(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001
per share

~~VLON~~

GRI

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧x No ◻o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧x No ◻o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

◻

Accelerated filer

◻

Non-accelerated filer

⌧

Smaller reporting company

⌧

Emerging growth company

⌧

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻☐ No ⌧x

As of ~~May 13, 2021, 6,812,836~~August 6, 2023, 2,956,354 shares of the Registrant’s ~~Common Stock~~common stock were outstanding.

Table of Contents

~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. Some of the statements in the sections captioned “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Quarterly Report contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

●

~~the likelihood of our clinical trials and non-clinical studies demonstrating safety and efficacy of our product candidates, and other positive results;~~

●

~~the timing of initiation of our future clinical trials, and the reporting of data from our completed, current and future preclinical and clinical trials;~~

●

~~the size of the market opportunity for our product candidates;~~

●

~~our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;~~

●

~~the success of competing therapies that are or may become available;~~

●

~~our estimates of the number of patients in the United States who suffer from ADHD or narcolepsy and the number of patients that will enroll in our clinical trials;~~

●

~~the beneficial characteristics, safety and efficacy of our product candidates;~~

●

~~the timing or likelihood of regulatory filings and approval for our product candidates;~~

●

~~our ability to obtain and maintain regulatory approval of our product candidates;~~

●

~~our plans relating to the further development and manufacturing of our product candidates, including ADMIR;~~

●

the expected potential benefits of strategic collaborations with third parties, including MEDICE Arzneimittel Putter GmbH & Co. KG (“Medice”), which is affiliated with one of our principal stockholders, Salmon Pharma, and represented by one member of our board of directors, and our ability to attract collaborators with development, regulatory and commercialization expertise;

●

~~existing regulations and regulatory developments in the United States, the European Union, and other geographic territories;~~

●

~~our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;~~

●

~~our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;~~

●

~~the need to hire additional personnel, and our ability to attract and retain such personnel;~~

●

~~the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;~~

●

~~our financial performance;~~

~~Table of Contents~~

●

~~the sufficiency of our existing capital resources to fund our future operating expenses and capital expenditure requirements;~~

●

~~the impacts of the COVID-19 pandemic on our operations;~~

●

~~our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and~~

●

~~our ability to maintain the listing of our common stock on The Nasdaq Capital Market.~~

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. You should refer to the “Risk Factors” section of this Quarterly Report for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. If the forward-looking statements prove to be inaccurate; the inaccuracy may be material. In light of the significant uncertainties in these forward- looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represents our views as of the date of this Quarterly Report. We anticipate that subsequent events and developments will cause our views to change, however, except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report, whether as a result of any new information, future events or otherwise. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.

This Quarterly Report includes trademarks and registered trademarks of Vallon Pharmaceuticals, Inc. Products or service names of other companies mentioned in this Quarterly Report may be trademarks or registered trademarks of their respective owners.

~~As used in this Quarterly Report, unless the context requires otherwise, the “Company,” “we,” “us” and “our” refer to Vallon Pharmaceuticals, Inc.~~

~~iii~~

~~Table of Contents~~

PART I—FINANCIAL INFORMATION

Item 1. ~~Financi~~alFinancial Statements.

~~Vallon Pharmaceuticals,~~

GRI Bio, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

March 31, 2021

December 31, 2020
Assets

(unaudited)

Current assets:

Cash and cash equivalents

$
12,980

$
109
Prepaid expenses and other current assets

1,358

565
Total current assets

14,338

674

Finance lease right-of-use asset, net

261

279
Property and equipment, net

1

2
Total assets

$
14,600

$
955

Liabilities and Stockholders' Equity (Deficit)




Current liabilities:

Accounts payable

$
1,347

$
1,226
Accrued expenses

985

847
Note payable, current

—

47
Finance lease liability, current

95

105
Total current liabilities

2,427

2,225
Note payable, non-current

—

14
Finance lease liabilities, non-current

146

170
Total liabilities

2,573

2,409




Commitments and contingencies (Note 10)





Stockholders' equity (deficit):




Common stock, $0.0001 par value; 250,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 6,812,836 and 4,506,216 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively, which gives retroactive effect to the one-for-40 reverse stock split. See Note 1 to these financial statements.

—

—
Additional paid-in-capital

27,264

11,145
Accumulated deficit

(15,237)

(12,599)
Total stockholders’ equity (deficit)

12,027

(1,454)
Total liabilities and stockholders' equity (deficit)

$
14,600

$
955

June 30, 2023 December 31, 2022
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 4,799 $ 9
Prepaid expenses and other current assets 793 303
Total current assets 5,592 312
Property and equipment, net 9 4
Operating lease right-of-use assets 41 67
Total assets $ 5,642 $ 383
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 307 $ 1,294
Accrued expenses 1,193 36
Advances from employees — 5
Warrant liability 63 —
Bridge promissory note, net — 602
Operating lease liabilities, current 41 57
Total current liabilities 1,604 1,994
Operating lease liabilities, non-current — 14
Total liabilities 1,604 2,008
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Common stock, 0.0001 par value; 250,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 2,956,354 and 999,748 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively — —
Additional paid-in-capital 31,430 16,871
Accumulated deficit (27,392) (18,496)
Total stockholders’ equity (deficit) 4,038 (1,625)
Total liabilities and stockholders' equity (deficit) $ 5,642 $ 383

See accompanying notes to ~~these~~unaudited interim consolidated financial statements.

Table of Contents

~~Vallon Pharmaceuticals,~~GRI Bio, Inc.

Consolidated Statements of Operations

~~(unaudited)~~

(in thousands, except share and per share amounts)

For the Three

For the Three

Months Ended

Months Ended

March 31,

March 31,

2021

2020
License revenue-related party

$
—

$
100
Operating expenses:

Research and development

1,772

883
General and administrative

830

375
Total operating expenses

2,602

1,258
Loss from operations

(2,602)

(1,158)
Other income

61

—
Revaluation of derivative liability

(89)

—
Interest expense, net

(8)

(2)
Net loss attributable to common stockholders

$
(2,638)

$
(1,160)
Net loss per share attributable to common stockholders, basic and diluted

$
(0.46)

$
(0.26)
Weighted-average common shares outstanding basic and diluted

5,710,270

4,506,216

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Operating expenses:
Research and development $ 880 $ 59 $ 997 $ 119
General and administrative 5,054 130 5,926 268
Total operating expenses 5,934 189 6,923 387
Loss from operations (5,934) (189) (6,923) (387)
Change in fair value of warrant liability 122 — 122 —
Interest expense, net (934) (106) (2,095) (210)
Net loss $ (6,746) $ (295) $ (8,896) $ (597)
Net loss per share of common stock, basic and diluted $ (2.79) $ (0.35) $ (5.23) $ (0.70)
Weighted-average common shares outstanding, basic and diluted 2,417,785 851,419 1,701,864 851,419

See accompanying notes to ~~these~~unaudited interim consolidated financial statements.

Table of Contents

~~Vallon Pharmaceuticals,~~GRI Bio, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

~~(unaudited)~~

(in thousands, except shares)

(Unaudited)

Common Stock

Additional Paid-In

Accumulated

Stockholders’


Shares (1)

Amount

Capital

Deficit

Equity (Deficit)
Balance, December 31, 2019

4,506,216

$
—

$
10,991

$
(7,777)

$
(3,214)
Stock-based compensation expense

—

—

35

0

35
Net loss

—

—

0

(1,160)

(1,160)
Balance, March 31, 2020

4,506,216

$
—

$
11,026

$
(8,937)

$
(2,089)


	Redeemable Convertible Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	7,816	$	124	851,419	$	—	$	10,430	$	(15,278)	$	(4,848)
Net loss	—	—		—	—		—		(302)		(302)
Balance, March 31, 2022	7,816	$	124	851,419	$	—	$	10,430	$	(15,580)	$	(5,150)
Net loss	—	—		—	—		—		(295)		(295)
Balance, June 30, 2022	7,816	$	124	851,419	$	—	$	10,430	$	(15,875)	$	(5,445)

Common Stock

Additional Paid-In

Accumulated

Stockholders’


Shares (1)

Amount

Capital

Deficit

Equity (Deficit)
Balance, December 31, 2020

4,506,216

$
—

$
11,145

$
(12,599)

$
(1,454)
Issuance of common stock for convertible notes

54,906

—

439

—

439
Issuance of common stock for IPO, net of issuance expenses

2,250,000

—

15,104

—

15,104
Issuance of common stock for services

1,714

—

9

—

9
Issuance of Underwriters Warrants

—

—

399

—

399
Stock-based compensation

—

—

168

—

168
Net loss

—

—

—

(2,638)

(2,638)
Balance, March 31, 2021

6,812,836

$
—

$
27,264

$
(15,237)

$
12,027

~~(1) The number of shares above give retroactive effect to the one-for-40 reverse stock split. See Note 1 to these financial statements.~~

Redeemable Convertible Stock Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Equity (Deficit)
Shares Amount
Shares
Amount
Balance, December 31, 2022 — $ — 999,748 $ — $ 16,871 $ (18,496) $ (1,625)
Stock-based compensation — — — — 13 — 13
Restricted stock vesting — — 467 — — — —
Warrant issuance — — — — 532 — 532
Net loss — — — — — (2,150) (2,150)
Balance, March 31, 2023 — $ — 1,000,215 $ — $ 17,416 $ (20,646) $ (3,230)
Stock-based compensation — — — — 13 — 13
Restricted stock vesting — — 164,038 — — — —
Warrant exercise — — 43,682 — 12 — 12
Issuance of common stock in pre-closing financing — — 1,214,912 — 11,721 11,721
Issuance of common stock for settlement of bridge note — — 54,298 — 3,333 3,333
Issuance of common stock for reverse recapitalization expenses — — 30,542 — 1,875 1,875
Issuance of common stock to Vallon stockholders in reverse recapitalization — — 448,667 — (2,940) (2,940)
Net loss — — (6,746) (6,746)
Balance, June 30, 2023 — $ — 2,956,354 $ — $ 31,430 $ (27,392) $ 4,038

See accompanying notes to ~~these~~unaudited interim consolidated financial statements.

Table of Contents

~~Vallon Pharmaceuticals,~~GRI Bio, Inc.

Consolidated Statements of Cash Flows

~~(unaudited)~~

(in thousands)

Three Months Ended

Three Months Ended

March 31,

March 31,


2021

2020
Cash flows from operating activities:



Net loss

$
(2,638)

$
(1,160)
Adjustments to reconcile net loss to cash used in operating activities:

Amortization of finance lease right-of-use asset

18

18
Stock-based compensation expense

168

35
Revaluation of derivative liability

89

—
Forgiveness of PPP note

(61)

—
Non-cash interest, depreciation and other expense

10

—
Change in operating assets and liabilities:

Prepaid expenses and other current assets

(793)

(87)
Accounts payable

121

200
Accrued expenses

138

226
Net cash used in operating activities

(2,948)

(766)

Cash flows from investing activities:

Purchase of property and equipment

—

(2)
Net cash used in investing activities

—

(2)




Cash flows from financing activities:




Proceeds from common stock, net of offering expenses

15,503

—
Proceeds from convertible notes

350

—
Payment of finance lease liability

(34)

(29)
Net cash provided by (used in) financing activities

15,819

(29)




Net increase (decrease) increase in cash and cash equivalents

12,871

(797)
Cash and cash equivalents, at beginning of period

109

3,821
Cash and cash equivalents, at end of period

$
12,980

$
3,024
Supplemental disclosure of cash flows information:

Interest paid

$
—

$
—
Noncash financing activities:

Conversion of convertible notes to common stock

$
350

$
—

(Unaudited)

Six Months Ended June 30,
2023 2022
Operating activities:
Net loss $ (8,896) $ (597)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation expense 2 1
Amortization of debt discounts and issuance costs 2,104 —
Stock-based compensation expense 26 —
Change in fair value of warrant liability 63 —
Reduction in operating right of use assets 26 23
Change in operating assets and liabilities:
Prepaid expenses and other current assets (750) (8)
Accounts payable 4,179 79
Accrued expenses 1,157 409
Operating lease liabilities (30) (23)
Cash used in operating activities (2,119) (116)
Investing activities:
Purchase of property and equipment (8) —
Cash used in investing activities (8) —
Financing activities:
Advances from employees 190 35
Repayment of advances from employees (195) —
Proceeds from issuance of common stock in pre-closing financing 12,250 —
Proceeds from issuance of bridge promissory note 1,250 —
Proceeds from warrant exercise 12 —
Net liabilities assumed in connection with reverse recapitalization (2,939) —
Payment of reverse recapitalization costs (2,984) —
Payment of deferred stock issuance costs (517) —
Payment of debt issuance costs (150) —
Cash provided by financing activities 6,917 35
Net increase (decrease) in cash and cash equivalents 4,790 (81)
Cash and cash equivalents at beginning of period 9 90
Cash and cash equivalents at end of period $ 4,799 $ 9
Supplemental disclosure of non-cash financing activities:
  Issuance of stock for repayment of bridge promissory note $ 3,333 $ —
  Recognition of debt discount and additional paid-in-capital for issuance of warrants in connection with the
  issuance of promissory notes $ 532 $ —
  Issuance of stock for payment of reverse recapitalization costs $ 1,875 $ —
  Issuance of warrants for payment of stock issuance costs $ 18
  Merger costs included in accounts payable $ 72 $ —

See accompanying notes to ~~these~~unaudited interim consolidated financial statements.

Table of Contents

~~Vallon Pharmaceuticals,~~GRI Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

~~(unaudited)~~

~~NOTE 1~~ ~~– NATURE~~

(in thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF ~~OPERATIONS,~~ BUSINESS ~~GOING CONCERN AND LIQUIDITY~~

~~Vallon Pharmaceuticals,~~

GRI Bio, Inc. ~~(“Vallon”~~(GRI or the ~~“Company”)~~Company), ~~a Delaware corporation, is a biopharmaceutical company~~ based in Philadelphia, PA, which is focused on the development and commercialization of proprietary biopharmaceutical products. The Company’s only clinical-stage product currently under development is ADAIR, a proprietary, abuse-deterrent oral formulation of immediate-release (short-acting) dextroamphetamine for the treatment of Attention-deficit/hyperactivity disorder, or ADHD, and Narcolepsy. The Company plans to develop other abuse-deterrent products which have potential for abuse in their current forms, beginning with the development of ADMIR, an abuse deterrent formulation of Ritalin, for which the Company is conducting formulation development work.

~~Vallon Pharmaceuticals, Inc.~~La Jolla, CA, was incorporated in Delaware ~~on January 11, 2018,~~in May 2009, which is the date of inception.

