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

(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	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	x

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 ~~July 27, 2022, 10,512,836~~August 6, 2023, 2,956,354 shares of the Registrant’s ~~Common Stock~~common stock were outstanding.

~~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:

•~~our ability to identify, evaluate and complete any strategic alternative that yields value for our stockholders;~~

•~~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 GMbH (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;~~

•~~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 or a smaller reporting company under the Exchange 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 our Annual Report on Form 10-K for the year ended December 31, 2021 and 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 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.~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

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

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

See accompanying notes to unaudited interim consolidated financial statements.

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

Consolidated Statements of Operations ~~and Comprehensive Loss~~

(in thousands, except share and per share amounts)

See accompanying notes to unaudited interim consolidated financial statements.

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

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands, except shares)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity (Deficit)
Shares
Amount
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
Stock-based compensation — — 138 — — 138
Net loss — — — — (2,312) (2,312)
Balance, June 30, 2021 6,812,836 $ — $ 27,402 $ — $ (17,549) $ 9,853


	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 Capital Accumulated Other Comprehensive Loss Accumulated Deficit Stockholders’ Equity
Shares Amount
Balance, December 31, 2021 6,812,836 $ — $ 27,722 $ (2) $ (21,902) $ 5,818
Stock-based compensation — — 181 — — 181
Unrealized loss on marketable securities, available-for-sale — — — (4) (4)
Net loss — — — — (2,635) (2,635)
Balance, March 31, 2022 6,812,836 — 27,903 (6) (24,537) 3,360
Issuance of common stock, net of offering expenses 3,700,000 1 2,160 — — 2,161
Stock-based compensation — — (85) — — (85)
Unrealized gain on marketable securities, available-for-sale — — — 3 — 3
Net loss — — — — (1,773) (1,773)
Balance, June 30, 2022 10,512,836 $ 1 $ 29,978 $ (3) $ (26,310) $ 3,666


	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 unaudited interim consolidated financial statements.

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

Consolidated Statements of Cash Flows

Six Months Ended
June 30,
2022 2021
Operating activities:
Net loss $ (4,408) $ (4,950)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of finance lease right-of-use asset 37 36
Amortization of marketable securities premiums 27 —
Stock-based compensation expense 96 306
Revaluation of derivative liability — 89
Change in fair value of warrant liability 266 —
Forgiveness of PPP note — (61)
Non-cash interest, depreciation and other expense — 2
Change in operating assets and liabilities:
Prepaid expenses and other current assets (246) (379)
Accounts payable 892 (330)
Accrued expenses (576) (153)
Cash used in operating activities (3,912) (5,440)
Investing activities:
Purchase of marketable securities (492) —
Sale of marketable securities 2,522 —
Cash provided by investing activities 2,030 —
Financing activities:
Proceeds from issuance of common stock and warrants, net of offering expenses 3,447 15,503
Proceeds from convertible notes — 350
Payment of finance lease liability (46) (62)
Cash provided by financing activities 3,401 15,791
Net increase in cash and cash equivalents 1,519 10,351
Cash and cash equivalents, at beginning of period 3,702 109
Cash and cash equivalents, at end of period $ 5,221 $ 10,460
Supplemental disclosure of cash flows information:
Noncash financing activities:
Conversion of convertible notes to common stock $ — $ 350


	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 unaudited interim consolidated financial statements.

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

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

~~Vallon Pharmaceuticals,~~GRI Bio, Inc. ~~(Vallon~~(GRI or the Company), based in ~~Philadelphia, PA~~La Jolla, CA, was incorporated in Delaware ~~on January 11, 2018,~~in May 2009, which is the date of inception.

~~The Company~~GRI is a clinical-stage biopharmaceutical company focused on ~~the development~~discovering, developing, and ~~commercialization of novel abuse-deterrent medications for CNS~~commercializing innovative therapies that target serious diseases associated with dysregulated immune responses leading to inflammatory, fibrotic, and autoimmune disorders. The Company’s 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 ~~investigational~~ product candidate, ~~ADAIR,~~GRI-0621, is ~~a proprietary, abuse-deterrent~~an oral ~~formulation~~inhibitor of ~~immediate-release dextroamphetamine (the main active ingredient in Adderall®)~~type 1 Natural Killer T (iNKT I) cells and is being developed for the treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy. In March 2022, the Company announced that its SEAL study for ADAIR did not reach its primary endpoint, and there is no assurance that ADAIR will receive approval by the U.S. Food and Drug Administration (the FDA)severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF). ~~In addition to ADAIR, the Company completed formulation development work and selected the final formulation of its second~~The Company’s product candidate ~~ADMIR, an abuse deterrent formulation~~portfolio also includes GRI-0803 and a proprietary library of ~~methylphenidate (Ritalin®),~~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 ~~ADHD.~~autoimmune disorders, with much of its preclinical work in Systemic Lupus Erythematosus Disease (SLE) or lupus and multiple sclerosis (MS).

