively:

(in thousands)

Three Months Ended

Research and development

2 unchanged sentences

On December 30, 2020, the Board of Directors (the

“Board”) of the Company approved and adopted a Rights Agreement, dated as of December 30, 2020, by and between the Company

and VStock Transfer, LLC, as rights agent, pursuant to which the Board declared a dividend of one preferred share purchase right (each,

a “Right”) for each outstanding share of the Company’s common stock held by stockholders as of the close of business

on January 11, 2021.

3 unchanged sentences

Subject to various exceptions, the Rights become exercisable in the event any person (excluding certain exempted or grandfathered

persons) becomes the beneficial owner of twenty percent or more of the Company’s common stock without the approval of the Board.

The Rights are scheduled to expire on December 30, 2021.

COLLABORATIVE AGREEMENTS

NOTE 9 – COLLABORATIVE AGREEMENTS

During 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 three months ended

March 31, 2021 and 2020, the Company received $0.1 million and $0.3 million, respectively, of cash proceeds pursuant to this grant which

During the six months ended

June 30, 2021 and 2020, the Company received $ 0.1 million and $ 0.3 million, respectively, of cash proceeds pursuant to this grant which

the Company recorded as deferred liabilities.

2 unchanged sentences

in the consolidated balance sheet related to the ALS grant.

September 2020, the Company was awarded a grant of up to $2.9 million from the National Institutes of Health (“NIH”).

grant will support a Phase 2 study of XPro1595 in patients with treatment resistant depression.

As of March 31, 2021, 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.

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,”

“will,”

“expect,”

“believe,”

“anticipate,”

“estimate”

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;

technological advances and failure to successfully develop business relationships.

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”)

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

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

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.

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.

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.

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

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.

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

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

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 –

IL-6 and IL-1β.

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

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.

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.

therapy for treatment resistant depression (TRD) is a large unmet need.

Twenty percent of patients with a Major Depressive Disorder have

Once third of TRD patients have peripheral biomarkers to inflammation (elevated CRP).

This is a large patient population.

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.

end-points include both clinical and neuroimaging measures.

The final trial design has is ongoing and discussions with the FDA are not

The Company anticipates receiving authorization to initiate the clinical trial in the second half of 2021.

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.

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.

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 no significant revenue.

We have incurred net losses in each year since our inception and, as of March 31, 2021, we had an accumulated

deficit of approximately $37.9 million.

Our net losses were $4,556,000 and $2,070,000 for the three months ended March 31, 2021 and 2020,

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.

The 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.

site initiation and patient enrollment have and may continue to be delayed due to prioritization of hospital resources toward the COVID-19

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.

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:

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 about our executive compensation arrangements;

non-binding advisory votes on executive compensation or golden parachute arrangements;

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

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

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.

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, 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.

In the future, the Company may elect to cease to perform research and development in Australia

at which point the Company may not participate the Australian research and development tax incentive program.

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.

In the future, the Company may elect to cease to perform

research and development in the United Kingdom at which point the Company may not participate in the United Kingdom tax relief program.

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

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.

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.

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:

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;

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.

income (expense)

Other income primarily consists of interest income

on money market accounts and foreign currency exchange gains and losses.

of Operations

of the Three Months Ended March 31, 2021 and 2020

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

Three Months Ended

(in thousands)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other (expense) income

the three months ended March 31, 2021, the Company sold MSC’s to one third-party and recognized $4,000 of revenues.

no revenues during the three months ended March 31, 2020.

and Administrative

and administrative expenses were approximately $2.1 million during the three months ended March 31, 2021, compared to approximately

$1.3 million during the three months ended March 31, 2020.

The increase in general and administrative expenses is largely due to higher

professional fees ($0.5 million higher during the three months ended March 31, 2021) and higher stock-based compensation ($0.2 million

higher during the three months ended March 31, 2021).

and Development

and development expenses were approximately $2.5 million during the three months ended March 31, 2021, compared to approximately

$0.8 million during the three months ended March 31, 2020.

The increase in research and development expenses during the three

months ending March 31, 2021 compared to the three months ending March 31, 2020 is largely due to additional amounts incurred related

to manufacturing additional drugs and amounts incurred in connection with the Company’s COVID-19 clinical trial.

Income (Expense)

The Company’s other

income (expense) is mainly interest earned from money market accounts and foreign exchange gains and losses.

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.

We incurred a net loss of

$4,556,000 and $2,070,000 for the three months ended March 31, 2021 and 2020, respectively.

Net cash used in operating activities was

$5,092,000 and $1,035,000 for the three months ended March 31, 2021 and 2020, respectively.

Since inception, we have funded our operations

primarily with proceeds from the sales of our common stock.

As of March 31, 2021, we had cash and cash equivalents of approximately $45.3

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, professional fees, patent and other regulatory expenses and general overhead costs.