GRI is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing innovative therapies that target serious diseases associated with dysregulated immune responses leading to inflammatory, fibrotic, and autoimmune disorders. The Company’s ~~fiscal-year ends on December 31.~~

~~Immediately prior~~goal is to be an industry leader in developing therapies to treat these diseases and to improve the lives of patients suffering from such diseases. The Company’s lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T (iNKT I) cells and is being developed for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF). The Company’s product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds. GRI-0803, the lead molecule selected from the library, is a novel oral agonist of type 2 Natural Killer T (NKT II) cells and is being developed for the treatment of autoimmune disorders, with much of its preclinical work in Systemic Lupus Erythematosus Disease (SLE) or lupus and multiple sclerosis (MS).

Reverse Merger with Vallon Pharmaceuticals, Inc.

On April 21, 2023, the Company (formerly Vallon Pharmaceuticals, Inc.(Vallon)) consummated a merger with GRI Bio Operations, Inc. (formerly GRI Bio, Inc.) (Private GRI) pursuant to an Agreement and Plan of Merger, as amended (the Merger Agreement), by and among the Company, Private GRI and Vallon Merger Sub, Inc. (Merger Sub), a Delaware corporation and wholly-owned subsidiary of the Company (Note 4). The Merger Agreement provided for the merger of Merger Sub with and into Private GRI, with Private GRI surviving the merger as a wholly-owned subsidiary of the Company (the Merger). In connection with the closing of the ~~initial public offering~~Merger (the Closing), the Company amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.” In addition, prior to the effective time of the Merger (the Effective Time), the Company effected a reverse stock split of the Company’s common stock at a ratio of 1 for 30 (the ~~“IPO”) (Note 5),~~Reverse Stock Split). At the Effective Time, each share of Private GRI’s common stock outstanding immediately prior to the Effective Time automatically converted solely into the right to receive a number of shares of the Company's common stock equal to 0.0374 (the Exchange Ratio).

Except as otherwise indicated or as the context requires, references herein to “GRI Bio,” the “Company,” or the “Combined Company,” refer to GRI Bio, Inc. on a post-Merger basis, and references to “Private GRI” refer to the business of GRI Bio, Inc. prior to the completion of the Merger. References to “Vallon” refer to Vallon Pharmaceuticals, Inc. prior to the completion of the Merger.

Basis of Presentation

As discussed in Note 4, the Merger was accounted for as reverse recapitalization under which the historical financial statements of the Company ~~effected a one-for-~~40 ~~reverse~~prior to the Merger are the historical financial statements of the accounting acquirer, Private GRI. All common stock, ~~split of its common stock. All~~per share and ~~per share amounts, excluding~~related information presented in the ~~number of authorized shares and par value, contained in these~~consolidated financial statements and ~~accompanying~~ notes ~~and this Quarterly Report on Form 10-Q give retroactive effect~~prior to the ~~reverse split.~~

~~Business Formation:~~

~~On November 15, 2017, before~~Merger has been retroactively adjusted to reflect the ~~Company’s formation, Amiservice Development Ltd., a BVI corporation (“Amiservice”) entered into an agreement~~Exchange Ratio and Reverse Stock Split for the purchase of the ADAIR product rights for a payment of $250,000. The Asset Purchase Agreement (“the APA”), by and between Amiservice and Arcturus Therapeutics Ltd. (”Arcturus”), was subject to several closing conditions. One of the key terms and conditions of the APA was that the purchasers provide funding of at least $2.75 million towards the development of ADAIR.

On February 11, 2018, Ofir Levi, Chairman of the newly formed Vallon, purchased 196,875 common shares from the Company at par value for $788. On June 7, 2018, Vallon entered into a stock purchase agreement with several investors pursuant to which Vallon issued 1,771,881 common shares for $3.0 million (“Private Placement”). Subsequently, on June 22, 2018, the Company executed the amended APA, by and between Arcturus Therapeutics Ltd. Such APA was amended and restated from the initial agreement discussed above, dated as of November 15, 2017. In exchange for the ADAIR product rights, Vallon issued 843,750 common shares to Arcturus, valued at approximately $1.4 million based upon the price at which the common shares were issued and sold in the Private Placement, which comprised approximately 30% of the then-outstanding common stock of the Company, on a fully diluted basis. In addition, Amiservice signed a consent and release agreement to all ~~rights~~periods presented, to the APA in exchange for approximately $562,000 which represented a reimbursement for expenses Amiservice incurred on Vallon’s behalf in the amount of approximately $310,000, the repayment of 2 promissory notes totaling approximately $192,000 including interest, and approximately $60,000 of other operating expenses incurred. The assets acquired in the ADAIR acquisition are classified as in-process research and development (“IPR&D”). Accounting for IPR&D assets in an asset acquisition follows the guidance in Accounting Standards Codifications (“ASC”) 730, ~~Research and Development~~, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and charged to expense at the acquisition date. The Company recorded $1.7 million to research and development expense on June 22, 2018, the date of acquisition, which included $1.4 million of common shares issued for the acquisition, as well as, the original $250,000 exclusivity payment and approximately $60,000 in transaction fees.

extent applicable.

~~Table of Contents~~

2. LIQUIDITY

~~Going Concern and Liquidity:~~

These financial statements have been prepared on the basis that the Company is a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any significant revenues from operations since inception and does not expect to do so in the foreseeable future. The Company has incurred operating losses since its inception in 2009 and as a result has incurred ~~$15.2 million~~$27,392 in accumulated deficit through ~~March 31, 2021.~~June 30, 2023. The Company has financed its working capital requirements to date through the issuance of ~~common stock, convertible notes, short-term promissory notes,~~equity and ~~a Paycheck Protection Program (“PPP”) promissory note, as described in Note 4.~~

~~On January 11, 2021, the Company completed a $350,000 convertible note financing and on February 12, 2021, the Company completed the IPO, raising net proceeds~~debt securities. As of ~~$15.5 million, as described in Note 5. On March 31, 2021,~~June 30, 2023, the Company had cash of approximately $4,799.

Table of Contents

In connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered the Equity SPA pursuant to which the Investor agreed to invest $12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI common stock immediately prior to the consummation of the Merger. Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI common stock (the Initial Shares) to the Investor and 27,148,877 shares of Private GRI common stock (the Additional Shares) into escrow with an escrow agent for net proceeds of $11,704, after deducting offering expenses of $546.

At the closing, pursuant to the Merger, the Initial Shares converted into an aggregate of 253,842 shares of the Company’s common stock and the Additional Shares converted into an aggregate of 1,015,368 shares of the Company’s common stock. On May 8, 2023, in accordance with the terms of the Equity SPA, the Company and the Investor authorized the escrow agent to, subject to beneficial ownership limitations, disburse to the Investor all of the shares of the Company’s common stock issued in exchange for the Additional Shares.

Based on the Company’s current operating plan, the Company believes that its existing cash and cash equivalents, ~~totaling approximately $13.0 million~~ which ~~management expects~~include the proceeds from the Equity SPA, will ~~provide funding~~be sufficient to fund its operating expenses and capital expenditure requirements for ~~its ongoing business activities into~~twelve months from the third quarter of 2022. However, the Company has based this estimate on assumptions that may prove to be wrong, and it could use capital resources sooner than it expects, therefore, there is substantial doubt about the Company’s ability to continue as a going concern within one yeardate of the ~~date that these financial statements are being issued.~~

Merger (Note 4), not including the exercise of the Series T Warrants (the Series T Warrant Exercises).

The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital to fund its business activities, including its research and development program. The Company’s objective is to develop and commercialize biopharmaceutical products that treat central nervous system disorders, but there can be no assurances that the Company will be successful in this regard. Therefore, the Company intends to raise capital through additional issuances of common stock and/or short-term or long-term notes, but there can be no assurances any such financing will be available when needed or that the Company’s research and ~~/or short-term notes. Furthermore,~~development efforts will be successful. If the Company ~~may~~is not be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its future operating ~~requirements. If the Company is unable to obtain sufficient cash resources to fund its operations,~~requirements, it may be forced to reduce or discontinue its operations entirely. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

~~NOTE 2 –~~

3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note B, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2021. There have been no material changes to the significant accounting policies during the period ended March 31, 2021, except for items mentioned below.

~~[A] Unaudited Interim Financial Statements~~

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ~~(“GAAP”)~~(GAAP) for interim financial ~~information~~periods and ~~with~~pursuant to the ~~instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all~~rules of the ~~information~~Securities and ~~notes required by generally accepted accounting principles~~Exchange Commission (the SEC). Any reference in the ~~United States~~accompanying unaudited interim financial statements to “authoritative guidance” is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of ~~America for complete~~the Financial Accounting Standards Board (FASB). The December 31, 2022 balance sheet was derived from the Company’s audited financial statements.

In the opinion of management, the unaudited interim financial statements furnished herein include all normal and recurring adjustments considered necessary ~~for a fair presentation of~~to present fairly the Company’s financial position ~~at March 31, 2021~~as of June 30, 2023, and the results of operations and stockholders’ ~~equity (deficit)~~deficit for the three and six months ended June 30, 2023 and 2022 and cash flows for the three and six months ended ~~March 31, 2021~~June 30, 2023 and ~~2020. All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements.~~2022. Results of operations for the ~~three-month period~~three and six months ended ~~March 31, 2021,~~June 30, 2023, are not necessarily indicative of the operating results that may be expected for the year ending December 31, ~~2021.~~

2023. The ~~balance sheet as of December 31, 2020 has been derived from~~unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements ~~at that date but does not include all~~and related notes as of ~~the information~~ and ~~notes required by GAAP for complete financial statements.~~

~~References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).~~

~~For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K~~ for the year ended December 31, ~~2020.~~

2022, which are included as Exhibit 99.2 of Amendment No. 2 to the Current Report on Form 8-K filed with the SEC on July 6, 2023.

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~~[B]~~ Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates and assumptions are primarily made in relation to the valuation of share options, the embedded derivative of convertible notes, warrant issuance and subsequent revaluations, valuation allowances relating to deferred tax assets, revenue recognition, accrued expenses and estimation of the incremental borrowing rate for the finance lease. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted

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in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate.

~~[C] Stock-based~~

Cash and Cash Equivalents

Cash equivalents are highly-liquid investments that are readily convertible into cash with original maturities of three months or less when purchased and as of June 30, 2023 and December 31, 2022 included investments in money market funds. The Company maintains its cash and cash equivalent balances at domestic financial institutions. Bank deposits with US banks are insured up to $250 by the Federal Deposits Insurance Corporation. The Company had an uninsured cash balances of $4,302 at June 30, 2023. The Company’s cash balance as of December 31, 2022 was fully insured.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820, Fair Value Measurement, (ASC 820) establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

As of June 30, 2023, the Company’s financial instruments included cash, cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and certain liability classified warrants. The carrying amounts reported in the balance sheets for cash, cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments. The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. At June 30, 2023, there were no financial assets or liabilities measured at fair value on a recurring basis other than the liability classified warrants.

In May 2022, Vallon issued warrants in connection with a securities purchase agreement. Vallon evaluated the warrants in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC 815-40), and concluded that a provision in the warrants related to the reduction of the exercise price in certain circumstances precludes the warrants from being accounted for as components of equity. As a result, the warrants are recorded as a liability on the balance sheet. Vallon recorded the fair value of the warrants upon issuance using a Black-Scholes valuation model.

The Company is required to revalue the warrants at each reporting date with any changes in fair value recorded in its statement of operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. The change in the fair value of the Level 3 warrants liabilities is reflected in the statement of operations for the six months ended June 30, 2023.

Deferred Stock Issuance Costs

Deferred stock issuance costs represent incremental legal costs incurred that are directly attributable to proposed offerings of securities. The costs are charged against the gross proceeds of the respective offering upon closing.

Debt Discounts

The relative fair values of warrants and common shares issued and call option rights assigned in connection with principal advances under promissory notes, the increases in fair values of embedded conversion options in connection with convertible promissory note

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modifications, and the intrinsic values of non-contingent beneficial conversion features were recorded as debt discounts that are amortized as additional interest expense over the estimated terms of the notes using the effective interest method.
Debt Issuance Costs
Debt issuance costs represent incremental legal costs and other costs incurred that are directly attributable to issuing debt. The costs are included as a direct reduction of the carrying amount of the respective liability and are amortized as additional interest expense over the estimated term of the debt using the effective interest method.

Stock-Based Compensation

The Company recognizes expense for employee and non-employee stock-based compensation in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC Topic 718, Stock-Based Compensation(ASC 718). ASC 718 requires that such transactions be accounted for using a fair value-based method. The estimated fair value of the options is amortized over the vesting period, based on the fair value of the options on the date granted, and is calculated using the Black-Scholes option-pricing model. The Company accounts for forfeitures as incurred. In considering the fair value of the underlying stock when the Company granted options, the Company considered several factors including the fair values established by market transactions. Stock option-based compensation includes estimates and judgments of when stock options might be exercised and stock price volatility. The timing of option exercises is out of the Company's control and depends upon a number of factors including the Company's market value and the financial objectives of the option holders. These estimates can have a material impact on the stock compensation expense but will have no impact on the cash flows. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period the estimates are revised. The stock options granted, other than the 61,250 granted to Mr. Baker described in Note 10[A], as of March 31, 2021 vest primarily upon specified performance milestones. As Mr. Baker’s stock option grant was pursuant to milestones associated with an underwritten public offering or a listing on a national stock exchange, management determined that no expense should be recognized for this grant until such time that the milestone becomes probable. The options vested on February 12, 2021, concurrent with the closing of the IPO and thus the expense for such options was recognized in the three months ended March 31, 2021. The Company ~~elected to use~~uses the expected term, rather than the contractual term, for both employee and consultant options issued.

~~[D]~~

Net Loss Per Common Share

Basic and diluted net loss per common share are calculated by dividing the net loss by the applicable weighted-average number of common shares outstanding during the period. As the Company had a net loss in each of the three and six months ended June 30, 2023 and 2022, diluted net loss per common share is the same as basic net loss per common share for the period because the effects of potentially dilutive securities are antidilutive.