~~Recent Developments~~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 ~~SEAL study (~~S~~tudy~~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 Merger (the Closing), the Company amended its certificate of incorporation and bylaws to E~~valuate~~change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.” In addition, prior to the A~~buse~~ L~~iability, Pharmacokinetics, Safety and Tolerability~~effective time of ~~an Abuse-Deterrent d-Amphetamine Sulfate Immediate Release Formulation)~~the Merger (the Effective Time), ~~was~~the Company effected a reverse stock split of the Company’s ~~pivotal intranasal human abuse liability study assessing~~common stock at a ratio of 1 for 30 (the Reverse Stock Split). At the ~~pharmacodynamics (PD), pharmacokinetics (PK), safety~~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 ~~tolerability~~references to “Private GRI” refer to the business of ~~snorting professional laboratory-manipulated ADAIR 30 mg when compared~~GRI Bio, Inc. prior to ~~crushed d-amphetamine sulfate~~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 prior to the Merger are the historical financial statements of the accounting acquirer, Private GRI. All common stock, per share and placebo in recreational drug users. ADAIR was prepared for snorting by a pharmacist using a multi-step technique that had been developed by a professional laboratory and agreed upon by the FDA. The SEAL study enrolled 55 subjects, of whom 53 completed the study and 52 were includedrelated information presented in the ~~final analysis. The study involved a four-way crossover design~~consolidated financial statements and notes prior to evaluate professionally manipulated, intranasal ADAIR 30 mg, crushed intranasal dextroamphetamine, ADAIR 30 mg taken orally, and placebo. All subjects were non-dependent recreational stimulant users with an additional history of recreational intranasal drug use.

~~The SEAL study did not meet its primary endpoint, which was Emax~~ ~~Drug Liking. ADAIR scored similarly to what was observed in an earlier proof-of-concept study, however, reference dextroamphetamine did not score as high as expected and as seen in~~ the previous study, thus driving the lack of statistical significance. The SEAL study did meet all pharmacodynamic secondary endpoints including Overall Drug Liking and willingness to Take Drug Again at 12 and 24 hours post-dosing, demonstrating statistical significance.

The Company is continuing to assess the best path forward for the ADAIR and ADMIR development programs. In addition, the Company has engaged Ladenburg Thalmann & Co. Inc. (Ladenburg) to evaluate its strategic alternatives with the goal of maximizing stockholder value. LadenburgMerger has been ~~engaged~~retroactively adjusted to ~~advise~~reflect the ~~Company on~~Exchange Ratio and Reverse Stock Split for all periods presented, to the strategic review process, which could include, without limitation, exploring the potential for a possible merger, business combination, investment into the Company, or a purchase, license or other acquisition of assets. In the meantime, and in conjunction with the exploration of strategic alternatives, the Company is streamlining its operations in order to preserve its capital and cash resources.extent applicable.

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 an$27,392 in accumulated deficit ~~of $26,310~~ through June 30, ~~2022.~~2023. The Company has financed its working capital requirements to date through the issuance of ~~common stock, warrants, convertible notes, short-term promissory notes,~~equity and ~~a Paycheck Protection Program (PPP) promissory note.~~

~~In January 2021,~~debt securities. As of June 30, 2023, the Company ~~completed a $350 convertible note financing and in February 2021, the Company completed the initial public offering (IPO), raising net proceeds~~had cash of ~~$15,500.~~approximately $4,799.

On May 17, 2022, the Company entered into a Securities Purchase Agreement with certain investors (the Securities Purchase Agreement) for the sale of up to 3,700,000 shares of the Company’s common stock, par value $0.0001 per share (the Shares), at a

~~purchase price~~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 ~~$1.0632 per Share in a registered direct~~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 ~~(the Offering). In a concurrent private placement also~~expenses of $546.

At the closing, pursuant to the ~~Securities Purchase Agreement (the Private Placement), for each Share~~Merger, the Initial Shares converted into an aggregate of 253,842 shares of the Company’s common stock ~~purchased by~~and the Additional Shares converted into an ~~investor, such investor was entitled receive from~~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 ~~an unregistered warrant (the Warrant~~ and ~~together with~~ the ~~Shares,~~Investor authorized the ~~Securities)~~escrow agent to, ~~purchase one Share~~subject to beneficial ownership limitations, disburse to the Investor all of the shares of the Company’s common ~~stock. The gross~~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, which include the proceeds from the ~~Offering~~Equity SPA, will be sufficient to fund its operating expenses and ~~Private Placement were approximately $3,900, before deducting fees payable to~~capital expenditure requirements for twelve months from the ~~placement agent and other estimated offering expenses payable by~~date of the ~~Company~~Merger (Note 4), not including the exercise of ~~approximately $572, of which $85 related to~~ the ~~warrants was expensed.~~

~~As of June 30, 2022, the Company had cash, cash equivalents and marketable securities of approximately $6,970.~~

Series T Warrants (the Series T Warrant Exercises).

