Moleculin Biotech Inc

Notes to the Consolidated Financial Statements

1. Nature of Business

The terms “MBI” or “the Company”, “we”, “our” and “us” are used herein to refer to Moleculin Biotech, Inc. MBI is a clinical-stage pharmaceutical company, organized as a Delaware corporation in* July 2015,with clinical programs for hard-to-treat cancers and viruses. The Company hasthree core technologies, each of which have hadone* or more drugs successfully complete a Phase1 clinical trial, based substantially on discoveries made at and licensed from MD Anderson Cancer Center (MD Anderson) in Houston, Texas. The Company hastwo wholly owned subsidiaries, Moleculin Australia Pty. Ltd., which was set up to perform certain preclinical development and Moleculin Amsterdam B.V., which acts as its legal representative for clinical trials in Europe. The Company utilizes its own internal resources and funds to conduct some of these trials and also has trials being conducted via physician-sponsored trials. The physician-sponsored trials utilize primarily external funds, such as grant funds, which arenot presented in these financial statements. The Company doesnot have manufacturing facilities and all manufacturing activities are contracted out tothird parties. Additionally, the Company doesnot have a sales organization. The Company’s overall strategy is to seek potential out-licensing or outsourcing opportunities with development/commercialization strategic partners who are better suited for the marketing, sales and distribution of its drugs, if approved.

In2019, the Company sublicensed its technologies to Animal Life Sciences, Inc. (ALI), to enable research and commercialization for non-human use and share development data. As part of this agreement, ALI issued to the Company a 10% equity interest in ALI.

On* May 5, 2023,the Company received a letter from the Nasdaq Capital Market (Nasdaq) notifying the Company that for the prior30* consecutive business days the bid price for the Company's common stock had closed below the minimum $1.00 per share requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule5550(a)(2) (Bid Price Rule). The deficiency letter didnot result in the immediate delisting of the Company's common stock from the Nasdaq. In accordance with Nasdaq Listing Rule5810(c)(3)(A), the Company was provided an initial period of180 calendar days, until* November 1, 2023,to regain compliance with the Bid Price Rule. On November 2,2023, the Company received a 180-calendar day extension, until April 29, 2024,from the Nasdaq to regain compliance with Bid Price Rule. On October 3, 2023,the Company held a Special Meeting of Stockholders (special meeting). The Company's stockholders granted the Board of Directors the authority to effect an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse stock split of the outstanding shares of the Company’s common stock, at a reverse stock split ratio of between1*-for-5 and1-for-20 as determined by the Board in its sole discretion, prior to theone-year anniversary of the Special Meeting. On* March 5, 2024,the Board of Directors approved a reverse1*-for-15 reverse stock split effective11:59 P.M. (Eastern time) on* March 21, 2024,with trading to commence on a split-adjusted basis on March 22, 2024.*

If, at any time before* April 29, 2024,the bid price for the Company's common stock closes at $1.00 or more for a minimum of10* consecutive business days, the Nasdaq Staff will provide written notification to the Company that it complies with the Bid Price Rule, unless the Staff exercises its discretion to extend this 10 day period pursuant to Nasdaq Listing Rule5810(c)(3)(G). If the Company doesnot regain compliance with the Bid Price Rule by* April 29, 2024,the Nasdaq Staff will provide written notification to the Company that its common stock maybe delisted. The Company would then be entitled to appeal the Nasdaq Staff’s determination to a NASDAQ Listing Qualifications Panel and request a hearing. There can beno* assurance that, if the Company does appeal a delisting determination by the Nasdaq Staff to the NASDAQ Listing Qualifications Panel, that such appeal would be successful. There can beno assurance that the Company will be able to regain compliance with the Bid Price Rule.

2. Basis of presentation, principles of consolidation and significant accounting policies

Reverse Stock Split -On March 22, 2024,pursuant to authority granted by our stockholders, the Company effected aone-for-fifteen reverse stock split of our common stock and the filing of an amendment to our amended and restated certificate of incorporation to effectuate the reverse stock split. The amendment was filed with the Secretary of State of the State of Delaware and the reverse stock split became effective in accordance with the terms of the amendment at11:59 P.M. (Eastern time) on March 21, 2024,with trading to commence on a split-adjusted basis on March 22, 2024.The amendment provides that, at the effective time, everyfifteen shares of our issued and outstanding common stock will automatically be combined intoone issued and outstanding share of common stock, without any change in par value per share, which will remain at $0.001. The accompanying consolidated financial statements and notes to the consolidated financial statements gives retroactive effect to the reverse stock split for all periods presented. Certain amounts in the financial statements, the notes thereto, and elsewhere in the Form10-K* may*be slightly different than previously reported due to rounding up of fractional shares as a result of the reverse stock split.