Common stock equivalents excluded from the diluted net loss per common share calculations are as follows:

June 30,
2023 2022
Stock options 100,459 89,472
Warrants 3,688,449 10,067
Restricted stock with repurchase rights 164,038 164,038
Stock subject to put right — 7,816
Convertible promissory note — 143,544
3,952,946 414,937

Recent Accounting Pronouncements

The Company ~~considers~~considered the applicability and impact of all ~~Accounting Standards Updates (“ASUs”).~~ ASUs ~~not discussed below were assessed~~issued during the quarter ended June 30, 2023 and each was determined to be either not applicable or ~~are~~ expected to have minimal impact on these financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions

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4. MERGER WITH VALLON

On April 21, 2023, pursuant to the ~~general principals in Topic 740. The amendments also improve consistent application of~~Merger Agreement, Merger Sub was merged with and ~~simplify generally accepted accounting principles (GAAP) for other areas of Topic 740 by clarifying and amending~~into Private GRI, with Private GRI surviving the existing guidance. For public business entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The adoption of this standard, effective January 1, 2021, did not haveMerger as a ~~material impact on these financial statements.~~

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~~NOTE 3 – ACCRUED EXPENSES~~

~~Accrued expenses consist~~wholly owned subsidiary of the ~~following (in thousands):~~

March 31,

December 31,

2021

2020
Payroll and related

$
176

$
342
Clinical and preclinical trial and regulatory related

490

137
Chemistry and manufacturing

154

117
Financing related

—

97
Licensing related

76

81
Other

89

73
Total accrued expenses

$
985

$
847

~~NOTE 4 – PPP NOTE AND CONVERTIBLE NOTES~~

Company. In ~~May 2020,~~connection with the Closing, the Company ~~issued a promissory note under~~amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.”

At the ~~PPP totaling $61,000. As~~Effective Time:

(a)Each share of December 31, 2020, the Company had utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health care benefits and rent payments and in January 2021, the Company was notified that the loan along with accumulated interest had been forgiven. As the PPP note was forgiven, the Company recorded income from the extinguishment of its obligation in accordance with ASC 405-20-40-1, disclosed in the amount of $61,000 included in other income on the accompanying Statements of Operations. The Company had accounted for the note under ASC 470. The note had a stated interest rate of 1% and had a two-year maturity. Payments were required to be made over a 1.5-year period beginning November 1, 2020 unless forgiven. The Company did not impute interest on the note as the rate was determined to be a below-market rate duePrivate GRI’s common stock outstanding immediately prior to the ~~scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. Amounts due under the next twelve months are presented as notes payable – current on the Company’s balance sheet as~~Effective Time, including any shares of ~~December 31, 2020.~~

On January 11, 2021, the Company entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including SALMON Pharma GmbH (“Salmon Pharma”), an affiliate of Medice, and David Baker, the Company’s Chief Executive Officer,Private GRI’s common stock issued pursuant to ~~which~~ the ~~Company issued convertible promissory notes (the “2021 Convertible Notes”), for cash proceeds~~Equity SPA automatically converted solely into the right to receive a number of ~~$350,000. The 2021 Convertible Notes bore an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30, 2021. The 2021 Convertible Notes converted into 54,906~~ shares of the Company’s common stock ~~upon completion~~equal to the Exchange Ratio.

(b)Each option to purchase shares of Private GRI’s common stock (each, a GRI Option) outstanding and unexercised immediately prior to the ~~IPO. The Company identified~~Effective Time under the ~~mandatory conversion~~GRI Bio, Inc. 2015 Equity Incentive Plan (the GRI Plan), whether or not vested, converted into and became an option to purchase shares of the Company’s common stock, and the Company assumed the GRI Plan and each such GRI Option in accordance with the terms of the GRI Plan (the Assumed Options). The number of shares of he Company’s common stock subject to each Assumed Option was determined by multiplying (i) the number of shares of Private GRI’s common stock that were subject to such GRI Option, as in effect immediately prior to the Effective Time, by (ii) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of he Company’s common stock. The per share exercise price for the he Company’s common stock issuable upon exercise of each Assumed Option was determined by dividing (A) the per share exercise price of such Assumed Option, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio and rounding the resulting per share exercise price up to the nearest whole cent. Any restriction on the exercise of any Assumed Option continued in full force and effect and the term, exercisability, vesting schedule, and any other provisions of such Assumed Option otherwise remained unchanged.

(c)Each warrant to purchase shares of Private GRI’s common stock outstanding immediately prior to the Effective Time other than the Bridge Warrants (as defined below) (the GRI Warrants), was assumed by the Company and converted into a warrant to purchase shares of the Company’s common stock (the Assumed Warrants) and thereafter (i) each Assumed Warrant became exercisable solely for shares of the Company’s common stock; (ii) the number of shares of the Company’s common stock subject to each Assumed Warrant was determined by multiplying (A) the number of shares of Private GRI’s common stock that were subject to such GRI Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of the Company’s common stock; (iii) the per share exercise price for shares of the Company’s common stock issuable upon exercise of each Assumed Warrant was determined by dividing (A) the exercise price per share of Private GRI’s common stock subject to such GRI Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting exercise price up to the nearest whole cent.

(d)The Bridge Warrants (Note 8) were exchanged for warrants (the Exchange Warrants) to purchase an aggregate of 421,589 shares of the Company’s common stock. The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $14.73 per share.

(e)All rights with respect to Private GRI restricted stock awards were assumed by the Company and converted into Company restricted stock awards with the number of shares subject to each restricted stock award multiplied by the Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of the Company’s common stock. The term, exercisability, vesting schedule and other provisions of the Private GRI restricted stock awards otherwise remained unchanged.

The Merger is accounted for as a ~~redemption feature, which requires bifurcation from~~reverse recapitalization under U.S. GAAP because the ~~2021 Convertible Notes~~primary assets of Vallon were cash and ~~treated it as a derivative liability under ASC 815 as~~cash equivalents. For accounting purposes, GRI has been determined to be the ~~redemption feature was not clearly~~accounting acquirer based upon the terms of the Merger and ~~closely~~other factors including: (i) the equity holders of Private GRI immediately prior to the Merger owned, or held rights to acquire, in the aggregate approximately 85% of the outstanding shares of the Company’s common stock and the Company’s stockholders immediately prior to the Merger owned approximately 15% of the outstanding shares of the Company’s common stock (ii) Private GRI holds the majority (4 out of 5) of board seats of the combined company, and (iii) Private GRI’s management holds the majority of

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key positions in the management of the combined company. Immediately after the Merger, there were 2,956,354 shares of the Company’s common stock outstanding.

The following table shows the net liabilities assumed in the Merger:


	April 21, 2023
Cash and cash equivalents	$	941
Prepaid and other assets	310
Accounts payable and accrued expenses	(4,190)
Total net liabilities assumed	(2,939)
Plus: Transaction costs	(2,984)
Total net liabilities assumed plus transaction costs	$	(5,923)

In addition to the transactions costs noted above, at the Effective Time, 30,542 shares of the Company’s common stock were issued to Private GRI’s financial advisor for services related to the ~~debt.~~ Merger.

5. FAIR VALUE MEASUREMENTS

The Company ~~evaluated~~applies the guidance in ASC 820 to account for financial assets and liabilities measured on a recurring basis. Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following 3 categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2 and 3 during the six months ended June 30, 2023.

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s liabilities that are measured at fair value on a recurring basis at June 30, 2023:


	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Liabilities:
Warrant liability	$	—	$	—	$	63
Total liabilities	$	—	$	—	$	63

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The following table presents the changes is the fair value of the ~~derivative liability. Upon the conversion of the 2021 Convertible Notes to common stock at the closing of the IPO, the embedded derivative liability was remeasured and removed from the balance sheet.~~

~~NOTE 5 – EQUITY FINANCING~~

On February 12, 2021, the Company completed the IPO of 2,250,000 shares of common stock at a public offering price of $8.00 per share. The gross proceeds from the IPO, before deducting underwriting discounts, commissions and other offering expenses payable by the Company, were $18.0 million. Underwriting discounts and expenses totaled $1.6 million and the Company incurred approximately $905,000 of additional expenses related to completing the IPO, of which $494,000 were incurred as of December 31, 2020 and included prepaids and other current assets on the Company’s balance sheet; thus aggregate net proceeds were approximately $15.5 million. Immediately prior to the closing of the IPO, the Company effected a one-for-40 ~~reverse stock split of its common stock.~~

Level 3 liability:


	Warrant Liability
Fair value as of December 31, 2022	$	185


Change in valuation	(122)
Fair value as of June 30, 2023	$	63

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In connection with the IPO, the Company granted the underwriters warrants (the “Underwriters' Warrants”) to purchase an aggregate of 112,500 shares of common stock at an exercise price of $10.00 per share, which is 125% of the initial public offering price. The Underwriters’ Warrants have a five-year term and are not exercisable prior to August 12, 2021. All of the Underwriters’ Warrants were outstanding at March 31, 2021. According to ASC 480-10-25-8 and ASC 480-10-25-14, a warrant is classified as a liability if the warrant obligates the issuer to repurchase its shares by transferring an asset. A warrant can also be classified as a liability if it (conditionally or unconditionally) obligates the issuer to settle the warrant by issuing a variable number of shares if the monetary value of the obligation is based on a predetermined fixed amount, variation in something other than the issuers stock price, or variations inversely related to the issuers stock price. Any other warrant would be classified as equity. Given that these warrants do not meet the criteria of debt classification, these warrants were classified as equity and the fair value of $399,000 is reflected as additional paid-in capital. The Black-Scholes ~~option-pricing~~valuation model was used to estimate the fair value of the warrants with the following weighted-average assumptions:


	June 30, 2023	December 31, 2022
Volatility	167.1 %	139.9 %
Expected term in years	2.5	2.5
Dividend rate	0.0 %	0.0 %
Risk-free interest rate	4.68 %	4.32 %

6. PROPERTY AND EQUIPMENT


	June 30, 2023		December 31, 2022
Computer equipment	$	21	$	13
Furniture and fixtures	12		13
	33		26
Accumulated depreciation	(24)		(22)
	$	9	$	4

Depreciation expense related to property and equipment was $2 and $1 for the six months ended June 30, 2023 and 2022, respectively.

7. ACCRUED EXPENSES

Accrued expenses consist of the following:


	June 30, 2023		December 31, 2022
Research and development	$	143	$	—
General and administrative	188		—
Payroll and related	862		36

Total accrued expenses	$	1,193	$	36

8. PROMISSORY NOTES

Bridge Financing

In connection with signing the Merger Agreement, Private GRI entered into a Securities Purchase Agreement, dated as of December 13, 2022 (Bridge SPA), with Altium Growth Fund, LP (the Investor), pursuant to which Private GRI issued senior secured promissory notes (Bridge Notes) in the aggregate principal amount of $3,333, in exchange for an aggregate purchase price of $2,500.

The Bridge Notes were issued in two closings: (i) the first closing for $1,667 in aggregate principal amount (in exchange for an aggregate purchase price of $1,250) closed on December 14, 2022; and (ii) the second closing for $1,667 in aggregate principal amount (in exchange for an aggregate purchase price of $1,250) closed on March 9, 2023. The Bridge Notes were secured by a lien on all of the Company’s assets.

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In addition, upon the funding of each tranche, the Investor received warrants to purchase an aggregate of 1,252,490 shares of the Company’s common stock (the Bridge Warrants). The Bridge Warrants had an exercise price of $1.33 per share, were exercisable at any time on or after the applicable issuance date and had a term of 60 months from the date all shares underlying the Bridge Warrants were freely tradable.

The $1,250 of proceeds from the first closing were allocated to the Bridge Notes and Bridge Warrants based on their relative fair values as of the commitment date, resulting in an allocation of $679 and $571, respectively. The $1,250 of proceeds from the second closing were allocated to the Bridge Notes and Bridge Warrants based on their relative fair values as of the commitment date, resulting in an allocation of $718 and $532, respectively.

In addition to the Bridge SPA, and also in connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered into the Equity SPA (Note 9) pursuant to which the Investor agreed to invest $12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI’s common stock immediately prior to the consummation of the Merger.

On April 21, 2023, the Company completed the Merger and the outstanding principal and accrued interest on the Bridge Notes was cancelled and the Bridge Warrants were exchanged for the Exchange Warrants. The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $14.73 per share subject to adjustments for splits and recapitalization events.

The Bridge Notes were accounted for as share-settled debt under the accounting guidance in ASC 835-30 and, as such, the initial net carrying amounts were accreted to the redemption amounts using the effective interest method. The Company incurred debt issuance costs of $205 during the year ended December 31, 2022 and $90 during the six months ended June 30, 2023 related to its issuance of debt under the Bridge SPA. Unamortized debt discounts and debt issuance costs totaled $1,065 as of December 31, 2022. Interest expense stemming from amortization of debt discounts and issuance costs was $1,161 and $2,104 for the three and six months ended June 30, 2023, respectively.

TEP Note

In November 2018, Private GRI and TEP Biotech, LLC (TEP) entered into a convertible note and warrant purchase agreement pursuant to which TEP agreed to fund up to $5,000 to Private GRI in exchange for a convertible promissory note (the TEP Note) and a warrant to purchase up to 25,245 shares of Private GRI’s common stock at an exercise price of $0.27 per share. The TEP Note was secured by Private GRI’s assets and accrued simple interest on the outstanding principal balance at a rate of 12% per annum. The total outstanding principal and accrued interest balance was initially due on the earlier of Private GRI’s next financing, as defined, and May 2, 2020. The initial $2,500 tranche under the TEP Note was funded upon execution of the agreement in November 2018.

In December 2019, Private GRI and TEP amended the TEP Note. In lieu of TEP funding the second $2,500 tranche, TEP made a first additional advance of $500 to Private GRI in exchange for a convertible promissory note, a warrant to purchase up to 17,269 shares of Private GRI’s common stock at an exercise price of $0.27 per share, and the assignment of Private GRI’s rights under a certain call option agreement. The call option agreement, which was entered into in 2015, provided Private GRI with the right to repurchase up to 39,720 shares of Private GRI’s common stock held by the counterparty for $26.74 per share at any time before April 1, 2025.

In July 2020, the TEP Note maturity date was extended to August 31, 2020, and in March 2021, TEP agreed to forbear on its available right to exercise remedies on account of Private GRI’s failure to pay the past due principal and accrued interest balance until October 31, 2021.

In May 2021, Private GRI and TEP amended the TEP Note, and TEP agreed to make a second additional advance of $500 to Private GRI in exchange for a convertible promissory note with separate, modified conversion options.

In July 2022, Private GRI and TEP further amended the TEP Note, and TEP agreed to make a third additional advance of $125 to Private GRI in exchange for a convertible promissory note and a warrant to purchase up to 1,169 shares of Private GRI’s common stock at an exercise price of $0.27 per share.

In October 2022, Private GRI and TEP entered into a conversion agreement pursuant to which, effective upon the full execution of the Merger Agreement (Note 4), $3,500 of outstanding principal under the TEP Note together with $650 of related accrued interest was to

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automatically convert into 155,210 shares of Private GRI’s common stock at a conversion price of $26.74 per share. Further, upon the closing of the first tranche of the Bridge Notes, Private GRI was to repay, in cash, the $125 third additional advance under the TEP Note along with the $15 of related accrued interest. Upon issuance of the 155,210 conversion shares and payment of the $140 principal and accrued interest balance, Private GRI would fully satisfy all of its obligations under the TEP Note.