The ~~Company expects~~Company’s ability to ~~incur ongoing expenses~~continue as it evaluates its plans for the ADAIR and ADMIR programs and strategic alternatives after it announced in March 2022 that the SEAL study of ADAIR for the treatment of ADHD failed to meet statistical significance for its primary endpoint. The Companya going concern is currently assessing the best path forward for the ADAIR and ADMIR programs and has no other product candidates undergoing clinical trials. The Company’s future capital requirements are difficult to forecast and will depend on many factors, including but not limited to the terms and timing of any strategic alternatives including a merger or business combination, asset acquisitions or sales, collaborations or licensing arrangements.

If the Company raises additional funds by issuing equity securities, its stockholders may experience dilution. Any future debt financing may impose upon it covenants that restrict our operations, including limitationsdependent on its ability to ~~incur liens or~~raise additional ~~debt, pay dividends, repurchase~~capital to fund its business activities, including its research and development program. The Company intends to raise capital through additional issuances of common stock ~~make certain investments~~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 ~~engage in certain merger, consolidation or asset sale transactions. Any equity or debt financing may contain terms that are not favorable to the Company or its stockholders.~~development efforts will be successful. If the Company is ~~unable~~not able to ~~raise~~obtain additional ~~funds when needed,~~financing on acceptable terms and in the amounts necessary to fully fund its future operating requirements, it may be ~~required~~forced to ~~delay,~~ reduce or ~~terminate some or all of~~discontinue its ~~development programs and clinical trials. The Company may also be required to sell or license to other parties’ rights to develop or commercialize its drug candidates that it would prefer to retain.~~operations entirely. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. ~~The Company expects~~These financial statements do not include any adjustments relating to ~~continue to incur expenses~~the recoverability and ~~operating losses at least for the foreseeable future as it evaluates future plans for the ADAIR~~classification of recorded asset amounts or amounts and ~~ADMIR programs as well as its strategic alternatives.~~classification of liabilities that might result from this uncertainty.

3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial periods and pursuant to the rules of the Securities and Exchange ~~Commission. References~~Commission (the SEC). Any reference in ~~this Quarterly Report on Form 10-Q~~the 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 the Financial Accounting Standards Board (FASB). The December 31, ~~2021~~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 to present fairly the Company’s financial position as of June 30, ~~2022,~~2023, and the results of operations and stockholders’ ~~equity (deficit)~~deficit for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 and cash flows for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. Results of operations for the three and six months ended June 30, ~~2022,~~2023, are not necessarily indicative of the operating results that may be expected for the year ending December 31, ~~2022.~~2023. The 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 and related notes as of and for the year ended December 31, ~~2021~~2022, which are included inas Exhibit 99.2 of Amendment No. 2 to the ~~Company’s Annual~~Current Report on Form ~~10-K~~8-K filed with the SEC on ~~February 14, 2022.~~

~~Recapitalization~~

Immediately prior to the closing of the IPO (Note 7), the Company effected a one-for-40 reverse stock split of its common stock. All share and per share amounts, excluding the number of authorized shares and par value, contained in these financial statements and accompanying notes, and this Quarterly Report on Form 10-Q give retroactive effect to the reverse split.July 6, 2023.

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 ~~unaudited interim~~ 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

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

~~Marketable Securities~~Cash and Cash Equivalents

~~Marketable securities consist of debt securities~~Cash equivalents are highly-liquid investments that are ~~designated~~readily convertible into cash with original maturities of three months or less when purchased and as ~~available-for-sale. Marketable debt securities~~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 ~~recorded~~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 ~~and unrealized holding gains or losses are reported as~~on a ~~component of accumulated~~recurring basis other ~~comprehensive income (loss).~~than the liability classified warrants.

~~Realized gains or losses resulting from the sale of these~~In May 2022, Vallon issued warrants in connection with a securities are determined based on the specific identification of the securities sold. An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the amortized cost basis, any adverse changes in the financial condition of the issuers and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

~~Warrant Liabilities~~

~~The Company~~purchase agreement. Vallon evaluated the warrants ~~issued in connection with the May 2022 registered direct financing (Note 7)~~ 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 ~~the warrants meet the definition of~~ a ~~derivative as contemplated in ASC 815,~~result, the warrants are recorded as ~~derivative liabilities~~a liability on the ~~Balance Sheets and measured at~~balance sheet. Vallon recorded the fair value ~~at inception and~~of the warrants upon issuance using a Black-Scholes valuation model.

