What changed in this filing

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Item 1. Financial Statements

2023-11-01 compared with 2023-08-07 · 529 added, 498 removed, 131 unchanged (89% of the section changed)

Financial Statements

INMUNE BIO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share amounts)

September 30,

CURRENT ASSETS

7 unchanged sentences

Acquired in-process research and development intangible assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

10 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Redeemable common stock, $ 0.001 par value;

75,697 and 0 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively (Note 9)

STOCKHOLDERS’ EQUITY

5 unchanged sentences

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)

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY

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

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

thousands, except share and per share amounts)

For the Three Months Ended

For the Six Months Ended

September 30,

the Nine Months Ended

September 30,

OPERATING EXPENSES

General and administrative

Research and development

Total operating expenses

LOSS FROM OPERATIONS

OTHER EXPENSE, NET

and development

operating expenses

FROM OPERATIONS

Net loss per common share – basic and diluted

1 unchanged sentence

COMPREHENSIVE LOSS

Other comprehensive loss – foreign currency translation

Total comprehensive loss

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 THREE AND SIX MONTHS ENDED JUNE 30,

(In thousands, except share amounts)

Other comprehensive

loss – foreign currency translation

Total comprehensive

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

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

thousands, except share amounts)

Comprehensive

Stockholders’

Balance as of December 31, 2022

Stock-based compensation

Loss on foreign currency translation

Balance as of March 31, 2023

Stock-based compensation

Loss on foreign currency translation

of December 31, 2022

on foreign currency translation

as of March 31, 2023

on foreign currency translation

Balance as of June 30,

of common stock for cash, net

Reclassification to redeemable common stock

on foreign currency translation

as of September 30, 2023

$ ( 112,614 )

The accompanying

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

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

(In thousands, except share amounts)

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

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

thousands, except share amounts)

Comprehensive

Stockholders’

Income (Loss)

Balance as of December 31, 2021

Issuance of common stock for cash

of December 31, 2021

of common stock for cash

Exercise of warrants for cash

Stock-based compensation

Gain on foreign currency translation

Balance as of March 31, 2022

Stock-based compensation

Loss on foreign currency translation

on foreign currency translation

as of March 31, 2022

on foreign currency translation

Balance as of June 30,

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

INMUNE BIO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

on foreign currency translation

as of September 30, 2022

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

the Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING

Adjustments to reconcile net loss to net cash

used in operating activities:

Stock-based compensation

Accretion of debt discount

Impairment of operating

lease – right of use asset

Changes in operating assets and liabilities:

Research and development tax credit receivable

Research and development

tax credit receivable

Other tax receivable

Prepaid expenses

Prepaid expenses – related party

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities – related parties

Prepaid expenses –

related party

Accounts payable and accrued

liabilities – related parties

Deferred liabilities

Accrued liability – long-term

Operating lease liabilities

Net cash used in operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from sale of common stock

Net proceeds from the exercise of warrants

Net cash provided by financing activities

Accrued liability –

lease liabilities

Net cash used in operating

CASH FLOWS FROM FINANCING

Net proceeds from sale of

Repayments of debt

proceeds from the exercise of warrants

Net cash (used in) provided

by financing activities

Impact on cash from foreign currency translation

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

CASH AND CASH EQUIVALENTS

AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS

AT END OF PERIOD

SUPPLEMENTAL DISCLOSURE

OF CASH FLOWS INFORMATION:

Cash paid for income taxes

Cash paid for interest expense

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

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 Alzheimer’s and treatment resistant depression (“XPro”) and cancer

(“INB03”) and an out-licensing strategy for Duchenne’s Muscular Dystrophy (“DMD”).

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.

NOTE 2 – LIQUIDITY

As of June 30, 2023, the Company had an accumulated deficit of $ 104,051,000

and experienced losses since its inception.

The Company had cash, cash equivalents of $ 47,825,000 as of June 30, 2023, and has not generated

positive cash flows from operations.

To date, the Company has funded its operations primarily through the sale of its common stock.

it is difficult to predict the Company’s liquidity requirements, as of June 30, 2023, 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, 2023.

Management expects operating losses to continue

for the foreseeable future.

There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved,

that they will be sustained on a continuing basis.

In addition, the manufacturing, clinical and preclinical development activities as

well as the commercialization of the Company’s products, if approved, will require significant additional financing.

may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company

or the current stockholders.