In December 2022, upon the full execution of the Merger Agreement and the closing of the first tranche of the Bridge Notes Private GRI issued the 155,210 conversion shares and paid the $140 principal and accrued interest balance as per the terms of the conversion agreement. The share numbers and exercise or conversion prices in this section of Note 8 entitled “TEP Note” reflect the Exchange Ratio retroactively.

As part of the conversion, the $4,150 of converted principal and accrued interest, along with $863 of related forfeited accrued interest through the conversion date, were credited to stockholders’ deficit. Interest expense recognized on the TEP Note was $107 and $210 for the three and six months ended June 30, 2022.

9. STOCKHOLDERS’ EQUITY

Common Stock

In connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered the Equity SPA pursuant to which the Investor agreed to invest $12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI’s common stock immediately prior to the consummation of the Merger. Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI’s common stock (the Initial Shares) to the Investor and 27,148,877 shares of Private GRI’s common stock (the Additional Shares) into escrow with an escrow agent for net proceeds of $11,704, after deducting offering expenses of $546.

Redeemable Common Stock

In November 2018, Private GRI entered into an agreement with a stockholder pursuant to which the stockholder had the right to require Private GRI to purchase all or a portion of 7,816 shares of Private GRI’s common stock held by the stockholder for $15.88 per share (the Put Right). The Put Right was exercisable (i) for a period commencing thirty days prior to the day Private GRI completed an equity or debt financing and ending fifteen business days thereafter, or (ii) at any time following a breach of the agreement by Private GRI.

Management assessed the Put Right and determined that (i) it was not freestanding and, therefore, was not required to be classified as a liability and (ii) it could be exercised by the stockholder at any time, which was not within Private GRI’s control. Therefore, the common shares subject to the Put Right were classified in mezzanine equity. In December 2022, the stockholder exercised the Put Right and Private GRI redeemed the 7,816 shares of Private GRI’s common stock for $124 ($15.88 per share). The redeemed shares were retired by Private GRI. The share numbers and exercise or conversion prices in this section of Note 9 entitled “Redeemable Common Stock” reflect the Exchange Ratio retroactively.

Common Stock Warrants

Pursuant to the Equity SPA, on May 8, 2023, the Company issued to the Investor (i) Series A-1 Warrants to purchase 1,269,210 shares of the Company’s common stock at an exercise price of $13.51, (ii) Series A-2 Warrants to purchase 1,142,289 shares of the Company’s common stock at an exercise price of $14.74 , and (iii) Series T Warrants to purchase (x) 814,467 shares of the Company’s common stock at an exercise price of $12.28 and (y) upon exercise of the Series T Warrants, 814,467 additional Series

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A-1 Warrants and Series A-2 Warrants, each to purchase 814,467 shares of the Company’s common stock at an exercise price of $13.51 and $14.74, respectively (collectively, the Equity Warrants).

The Series A-1 Warrants have a term of 60 months from the date all shares underlying the Series A-1 Warrants are freely tradable. The A-2 warrants have a 2-year term and expire in June 2025. Series T Warrants have a term of 24 months from the date all shares underlying Series T Warrants are freely tradable. The Company may force the exercise of the Series T Warrants subject to the satisfaction of certain equity conditions. The Equity Warrants include certain contingent cashless exercise features and contain certain other rights with regard to asset distributions and fundamental transactions. The exercise price of the Series A-1 Warrants is subject to adjustment for certain dilutive issuances, and all of the Equity Warrants are subject to standard antidilution adjustments. All of the Equity Warrants were outstanding as of June 30, 2023. The Equity Warrants were classified as equity and the allocated fair value of $5,675 is included in additional paid in capital.

Pursuant to the Bridge SPA, upon the funding of each tranche of the Bridge Note, the Investor received the Bridge Warrants. The Bridge Warrants had an exercise price of $1.33 per share, were exercisable at any time on or after the applicable issuance date and had a term of 60 months from the date all shares underlying the Bridge Warrants are freely tradable. Upon the completion of the Merger the Bridge Warrants were exchanged for the Exchange Warrants to purchase an aggregate of 421,589 shares of the Company’s common stock. The Exchange Warrants contain substantively similar terms to the Bridge Warrants, and have an initial exercise price equal to $14.73 per share subject to adjustments for splits and recapitalization events. All of the Bridge Warrants were outstanding as of June 30, 2023. The Bridge Warrants were classified as equity and the allocated fair value of $2,860 is included in additional paid in capital.

In connection with the Closing, Private GRI granted its financial advisor warrants (the Advisor Warrants) to purchase shares of Private GRI’s common stock, which, at the Effective Time, became exercisable for an aggregate of 2,402 shares of the Company’s common stock at an exercise price of $61.39 per share. The Advisor Warrants have a five-year term. All of the Advisor Warrants were outstanding as of June 30, 2023. The Advisor Warrants were classified as equity and the fair value of $18 is included in additional paid in capital.

The Black-Scholes option-pricing model was used to estimate the fair value of the Equity Warrants, the Exchange Warrants and the Advisor Warrants with the following weighted-average assumptions:


Volatility		167.6 %	~~85.0~~	%
Expected term in years		1.69	~~2.5~~
Dividend rate	0.0 %		~~0.0~~	%
Risk-free interest rate		4.37 %	~~0.155~~	%

As of June 30, 2023, the Company had the following warrants outstanding to purchase common stock.


Number of Shares	Exercise Price per Share	Expiration Date
8,629	$34.76	November 2023
1,438	$34.76	December 2023
1,142,289	$14.74	June 2025
3,758	$300.00	February 2026
24,667	$28.15	May 2027
1,168	$0.01	July 2027
2,402	$61.39	April 2028
421,590	$14.73	60 months after registration date
1,269,210	$13.51	60 months after registration date
814,467	$12.28	24 months after registration date

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~~NOTE 6–~~

10. STOCK-BASED COMPENSATION

~~The Company has granted~~

2015 Equity Incentive Plan

Private GRI adopted the GRI Bio, Inc. 2015 Equity Incentive Plan, as amended (the Private GRI Plan), that provided Private GRI with the ability to grant stock options, ~~to purchase its common~~restricted stock awards and other equity-based awards to employees, directors, and ~~consultants~~consultants. Stock options granted under the Private GRI Plan generally had a contractual life of up to 10 years. Upon completion of the Merger, the Company assumed the Private GRI Plan and the outstanding and unexercised options issued thereunder, and ceased granting awards under the Private GRI Plan.

Amended and Restated 2018 Equity Incentive Plan

On April 21, 2023, the stockholders of the Company approved the Amended and Restated GRI Bio, Inc. 2018 Equity Incentive Plan, formerly the Vallon Pharmaceuticals, Inc. 2018 Equity Incentive Plan (the A&R 2018 Plan). The A&R 2018 Plan had previously been approved by the Company’s board of directors, subject to stockholder approval. The A&R 2018 Plan became effective on April 21, 2023, with the stockholders approving the amendment to the A&R 2018 Plan to, among other things, (i) to increase the aggregate number of shares by 168,905 shares to 216,666 shares of the Company’s common stock for issuance as awards under ~~which~~the A&R 2018 Plan, (ii) to extend the term of the A&R 2018 Plan through January 1, 2033, (iii) to prohibit any action that would be treated as a “repricing” of an award without further approval by the stockholders of Company, and (iv) to revise the limits on awards to non-employee directors.

The A&R 2018 Plan provides the Company ~~may issue~~with the ability to grant stock options, restricted stock and other equity-based ~~awards. We~~awards to employees, directors and consultants. Stock options granted by Vallon generally have ~~also granted certain~~a contractual life of up to 10 years. As of June 30, 2023, 100,459 shares of the Company's common stock were authorized to be issued under the A&R 2018 Plan, and 116,207 shares were reserved for future awards under the A&R 2018 Plan.

The Company recorded stock-based compensation related to stock options ~~outside of~~issued under the A&R 2018 ~~Equity Incentive Plan. As of March 31, 2021, all equity awards granted from the 2018 Equity Incentive~~ Plan ~~were~~ in the ~~form~~following expense categories of ~~stock options.~~

its accompanying statements of operations for the three and six months ended June 30, 2023 and 2022:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Research and development	$	—	$	—	$	—	$	—
General and administrative	13		—		26		—
Total	$	13	$	—	$	26	$	—

The Company measures equity-based awards granted to employees, and ~~nonemployees~~non-employees based on their fair value on the date of the grant and ~~recognize~~recognizes compensation expense for those awards over the requisite service period or performance-based period, which is generally the vesting period of the respective award. The measurement date for service-based equity awards is the date of grant, and equity-based compensation costs are recognized as expense over the requisite service period, which is the vesting period or for certain

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performance-based ~~awards the~~awards. The Company records ~~the~~ expense for ~~these~~performance-based awards if it concludes that it is probable that the performance condition will be achieved. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes stock option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the stock option, the risk-free interest rate for a period that approximates the expected term of the stock option, and the Company’s expected dividend yield. Expected volatility is calculated based on reported volatility data for a representative group of publicly traded companies for which historical information is available. The Company selects companies with comparable characteristics to it with historical share price information that approximates the expected term of the equity-based awards. The Company computes the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period that approximates the calculated expected term of its stock options. The Company will continue to apply this method until a sufficient amount of historical information regarding the volatility of its stock price becomes available. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The Company uses the simplified method, under which the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The Company utilizes this method due to lack of historical exercise data. The expected dividend yield is assumed to be zero as the Company has no current plans to pay any dividends on common stock. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of our common stock on that same date.

~~The Company’s stock-based compensation expense was recognized in operating expense as follows (in thousands):~~

For the Three Months Ended March 31,

2021

2020
Research and development

$
20

$
35
General and administrative

148

—
Total

$
168

$
35

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~~The fair value of the options granted during the three months ended March 31, 2021 and 2020 was estimated by utilizing the following assumptions:~~

For the Three Months Ended March 31,

2021

2020

Volatility

80.0
%

85.0
%
Expected term in years

5.5-5.8

5.8

Dividend rate

0.0
%

0.0
%
Risk-free interest rate

0.63-0.81
%

2.20
%
Fair value of option on grant date

$
4.08-5.31

$
3.24

The table below represents the activity of stock options granted to employees and ~~consultants:~~

Period from December 31, 2020 through March 31, 2021

Weighted

average

Aggregate

Weighted

remaining

intrinsic

Number of

average

contractual

value


options

exercise price

terms (years)

($ 000) (1)
Outstanding at December 31, 2020

266,250

$
2.94

4.109

$
474
Granted during the period

22,750

7.39

—

—
Outstanding at March 31, 2021

289,000

$
3.29

4.060

$
460
Exercisable at March 31, 2021

135,794

$
2.28

3.770

$
320

non-employees for the six months ended June 30, 2023:


	Number of options	Weighted average exercise price		Weighted average remaining contractual term (years)
Outstanding at December 31, 2022	112,612	$	39.77	4.71
Granted	—	—
Exercised	—	—
Forfeited/Cancelled	(12,153)	$	130.84
Outstanding at June 30, 2023	100,459	$	28.75	4.73
Exercisable at June 30, 2023	100,459	$	28.75	4.73

The Black-Scholes option-pricing model was used to estimate the grant date fair value of each stock option grant at the time of grant using the following weighted-average assumptions:

~~(1)~~
	~~The aggregate intrinsic~~For the Six Months Ended June 30, 2022
Volatility	90.39		%
Expected term in years	5.98
Dividend rate	0.00		%
Risk-free interest rate	2.00		%
Fair value of options is calculated as the difference between the exercise price of the underlying options and the deemed fair value of the Company’s common stock for those shares that had exercise prices lower than the deemed fair value of the Company’s common stock.option on grant date	$	3.86

No options were granted during the six months ended June 30, 2023.

As of ~~March 31, 2021, there was approximately $105,000 of total~~June 30, 2023, the unrecognized compensation cost related to ~~non-vested stock-based~~unvested stock options expected to vest was $280. This unrecognized compensation ~~arrangements granted to employees which~~ is expected to be recognized over a weighted-average amortization period of one year. As of March 31, 2021, there was approximately $118,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to non-employees. That cost is expected to be recognized over a weighted-average period of 0.73.35 years.

~~NOTE 7 – INCOME TAXES~~

For the three months ended March 31, 2021 and 2020, respectively, 0 income tax expense or benefit was recognized. The Company’s deferred tax assets are comprised primarily of net operating loss carryforwards.

11. COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company ~~maintains a full valuation allowance on~~has entered into employment contracts with its ~~deferred tax assets since it has not yet achieved sustained profitable operations. As a result,~~officers that provide for severance and continuation of benefits in the event of termination of employment by the Company ~~has not recorded any income tax benefit since its inception.~~

~~NOTE 8 - RELATED PARTY TRANSACTIONS~~

~~On January 6, 2020,~~without cause or by the ~~Company entered into~~employee for good reason. In addition, in the event of termination of employment following a ~~license agreement with Medice which grants Medice an exclusive license,~~change in control, the vesting of certain equity awards may be accelerated.

Separation and Release Agreement

In connection with the ~~right to grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe. Medice is responsible for obtaining regulatory approval~~resignation of ADAIR in the licensed territory. Under the license agreement, Medice paid Vallon a $100,000 upfront payment and is required to pay milestone payments upon first obtaining regulatory approval to market and sell ADAIR in any country, territory or region in the licensed territory and upon achieving certain annual net sales thresholds. Medice will also pay tiered royalties on annual net sales of ADAIR at rates in the low double-digits. The initial term of the license agreement will expire five years after the date on which Medice first obtains regulatory approval in any country, territory or region in the licensed territory.

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~~On January 11, 2021, the Company entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including Salmon Pharma, an affiliate of Medice, and~~ David Baker, the Company’s Former Chief Executive Officer, pursuant to ~~which~~the Merger, the Company ~~issued the 2021 Convertible Notes for cash proceeds of $350,000. The 2021 Convertible Notes bore an interest rate of 7.0% per annum, non-compounding,~~ and ~~had a maturity date of September 30, 2021. The 2021 Convertible Notes converted into 54,906 shares of the Company’s common stock upon completion of the IPO.~~

~~NOTE 9 - FINANCE LEASE~~

~~The Company~~Mr. Baker entered into a ~~finance lease in October 2019 in relation~~Separation and Release Agreement on April 21, 2023 (the Separation Agreement). Pursuant to ~~equipment utilized in~~ the ~~commercial scale manufacturing of ADAIR ($ in thousands).~~

March 31, 2021

December 31, 2020

Initial lease right-of-use asset

$
368

$
368

Accumulated amortization

$
107

$
89

Weighted-average remaining lease term - finance lease (in years)

2.50

2.75

Weighted-average discount rate - finance lease

13.50
%

13.50
%

Three Months Ended March 31,

2021

2020
Operating cash flows from finance lease amortization

$
18

$
18
Financing cash flows from finance lease payments

$
34

$
29

~~The maturities~~terms of the ~~finance lease liability as of March 31, 2021 (in thousands):~~

2021

$
95
2022

114
2023

76
Total lease payments

285
Less: Imputed interest

44
Present value of lease liability

$
241

~~NOTE 10 – COMMITMENTS AND CONTINGENCIES~~

~~(A) Employment Agreements~~

~~On January 15, 2019, the Company entered into an~~Separation Agreement and his employment agreement, with David Baker, to serve as its President and Chief Executive Officer, which was subsequently superseded by a new employment agreement, effective as of April 20, 2021 (the “Baker Agreement”). The Baker Agreement provides for a base salary of $400,000 per year, effective as of April 20, 2021.