The Company is required to revalue the warrants at each reporting date ~~in accordance~~ with ~~ASC 820,~~ ~~Fair Value Measurement, with~~any changes in fair value ~~recognized~~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 ~~Statements of Operations~~valuation that are both significant to the fair value measurement and ~~Comprehensive Loss~~unobservable. The change in the ~~period~~fair value of ~~change.~~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.

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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~~Stock-based~~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 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 Company uses the expected term, rather than the contractual term, for both employee and consultant options issued.

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 considered the applicability and impact of all ASUs issued during the quarter ended June 30, ~~2022~~2023 and each was determined to be either not applicable or expected to have minimal impact on these financial statements.

910

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4. ~~MARKETABLE SECURITIES AND~~MERGER WITH VALLON

On April 21, 2023, pursuant to the Merger Agreement, Merger Sub was merged with and into Private GRI, with Private GRI surviving the Merger as a wholly owned subsidiary of the Company. In connection with the Closing, the Company amended its certificate of incorporation and bylaws to change its name from “Vallon Pharmaceuticals, Inc.” to “GRI Bio, Inc.”

At the Effective Time:

(a)Each share of Private GRI’s common stock outstanding immediately prior to the Effective Time, including any shares of Private GRI’s common stock issued pursuant to the Equity SPA automatically converted solely into the right to receive a number of shares of the Company’s common stock 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 Effective Time under the 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 reverse recapitalization under U.S. GAAP because the primary assets of Vallon were cash and cash equivalents. For accounting purposes, GRI has been determined to be the accounting acquirer based upon the terms of the Merger and 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 Merger.

5. FAIR VALUE MEASUREMENTS

~~Marketable Securities~~

The ~~following is~~Company applies the guidance in ASC 820 to account for financial assets and liabilities measured on a ~~summary of the Company’s available for sale securities as of the dates indicated:~~

As of June 30, 2022
Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Marketable Securities:
Debt securities:
Municipal bonds 1,752 — (3) 1,749
Total $ 1,752 $ — $ (3) $ 1,749

As of December 31, 2021
Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Marketable Securities:
Debt securities:
Corporate bonds $ 1,153 $ — $ (1) $ 1,152
Municipal bonds 2,657 — (1) 2,656
Total $ 3,810 $ — $ (2) $ 3,808

~~Fair Value Measurements~~

recurring basis. Fair value is ~~defined~~measured as the price that would be received ~~from selling~~to sell 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~~As such, fair value ~~measurements and related disclosures, ASC 820,~~ ~~Fair Value Measurement, establishes~~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 ~~prioritizes the inputs to valuation techniques used to measure~~distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value ~~into three broad levels. The three levels~~measurements be classified and disclosed in one of ~~fair value hierarchy defined by ASC 820 are described below:~~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.~~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.~~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).

~~As of~~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, 2022, the Company’s financial instruments included cash and cash equivalents, marketable securities, prepaid expenses and other current assets, accounts payable, accrued expenses, and the warrant liability. The carrying amounts reported in the balance sheets for cash and 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.

2023.

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s ~~assets and~~ liabilities that are measured at fair value on a recurring basis at June 30, ~~2022:~~

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2023:


	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
~~Assets:~~
~~Marketable securities, available-for-sale~~	$	—	$	~~1,749~~	$	—
Liabilities:
Warrant ~~Liability~~liability	$	—	$	—	$	~~1,554~~63
Total liabilities	$	—	$	—	$	63

~~On May 17, 2022, the Company issued 3,700,000 shares~~

Table of common stock pursuant to a securities purchase agreement at a purchase price of $1.0632 per share in a registered direct offering (Note 7). In connection with the registered direct offering, the Company issued warrants to purchase an aggregate of 3,700,000 shares of common stock at an exercise price of $0.9382 per share. The warrants were classified as a liability in accordance with ASC 815-40 and the fair value of $1,554 is reflected in warrant liability on the Balance Sheet. The warrant liability was measured at fair value at inception and is revalued at each financial statement date, with changes in fair value presented within change in fair value of warrant liability in the Statement of Operations and Comprehensive Loss.Contents

The following table presents the changes is the fair value of the Level 3 liability:


	~~Warrant Liability~~
~~Fair value as of December 31, 2021~~	$	—
~~Initial measurement on May 17, 2022~~	~~1,288~~
~~Change in valuation~~	~~266~~
~~Balance, June 30, 2022~~	$	~~1,554~~