If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope

of, or eliminate development programs, which may adversely affect its business and operations.

NOTE 3 – SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 – 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 Alzheimer’s and treatment

resistant depression (“XPro”) and cancer (“INB03”) and an out-licensing strategy for Duchenne’s Muscular

Dystrophy (“DMD”).

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.

2 – LIQUIDITY

As of September 30, 2023, the Company had an accumulated

deficit of $ 112,614,000 and experienced losses since its inception.

The Company had cash and cash equivalents of $ 41,813 ,000 as of September

30, 2023, and has not generated positive cash flows from operations.

To date, the Company has funded its operations primarily through

the sale of its common stock.

Although it is difficult to predict the Company’s liquidity requirements, as of September 30,

2023, and based upon the Company’s current operating plan, the Company believes that it will have sufficient cash to meet its projected

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

of cash available as of September 30, 2023.

expects operating losses to continue for the foreseeable future.

There can be no assurance that the Company will ever earn revenues or

achieve profitability, or if achieved, that they will be sustained on a continuing basis.

In addition, the manufacturing, clinical and

preclinical development activities as well as the commercialization of the Company’s products, if approved, will require significant

additional financing.

The Company may be unable to secure such financing when needed, or if available, such financings may be under terms

that are unfavorable to the Company or the current stockholders.

If the Company is unable to raise additional funds when needed, it may

be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations.

3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

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.

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 Bio Inc.

The consolidated financial statements include the accounts of INmune

and its subsidiaries.

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, 2022, included in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

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.

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 several 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.

Intercompany transactions and balances have been eliminated.

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, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC

on March 2, 2023.

of Geopolitical and Macroeconomic Factors

may be significant uncertainty resulting from the impact of other geopolitical and macroeconomic factors, including the ongoing COVID-19

(coronavirus) pandemic, inflation, supply chain issues, rising interest rates, future bank failures, a potential US government shutdown,

the impact of the conflicts in Russia/Ukraine and Israel, in addition to geopolitical, trade and investment tensions between the United

States and China.

and Uncertainties

Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited

to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance

with government regulations and the need to obtain additional financing to fund operations.

Product candidates currently under development

will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory

approval prior to commercialization.

These efforts require significant amounts of additional resources, adequate personnel, infrastructure

and extensive compliance and reporting.

Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved

can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the

Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory

approval or that any approved products will be commercially viable.

Even if the Company’s product development efforts are successful,

it is uncertain when, if ever, the Company will generate any revenue from any of its products.

The Company operates in an environment

of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.

Company relies and expects to continue to rely on a small number of vendors to manufacture supplies and materials for its use in the

clinical trial programs.

These programs could be adversely affected by a significant interruption in these manufacturing services.

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.

Fair Value of Financial Instruments

The Company measures certain assets and liabilities

in accordance with authoritative guidance which requires fair value measurements to be classified and disclosed in one of the following

three categories:

Quoted prices (unadjusted)

in active markets that are accessible at the measurement date for assets or liabilities.

Observable prices that

are based on inputs not quoted on active markets but corroborated by market data.

Unobservable inputs are

used when little or no market data is available.

Assets and liabilities are classified based on

the lowest level of input that is significant to the fair value measurements.

The Company reviews the fair value hierarchy classification

on a quarterly basis.

Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets

or liabilities within the fair value hierarchy.

The Company did not have any transfers of assets and liabilities between the levels of

the fair value measurement hierarchy during the years presented.

The carrying amounts of financial instruments

such as cash and cash equivalents, research and development tax credit receivable, other receivable, prepaid expenses, and accounts payable

and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments.

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

Value of Financial Instruments

Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be

classified and disclosed in one of the following three categories:

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Unobservable inputs are used when little or no market data is available.

and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

The Company reviews

the fair value hierarchy classification on a quarterly basis.

Changes in the ability to observe valuation inputs may result in a reclassification

of levels for certain assets or liabilities within the fair value hierarchy.

The Company did not have any transfers of assets and liabilities

between the levels of the fair value measurement hierarchy during the years presented.

carrying amounts of financial instruments such as cash and cash equivalents, research and development tax credit receivable, other receivable,

prepaid expenses, and accounts payable and accrued liabilities approximate the related fair values due to the short-term maturities of

these instruments.

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.

The Company maintains its cash deposits with major financial institutions.

and Development Tax Incentive Receivable

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

as a reduction of research and development expense.