~~Under the Baker Agreement, in the event of an involuntary termination by the Company or termination by Mr. Baker for good reason,~~ Mr. Baker will ~~receive:~~

●

continued base salary for a period of 12 months, plus a pro-rated bonus for the year of termination, based on actual performance results for the entire year, and provided he was employed for at least six months during that year; and

●

if he elects to continue receiving group health insurance coverage pursuant to COBRA, subsidized premiums for COBRA continuation coverage for a period of 12 months (or such earlier date that he obtains alternative coverage), such that he will continue to pay the premium cost for active employees who receive the same type of coverage during that period.

receive continuation of his current salary and certain COBRA benefits for 18 months payable in accordance with the Company’s payroll practices. Mr. Baker also received a lump sum payment equal to 150% of his target bonus and agreed to reduce amounts payable with respect to certain future milestone payments.

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~~In the event of a termination within 12 months after the occurrence of a change in control transaction, the President and Chief Executive Officer will receive:~~

●

~~continued base salary for a period of 18 months, plus a lump sum payment equal to 150% of his target bonus, without proration, for the fiscal year of termination;~~

●

if he elects to continue receiving group health insurance coverage pursuant to COBRA, subsidized premiums for COBRA continuation coverage for a period of 18 months (or such earlier date that he obtains alternative coverage), such that he will continue to pay the premium cost for active employees who receive the same type of coverage during that period; and

●

accelerated vesting of all outstanding stock-based awards held by the executive as of the date of termination, with any performance awards deemed satisfied at the “target” performance level, and any stock options remaining outstanding for their full term.

In exchange for the severance benefits described above, Mr. Baker must comply with certain confidentiality, non-competition and non-solicitation provisions, return all company property, and sign a release of claims in favor of the Company. The description of the terms above are qualified in their entirety by reference to the Baker Agreement, a copy of which is filed by the Company as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

~~(B) Clinical Trial Agreements~~

In January 2020, the Company entered into a service agreement, amended August 2020 and further amended January 2021, with a clinical research organization to provide clinical trial management services to the Company to assist the Company in its pivotal human abuse liability clinical trial of ADAIR, Study VAL-104. The agreement may be terminated by either party upon thirty days prior written notice. The total clinical trial cost is expected to be $3.1 million of which approximately $1.1 million and $49,000 was expensed during the three months ended March 31, 2021 and 2020, respectively. The Company has expensed $1.9 million cumulative from contract inception through the three months ended March 31, 2021 for Study VAL-104 and expects topline results from the study by the end of 2021.

~~(C) Consulting Agreements~~

Effective April 2, 2018, the Company entered into a consulting agreement with a consultant to serve as the Chief Medical Officer for the Company. Pursuant to the consulting agreement, the consultant is paid $10,000 per month for his services. In October 2018 and May 2020, the Company granted the consultant 15,625 and 6,250 options, respectively. For the three months ended March 31, 2021 and 2020, the Company has incurred consulting fees in the amount of approximately $30,000 and $30,000, respectively, under the agreement. The agreement may be terminated by either party with 30 days’ notice.

~~(D) Manufacturing Agreements~~

In August 2019, the Company entered into an agreement with a contract manufacturer for the commercial scale up and registration batches for ADAIR. The total contract is estimated at $1.6 million of which approximately $79,000 and $79,000 was expensed under the agreement during the three months ended March 31, 2021 and 2020, respectively.

In October 2019, the Company entered into an agreement with a formulation development company for the formulation and development for an abuse-deterrent formulation of methylphenidate (Ritalin®). The total contract is estimated at $232,000, of which $6,000 and $83,000 was expensed during the three months ended March 31, 2021 and 2020, respectively.

~~(E) Pre-Clinical Agreement (included in research and development expense)~~

In November 2019, the Company entered into an agreement with a clinical research organization for pre-clinical services. The total contract currently authorized is estimated at $1.5 million of which $245,000 and $175,000 was expensed during the three months ended March 31, 2021 and 2020, respectively.

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~~(F) COVID-19 Impact~~

The global COVID-19 pandemic continues to rapidly evolve, and the Company continues to monitor the COVID-19 situation closely, including the worldwide vaccine rollout and the recent outbreaks of various strains of the virus. the full impact of the COVID-19 pandemic on the Company’s business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its future impact on the Company’s clinical trial enrollment, clinical trial sites, CROs, third-party manufacturers, and other third parties with whom it does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with many of its employees and consultants working remotely. The Company will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.

~~NOTE 11: FAIR VALUE MEASUREMENTS~~

The fair value of the embedded derivative liability identified in the 2021 Convertible Notes was a Level 3 fair value measurement. As of February 12, 2021, the embedded derivative was remeasured based upon the conversion price of $8 per share upon closing of the IPO. As such, an expense of $89,000 was recorded in the first quarter of 2021.

~~The following table presents the activity for the liability measured at estimated fair value using unobservable inputs for the three months ended March 31, 2021 (in thousands):~~


~~Beginning balance at January 1, 2021~~	$	—
~~Additions during the quarter ended March 31, 2021~~		89
~~Transfer out of Level 3~~		89
~~Balance at March 31, 2021~~	$	—

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~~NOTE 12: SUBSEQUENT EVENTS~~

On May 10, 2021, the Company appointed Leanne M. Kelly to serve as its Chief Financial Officer, and principal financial and accounting officer. In connection with Ms. Kelly’s appointment, the Company entered into an employment agreement with Ms. Kelly (the “Kelly Agreement”), which provides for an initial base annual salary of $275,000 and a target bonus opportunity equal to 35% ~~of her base salary.~~

~~The Kelly Agreement also provides that the Company will recommend that the Board approve a stock option grant covering 100,000~~ common shares of the Company (the “Stock Option”). The Stock Option shall have an exercise price per share equal to the fair market value of a share of the Company’s common stock on the date of grant and shall vest in installments and become exercisable as follows: (i) 70% of the shares underlying the Stock Option shall vest as follows: (x) 17,500 option shares on the first anniversary of her start date, and (y) the remaining 52,500 option shares in equal installments on a quarterly basis for the next three years, in each case subject to continued employment, and (ii) 30% of the shares underlying the Stock Option shall vest as follows: (x) 15,000 option shares on the date the Company submits a New Drug Application (“NDA”) filing for ADAIR with the U.S. Food & Drug Administration, and (y) 15,000 option shares on the date when the U.S. Food & Drug Administration approves the NDA, provided that she is employed by the Company at the time the applicable performance objective is achieved.

~~The Kelly Agreement provides that if she is terminated by the Company other than for cause, or she resigns for good reason, in either case not in connection with a change in control, she will receive:~~

●

continued base salary for a period of 9 months, plus a pro-rated bonus for the year of termination, based on actual performance results for the entire year, and provided she was employed for at least six months during that year; and

●

if she elects to continue receiving group health insurance coverage pursuant to COBRA, subsidized premiums for COBRA continuation coverage for a period of 9 months (or such earlier date that she obtains alternative coverage), such that she will continue to pay the premium cost for active employees who receive the same type of coverage during that period.

~~If she is terminated by the Company other than for cause, or she resigns for good reason, in either case within the one-year period commencing on a change in control, she will receive:~~

●

~~continued base salary for a period of 12 months, plus a lump sum payment equal to 100% of her target bonus, without proration, for the fiscal year of termination;~~

●

if she elects to continue receiving group health insurance coverage pursuant to COBRA, subsidized premiums for COBRA continuation coverage for a period of 12 months (or such earlier date that she obtains alternative coverage), such that she will continue to pay the premium cost for active employees who receive the same type of coverage during that period; and

●

In exchange for the severance benefits described above, Ms. Kelly must comply with certain confidentiality, non-competition and non-solicitation provisions, return all company property, and sign a release of claims in favor of the Company. The description of the terms above are qualified in their entirety by reference to the Kelly Agreement, a copy of which is filed by the Company as Exhibit 10.2 to this Quarterly Report on Form 10-Q.

~~See description of the Baker Agreement under Note 10 – Employment Agreements.~~

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with ~~our~~the Company’s financial statements and the related notes appearing elsewhere in this Quarterly Report ~~and~~on Form 10-Q, the audited financial statements (and notes ~~thereto), and~~thereto, management’s discussion and analysis of financial condition and results of operations for the year ended December 31, ~~2020,~~2022, included in ~~our~~Vallon’s Annual Report on Form 10-K ~~that was~~for the year ended December 31, 2022 filed with the SEC on ~~March 29, 2021.~~February 24, 2023, and Private GRI’s financial statements and related notes which are filed as Exhibit 99.1 of Amendment No. 2 to the Current Report on Form 8-K filed with the SEC on July 6, 2023. Some of the information contained in this discussion and analysis, ~~or set forth elsewhere in this Quarterly Report,~~ including information with respect to ~~our~~GRI’s plans and strategy for ~~our~~its business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set ~~forth~~out under the section entitled “Risk Factors” which is included in the ~~“Risk Factors” section of this~~ Quarterly Report ~~our~~on Form 10-Q filed by the Combined Company, GRI’s actual results could differ materially from the results described in or implied by these forward-looking statements.

Except as otherwise indicated, references herein to “GRI Bio,” the “Company,” or the “Combined Company,” refer to GRI Bio, Inc. on a post-Merger basis, and references to “Private GRI” refer to the business of GRI Bio, Inc. prior to the completion of the Merger. References to “Vallon” refer to Vallon Pharmaceuticals, Inc. prior to the completion of the Merger.

Overview

We are a clinical-stage biopharmaceutical company ~~primarily~~ focused on discovering, developing, and commercializing innovative therapies that target serious diseases associated with dysregulated immune responses leading to inflammatory, fibrotic, and autoimmune disorders. Our goal is to be an industry leader in developing therapies to treat these diseases and to improve the ~~development and commercialization~~lives of ~~proprietary biopharmaceutical products.~~ patients suffering from such diseases.

Our ~~only clinical-stage~~lead product ~~currently under development~~candidate, GRI-0621, is ~~ADAIR, a proprietary, abuse-deterrent~~an oral inhibitor of type 1 Natural Killer T (iNKT) cells. GRI-0621 is also an oral formulation of ~~immediate-release (short-acting) dextroamphetamine~~tazarotene, a synthetic retinoid acid receptor (RAR)-beta and gamma selective agonist, that is approved in the United States for topical treatment of psoriasis and acne. As of March 31, 2023, it has been evaluated in over 1,700 patients as an oral product for up to 52-weeks. We are developing GRI-0621 for the treatment of ~~Attention-deficit/hyperactivity disorder (“~~~~ADHD~~”)severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF), and Narcolepsy. In the future, we plan to develop other abuse-deterrent products that have potential for abuse in their current forms, beginning with the development of ADMIR, an abuse deterrent formulation of Ritalin, for which we are conducting formulation development work.

~~The ADAIR assets were acquired by us on June 22, 2018 pursuant to the terms and conditions~~a life-threatening progressive fibrotic disease of the ~~Amended~~lung that affects approximately 140,000 people in the United States, with up to 40,000 new cases per year in the United States and Restated Asset Purchase Agreement with Arcturus Therapeutics, Inc. (the successor to Arcturus Therapeutics Ltd.), referred to herein collectively as Arcturus, and Amiservice Development Ltd., dated as of June 22, 2018 (the “~~Asset Purchase Agreement~~~~”). In exchange~~some estimate that IPF affects 3 million globally. While there are currently two approved therapies for the ~~ADAIR assets,~~treatment of lung fibrosis, neither has been associated with improvements in overall survival, and both therapies have been associated with significant side effects leading to poor therapeutic adherence. In preliminary data from our trials to date with GRI-0621, and earlier trials with oral tazarotene, we ~~issued 843,750 shares~~have observed GRI-0621 to be well-tolerated and to inhibit iNKT cell activity in subjects. We and others have shown that activated iNKT are upregulated in IPF, primary sclerosing cholangitis (PSC), non-alcoholic steatohepatitis (NASH), alcoholic liver disease (ALD), Systemic Lupus Erythematosus Disease (SLE), multiple sclerosis (MS), ulcerative colitis (UC) patients as well as other indications. In these patients activated iNKT cells are correlated with more severe disease. We are initiating a Phase 2a trial in 36 IPF patients in the second half of 2023 and expects topline results from this trial to be available in the second half of 2024.

Our product candidate portfolio also includes GRI-0803 and a proprietary library of 500+ compounds. GRI-0803, the lead molecule selected from the library, is a novel oral agonist of type 2 Natural Killer T (type 2 NKT) cells. We are developing GRI-0803 for the treatment of autoimmune disorders, with much of our ~~common stock to Arcturus (valued at approximately $1.4 million based upon~~preclinical work in SLE or lupus and MS. In lupus, the ~~price at which~~immune system mistakenly attacks its own healthy tissues, especially joints and skin, but can affect almost every organ and tissue of the ~~common stock was issued~~body. The condition can be fatal, and ~~sold~~often causes debilitating bouts of fatigue and pain that prevent nearly half of adult patients from working. Lupus affects between 160,000 - 200,000 patients in the ~~June 2018 private placement of our common stock) which comprised 30% of our then-outstanding common stock on a fully diluted basis.~~

~~We intend to develop ADAIR for registration through~~United States, with around 80,000 – 100,000 patients in the ~~Section 505(b)(2) approval pathway. We filed our Investigational New Drug (“~~~~IND~~”), application for ADAIR in June 2018 and the IND was cleared in July 2018. Subsequently, we have successfully completed a Phase 1 pivotal bioequivalence study of ADAIR and a Phase 1 food effect study. In 2019, we conducted a Phase 1 proof-of-concept intranasal human abuse potential study designed to compare ADAIR when insufflated (snorted) to the reference comparator, crushed immediate release dextroamphetamine sulfate tablets. We began enrollment of subjects in a pivotal intranasal abuse study during the fourth quarter of 2020 and expect to have topline results for the study by the end of 2021. We are also currently conducting a 13-week preclinical toxicology study on the final formulation of ADAIR and have begun planning additional non-clinical safety studies during 2021. We also plan to conduct additional preclinical studies of unintended routes of administration such as IV and intranasal administration.