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


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

The Black-Scholes valuation model was used to estimate the fair value of the warrants with the following weighted-average assumptions:


		(Initial Measurement)
		May 17, 2022	June 30, 2022		June 30, 2023	December 31, 2022
Volatility	Volatility	130.8 %	132.3 %	Volatility	167.1 %	139.9 %
Expected term in years	Expected term in years	2.5	2.5	Expected term in years	2.5	2.5
Dividend rate	Dividend rate	0.0��%	0.0 %	Dividend rate	0.0 %	0.0 %
Risk-free interest rate	Risk-free interest rate	2.665 %	2.955 %	Risk-free interest rate	4.68 %	4.32 %

~~The fair value of the embedded derivative liability identified in the 2021 Convertible Notes (Note 6)~~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 a Level 3 fair value measurement. As of February 12, 2021, the embedded derivative was remeasured based upon the conversion price of $8.00 per share upon closing of the IPO. As such, an expense of $89 was recorded during$2 and $1 for the six months ended June 30, ~~2021.~~

~~The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities~~2023 and ~~classified by the contractual maturity date of the securities:~~


	~~As of June 30, 2022~~
~~Due in 1 year~~	$	~~1,749~~
~~Due in 1-5 years~~	—
~~Due in 5-10 years~~	—
~~Due after 10 years~~	—
~~Total~~	$	~~1,749~~

2022, respectively.

5.7. ACCRUED EXPENSES

Accrued expenses consist of the following:

~~6. PPP NOTE AND CONVERTIBLE~~8. PROMISSORY NOTES

In May 2020, the Company issued a promissory note under the PPP (the PPP Note) totaling $61. The PPP 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. In January 2021, the Company was notified that the loan along with accumulated interest had been forgiven. As a result, the Company recorded income from the extinguishment of its obligation in accordance with ASC 405-20-40-1, disclosed in the amount of $61 included in other income on the accompanying statements of operations and comprehensive loss. The Small Business Administration (SBA) reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain the PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.Bridge Financing

In ~~January 2021,~~connection with signing the ~~Company~~Merger Agreement, Private GRI entered into a ~~Convertible Promissory Note~~Securities Purchase Agreement, dated as of December 13, 2022 (Bridge SPA), with ~~certain existing stockholders, including Salmon Pharma, an affiliate of Medice, and David Baker, the Company’s Chief Executive Officer,~~Altium Growth Fund, LP (the Investor), pursuant to which Private GRI issued senior secured promissory notes (Bridge Notes) in the ~~Company~~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 ~~2021 Convertible~~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 ~~for cash proceeds~~were secured by a lien on all of ~~$350. The 2021 Convertible Notes bore~~the Company’s assets.

In addition, upon the funding of each tranche, the Investor received warrants to purchase an ~~interest rate~~aggregate of ~~7.0% per annum, non-compounding, and had a maturity date of September 30, 2021. The 2021 Convertible Notes converted into 54,906~~1,252,490 shares of the Company’s common stock ~~upon completion~~(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 ~~IPO.~~commitment date, resulting in an allocation of $679 and $571, respectively. The ~~Company identified~~$1,250 of proceeds from the ~~mandatory conversion~~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 ~~the Company’s~~Private GRI’s 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 closely related~~immediately prior to the ~~debt. The Company evaluated the fair value~~consummation 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.~~Merger.

~~7. STOCKHOLDERS’ EQUITY (DEFICIT)~~

~~In February 2021,~~On April 21, 2023, the Company completed the ~~IPO~~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 ~~2,250,000~~$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.

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 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 $18,000. Underwriting discounts and expenses totaled $1,600 and the Company incurred approximately $905 of additional expenses related to completing the IPO for aggregate net proceeds were approximately $15,500.

On May 17, 2022, the Company sold 3,700,000 shares of common stock pursuant to a securities purchase agreement at a purchase price of $1.0632 per share in a registered direct offering (the Offering). The gross proceeds from the Offering were approximately $3,900, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company of approximately $572 of which $85 related to the warrants was expensed.

~~Common Stock Warrants~~

~~In connection with the IPO, the Company granted the underwriters warrants (the Underwriters' Warrants) to purchase an aggregate of 112,500 shares of~~Private GRI’s common stock at an exercise price of ~~$10.00~~$0.27 per share. The ~~Underwriters’~~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

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

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, 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.

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

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 ~~five-year~~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 ~~not exercisable prior~~freely tradable. The Company may force the exercise of the Series T Warrants subject to ~~August 12, 2021.~~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 ~~Underwriters’~~Equity Warrants were outstanding as of June 30, ~~2022.~~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 ~~$399~~$18 is ~~reflected as~~included in additional ~~paid-in~~paid in capital.