We believe 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 March 31, 2021, the cash balance held by our foreign subsidiaries with currencies

other than the United States dollar was approximately $0.3 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.

of March 31, 2021, the Company had an accumulated deficit of $37,931,000 and working capital of $47,017,000.

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 March 31, 2021,

we had cash and cash equivalents of approximately $45.3 million.

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 March 31, 2021.

Sales Agreement

During the three months ended

March 31, 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the 2020 ATM program.

The aggregate net proceeds were approximately $28.4 million after BTIG’s commission and other offering expenses.

During March 2021, the Company

entered into the 2021 ATM program with BTIG, as sales agent, to establish an ATM offering program of up to $45 million of common stock.

There have been no sales of the Company’s common stock pursuant to 2021 ATM.

Lincoln Park Transaction

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

Company had 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.

During the three months ended March 31, 2020, the Company issued 196,000 shares of

the Company’s common stock to Lincoln Park for gross proceeds of $1,003,000.

During April 2021, the Company terminated the Purchase

During the three months ended

March 31, 2020, the Company was awarded a $500,000 grant from the Amyotrophic Lateral Sclerosis Association (“ALS”) 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 three months ended March 31, 2021 and 2020, the Company received $100,000 and $300,000, respectively, of

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

The Company records costs incurred related

to the ALS study as a reduction of deferred liabilities.

As of March 31, 2021 and December 31, 2020, the Company recorded $222,000 and

$122,000, respectively, as deferred liabilities in the consolidated balance sheets related to the ALS grant.

following table summarizes our cash flows for the periods indicated:

Three Months Ended

(in thousands)

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

Operating activities

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

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

activities used approximately $5.1 million of cash during the three months ended March 31, 2021, resulting from our loss of $4.6 million

and changes in our net operating assets and liabilities of $1.4 million, partially offset by non-cash stock-based compensation of $0.9

The change in our net operating assets and liabilities was mainly due to an increase in prepaid expenses of approximately $1.3

million, and an increase in research and development tax credit receivable of $0.5 million, partially offset by an increase in deferred

liabilities of approximately $0.4 million.

activities used approximately $1.0 million of cash for the three months ended March 31, 2020, primarily resulting from our net loss of

approximately $2.1 million, a net cash inflow of approximately $0.4 million for changes in our net operating assets and liabilities,

and non-cash stock-based compensation charges of approximately $0.7 million.

The change in our net operating assets and liabilities was

primarily driven by an increase in accounts payable and accrued liabilities of approximately $0.3 million and an increase in deferred

grant of $0.3 million, partially offset by an increase in prepaid expenses of approximately $0.2 million, and an increase in research

and development tax credit receivable of approximately $0.1 million.

During the three months ended

March 31, 2021, the Company sold 1,439,480 shares of its common stock under its 2020 ATM program for net proceeds of approximately $28.4

the three months ended March 31, 2020, the Company purchased 220,000 shares from an investor for approximately $1.0 million.

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

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, 2020 and there have been no material changes during the three months ended March 31,

Quantitative and Qualitative Disclosures About Market Risk

Pursuant to Item 305(e) of Regulation

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).

During September 2020, the Company was awarded

a grant of up to $2.9 million from the National Institutes of Health (“NIH”).

The grant will support a Phase 2 study of XPro1595

in patients with treatment resistant depression.

As of June 30, 2021, the Company has not received any proceeds pursuant to this grant.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

In May 2019, the Company

signed a sublease agreement with a related party for office space in La Jolla, California.

The lease has a 61 -month term, which corresponds

to the lease term of the lessor.

The lessor is CTI.

Future minimum payments pursuant

to the lease are as follows:

(in thousands, except years)

During the three and six months ended June 30,

2021, the Company recognized $ 13,000 and $ 26,000 , respectively, in operating lease expense, which is included in general and administrative

expenses in the Company’s consolidated statement of operations.

The Company is subject to claims and suits that arise from time to

time in the ordinary course of our business.

Although management currently believes that resolving claims against the Company, individually

or in aggregate, will not have a material adverse impact in the Company’s consolidated financial statements, these matters are subject

to inherent uncertainties and management’s view of these matters may change in the future.

NOTE 11 – SUBSEQUENT EVENTS

During July 2021, the Company sold 713,192 shares

of its common stock through 2021 ATM program for net proceeds of $ 15.0 million.

During July 2021, the Company sold 1,818,182 shares

of its common stock to investors through a registered direct offering for estimated net proceeds of $ 36.9 million.

During July 2021, the Company awarded 333,000

stock options to employees with a 3 -year vesting term and an estimated fair value of $ 5.6 million.

Variables used in the Black-Scholes

option-pricing model include:

(1) discount rate of 1.04 -1.19% based on the applicable US Treasury bill rate (2) expected life of 6.0 years,

(3) expected volatility of approximately 108 % based on the trading history of similar companies, and (4) zero expected dividends.

During July 2021, certain employees of the Company

exercised 45,000 stock options in exchange for approximately $ 176,000 of cash proceeds.

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