~~We plan to develop other abuse-deterrent products that have potential for abuse in their current forms, beginning with the development of an abuse deterrent formulation of Ritalin (“~~~~ADMIR~~~~”), for which we are conducting formulation development work.~~

~~On January 6, 2020, we entered into a license agreement with Medice, who is affiliated with~~United States suffering from kidney nephritis, one of ~~our principal stockholders, Salmon Pharma,~~the most serious manifestations of SLE, typically within five years of diagnosis. There is no cure for lupus, but medical interventions and ~~represented by one member~~lifestyle changes can help control it. SLE treatment consists primarily of ~~our board~~immunosuppressive drugs that inhibit the activity of ~~directors, which grants Medice an exclusive license, with~~ the right to grant sublicenses, to develop, use, manufacture, market and sell ADAIR throughout Europe. Medice currently markets several ADHD products in Europe and is the ADHD market leader in Europe based on branded prescription market share. Medice is responsibleimmune system. Only two drugs have been approved for ~~obtaining regulatory approval of ADAIR~~lupus in the ~~licensed territory. Under the license agreement, Medice paid us a minimal upfront payment~~past 50 years, and ~~will pay milestone payments of up~~new treatment options are sorely needed. Subject to $6.3 million in the aggregate upon first obtaining regulatory approval to market and sell ADAIR in any country, territory or region in the licensed territory and upon achieving certain annual net sales thresholds. Medice will also pay tiered royalties on annual net sales of ADAIR at rates in the low double-digits. The initial term of the license agreement will expire five years after the date on which Medice first obtains regulatory approval in any country, territory or region in the licensed territory.

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~~Our objective is to develop and commercialize proprietary biopharmaceutical products. To this effect,~~IND clearance, we intend to ~~develop~~evaluate GRI-0803 in a Phase 1a and ~~seek marketing approvals from the FDA~~1b trial initially targeting SLE. We expect to file an IND with respect to this Phase 1a and ~~other worldwide regulatory bodies for ADAIR, and any other products we opt to pursue~~1b trial in the ~~future, such as ADMIR. To achieve these objectives, we plan to:~~

seek the necessary regulatory approvals to complete the clinical development of ADAIR for the treatment of ADHD and, if successful, file for marketing approval in the United States and other territories;

~~prepare to commercialize ADAIR by establishing independent distribution capabilities or in conjunction with other biopharmaceutical companies in the United States and other key markets;~~

~~commence development of other abuse-deterrent products such as ADMIR; and~~

continue our business development activities and seek partnering, licensing, merger and acquisition opportunities or other transactions to further develop our pipeline and drug-development capabilities and take advantage of our financial resources for the benefit of increasing stockholder value.

Emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” For as long as we continue to be an emerging growth company, we also intend to take advantagefirst half of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation, and any golden parachute payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period, or (iv) the end of the fiscal year following the fifth anniversary of the date of the first sale of our Common Stock pursuant to an effective registration statement filed under the Securities Act.

The global COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely, including the worldwide vaccine rollout and the recent outbreaks of various strains of the virus. The full impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its future impact on our clinical trial enrollment, clinical trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with most of our employees and consultants working remotely.2024. We will continue to ~~actively monitor the rapidly evolving situation related~~evaluate indications to ~~COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in~~select the best ~~interests~~fit for further development of the program, but our ~~employees and other third parties~~initial focus is on lupus.

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Merger with ~~whom we do business.~~

~~Reverse Split~~

Vallon Pharmaceuticals, Inc.

On ~~February 10, 2021,~~April 21, 2023, the Company ~~filed~~(formerly Vallon Pharmaceuticals, Inc.) consummated a ~~certificate~~merger with GRI Bio Operations, Inc. (formerly GRI Bio, Inc.) (Private GRI) pursuant to an Agreement and Plan of ~~amendment to its~~Merger, as amended (the Merger Agreement), by and ~~restated certificate of incorporation with~~among the ~~Secretary of State~~Company, Private GRI and Vallon Merger Sub, Inc. (Merger Sub), a Delaware corporation and wholly-owned subsidiary of the ~~State~~Company. The Merger Agreement provided for the merger of ~~Delaware, which effected~~Merger Sub with and into Private GRI, with Private GRI continuing as a ~~one-for-40 reverse stock split (the “~~~~reverse split~~~~”) of its issued and outstanding shares of common stock at 11:59 PM Eastern Time on that date. As a result~~wholly-owned subsidiary of the ~~reverse split, every 40 shares of common stock issued~~Company and ~~outstanding were reclassified into one share of common stock. No fractional shares were issued in connection with~~ the ~~reverse split and any fractional shares were rounded up to the nearest whole share.~~

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~~The reverse split did not change the par value~~surviving corporation of the common stock or the authorized number of shares of common stock. The reverse split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in equity. All outstanding options and other securities entitling their holders to purchase or otherwise receive shares of common stock have been adjusted as a result of the reverse split, as required by the terms of each security. The number of shares available to be awarded under the Company’s 2018 Equity Incentive Plan have also been appropriately adjusted.

~~All share and per share amounts, excluding the number of authorized shares and par value, contained in this Quarterly Report on Form 10-Q give retroactive effect to the reverse split.~~

~~Initial Public Offering (“IPO”); Underwriting Agreement~~

As previously disclosed, on February 12, 2021, we consummated the initial public offering of our common stock through which we sold 2,250,000 shares of our common stock for total gross proceeds of $18.0 million, resulting in net proceeds of approximately $15.5 million after deducting $1.6 million in underwriter’s discounts, expenses and commissions, and $905,000 of other expenses incurred inmerger (the Merger). In connection with ~~the offering.~~

~~As part of~~ the closing of the ~~IPO, we also~~Merger (the Closing), the Company amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.”

In connection with signing the Merger Agreement, Private GRI entered into a Securities Purchase Agreement, dated as of December 13, 2022 (the Bridge SPA), with Altium Growth Fund, LP (the Investor), pursuant to which Private GRI issued senior secured promissory notes (the Bridge Notes) in the aggregate principal amount of $3.3 million, in exchange for an aggregate purchase price of $2.5 million. The Bridge Notes were issued in two closings: (i) the first closing for $1.67 million in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) closed on December 14, 2022; and (ii) the second closing for $1.67 million in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) closed on March 9, 2023. In addition, upon the funding of each tranche, the Investor received warrants to purchase an aggregate of ~~112,500~~1,252,490 shares of Private GRI’s common stock (the Bridge Warrants).

In addition to ~~certain of~~ the ~~underwriter’s affiliates. Such warrants may be exercised beginning on August 11, 2021 (180 days from~~Bridge SPA, and also in connection with signing the ~~commencement of sales of~~Merger Agreement, the ~~IPO) until February 12, 2026 (five years after~~Company, Private GRI and the ~~commencement of sales in the IPO).~~

~~2021 Convertible Note Financing~~

~~On January 11, 2021, we~~Investor entered into a ~~Convertible Promissory Note~~Securities Purchase Agreement ~~with certain existing stockholders, including SALMON Pharma GmbH (“Salmon Pharma”), an affiliate of Medice, and David Baker, our Chief Executive Officer,~~on December 13, 2022 (the Equity SPA) pursuant to which ~~we issued convertible promissory notes (the “2021 Convertible Notes”)~~the Investor agreed to invest $12.25 million in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for ~~cash proceeds~~the issuance of ~~$350,000. The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30, 2021. The 2021 Convertible Notes were convertible into~~ shares of our capital stock offered to investors in any subsequent equity financing after the date of their issuance in which we issued any of our equity securities (a “Qualified Financing”), and were convertible at a twenty percent (20%) discount to the price per share offered in such Qualified Financing. Such Qualified Financing included the initial public offering of our common stock, consummated on February 12, 2021; therefore, the 2021 Convertible Notes converted into an aggregate of 54,906 shares of ourPrivate GRI’s common stock immediately prior to the ~~closing~~consummation of the ~~IPO, as agreed~~Merger. Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI’s common stock (the Initial Shares) to the Investor and 27,148,877 shares of Company common stock (the Additional Shares) into escrow with an escrow agent. At the closing, pursuant to the Merger, the Initial Shares converted into an aggregate of 253,842 shares of the Company’s common stock and the Additional Shares converted into an aggregate of 1,015,368 shares of the Company’s common stock . On May 8, 2023, in accordance with the terms of the Equity SPA, the Company and the Investor authorized the escrow agent to, subject to beneficial ownership limitations, disburse to the Investor all of the shares of the Company’s common stock issued in exchange for the Additional Shares.

Pursuant to the Equity SPA, on May 8, 2023, the Company issued to the Investor (i) Series A-1 Warrants to purchase 1,269,210 shares of the Company’s common stock with an initial exercise price of $13.51 per share, (ii) Series A-2 Warrants to purchase 1,142,289 shares of the Company’s common stock with an initial exercise price of $14.74 per share, and (iii) Series T Warrants to purchase at an exercise price of $12.28 per share (x) 814,467 shares of the Company’s common stock and (y) upon ~~among~~exercise of the ~~parties thereto.~~

Series T Warrants, an additional amount of Series A-1 Warrants and Series A-2 Warrants, each to purchase 814,467 shares of the Company’s common stock (collectively, the Equity Warrants).

Upon the completion of the Merger, the outstanding principal and accrued interest on the Bridge Notes was cancelled and the Bridge Warrants were exchanged for warrants (the Exchange Warrants) to purchase an aggregate of 421,589 shares of the Company’s common stock .

Financial Operations Overview

~~Revenue~~

We have not generated any significant revenue, and we do not expect to generate any revenue from the sale of any products unless or until we obtain regulatory approval of and commercialize ADAIR. The only revenue we have generated was the $100,000 license fee from the Medice license agreement recognized in the three months ended March 31, 2020.

Research and Development Expenses

Since our incorporation, our operations have primarily been limited to building our management and corporate team, acquiring the ADAIR assets from Arcturus and conducting our clinical program for ADAIR. Research and development costs are expensed as incurred.

Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred.

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Our research and development expenses have consisted primarily of ~~in-process~~costs related to our development program for our lead product candidate GRI-0621. These expenses include:

•employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead-related expenses and travel-related expenses for our research and development personnel; and

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•expenses incurred under agreements with CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities as well as consultants that support the implementation of our clinical and non-clinical studies.

Although our direct research and development expenses ~~which consisted of non-cash~~are tracked by product candidate, we do not allocate employee costs ~~acquiring the ADAIR assets of $1.7 million,~~and costs ~~incurred in preparing for~~associated with our discovery efforts, laboratory supplies and ~~conducting the development program for ADAIR, working on commercial manufacturing of ADAIR and developing formulations for ADMIR. We expect~~facilities, including other indirect costs, to significantly increase our research and development efforts by conducting the remaining studies necessary for the development and approval of ADAIR and for preparing for commercial supplies of the product. Future research and development expenses may include:

employee -related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, share-based compensation, overhead related expenses and travel related expenses for our research and development personnel;

~~expenses incurred under agreements with contract research organizations (~~“~~CROs~~”~~), as well as consultants that support the implementation of the clinical and non-clinical studies described above;~~

manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch;

~~formulation, research and development expenses related to ADMIR; and other products we may choose to develop; and~~

~~costs for sponsored research.~~

~~Research and development activities will continue to be central to our business model. Products in later stages of clinical development generally have higher development~~specific product candidates as these costs ~~than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.~~are deployed across multiple programs. We expect our research and development expenses to ~~be significant~~increase over the next several years as we ~~increase personnel~~conduct our planned clinical and ~~compensation costs and conduct the studies described above, and prepare to seek regulatory approval~~preclinical activities for ~~ADAIR and any other future~~our product ~~such as ADMIR.~~

~~The duration, costs and timing of clinical trials of ADAIR and any other future product, such as ADMIR, will depend on a variety of factors that include, but are not limited to:~~

~~the number of trials required for approval;~~

~~the per patient trial costs;~~

~~the number of patients that participate in the trials;~~

~~the number of sites included in the trials;~~

~~the countries in which the trial is conducted;~~

~~the length of time required to enroll eligible patients;~~

~~the number of doses that patients receive;~~

~~the drop-out or discontinuation rates of patients;~~

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

~~the duration of patient follow-up;~~

~~the timing and receipt of regulatory approvals; and~~

~~the efficacy and safety profile of our product~~ candidates.

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In addition, the probability of success for ADAIR and any other future products, such as ADMIR, will depend on numerous factors, including competition, manufacturing capability and commercial viability.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to ~~our formation and~~ corporate matters.

We ~~anticipate that~~expect our general and administrative expenses will increase ~~in the future to support our continued research and development activities and increased costs of operating~~substantially as a public company. These increases will likely include increased costs related to the hiring of personnel, including compensation and employee-related expenses, including stock-based compensation, and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we ~~anticipate increased~~incur costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, ~~directors~~directors’ and ~~officers~~officers’ insurance, ~~increased~~ legal and accounting costs and investor relations ~~costs.~~ costs, as well as an increase in personnel expenses as we hire additional personnel.

Warrant Liability

In ~~addition, if ADAIR obtains regulatory approval for marketing, we expect~~May 2022, Vallon issued warrants in connection with a securities purchase agreement. Vallon evaluated the warrants in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC 815-40), and concluded that ~~we would incur expenses associated with building~~ a ~~commercialization team if we have not sold or licensed~~provision in the ~~rights to commercialize ADAIR to a third party in territories not under the license agreement with Medice.~~

~~Interest Expense and Revaluation of Derivative Instruments~~

In January 2021, we entered into a Convertible Promissory Note Purchase Agreement pursuant to which we issued $350,000 in 2021 Convertible Notes The 2021 Convertible Notes automatically converted into 54,906 shares of our common stock concurrently with the closing of the IPO. We identified the mandatory conversion into shares our common stock as a redemption feature, which requires bifurcation from the 2021 Convertible Notes and treated it as a derivative liability under ASC 815 as the redemption feature was not clearly and closelywarrants related to the ~~debt. We evaluated~~reduction of the exercise price in certain circumstances precludes the warrants from being accounted for as components of equity. As a result, the warrants were measured the fair value upon issuance using a Black-Scholes valuation model and are recorded as a liability on the balance sheet. The fair value of the ~~derivative liability~~warrants is measured at ~~issuance. Upon the conversion of the 2021 Convertible Notes to common stock at the closing of the IPO, the embedded derivative liability was remeasured~~each reporting date and ~~removed from the balance sheet.~~

~~Critical Accounting Policies~~

~~The Company’s critical accounting policies~~changes in fair value are ~~described in Note B, “Summary of Significant Accounting Policies,”~~recognized in the ~~Company’s Annual Report on Form 10-K filed with~~consolidated statements of operations in the ~~U.S. Securities~~period of change.