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


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

~~In connection with the Offering, the Company issued warrants to purchase an aggregate of 3,700,000 shares of common stock at an exercise price of $0.9382 per share. The warrants have a~~ ~~five-year term. All of the warrants were outstanding as~~As of June 30, ~~2022.~~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

10. STOCK-BASED COMPENSATION

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, restricted stock awards and other equity-based awards to employees, directors, and 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 ~~warrants were classified~~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 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 ~~liability~~“repricing” of an award without further approval by the stockholders of Company, and (iv) to revise the ~~fair value~~limits on awards to non-employee directors.

The A&R 2018 Plan provides the Company with the ability to grant stock options, restricted stock and other equity-based awards to employees, directors and consultants. Stock options granted by Vallon generally have a contractual life of ~~$1,554 is reflected in warrant liability on the balance sheet. The Black-Scholes option-pricing model was used~~up to ~~estimate the initial fair value~~10 years. As of June 30, 2023, 100,459 shares of the ~~warrants with~~Company's common stock were authorized to be issued under the ~~following weighted-average assumptions:~~


~~Volatility~~			~~130.8 %~~
~~Expected term in years~~			~~2.5~~
~~Dividend rate~~			~~0.0 %~~
~~Risk-free interest rate~~			~~2.665 %~~

~~8. STOCK-BASED COMPENSATION~~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 ~~and shares~~ issued under the ~~Company’s~~A&R 2018 ~~Equity Incentive~~ Plan ~~(2018 Plan)~~ in the following expense categories of its accompanying statements of operations for the three and six months ended June 30, ~~2022~~2023 and ~~2021:~~2022:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2022 2021 2022 2021
Research and development $ (129) $ 18 $ (111) $ 39
General and administrative 44 120 207 267
Total $ (85) $ 138 $ 96 $ 306

The Company has granted stock options to purchase its common stock to employees and consultants under the 2018 Plan, under which the Company may issue stock options, restricted stock and other equity-based awards. The Company has also granted certain stock options outside of the 2018 Plan. Stock options granted by the Company generally have a contractual life of up to 10 years.


	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 non-employees based on their fair value on the date of the grant and 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 for certain

performance-based awards. The Company records expense for performance-based awards if it concludes that it is probable that the performance condition will be achieved.

The table below represents the activity of stock options granted to employees and non-employees for the six months ended June 30, ~~2022:~~2023:

Number of options Weighted average exercise price Weighted average remaining contractual term (years)
Outstanding at December 31, 2021 708,490 $ 3.60 8.64
Granted 204,500 $ 5.22
Exercised — —
Forfeited 182,290 —
Outstanding at June 30, 2022 730,700 $ 3.92 8.51
Exercisable at June 30, 2022 315,888 $ 3.36 7.88


	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:

For the Six Months Ended June 30,
2022 2021
Volatility 90.39 % 83.50 %
Expected term in years 5.98 5.90
Dividend rate 0.00 % 0.00 %
Risk-free interest rate 2.00 % 0.99 %
Fair value of option on grant date $ 3.86 $ 3.87


	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 option on grant date	$	3.86

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

As of June 30, 2023, the unrecognized compensation cost related to unvested stock options expected to vest was ~~$1,132.~~$280. This unrecognized compensation is expected to be recognized over a weighted-average amortization period of ~~2.71~~3.35 years.

~~Restricted Stock Units~~

~~The Company has issued performance-based restricted stock units (RSUs). Vesting of the performance-based RSUs is subject to the achievement of certain milestones.~~

~~The following table summarizes the activity related to RSUs granted to employees for the three months ended June 30, 2022:~~


						~~Shares~~
~~Outstanding at December 31, 2021~~						—
~~Granted~~						~~150,000~~
~~Vested and settled~~						—
~~Expired/forfeited/canceled~~						—
~~Outstanding at June 30, 2022~~						~~150,000~~

During the six months ended June 30, 2022, the Company granted 150,000 RSUs at a grant date fair value of $0.5552, all of which were performance-based RSUs. As of June 30, 2022, the milestones associated with the performance-based RSUs were not probable of achievement, and accordingly, no stock-based compensation expense has been recognized for these awards. The unrecognized compensation cost related to unvested performance-based RSUs was $83, which will be recognized commencing in the period in which the performance condition is deemed probable of achievement.

~~9. RELATED PARTY TRANSACTIONS~~

In January 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 Chief Executive Officer, pursuant to which the Company issued the 2021 Convertible Notes for cash proceeds of $350. 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.

