Inmune Bio, Inc. 10-Q

Item 1. Financial Statements INMUNE BIO INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) March 31, 2024 December 31, 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 26,002 $ 35,848 Research and development tax credit receivable 2,133 1,905 Other tax receivable 557 537 Prepaid expenses and other current assets 1,109 1,510 Prepaid expenses – related party 23 142 TOTAL CURRENT ASSETS 29,824 39,942 Operating lease – right of use asset 389 414 Other assets 106 131 Acquired in-process research and development intangible assets 16,514 16,514 TOTAL ASSETS $ 46,833 $ 57,001 LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 9,294 $ 7,901 Accounts payable and accrued liabilities – related parties 56 35 Deferred liabilities 520 489 Current portion of long-term debt 7,455 9,921 Operating lease, current liabilities 125 119 TOTAL CURRENT LIABILITIES 17,450 18,465 Long-term operating lease liability 360 397 TOTAL LIABILITIES 17,810 18,862 COMMITMENTS AND CONTINGENCIES Redeemable common stock, $ 0.001 par value; 75,697 issued and outstanding, respectively (Note 9) 799 799 STOCKHOLDERS’ EQUITY Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding - - Common stock, $ 0.001 par value, 200,000,000 shares authorized, 17,950,776 shares issued and outstanding, respectively 18 18 Additional paid-in capital 160,922 159,143 Accumulated other comprehensive loss ( 669 ) ( 799 ) Accumulated deficit ( 132,047 ) ( 121,022 ) TOTAL STOCKHOLDERS’ EQUITY 28,224 37,340 TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY $ 46,833 $ 57,001 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 INMUNE BIO INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share amounts) (Unaudited) For the Three Months Ended March 31, 2024 2023 REVENUE $ 14 $ 38 OPERATING EXPENSES General and administrative 2,338 2,328 Research and development 8,693 4,133 Total operating expenses 11,031 6,461 LOSS FROM OPERATIONS ( 11,017 ) ( 6,423 ) OTHER EXPENSE, NET ( 8 ) ( 113 ) NET LOSS $ ( 11,025 ) $ ( 6,536 ) Net loss per common share – basic and diluted $ ( 0.61 ) $ ( 0.36 ) Weighted average common shares outstanding – basic and diluted 18,026,473 17,945,995 COMPREHENSIVE LOSS Net loss $ ( 11,025 ) $ ( 6,536 ) Other comprehensive income (loss) – foreign currency translation 130 ( 9 ) Total comprehensive loss $ ( 10,895 ) $ ( 6,545 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 INMUNE BIO INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2024 (In thousands, except share amounts) (Unaudited) Accumulated Additional Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balance as of December 31, 2023 17,950,776 $ 18 $ 159,143 $ ( 799 ) $ ( 121,022 ) $ 37,340 Stock-based compensation - - 1,779 - - 1,779 Gain on foreign currency translation - - - 130 - 130 Net loss - - - - ( 11,025 ) ( 11,025 ) Balance as of March 31, 2024 17,950,776 $ 18 $ 160,922 $ ( 669 ) $ ( 132,047 ) $ 28,224 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 INMUNE BIO INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 (In thousands, except share amounts) (Unaudited) Accumulated Additional Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders’ Shares Amount Capital Loss Deficit Equity Balance as of December 31, 2022 17,945,995 $ 18 $ 151,799 $ ( 699 ) $ ( 91,014 ) $ 60,104 Stock-based compensation - - 1,737 - - 1,737 Loss on foreign currency translation - - - ( 9 ) - ( 9 ) Net loss - - - - ( 6,536 ) ( 6,536 ) Balance as of March 31, 2023 17,945,995 $ 18 $ 153,536 $ ( 708 ) $ ( 97,550 ) $ 55,296 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 INMUNE BIO INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 11,025 ) $ ( 6,536 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,779 1,737 Accretion of debt discount 34 67 Changes in operating assets and liabilities: Research and development tax credit receivable ( 228 ) 6,285 Other tax receivable ( 20 ) ( 34 ) Prepaid expenses 401 394 Prepaid expenses – related party 119 ( 1 ) Other assets 25 - Accounts payable and accrued liabilities 1,393 ( 3,129 ) Accounts payable and accrued liabilities – related parties 21 - Deferred liabilities 31 ( 25 ) Accrued liability – long-term - 88 Operating lease liabilities ( 6 ) 13 Net cash used in operating activities ( 7,476 ) ( 1,141 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt ( 2,500 ) - Net used in financing activities ( 2,500 ) - Impact on cash from foreign currency translation 130 ( 9 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 9,846 ) ( 1,150 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,848 52,153 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,002 $ 51,003 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid for income taxes $ - $ - Cash paid for interest expense $ 302 $ 450 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 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 Alzheimer’s and treatment resistant depression (“XPro”) and cancer (“INB03”) and an out-licensing strategy. 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 – GOING CONCERN These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. During the three months ended March 31, 2024, the Company incurred a net loss of $ 11.0 million and had net cash flows used in operating activities of $ 7.5 million. Given the Company’s projected operating requirements and its existing cash and cash equivalents, the Company is projecting insufficient liquidity to sustain its operations through one year following the date that the financial statements are issued. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. In response to these conditions, management is currently evaluating different strategies to obtain the required funding of future operations. Financing strategies may include, but are not limited to, the public or private sale of equity, debt financings or funds from other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. There can be no assurances that the Company will be able to secure additional financing, or if available, that it will be sufficient to meet its needs or on favorable terms. Because management’s plans have not yet been finalized and are not within the Company’s control, the implementation of such plans cannot be considered probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The 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 of the U.S. Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of INmune Bio Inc. 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 condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 28, 2024. 6 Risks and Uncertainties The 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. The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale. There 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. The 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. 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. 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: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: 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 tax receivable, prepaid expenses, and accounts payable and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments. 7 Cash and Cash Equivalents The 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. Research 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 at the time. 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. 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. 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. 8 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 March 31, 2024 and 2023, the Company had potentially issuable shares as follows: March 31, 2024 2023 Stock options 5,496,000 5,441,000 Warrants 45,386 74,074 Total 5,541,386 5,515,074 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: (1) identify 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. The Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable. Stock-Based Compensation The 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 require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. The Company accounts for 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 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. The 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. 9 Income Taxes 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). 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. Foreign Currency Translation The 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). Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The guidance in ASU 2023-09 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its consolidated financial statements. Subsequent Events The Company evaluates events that have occurred after the balance sheet date of March 31, 2024, through the date which the financial statements are issued. NOTE 4 – RESEARCH AND DEVELOPMENT ACTIVITY 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 March 31, 2024 and December 31, 2023, the Company recorded a research and development tax credit receivable of $ 2,133,000 and $ 1,905,000 , respectively, for R&D expenses incurred in Australia. During the three months ended March 31, 2024 and 2023, the Company received $ 0 and $ 3,763,000 , respectively, of R&D tax credit reimbursements from Australia. 10 Xencor, Inc. License Agreement On October 3, 2017, the Company entered into a license agreement (“Xencor License Agreement”) with Xencor, Inc. (“Xencor”), which discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor. On June 10, 2021, the Company and Xencor entered into a First Amendment to License Agreement pursuant to which, among other things, Section 3.2 of the Xencor License Agreement was amended to change the due diligence milestones. Pursuant to the Xencor 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 “XPro” 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. The 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. 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) Each Phase I initiation $ 25 Each Phase II initiation $ 250 Each Phase III initiation $ 350 Each NDA/EMA filing $ 1,000 Each NDA/EMA awarded $ 9,000 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. The License is owned by Immune Ventures. 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. During December 2023, the Company initiated a Phase I trial with INKmune in patients with metastatic castration-resistant prostate cancer and has recorded a $ 25,000 payable to Immune Ventures as of March 31, 2024 and December 31, 2023. 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 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. 11 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 payments. Annual maintenance fees under the PITT Agreement include the following: (in thousands) June 26 of each year 2021-2022 $ 5 June 26 of each year 2023-2024 $ 10 June 26 of each year 2025 until first commercial sale $ 25 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 quarter. Moreover, under the PITT Agreement the Licensee is required to make milestone payments as follows: (in thousands) Each Phase I initiation $ 50 Each Phase III initiation $ 500 First commercial sale of product making use of licensed technology $ 1,250 The Company had no amounts owed pursuant to the PITT Agreement as of March 31, 2024. 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). 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. 