Interest Expense, net

Interest expense consists of amortization of debt discounts, debt issuance costs and ~~Exchange Commission (“SEC”) on March 29, 2021. There have been no material changes~~interest expense related to the ~~significant accounting policies during~~TEP Notes and the ~~period ended March 31, 2021, except for items mentioned in Note 2 of the financial statements in this Quarterly Report on Form 10-Q.~~

Bridge Notes.

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Results of Operations

Comparison of the ~~three months ended March 31, 2021~~Three Months Ended June 30, 2023 and ~~2020~~

2022

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

indicated (in thousands):


	Three Months Ended June 30,
	2023		2022

Operating expenses:
Research and development	$	880	$	59
General and administrative	5,054		130
Total operating expenses	5,934		189
Loss from operations	(5,934)		(189)

Change in fair value of warrant liability	122		—
Interest expense, net	(934)		(106)
Net loss	$	(6,746)	$	(295)

Three Months Ended

Three Months Ended


March 31, 2021

March 31, 2020

Change $

(in thousands)

License revenue-from related party

$
—

$
100

$
(100)
Operating expenses:






Research and development

1,772

883

889
General and administrative

830

375

455
Total operating expenses

2,602

1,258

1,344
Loss from operations

(2,602)

(1,158)

1,444
Other income

61

—

61
Revaluation of derivative liability

(89)

—

(89)
Interest expense, net

(8)

(2)

(6)
Net loss

$
(2,638)

$
(1,160)

$
1,478

~~License Revenue – From Related Party~~

We determined there is a single performance obligation with respect to our involvement in the joint development committee in regards to the Medice license agreement and thus the entire $100,000 allocable consideration was assigned to that accounting unit and recognized in the first quarterTable of ~~2020.~~

Contents

Research and Development Expenses

Research and development expenses ~~increased by approximately $889,000 to $1.8~~were $0.9 million ~~from $883,000~~and $0.1 million for the three months ended ~~March 31, 2020 to the three months ended March 31, 2021.~~June 30, 2023 and 2022, respectively. The $0.8 million increase in research and development expenses was primarily due to increases ~~of: $1.0~~of $0.4 million ~~primarily~~in expenses related to the ~~registration~~ development program of ADAIR offset by decreases of $77,000 related to the formulation work for ADMIR. In the three months ended March 31, 2020 we had expensed $60,000 for the estimate of costs to complete the services related to the Medice license agreementGRI-0621, $0.2 million in consulting fees and ~~the amortization of that~~$0.2 million in ~~the first quarter of 2021 was $3,000, thus resulting in a decrease in research~~personnel expenses.

General and ~~development expense of $57,000~~Administrative Expenses

General and administrative expenses were $5.1 million and $0.1 million for the three months ended ~~March 31, 2021.~~

~~General~~June 30, 2023 and ~~Administrative Expenses~~

~~General and administrative expenses increased by approximately $455,000 to $830,000 from $375,000 the three months ended March 31, 2020 to the three months ended March 31, 2021.~~2022, respectively. The $5.0 million increase was primarily related to increased costs for ~~directors~~professional fees, including legal, accounting and ~~officers insurance of $200,000, non-cash stock compensation of $148,000, consultant related expenses of $51,000 and brand development of $25,000.~~

~~Other Income~~

In May 2020, the Company issued a promissory note under the PPP totaling $61,000. As of December 31, 2020, the Company had utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health care benefits and rent payments and in January 2021, the Company was notified that the note along with accumulated interest had been forgiven. As the PPP note was forgiven, the Company recorded income from the extinguishment of its obligation in accordance with ASC 405-20-40-1.

~~Revaluation of Derivative Liability~~

~~For the three months ended March 31, 2021, pursuant to ASC-815, we revalued the embedded derivative liability~~investment banking fees associated with the ~~Convertible Notes, resulting~~Merger of $3.8 million, personnel expenses of $0.8 million as a result of increased headcount, and increases in ~~$89,000~~consulting, administrative and insurance expenses of $0.3 million as a result of operating as a public company.

Change in Fair Value of Warrant Liability

The change in fair value of $0.1 million represents a decrease in the fair value of the ~~derivative liability associated with the Convertible Notes.~~

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~~Income Taxes~~

~~For~~warrants outstanding during the three months ended ~~March 31, 2021~~June 30, 2023.

Interest Expense, net

Interest expense, net, was $0.9 million and 2020, respectively, no income tax expense or benefit was recognized. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.

~~Net Loss~~

~~We recorded $2.6~~$0.1 million ~~in net loss~~ for the three months ended ~~March 31, 2021, as compared~~June 30, 2023 and 2022, respectively and related to ~~$1.2 million in net loss during~~ the ~~three months ended March 31, 2020.~~outstanding promissory notes. The increase in interest expense, net, ~~loss~~ was ~~primarily~~ due to ~~increases~~interest related to the Bridge Notes.

Comparison of ~~$889,000~~the Six Months Ended June 30, 2023 and 2022

The following table summarizes the results of our operations for the periods indicated (in thousands):


	Six Months Ended June 30,
	2023		2022

Operating expenses:
Research and development	$	997	$	119
General and administrative	5,926		268
Total operating expenses	6,923		387
Loss from operations	(6,923)		(387)

Change in fair value of warrant liability	122		—
Interest expense, net	(2,095)		(210)
Net loss	$	(8,896)	$	(597)

Research and Development Expenses

Research and development expenses were $1.0 million and $0.1 million for the six months ended June 30, 2023 and 2022, respectively. The $0.9 million increase in research and development expenses was primarily due to increases of $0.4 million in expenses related to the development program of GRI-0621, $0.3 million in consulting fees and ~~$445,000~~$0.2 million in ~~general~~personnel expenses.

General and Administrative Expenses

General and administrative expenses were $5.9 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. The $5.6 million increase was primarily related to increased costs for professional fees, including legal, accounting and investment banking fees associated with the Merger of $4.5 million, personnel expenses of $0.8 million as a ~~decrease~~result of increased headcount, and increases in ~~licensing revenue~~consulting, administrative and insurance expenses of ~~$100,000.~~

$0.3 million as a result of operating as a public company.

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Change in Fair Value of Warrant Liability
The change in fair value of $0.1 million represents an increase in the fair value of the warrants outstanding during the six months ended June 30, 2023.
Interest Expense, net
Interest expense, net, was $2.1 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively, and related to the outstanding promissory notes. The increase in interest expense, net, was due to interest related to the Bridge Notes.

Liquidity and Capital Resources

~~Overview~~

~~For~~

Since inception, we have incurred losses and expect to continue to incur losses for the ~~period from January 11, 2018 (inception) through March 31, 2021,~~foreseeable future. We incurred net losses of $8.9 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we ~~have~~had an accumulated deficit of ~~$15.2~~$27.4 million.

We have financed our working capital requirements to date through the issuance of common stock, warrants, convertible notes and promissory notes. As of June 30, 2023, we had $4.8 million in cash.

The following table summarizes our cash flows for the periods indicated (in thousands):


	Six Months Ended June 30,
	2023		2022
Net cash provided by (used in):
Operating activities	$	(2,119)	$	(116)
Investing activities	(8)		—
Financing activities	6,917		35
Net increase (decrease) in cash and cash equivalents	$	4,790	$	(81)

Cash Flows from Operating Activities

For the six months ended June 30, 2023 and 2022, $2.1 million was provided by and $0.1 million was used in operating activities, respectively. The $2.0 million increase was primarily due to a $8.3 million increase in net loss and a $0.7 million decrease in prepaid and other assets, offset by an increase in non-cash adjustments of $2.1 million related to the amortization of debt discounts and debt issuance costs and $0.1 million related to the revaluation of the warrant liability, as well as a $4.1 million increase in accounts payable and a $0.7 million increase in accrued expenses.

Cash Flows from Investing Activities

Net cash used in investing activities was $8 thousand for the six months ended June 30, 2023, which was related to the purchase of computer equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $6.9 million for the six months ended June 30, 2023. The $6.9 million increase was primarily due to $12.3 million of proceeds from the Equity SPA and $1.3 million of proceeds from the funding of the second tranche of the Bridge Notes. The increase was offset by $2.9 million of net liabilities assumed in the connection with the Merger, $3.0 million in costs associated with the Merger, the payment of $0.5 million of debt issuance costs related to the Bridge Notes and $0.1 million of stock issuance costs related the Equity SPA.

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Equity Securities Purchase Agreement

In connection with signing the Merger Agreement, Vallon, Private GRI and the Investor entered the Equity SPA pursuant to which the Investor agreed to invest $12,250 in cash and cancel any outstanding principal and accrued interest on the Bridge Notes in return for the issuance of shares of Private GRI’s common stock immediately prior to the consummation of the Merger. Pursuant to the Equity SPA, immediately prior to the Closing, Private GRI issued 6,787,219 shares of Private GRI’s common stock (the Initial Shares) to the Investor and 27,148,877 shares of Private GRI’s common stock (the Additional Shares) into escrow with an escrow agent for net proceeds of $11,704, after deducting offering expenses of $546.

At the closing, pursuant to the Merger, the Initial Shares converted into an aggregate of 253,842 shares of the Company’s common stock and the Additional Shares converted into an aggregate of 1,015,368 shares of the Company’s common stock . On May 8, 2023, in accordance with the terms of the Equity SPA, we, along with the Investor, authorized the escrow agent to, subject to beneficial ownership limitations, disburse to the Investor all of the shares of the Company’s common stock issued in exchange for the Additional Shares.

Future Funding Requirements

Our net losses were $8.9 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we ~~do not~~had $4.8 million in cash and an accumulated deficit of $27.4 million. We expect to ~~have positive cash flow from operations~~devote substantial financial resources to our planned activities, particularly as we prepare for, ~~the foreseeable future. As~~initiate, and conduct our planned clinical trials of ~~March 31, 2021,~~GRI-0621 and GRI-0803, advance our discovery programs and continue our product development efforts. In addition, we ~~had~~expect to incur additional costs associated with operating as a public company.

Based on our current operating plan, we believe that our existing cash and cash equivalents, which include the proceeds from the Equity SPA, will be sufficient to fund our operating expenses and capital expenditure requirements for twelve months from the date of ~~$13.0 million which management expects~~the Merger, not including the exercise of the Series T Warrants (the Series T Warrant Exercises).

Accordingly, we will ~~provide~~need to obtain substantial additional funding ~~for~~in connection with our ~~ongoing business activities into the third quarter~~continuing operations. If we are unable to secure adequate additional funding, we will need to reevaluate our operating plans and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of ~~2022; however, we have based this estimate~~our development programs, or relinquish rights to our technology on ~~assumptions that may prove to be wrong, and we could use our capital resources sooner~~less favorable terms than we ~~expect therefore~~would otherwise choose. These actions could materially impact our business, results of operations and future prospects. In addition, attempting to secure additional financing may divert the time and attention of management from day-to-day activities and distract from our discovery and product development efforts. As a result, there is substantial doubt about our ability to continue as a going concern. We expect to continue to incur significant and increasing operating losses at least for the foreseeable future. We do not expect to generate product revenue unless and until we successfully complete development, obtain regulatory approval for, and successfully commercialize ~~ADAIR,~~our current, or any ~~other~~ future, products, including ADMIR. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will increase substantially as we:

~~conduct clinical trials and non-clinical studies;~~

~~scale up manufacturing capabilities with third-party contract manufacturer(s);~~

~~conduct ongoing stability studies of ADAIR;~~

~~seek to identify, acquire, develop and commercialize additional products, such as ADMIR;~~

~~integrate acquired technologies into a comprehensive regulatory and product development strategy;~~

~~maintain, expand and protect our intellectual property portfolio;~~

~~hire scientific, clinical, quality control and administrative personnel;~~

~~add operational, financial and management information systems and personnel, including personnel to support our drug development efforts;~~

~~seek regulatory approvals for any products that successfully complete clinical trials;~~

ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates for which we may obtain regulatory approval, including through the license agreement with Medice; and

~~operate as a public company.~~

product candidates.

Off-Balance Sheet Arrangements

~~Table~~We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of ~~Contents~~

normal business operations.

~~Cash Flows~~

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of its financial condition and results of operations is based on its unaudited interim financial statements, which have been prepared in accordance with GAAP. The ~~following table summarizes our cash flows~~preparation of these condensed financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management evaluates these estimates and judgments on an ongoing basis. Management bases its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances. Actual results could differ from those estimates.

Our significant accounting policies are described in more detail in Note 1, “The Company and a Summary of its Significant Accounting Policies”, in the notes to its financial statements as of and for the ~~periods indicated:~~

Three Months Ended

Three Months Ended

March 31, 2021

March 31, 2020

(in thousands)
Net cash provided by (used in):

Operating activities

$
(2,948)

$
(766)
Investing activities

—

(2)
Financing activities

15,819

(29)
Net decrease in cash and cash equivalents

$
12,871

$
(797)

~~Cash Flows from Operating Activities~~

~~For the three months~~years ended ~~March~~December 31, 2022 and 2021, ~~and 2020, $2.9 million and $766,000 were used in operating activities, respectively. The $2.2 million increase was primarily due~~which is Exhibit 99.2 of Amendment No. 2 to the $1.5 million increase in our net loss offset by a $793,000 increase in prepaid expenses and increased accounts payable and accrued expenses of $259,000. The net loss for the three months ended March 31, 2021 included non-cash expenses of $168,000 in non-cash stock compensation, $89,000 in revaluation of derivative liability and $18,000 amortization of finance lease right-of-use asset offset by $61,000 of other income from the forgiveness of the PPP note.

~~Cash Flows from Investing Activities~~

~~Net cash used in investing activities was $0 for the three months ended March 31, 2021 and $2,000 for the three months ended March 31, 2020.~~

~~Cash Flows from Financing Activities~~

Net cash provided by financing activities was $15.8 million during the three months ended March 31, 2021 related to the net proceeds from our IPO and 2021 Convertible Notes financings compared to $29,000 used in financing activities during the three months ended March 31, 2020 related to our finance lease.

~~Contractual Obligations and Other Commitments~~

As of March 31, 2021, there have been no changes to our contractual obligations and commitments since December 31, 2020. For a discussion of our contractual obligations, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 AnnualCurrent Report on Form ~~10K.~~

~~Off-Balance Sheet Arrangements~~

~~We did not have during~~8-K filed with the ~~periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations~~SEC on July 6, 2023.

Table of ~~the SEC.~~

Contents

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not applicable to emerging growth companies. These exemptions include:

~~reduced disclosure about our executive compensation arrangements;~~

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

•reduced disclosure about our executive compensation arrangements;

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

~~Table~~•exemption from the auditor attestation requirement in the assessment of ~~Contents~~our internal control over financial reporting.