~~10.~~11. COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has entered into employment contracts with its officers that provide for severance and continuation of benefits in the event of termination of employment by the Company without cause or by the employee for good reason. In addition, in the event of termination of employment following a change in control, the vesting of certain equity awards may be accelerated.

~~COVID-19 Impact~~Separation and Release Agreement

~~The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks~~In connection with the resignation of David Baker, the Company’s Former Chief Executive Officer, pursuant to the ~~Company’s operations~~Merger, the Company and ~~business plan. The Company has closely monitored recent COVID-19 developments, including~~Mr. Baker entered into a Separation and Release Agreement on April 21, 2023 (the Separation Agreement). Pursuant to the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. In light of these developments, the full impactterms of the ~~COVID-19 pandemic on~~Separation Agreement and his employment agreement, Mr. Baker will receive continuation of his current salary and certain COBRA benefits for 18 months payable in accordance with the Company’s ~~business, operations~~payroll practices. Mr. Baker also received a lump sum payment equal to 150% of his target bonus and ~~clinical development plans remains uncertain and will vary depending on the pandemic’s~~agreed to reduce amounts payable with respect to certain future impact on the Company’s clinical trial enrollment (including the Company’s ability to recruit and retain patients), clinical trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with most of its employees and consultants working remotely. The Company will continue to actively monitor the COVID-19 pandemic and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business.milestone payments.

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, ~~2021,~~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 February ~~14, 2022.~~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.

We are a clinical-stage biopharmaceutical company focused on ~~the development~~discovering, developing, and ~~commercialization of novel abuse-deterrent medications for CNS~~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 lives of patients suffering from such diseases.

Our lead ~~investigational~~ product candidate, ~~ADAIR,~~GRI-0621, is ~~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 dextroamphetamine (the main active ingredient~~tazarotene, a synthetic retinoid acid receptor (RAR)-beta and gamma selective agonist, that is approved in ~~Adderall®), which we were~~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), a life-threatening progressive fibrotic disease of the 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 ~~narcolepsy. In March 2022, we announced~~some estimate that ~~our SEAL study for ADAIR did not reach its primary endpoint, and~~IPF affects 3 million globally. While there is no assurance that ADAIR will receive approval by the U.S. Food and Drug Administration (the FDA). In addition to ADAIR, we completed formulation development work and selected the final formulation of our second product candidate, ADMIR, an abuse deterrent formulation of methylphenidate (Ritalin®),are currently two approved therapies for the treatment of ~~ADHD.~~

~~Recent Developments~~

~~The SEAL study (~~S~~tudy~~lung fibrosis, neither has been associated with improvements in overall survival, and both therapies have been associated with significant side effects leading to E~~valuate the~~ A~~buse~~ L~~iability, Pharmacokinetics, Safety~~poor therapeutic adherence. In preliminary data from our trials to date with GRI-0621, and ~~Tolerability of an Abuse-Deterrent d-Amphetamine Sulfate Immediate Release Formulation)~~earlier trials with oral tazarotene, we 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), ~~was our pivotal intranasal human abuse liability study assessing the pharmacodynamics (PD)~~non-alcoholic steatohepatitis (NASH), ~~pharmacokinetics (PK)~~alcoholic liver disease (ALD), ~~safety and tolerability of snorting professional laboratory-manipulated ADAIR 30 mg when compared to crushed d-amphetamine sulfate and placebo~~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 recreational drug users. ADAIR was prepared for snorting by a pharmacist using a multi-step technique that had been developed by a professional laboratory and agreed upon by the FDA. The SEAL study enrolled 55 subjects, of whom 53 completed the study and 52 were included36 IPF patients in the ~~final analysis.~~second half of 2023 and expects topline results from this trial to be available in the second half of 2024.


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

~~100 N. 18th Street, Suite 300,~~2223 Avenida de la Playa, #208 ~~Philadelphia, PA 19103~~La Jolla, CA 92037
(Address of principal executive offices, including zip code)


		Page

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as ofJune 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3
	Consolidated Statements of Operations ~~and Comprehensive Loss~~ (unaudited) for the three and six months endedJune 30, ~~2022~~2023 and~~2021~~ 2022	4
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the ~~three~~thre e and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	5
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022	6
	Notes to Unaudited ~~Interim Financial~~Interi m Consolidate d F inancial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1619
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2225
Item 4.	Controls and Procedures	2225
PART II.	OTHER INFORMATION	2326
Item 1.	Legal Proceedings	2326
Item 1A.	Risk Factors	2326




Item 6.	Exhibits	2927
	Signatures	3129


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Assets	Assets	(unaudited)				Assets	(unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	5,221	$	3,702	Cash and cash equivalents	$	4,799	$	9
Marketable securities, available-for-sale		1,749		3,808