The Australian research and development tax incentive is recognized when there is

reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration

can be reliably measured.

At each period end, management estimates the reimbursement available to the Company based on available information

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,

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.

At each period end, management estimates the reimbursement available to

the Company based on available information at the time.

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.

the assets are determined to have a finite life (upon completion of the development of the in-process research and development for its

DN-TNF platform), the useful life will be determined and the in-process research and development intangible assets will be amortized.

During the fourth quarter and if business factors

indicate more frequently, the Company performs an assessment of the qualitative factors affecting the fair value of our in-process research

and development.

If the qualitative assessment suggests that impairment is more likely than not, a quantitative analysis is performed.

The quantitative analysis involves a comparison of the fair value of the in-process research and development with the carrying amount.

If the carrying amount of the in-process research and development exceeds its fair value, an impairment loss is recognized in an amount

equal to that excess.

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, 2023 and 2022, the Company had potentially

issuable shares as follows:

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 as a reduction of research and development expense.

The Australian research and development

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

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

At each period end, management estimates the reimbursement available

to the Company based on available information at the time.

Company, through its wholly owned subsidiary in the United Kingdom (“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, and such incentives are reflected as a reduction of research and development expense.

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.

At each period end, management

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

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

When the assets are determined to have a finite life (upon completion of the development of the in-process

research and development for its DN-TNF platform), the useful life will be determined and the in-process research and development intangible

assets will be amortized.

the fourth quarter and if business factors indicate more frequently, the Company performs an assessment of the qualitative factors affecting

the fair value of our in-process research and development.

If the qualitative assessment suggests that impairment is more likely than

not, a quantitative analysis is performed.

The quantitative analysis involves a comparison of the fair value of the in-process research

and development with the carrying amount.

If the carrying amount of the in-process research and development exceeds its fair value, an

impairment loss is recognized in an amount equal to that excess.

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.

September 30, 2023 and 2022, the Company had potentially issuable shares as follows:

Stock options

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;

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;

(2) identify the performance obligations in the contract;

determine the transaction price;

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.

(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.

These assumptions are subjective and generally

6 unchanged sentences

forfeitures of stock options as they occur.

Research and Development

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

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit

Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments.

ASU 2016-13 changes

the impairment model for certain financial instruments.

The new model is a forward-looking expected loss model and will apply to financial

assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures.

This includes loans, held-to-maturity

debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables.

For available-for-sale

debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized

as allowances rather than reductions in the amortized cost of the securities.

In October 2019, the FASB voted to delay the effective date

of this standard.

Topic 326 became effective for the Company on January 1, 2023.

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

June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses

on Financial Instruments, as clarified in subsequent amendments.

ASU 2016-13 changes the impairment model for certain financial instruments.

The new model is a forward-looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized

cost and certain off-balance sheet credit exposures.

This includes loans, held-to-maturity debt securities, loan commitments, financial

guarantees and net investments in leases, as well as trade receivables.

For available-for-sale debt securities with unrealized losses,

credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions

in the amortized cost of the securities.

In October 2019, the FASB voted to delay the effective date of this standard.

Topic 326 became

effective for the Company on January 1, 2023.

Adoption of the ASU is on a modified retrospective basis.

The Company adopted ASU 2013-13 on January 1, 2023, and the adoption of the ASU did not impact the Company’s financial position,

results of operations, cash flows or net loss per share.

Subsequent Events

evaluates events that have occurred after the balance sheet date of June 30, 2023, 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, 2023 and December 31, 2022, the Company recorded a research and development tax credit receivable in the amount of $ 0 and $ 2,690,000 ,

respectively.

During the six months ended June 30, 2023 and 2022, the Company received $ 2,710,000 and $ 0 , respectively, of R&D tax

credit reimbursements from the UK.

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, 2023 and December 31, 2022, the Company recorded a research and development tax credit receivable of $ 1,934,000 and $ 5,409,000 ,

respectively, for R&D expenses incurred in Australia.

During the six months ended June 30, 2023 and 2022, the Company received $ 3,763,000

and $ 0 , respectively, of R&D tax credit reimbursements from Australia.

The Company adopted ASU

2013-13 on January 1, 2023, and the adoption of the ASU did not impact the Company’s financial position, results of operations,

cash flows or net loss per share.

Company evaluates events that have occurred after the balance sheet date of September 30, 2023, through the date which the financial

statements are issued.