12 NOTE 5 – FAIR VALUE MEASUREMENTS The following table presents the hierarchy for assets and liabilities measured at fair value on a recurring basis: (in thousands) Total Quoted Price in Active Market (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024: Cash equivalents Money market funds $ 25,706 $ 25,706 $ - $ - Total cash equivalents $ 25,706 $ 25,706 $ - $ - (in thousands) Total Quoted Price in Active Market (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023: Cash equivalents Money market fund $ 35,162 $ 35,162 $ - $ - Total cash equivalents $ 35,162 $ 35,162 $ - $ - 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) March 31, 2024 December 31, 2023 Right-of-use asset $ 389 $ 414 Operating lease, current liability $ 125 $ 119 Long-term operating lease liability $ 360 $ 397 Total lease liability $ 485 $ 516 Weighted-average remaining lease term 3.0 years 3.3 years Weighted-average discount rate 12.0 % 12.0 % 13 NOTE 7 – RELATED PARTY TRANSACTIONS UCL At March 31, 2024 and December 31, 2023, the Company recorded $ 23,000 and $ 112,000 , respectively, of prepaid expenses – related party for payments made to UCL in advance of services to be provided. During the three months ended March 31, 2024 and 2023, the Company paid UCL $ 0 and $ 104,000 , 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. AmplifyBio At March 31, 2024 and December 31, 2023, the Company owed AmplifyBio $ 31,000 and $ 10,000 , 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 three months ended March 31, 2024 and 2023, the Company paid AmplifyBio $ 142,000 and $ 6,000 , respectively, for services 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, 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. The term loan and debt discount are as follows as of March 31, 2024: (in thousands) Term Loan $ 7,500 Less: debt discount and financing costs, net ( 45 ) Current portion of debt $ 7,455 For the three months ended March 31, 2024 and 2023, the Company recognized interest expense of $ 357,000 and $ 612,000 , respectively, related to the Term Loan. The 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% . At March 31, 2024, the interest rate was 13.0 %. 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 loan in full, subject to a prepayment premium of 1 % of the original principal amount borrowed for any prepayment before the maturity date. Upon 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. 14 NOTE 9 – STOCKHOLDERS’ EQUITY Common 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. 1 to the Sales Agreement. The Company is required to pay BTIG a commission of 3 % of the gross proceeds from the sale of shares. During July 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 March 31, 2024, 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 March 31, 2024, the Company had $ 28.7 million of common stock available under the ATM program. Stock options The following table summarizes stock option activity during the three months ended March 31, 2024: (in thousands, except share and per share amounts) Number of Shares Weighted- average Exercise Price Weighted- average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2024 5,496,000 $ 8.73 6.18 $ 21,509 Options granted - $ - - - Options exercised - $ - - - Options cancelled - $ - - - Outstanding at March 31, 2024 5,496,000 $ 8.73 6.03 $ 23,813 Exercisable at March 31, 2024 4,664,038 $ 8.40 5.64 $ 21,857 During the three months ended March 31, 2024 and 2023, the Company recognized stock-based compensation expense of approximately $ 1.8 million and $ 1.7 million, respectively, related to the vesting of stock options. As of March 31, 2024, there was approximately $ 7.0 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of 1.31 years. 15 Warrants The 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 March 31, 2024, 45,386 of these warrants are outstanding and the intrinsic value of these warrants is $ 0 . 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 months ended March 31, 2024 and 2023 respectively: (in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Research and development $ 702,000 $ 649,000 General and administrative 1,077,000 1,088,000 Total $ 1,779,000 $ 1,737,000 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 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. The Rights Agreement was amended in 2021, 2022 and 2023 to extend the expiration date and shall expire on December 30, 2024. 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 March 31, 2024, the Company has not received any proceeds pursuant to this grant. 16 NOTE 11 – COMMITMENTS Lease 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) 2024 $ 140 2025 192 2026 198 2027 51 Total lease payments 581 Less: imputed interest ( 96 ) Present value of future lease payments 485 Less: operating lease, current liabilities ( 125 ) Long-term operating lease liabilities $ 360 During the three months ended March 31, 2024 and 2023, the Company recognized $ 39,000 and $ 43,000 , respectively, in operating lease expense, which is included in general and administrative expenses in the Company’s consolidated statement of operations. Litigation 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 12 – SUBSEQUENT EVENTS During the period from April 4, 2024 through May 6, 2024, the Company sold 198,364 shares of common stock at an average price of $ 10.56 for gross proceeds of approximately $ 2,095,000 under the ATM offering. On April 19, 2024, the Company entered into securities purchase agreements with purchasers in which the Company sold 571,592 shares of common stock and warrants to purchase 571,592 shares of common stock for aggregate gross proceeds of approximately $ 4,771,000 . The exercise price of the warrants is $ 9.152 and the term is the earlier of two years from the issuance of the warrants and thirty trading days following the release of top line data in the Phase 2 Alzheimer’s program, provided that directors and officers of the Company that are subject to a blackout with respect to trading in the Company’s stock will have an additional 60 days from the termination of the blackout date to exercise the warrant. Directors and officers that participated in the offering paid a combined offering price of $ 8.445 per share and warrant, and other investors paid $ 8.32 per share and warrant. On April 24, 2024, the Company entered into a securities purchase agreement with an investor in which the Company sold 986,000 shares of common stock and warrants to purchase 986,000 shares of common stock for aggregate gross proceeds of approximately $ 9,702,000 . The exercise price of the warrants is $ 9.84 and the term is the earlier of two years from the issuance of the warrants and thirty trading days following the release of top line data in the Phase 2 Alzheimer’s program. 17