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

We have taken advantage of reduced reporting requirements in this report and may continue to do so until such time that we are no longer an emerging growth company. We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of ~~$1.07~~$1.235 billion or more, (b) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the completion of the ~~our~~ IPO, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable to a smaller reporting company.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of ~~our~~its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) of the Securities Exchange Act of 1934 (the Exchange Act)) as of ~~March 31, 2021.~~June 30, 2023. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in ~~our~~its periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based on the evaluation of our disclosure controls and procedures as of ~~March 31, 2021,~~June 30, 2023, our Chief Executive Officer ~~has~~and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures, as defined above, are effective.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weaknesses relating to our internal controls over financial reporting as described in our Annual Report on Form 10-K. Except as otherwise disclosed herein, there have been

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ~~ended March 31, 2021~~covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently a party to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.

None.

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Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in ~~our~~Vallon’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020, except as set forth below.~~

~~Public health crises such as pandemics or similar outbreaks could materially~~2022 and ~~adversely affect~~in our ~~preclinical and clinical trials, business, financial condition and results of operations.~~

InQuarterly Report on Form 10-Q for the quarter ended March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic continues affect the U.S. and global economies and may affect our operations and certain other third parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct of future clinical trials. Moreover, the COVID-19 pandemic may adversely affect the operations of the FDA and other health authorities, resulting in delays of reviews and approvals with respect to our product candidates. While the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. In addition, the loss of any of our employees as a result of COVID-19, or another pandemic, may adversely affect our operations. The ultimate impact of the COVID-19 pandemic is highly uncertain, and we do not yet know the full extent of potential delays or impacts that COVID-19 may have on our business, financing or clinical trial activities.

~~Some examples of potential disruptions that may result from the COVID-19 pandemic, include, but are not limited to:~~

~~delays or difficulties in enrolling patients in our clinical trials;~~

~~delays or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff;~~

~~increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine;~~

interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy, safety and translational data collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

delays or disruptions in preclinical experiments and IND-enabling studies due to restrictions of on-site staff and unforeseen circumstances at CROs and vendors, including any delays caused by the COVID-19 outbreak;

~~interruption or delays in the operations of the FDA and comparable foreign regulatory agencies;~~

interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

~~delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;~~

limitations on employee or other resources that would otherwise be focused on the conduct of our clinical trials and pre-clinical work, including because of sickness of employees or their families, the desire of employees to avoid travel or contact with large groups of people, an increased reliance on working from home, school closures or mass transit disruptions;

changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel; and

31, 2023.

~~Table of Contents~~

~~refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.~~

The COVID-19 global pandemic continues to rapidly evolve. The extent to which the outbreak may affect our clinical trials, business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States, and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, and the ongoing worldwide vaccine rollout. Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, business, financial condition and results of operations.

Item 2. Unregistered Sales of ~~Equity Securities and Use of Proceeds.~~

Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

~~None.~~

On August 10, 2023, our Compensation Committee ratified and approved, effective as of July 1, 2023, an employment agreement with Albert Agro, M.D. (the Employment Agreement), which superseded the previous consulting agreement by and between the Company and Dr. Agro, and includes the following terms:

• an annual base salary of $325,000 (the Annual Base Salary); and

• an annual target cash bonus of 35%.

The Employment Agreement also provide that if the Company terminates Dr. Agro's employment without “cause” or if Dr. Agro resigns his employment for “good reason,” each as defined in the Employment Agreement, Dr. Agro will be entitled to receive salary continuation and COBRA premium reimbursement for twelve months. In the case of a termination without cause or resignation for good reason that occurs during the period beginning upon the occurrence of a “change in control” (as defined in the Employment Agreement) and ending twelve months thereafter, (a) these severance-related periods will be increased to 18 months, (b) all unvested equity awards will automatically accelerate, (c) all vested stock options will remain exercisable for the full duration of their term, and (d) Dr. Agro will receive an additional payment equivalent to 1.5 times his Annual Base Salary.

The foregoing description of the Employment Agreement contained herein does not purport to be complete and is qualified in its entirety by reference to the text of the Employment Agreement that is filed herewith as Exhibit 10.6.

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Item 6. Exhibits.

Exhibit
Number

Description

Filed Herewith

Form

Incorporated by Reference File No.

Date Filed

~~10.1#~~

3.1

Certificate of Incorporation of GRI Bio, Inc., as amended.

8-K

001-40034

4/21/2023

3.2

Amended and Restated Bylaws.

8-K/A

001-40034

5/26/2023

4.1#

A&R 2018 Equity Incentive Plan.

10-Q

001-40034

5/15/2023

10.1#

Employment Agreement, by and between GRI Bio, Inc. and Marc Hertz, Ph.D., dated as of February 20, 2023.

S-4/A

333-268977

2/24/2023

10.2#

Employment Agreement, by and between GRI Bio, Inc. and Leanne M. Kelly, dated as of February 20, 2023.

S-4/A

333-268977

2/24/2023

10.3#

Employment Agreement, by and between GRI Bio, Inc. and Vipin Kumar Chaturvedi dated as of February 20, 2023.

S-4/A

333-268977

2/24/2023

10.4#

Consulting Agreement, by and between GRI Bio, Inc. and Albert Agro, Ph.D., dated as of January 9, 2023.

8-K

001-40034

4/21/2023

10.5#

Separation Agreement, by and between GRI Bio, Inc. and David Baker, dated as of April ~~20, 2021,~~21, 2023

8-K

001-40034

4/21/2023

10.6#

Employment Agreement, by and between ~~the Company~~GRI Bio, Inc. and ~~David Baker~~

~~10.2#~~

~~Employment Agreement,~~Albert Agro, Ph.D., dated as of ~~May 10, 2021, by and between the Company and Leanne M. Kelly~~July 1, 2023.

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

~~XBRL~~iXBRL Instance Document

101.SCH

~~XBRL~~iXBRL Taxonomy Extension Schema Document

101.CAL

~~XBRL~~iXBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

~~XBRL~~iXBRL Taxonomy Extension Definition Linkbase Document

101.LAB

~~XBRL~~iXBRL Taxonomy Extension Label Linkbase Document

101.PRE

~~XBRL~~iXBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Unless otherwise indicated, exhibits are filed herewith.

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Indicates a management contract or any compensatory plan, contract or arrangement.

This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, ~~as amended, or the Exchange Act,~~ or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, ~~or the Exchange Act,~~ except to the extent specifically incorporated by reference into such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	~~VALLON PHARMACEUTICALS,~~GRI BIO, INC.


Date: ~~May 13, 2021~~ August 14, 2023	By:	/s/ ~~David Baker~~ Leanne M. Kelly
		Name: ~~David Baker~~ Leanne M. Kelly
		Title: ~~President~~Chief Financial Officer
		(Principal Financial and ~~Chief Executive Officer~~ Accounting Officer)

~~Delaware~~		~~82-4369909~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~		~~(I.R.S. Employer~~ ~~Identification No.)~~

~~100 N. 18~~^th ~~Street~~, ~~Suite 300~~, ~~Philadelphia~~, PA		~~19103~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~


Delaware						82-4369909
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2223 Avenida de la Playa, #208 La Jolla, CA 92037
(Address of principal executive offices, including zip code)

	~~Page~~
			Page
~~PART I.~~		~~FINANCIAL INFORMATION~~
~~Item 1.~~PART I.		~~Financial Statements (Unaudited)~~FINANCIAL INFORMATION	3
Item 1.		Financial Statements	3
		Consolidated Balance Sheets ~~at March 31, 2021~~as of June 30, 2023 (unaudited) and December 31, ~~2020~~2022	3
		Consolidated Statements of Operations (unaudited) for the three and six months ended ~~March 31, 2021~~ June 30, 2023 and ~~2020~~ 2022	4
		Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the ~~three~~thre e and six months ended ~~March 31, 2021~~ June 30, 2023 and ~~2020~~2022	5
		Consolidated Statements of Cash Flows (unaudited) for the ~~three~~six months ended ~~March 31, 2021~~June 30, 2023 and ~~2020~~2022	6
		Notes to Unaudited ~~Financial~~Interi m Consolidate d F inancial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.		Controls and Procedures	25
PART II.		OTHER INFORMATION	26
Item 1.		Legal Proceedings	25 26
Item 1A.		Risk Factors	26
~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~	27
~~Item 3.~~		~~Defaults Upon Senior Securities~~	27
~~Item 4.~~		~~Mine Safety Disclosures~~	27
~~Item 5.~~		~~Other Information~~	27
Item 6.		Exhibits	28 27
~~Signatures~~		Signatures	29


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	March 31, 2021		December 31, 2020
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	12,980	$	109
Prepaid expenses and other current assets		1,358		565
Total current assets		14,338		674

Finance lease right-of-use asset, net		261		279
Property and equipment, net		1		2
Total assets	$	14,600	$	955

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	1,347	$	1,226
Accrued expenses		985		847
Note payable, current		—		47
Finance lease liability, current		95		105
Total current liabilities		2,427		2,225
Note payable, non-current		—		14
Finance lease liabilities, non-current		146		170
Total liabilities		2,573		2,409

Commitments and contingencies (Note 10)

Stockholders' equity (deficit):
Common stock, $0.0001 par value; 250,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 6,812,836 and 4,506,216 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively, which gives retroactive effect to the one-for-40 reverse stock split. See Note 1 to these financial statements.		—		—
Additional paid-in-capital		27,264		11,145
Accumulated deficit		(15,237)		(12,599)
Total stockholders’ equity (deficit)		12,027		(1,454)
Total liabilities and stockholders' equity (deficit)	$	14,600	$	955


	June 30, 2023		December 31, 2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	4,799	$	9

Prepaid expenses and other current assets	793		303
Total current assets	5,592		312
Property and equipment, net	9		4
Operating lease right-of-use assets	41		67
Total assets	$	5,642	$	383

Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable	$	307	$	1,294
Accrued expenses	1,193		36
Advances from employees	—		5
Warrant liability	63		—
Bridge promissory note, net	—		602
Operating lease liabilities, current	41		57
Total current liabilities	1,604		1,994
Operating lease liabilities, non-current	—		14
Total liabilities	1,604		2,008

Commitments and contingencies (Note 11)

Stockholders' equity (deficit):
Common stock, 0.0001 par value; 250,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 2,956,354 and 999,748 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in-capital	31,430		16,871

Accumulated deficit	(27,392)		(18,496)
Total stockholders’ equity (deficit)	4,038		(1,625)
Total liabilities and stockholders' equity (deficit)	$	5,642	$	383


	For the Three		For the Three
	Months Ended		Months Ended
	March 31,		March 31,
	2021		2020
License revenue-related party	$	—	$	100
Operating expenses:
Research and development		1,772		883
General and administrative		830		375
Total operating expenses		2,602		1,258
Loss from operations		(2,602)		(1,158)
Other income		61		—
Revaluation of derivative liability		(89)		—
Interest expense, net		(8)		(2)
Net loss attributable to common stockholders	$	(2,638)	$	(1,160)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.46)	$	(0.26)
Weighted-average common shares outstanding basic and diluted		5,710,270		4,506,216


	Common Stock			Additional Paid-In		Accumulated		Stockholders’
	Shares (1)	Amount		Capital		Deficit		Equity (Deficit)
Balance, December 31, 2019	4,506,216	$	—	$	10,991	$	(7,777)	$	(3,214)
Stock-based compensation expense	—		—		35		0		35
Net loss	—		—		0		(1,160)		(1,160)
Balance, March 31, 2020	4,506,216	$	—	$	11,026	$	(8,937)	$	(2,089)


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(2,638)	$	(1,160)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of finance lease right-of-use asset		18		18
Stock-based compensation expense		168		35
Revaluation of derivative liability		89		—
Forgiveness of PPP note		(61)		—
Non-cash interest, depreciation and other expense		10		—
Change in operating assets and liabilities:
Prepaid expenses and other current assets		(793)		(87)
Accounts payable		121		200
Accrued expenses		138		226
Net cash used in operating activities		(2,948)		(766)

Cash flows from investing activities:
Purchase of property and equipment		—		(2)
Net cash used in investing activities		—		(2)

Cash flows from financing activities:
Proceeds from common stock, net of offering expenses		15,503		—
Proceeds from convertible notes		350		—
Payment of finance lease liability		(34)		(29)
Net cash provided by (used in) financing activities		15,819		(29)

Net increase (decrease) increase in cash and cash equivalents		12,871		(797)
Cash and cash equivalents, at beginning of period		109		3,821
Cash and cash equivalents, at end of period	$	12,980	$	3,024
Supplemental disclosure of cash flows information:
Interest paid	$	—	$	—
Noncash financing activities:
Conversion of convertible notes to common stock	$	350	$	—


	June 30,
	2023	2022
Stock options	100,459	89,472
Warrants	3,688,449	10,067
Restricted stock with repurchase rights	164,038	164,038
Stock subject to put right	—	7,816
Convertible promissory note	—	143,544
	3,952,946	414,937


	March 31,		December 31,
	2021		2020
Payroll and related	$	176	$	342
Clinical and preclinical trial and regulatory related		490		137
Chemistry and manufacturing		154		117
Financing related		—		97
Licensing related		76		81
Other		89		73
Total accrued expenses	$	985	$	847


	Period from December 31, 2020 through March 31, 2021
					Weighted
					average		Aggregate
			Weighted		remaining		intrinsic
	Number of		average		contractual		value
	options		exercise price		terms (years)		($ 000) (1)
Outstanding at December 31, 2020		266,250	$	2.94		4.109	$	474
Granted during the period		22,750		7.39		—		—
Outstanding at March 31, 2021		289,000	$	3.29		4.060	$	460
Exercisable at March 31, 2021		135,794	$	2.28		3.770	$	320


	March 31, 2021			December 31, 2020
Initial lease right-of-use asset	$	368		$	368
Accumulated amortization	$	107		$	89
Weighted-average remaining lease term - finance lease (in years)		2.50			2.75
Weighted-average discount rate - finance lease		13.50	%		13.50	%


2021	$	95
2022		114
2023		76
Total lease payments		285
Less: Imputed interest		44
Present value of lease liability	$	241


	Three Months Ended		Three Months Ended
	March 31, 2021		March 31, 2020		Change $
			(in thousands)
License revenue-from related party	$	—	$	100	$	(100)
Operating expenses:
Research and development		1,772		883		889
General and administrative		830		375		455
Total operating expenses		2,602		1,258		1,344
Loss from operations		(2,602)		(1,158)		1,444
Other income		61		—		61
Revaluation of derivative liability		(89)		—		(89)
Interest expense, net		(8)		(2)		(6)
Net loss	$	(2,638)	$	(1,160)	$	1,478

Three Months Ended March 31,

Operating cash flows from finance lease amortization

Financing cash flows from finance lease payments