4 – 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 September 30, 2023 and December 31, 2022, the Company recorded a research and development tax credit

receivable in the amount of $ 0 and $ 2,690,000 , respectively.

During the nine months ended September 30, 2023 and 2022, the Company received

$ 2,710,000 and $ 0 , respectively, of R&D tax credit reimbursements from the UK.

to AUS tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in AUS for expenses incurred 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 September 30, 2023 and December 31, 2022, the Company recorded a research and development tax credit

receivable of $ 2,087,000 and $ 5,409,000 , respectively, for R&D expenses incurred in Australia.

During the nine months ended September

30, 2023 and 2022, the Company received $ 3,763,000 and $ 0 , respectively, of R&D tax credit reimbursements from Australia.

License Agreement

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

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

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

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additional alternative applications of the technology are available under the Xencor License Agreement.

also agreed to pay Xencor a 5 % 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.

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:

(in thousands)

Company also agreed to pay Xencor a 5 % 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.

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:

Each Phase I initiation

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Each NDA/EMA awarded

In addition, the Company agreed to pay the licensor

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

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

The License is owned by Immune Ventures.

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.

No sales have occurred under this license.

The term of the agreement began on October 29,

2015 and ends on a country-by-country basis on the date of the expiration of the last to expire patent rights where patent rights exists,

unless terminated earlier in accordance with the agreement.

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 and October 30, 2020, the parties amended the agreement under which the Company was required

achieve milestones pursuant to the agreement.

On April 17, 2023, the parties executed an additional amendment to

the agreement under which the Company removed the due diligence requirements to achieve reasonable commercial efforts to bring INKmune

This removed all requirements of clinical trial timelines and the filing timelines of an NDA or equivalent.

All other provisions

in the INKmune License Agreement shall continue in full force and effect.

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)

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.

No sales have

occurred under this license.

term of the agreement began on October 29, 2015 and ends on a country-by-country basis on the date of the expiration of the last to expire

patent rights where patent rights exists, unless terminated earlier in accordance with the agreement.

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 and October 30, 2020, the parties amended the agreement under

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

April 17, 2023, the parties executed an additional amendment to the agreement under which the Company removed the due diligence requirements

to achieve reasonable commercial efforts to bring INKmune to market.

This removed all requirements of clinical trial timelines and the

filing timelines of an NDA or equivalent.

All other provisions in the INKmune License Agreement shall continue in full force and effect.

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:

June 26 of each year 2021-2022

June 26 of each year 2023-2024

June 26 of each year 2025 until first commercial sale

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)

June 26 of each year 2025 until first commercial

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:

Each Phase I initiation

Each Phase III initiation

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, 2023.

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;

First commercial sale of product making

use of licensed technology

Company had no amounts owed pursuant to the PITT Agreement as of September 30, 2023.

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,

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.

NOTE 5 – FAIR VALUE MEASUREMENTS

The following table presents the hierarchy

for assets and liabilities measured at fair value on a recurring basis:

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.

5 – FAIR VALUE MEASUREMENTS

following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis:

(in thousands)

June 30, 2023:

September 30, 2023:

Cash equivalents

Money market funds

Total cash equivalents

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Cash equivalents

Money market fund

Total cash equivalents

NOTE 6 – LEASE

The Company leases office space in Florida from

a third party.

The lease agreement has a 64-month term and commenced during the fourth quarter of 2021.

Below is a summary of the Company’s right-of-use

assets and liabilities:

(in thousands, except years and rate)

Company leases office space in Florida from a third party.

The lease agreement has a 64-month term and commenced during the fourth

quarter of 2021.

is a summary of the Company’s right-of-use assets and liabilities:

(in thousands,

except years and rate)

Right-of-use asset

Operating lease, current liability

Long-term operating lease liability

Long-term operating

lease liability

Total lease liability

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Weighted-average discount rate

NOTE 7 – RELATED PARTY TRANSACTIONS

30, 2023 and December 31, 2022, the Company owed UCL Consultants Limited (“UCL”) $ 9,000 in connection with medical research

performed on behalf of the Company.

During the six months ended June 30, 2023 and 2022, the Company paid UCL $ 209,000 and $ 123,000 ,

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

At June 30, 2023 and December 31, 2022, the Company recorded $ 30,000

7 – RELATED PARTY TRANSACTIONS

September 30, 2023 and December 31, 2022, the Company owed UCL Consultants Limited (“UCL”) $ 9,000

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

During the nine months

ended September 30, 2023 and 2022, the Company paid UCL $ 334,000 and $ 486,000 , respectively,

for medical research performed on behalf of the Company.