Prepaid expenses and other current assets	Prepaid expenses and other current assets	868		619		Prepaid expenses and other current assets	793		303
Total current assets	Total current assets	7,838		8,129		Total current assets	5,592		312
Other assets		169		206
Property and equipment, net						Property and equipment, net	9		4
Operating lease right-of-use assets						Operating lease right-of-use assets	41		67
Total assets	Total assets	$	8,007	$	8,335	Total assets	$	5,642	$	383

Liabilities and stockholders' equity
Liabilities and stockholders' equity (deficit)						Liabilities and stockholders' equity (deficit)
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,810	$	918	Accounts payable	$	307	$	1,294
Accrued expenses	Accrued expenses	854		1,430		Accrued expenses	1,193		36
Advances from employees						Advances from employees	—		5
Warrant liability	Warrant liability	1,554		—		Warrant liability	63		—
Other current liabilities		104		97
Bridge promissory note, net						Bridge promissory note, net	—		602
Operating lease liabilities, current						Operating lease liabilities, current	41		57
Total current liabilities	Total current liabilities	4,322		2,445		Total current liabilities	1,604		1,994
Other liabilities		19		72
Operating lease liabilities, non-current						Operating lease liabilities, non-current	—		14
Total liabilities	Total liabilities	4,341		2,517		Total liabilities	1,604		2,008

Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)

Stockholders' equity:
Common stock, $0.0001 par value; 250,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 10,512,836 and 6,812,836 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		1		—
Stockholders' equity (deficit):						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						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	Additional paid-in-capital	29,978		27,722		Additional paid-in-capital	31,430		16,871
Accumulated other comprehensive loss		(3)		(2)

Accumulated deficit	Accumulated deficit	(26,310)		(21,902)		Accumulated deficit	(27,392)		(18,496)
Total stockholders’ equity		3,666		5,818
Total liabilities and stockholders' equity		$	8,007	$	8,335
Total stockholders’ equity (deficit)						Total stockholders’ equity (deficit)	4,038		(1,625)
Total liabilities and stockholders' equity (deficit)						Total liabilities and stockholders' equity (deficit)	$	5,642	$	383


											Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended June 30,				Six Months Ended June 30,					2023		2022		2023		2022
		2022		2021		2022		2021

Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	278		1,202		1,548		2,974		Research and development	$	880	$	59	$	997	$	119
General and administrative	General and administrative	1,228		1,108		2,592		1,938		General and administrative	5,054		130		5,926		268
Total operating expenses	Total operating expenses	1,506		2,310		4,140		4,912		Total operating expenses	5,934		189		6,923		387
Loss from operations	Loss from operations	(1,506)		(2,310)		(4,140)		(4,912)		Loss from operations	(5,934)		(189)		(6,923)		(387)
Other income		—		—		—		61
Revaluation of derivative liability		—		—		—		(89)
Change in fair value of warrant liability	Change in fair value of warrant liability	(266)		—		(266)		—		Change in fair value of warrant liability	122		—		122		—
Interest expense, net	Interest expense, net	(1)		(2)		(2)		(10)		Interest expense, net	(934)		(106)		(2,095)		(210)
Net loss	Net loss	$	(1,773)	$	(2,312)	$	(4,408)	$	(4,950)	Net loss	$	(6,746)	$	(295)	$	(8,896)	$	(597)
Other comprehensive income (loss):
Unrealized gain (loss) on investments		$	3	$	—	$	(1)	$	—
Total comprehensive loss		$	(1,770)	$	(2,312)	$	(4,409)	$	(4,950)

Net loss per share of common stock, basic and diluted	Net loss per share of common stock, basic and diluted	$	(0.20)	$	(0.34)	$	(0.57)	$	(0.79)	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	Weighted-average common shares outstanding, basic and diluted	8,683,166		6,812,836		7,753,167		6,264,854		Weighted-average common shares outstanding, basic and diluted	2,417,785		851,419		1,701,864		851,419


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


Date: ~~July 28, 2022~~August 14, 2023	By:	/s/ Leanne M. Kelly
		Name: Leanne M. Kelly
		Title: Chief Financial Officer
		(Principal Financial and Accounting Officer)


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


	As of June 30, 2022
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable Securities:
Debt securities:
Municipal bonds	1,752		—		(3)		1,749
Total	$	1,752	$	—	$	(3)	$	1,749


	As of December 31, 2021
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable Securities:
Debt securities:
Corporate bonds	$	1,153	$	—	$	(1)	$	1,152
Municipal bonds	2,657		—		(1)		2,656
Total	$	3,810	$	—	$	(2)	$	3,808