At September 30, 2023 and December 31, 2022, the Company recorded $ 0

and $ 34,000 , respectively, of prepaid expenses – related party for payments made to UCL in

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and Manufacturing Officer is a professor at the University of London.

At June 30, 2023 and December 31, 2022, the Company

owed AmplifyBio $ 0 in connection with medical research performed on behalf of the Company.

of AmplifyBio is on the Board of Directors of the Company.

During the six months ended June 30, 2023 and 2022, the Company paid AmplifyBio

$ 6,000 and $ 138,000 , respectively, for pre-clinical research performed on behalf of the Company.

NOTE 8 – 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,

The Term Loan provided 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.

On June 7, 2023, the Company entered into an amendment to the Term Loan pursuant to which,

among other things, certain covenants to the Term Loan were amended.

loan and debt discount are as follows as of June 30, 2023:

(in thousands)

debt discount and financing costs, net

September 30, 2023 and December 31, 2022, the Company owed AmplifyBio $ 70,000 and $ 0 , respectively, in connection with medical research

performed on behalf of the Company.

The CEO of AmplifyBio is on the Board of Directors of the Company.

During the nine months ended September 30, 2023 and 2022, the Company paid AmplifyBio $ 7,000 and $ 145,000 , respectively, for pre-clinical

research performed on behalf of the Company.

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.

The Term Loan provided 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.

On June 7, 2023, the Company entered into an amendment to

the Term Loan pursuant to which, among other things, certain covenants to the Term Loan were amended.

term loan and debt discount are as follows as of September 30, 2023:

debt discount and financing costs,

current portion

Long-term debt

three and six months ended June 30, 2023, the Company recognized interest expense of $ 631,000 and $ 1,243,000 , respectively, related to

the Term Loan.

For the three and six months ended June 30, 2022, the Company recognized interest expense of $ 465,000 and $ 900,000 , respectively,

related to the Term Loan.

is required to make interest only payments monthly until July 1, 2023, at which time the Company shall make interest and principal payments

monthly through the maturity date of January 1, 2025 .

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, 2023, the interest rate was 12.75 %.

Loan includes a final payment fee equal to 6.5 % of the original principal amount borrowed payable on the earlier of the repayment

three and nine months ended September 30, 2023, the Company recognized interest expense of $ 568,000 and $ 1,811,000 , respectively, related

to the Term Loan.

For the three and nine months ended September 30, 2022, the Company recognized interest expense of $ 525,000 and $ 1,424,000 ,

respectively, related to the Term Loan.

Company is required to make interest and principal payments monthly through the maturity date of January 1, 2025 .

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 %.

30, 2023, the interest rate was 13.0 %.

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 loan in full,

subject to a prepayment premium of 1% of the original principal amount borrowed for any prepayment before the maturity date.

repayment of the $ 15.0 million Term loan principal is as follows as of June 30, 2023:

(in thousands, except years)

the 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.

The Company violated certain non-financial debt covenants as of December 31, 2022 and received a waiver from the

Lenders waiving these debt covenant violations during the six months ended June 30, 2023.

The Company was in compliance with its

debt covenants at June 30, 2023 and the filing date of these financial statements.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock – Issuance to Directors

During the six months ended June 30, 2022, directors

and officers of the Company purchased 82,900 shares of the Company’s common stock from the Company at

$ 8.43 per share (which was the closing price of the Company’s common stock on March 22, 2022) for gross proceeds of

Stock options

On June 1, 2023, the Company’s shareholders approved an amendment

to the 2021 Incentive Stock Plan (“2021 Amended and Restated Incentive Stock Plan”) to increase the shares of the Company’s

common stock available for issuance thereunder to 4,000,000 shares.

During the six months ended June 30, 2023, the Company granted certain

employees and directors options to purchase 665,000 shares of its common stock pursuant to the 2017 and 2019 Incentive Stock Plans and

2021 Amended and Restated Incentive Stock Plan.

The stock options had a fair value of approximately $ 4.9 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 3.84 % –

3.99 % based on the applicable US Treasury bill rate (2) expected life of 6.0 – 6.25 years, (3) expected volatility of approximately

91 % 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, 2023:

(in thousands, except share and per share amounts)

The Company has the option to prepay the outstanding balance of the term loan in full, subject

to a prepayment premium of 1 % of the original principal amount borrowed for any prepayment before the maturity date.

expected repayment of the Term loan principal is as follows as of September 30, 2023:

thousands, except years)

the 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.

The Company violated certain non-financial debt covenants as of December 31, 2022 and received a waiver from the Lenders waiving these

debt covenant violations during the nine months ended September 30, 2023.

The Company was in compliance with its debt covenants at September

30, 2023 and the filing date of these financial statements.

9 – STOCKHOLDERS’ EQUITY

Stock – At the Market Offering

During March 2021, the Company entered into a

sales agreement (“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, 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.

During August 2023, the Company and BTIG entered into Amendment No.

Sales Agreement.

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

2023, the Company sold 75,697 shares of its common stock at an average price of $ 10.56 per share under the ATM program.

The aggregate net proceeds were approximately $ 775,000 after offering expenses.

These shares were inadvertently sold under a registration

statement filed with the SEC that had in fact expired prior to the time the shares were sold.

Consequently, the Company may

be subject to claims for rescission by purchasers who purchased shares of common stock under the ATM program.

Under Section

12(a)(1) of the Securities Act, a purchaser of security in a transaction made in violation of Section 5 of the Securities Act may obtain

recovery of the consideration paid in connection with its purchase, plus statutory interest, or, if it had already sold the shares, recover

damages resulting from its purchase.

While the Company believes, it is unlikely that a successful claim will be asserted against the Company

by any purchasers who purchased shares of common stock under the ATM Agreement in July 2023, the Company cannot guarantee that no such

legal claims will be asserted against the Company by any purchasers.

In addition, the Company could become subject to enforcement actions

and/or penalties and fines by federal authorities, and the Company is unable to predict the likelihood of any such enforcement actions

being brought, or the amount of any such potential penalties or fines.

As of September 30, 2023, there have been no claims or demands

to exercise such rights.

As a result of these potential rescission rights, the Company reclassified 75,697 shares, with an aggregate

purchase price of $ 799,000 of its common stock as temporary equity presented outside stockholders’ equity.

The reclassification

of these shares shall remain for a period of one year from transaction date.

These shares have been treated as issued and outstanding

for financial reporting purposes.

At September 30,

2023, the Company has $ 28.7 million of common stock available under the ATM program.

During September 2023, the Company and BTIG

suspended the Sales Agreement.

Stock – Issuance to Directors and Officers

the nine months ended September 30, 2022, directors and officers of the Company purchased 82,900 shares of the Company’s common

stock from the Company at $ 8.43 per share (which was the closing price of the Company’s

common stock on March 22, 2022) for gross proceeds of $ 699,000 .

June 1, 2023, the Company’s shareholders approved an amendment to the 2021 Incentive Stock Plan (“2021 Amended and Restated

Incentive Stock Plan”) to increase the shares of the Company’s common stock available for issuance thereunder to 4,000,000 shares.

the nine months ended September 30, 2023, the Company granted certain employees and directors options to purchase 665,000 shares of its

common stock pursuant to the 2017 and 2019 Incentive Stock Plans and 2021 Amended and Restated Incentive Stock Plan.

The stock options

had a fair value of approximately $ 4.9 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 3.84 % – 3.99 % based on the applicable US Treasury bill rate (2)

expected life of 6.0 – 6.25 years, (3) expected volatility of approximately 91 % based on the trading history of similar companies,

and (4) zero expected dividends.

following table summarizes stock option activity during the nine months ended September 30, 2023:

thousands, except share and per share amounts)

Outstanding at January 1, 2023

2 unchanged sentences

Options cancelled

Outstanding at June 30, 2023

Exercisable at June 30, 2023

During the three and six months ended June 30, 2023, the Company recognized

stock-based compensation expense of approximately $ 1.9 million and $ 3.6 million, respectively, related to the vesting of stock options.

During the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of approximately $ 1.9 million

Outstanding at September

Exercisable at September

the three and nine months ended September 30, 2023, the Company recognized stock-based compensation expense of approximately $ 1.9 million

and $ 5.5 million, respectively, related to the vesting of stock options.

As of June 30, 2023, there was approximately $ 12.7 million of

total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period

of 1.90 years.

issued 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 .

At June 30, 2023, 45,386 of these warrants are outstanding and the intrinsic value of these warrants is $ 0 .

issued warrants to its placement agents in connection with its February 2019 initial public offering.

The warrants are exercisable until

December 19, 2023, and have an exercise price of $ 9.60 .

At June 30, 2023, 28,688 of these warrants are outstanding and the intrinsic

value is $ 0 .

During the six months ended June 30, 2022, a third

party exercised 19,792 warrants for cash proceeds of approximately $ 30,000 .

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 six months ended June 30, 2023 and 2022 respectively:

During the three and nine months ended September 30, 2022, the

Company recognized stock-based compensation expense of approximately $ 1.9 million and $ 5.4 million, respectively, related to the vesting

of stock options.

As of September 30, 2023, there was approximately $ 10.5 million of total unrecognized compensation cost related to

non-vested stock options which is expected to be recognized over a weighted-average period of 1.98 years.

Company issued 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 .

At September 30, 2023, 45,386 of these warrants are outstanding and the intrinsic value of these warrants

Company issued warrants to its placement agents in connection with its February 2019 initial public offering.

The warrants are exercisable

until December 19, 2023, and have an exercise price of $ 9.60 .

At September 30, 2023, 28,688 of these warrants are outstanding

and the intrinsic value is $ 0 .

the nine months ended September 30, 2022, a third party exercised 19,792 warrants for cash proceeds of approximately $ 30,000 .

Compensation by Class of Expense

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

ended September 30, 2023 and 2022 respectively:

(in thousands)

September 30,

Research and development

General and administrative

Shareholder Rights Agreement

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.

When exercisable, each right initially would represent the right to purchase from the Company one one-thousandth

of a share of a newly designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.001 per share,

of the Company, at an exercise price of $300.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to

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.

Rights Agreement shall expire on December 30, 2023.

NOTE 10 – COLLABORATIVE AGREEMENTS

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, 2023, the Company has not received any proceeds pursuant to this grant.

NOTE 11 – COMMITMENTS

During September

2021, the Company signed a lease agreement with a third party for office space in Boca Raton, Florida.

The lease agreement has a 64-month

term and commenced during the fourth quarter of 2021.

Future minimum payments pursuant

to the leases are as follows:

(in thousands, except years)

Rights Agreement

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.

exercisable, each right initially would represent the right to purchase from the Company one one-thousandth of a share of a newly designated

series of preferred stock, Series A Junior Participating Preferred Stock, par value $ 0.001 per share, of the Company, at an exercise price

of $ 300.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to adjustment.

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.

On December 20, 2021, the

Company entered into Amendment No.

1 to the Rights Agreement (“Amendment No.

1”) to extend the expiration of the Rights Agreement

to December 30, 2022.

On December 9, 2022, the Company and VStock Transfer, LLC entered into Amendment No.

2 to Rights Agreement

(“Amendment No.

Pursuant to Amendment No.

2, the Rights Agreement extended the expiration of the Rights Agreement to

December 30, 2023.

The Rights are in all respects subject to and governed by the provisions of the Rights Agreement, as amended by the

Amendment No.1 and Amendment No.

10 – COLLABORATIVE AGREEMENTS

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 September 30, 2023, the Company

has not received any proceeds pursuant to this grant.

11 – COMMITMENTS

September 2021, the Company signed a lease agreement with a third party for office space in Boca Raton, Florida.

The lease agreement

has a 64-month term and commenced during the fourth quarter of 2021.

minimum payments pursuant to the leases are as follows:

thousands, except years)

Total lease payments

1 unchanged sentence

Present value of future lease payments

operating lease, current liabilities

Long-term operating lease liabilities

During the three and six months ended June 30,

operating lease,

current liabilities

Long-term operating lease

During the three and nine months ended September

30, 2023, the Company recognized $ 41,000 and $ 123,000 , respectively, in operating lease expense, which is included in general and administrative

expenses in the Company’s consolidated statement of operations.

During the three and six months ended June 30, 2022, the Company recognized

$ 54,000 and $ 108,000 , respectively, in operating lease expense, which is included in general and administrative expenses in the Company’s

consolidated statement of operations

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

the three and nine months ended September 30, 2022, the Company recognized $ 45,000 and $ 162,000 , respectively, in operating lease expense,

which is included in general and administrative expenses in the Company’s consolidated statement of operations

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 12 – SUBSEQUENT EVENTS

2023, the Company sold 75,697 shares of its common stock at an average price of $ 10.56 per share under the 2021 ATM program.

The aggregate net proceeds were approximately $ 775,000 after offering expenses.

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