**Basis of Presentation -**The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC).

Principles of consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company views its operations and manages its business inone operating segment. All material long-lived assets of the Company reside in the United States. In accordance with FASB ASC Topic280, Segment Reporting, the Company views its operations and manages its business asone segment. As a result, the financial information disclosed herein represents all of the material financial information related to its principal operating segment.

Use of Estimates - The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors* mayaffect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often mayyield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may*result in actual results differing materially from those estimated amounts used in the preparation of financial statements. Estimates are used in the following areas, among others: fair value estimates on intangible assets, warrants, and stock-based compensation expense, as well as accrued expenses and taxes.

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Going Concern and Liquidity - These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary financing to continue operations and the attainment of profitable operations. As of* December 31, 2023*, the Company had an accumulated deficit of$131.6 million since inception and hadnot yet generated any revenues from operations. Additionally, management anticipates that its cash on hand of$23.6 million as of* December 31, 2023* isnot sufficient to fund its planned operations for a period of at leastone year from when these consolidated financial statements are issued. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements donot include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company intends to seek additional funding throughone or more of the following: a combination of equity offerings, debt financings, government or otherthird-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. There can beno assurance that such events or a combination thereof can be achieved.

In* March 2022,the Company received a subpoena from the SEC requesting information and documents, including materials related to certain individuals (none of which are the Company's officers or directors) and entities, and materials related to the development of and statements regarding the Company's drug candidate for the treatment of COVID-19. The Company has received, and expects to continue to receive, periodic further requests from the SEC staff with respect to this matter. The Company isnot* aware of the specific nature of the underlying investigation by the SEC, and to the extent that this investigation relates to prior public disclosures that it has made, the Company believes in the accuracy and adequacy of such prior disclosures. The correspondence from the SEC transmitting the subpoena to the Company states that the SEC is trying to determine whether there have been any violations of federal securities laws, but that its investigation doesnot mean that the SEC has concluded that anyone has violated the law or that the SEC has a negative opinion of any person, entity, or security. The Company cannot predict when this matter will be resolved or what, if any, action the SEC* maytake following the conclusion of the investigation. The Company expensed approximately $1.5 million and $2.4 million in related general and administrative fees and expenses for thetwelve* months ended* December 31, 2023and2022* respectively, which has impacted and* maycontinue to impact our liquidity. The Company is in the process of filing a claim with its insurance carriers related to this loss which maycover a portion of the related expenses butnot* all. The claim is currently under review by the insurance company. The claim hasnot yet been approved nor has a reimbursement amount been determined. Accordingly, the Company hasnot recorded any provision for insurance reimbursement as of* December 31, 2023*. The Company expects to record any potential insurance reimbursement at the time that the amount to be reimbursed is determined and approved by the insurance carrier.

Cash and Cash Equivalents - Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains cash accounts principally atone financial institution in the US, which at times,* mayexceed the Federal Deposit Insurance Corporation's limit of$250,000.* The Company considers all highly liquid accounts with original maturities ofthree months or less to be cash equivalents. The Company hasnot experienced any losses from cash balances in excess of the insurance limit. The Company’s management doesnot believe the Company is exposed to significant credit risk at this time due to the financial condition of the financial institution where its cash is held. As of* December 31, 2023*, there was $0.3 million of cash on hand in a bank account in Australia and there isno known limitations impacting the Company's liquidity in Australia.

**Prepaid Expenses and Other Current Assets -**Prepaid expenses and other current assets consist of the following (in thousands):

Property and equipment - Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line depreciation method as follows:

Intangible assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Acquired intangible assets identified as in-process research and development (IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development efforts. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. The Company evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.No impairments of intangible assets have been identified during any of the periods presented.

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**Operating Lease Right-of-Use Asset -The Company determines if an arrangement is a lease at contract inception or during modifications or renewal of an existing lease. Operating lease assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. The lease payments used to determine the Company's operating lease assets mayinclude lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in the Company's operating lease assets in the Company's consolidated balance sheet. The Company has elected the practical expedient and doesnot separate lease components from nonlease components for its leases. The Company's operating leases are reflected in operating lease right-of-use asset (ROU), accrued expenses and other current liabilities, and operating lease liability - long-term in the Company's consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Refer to Note8 - Commitments and Contingencies - Lease Obligations Payable for additional information related to the Company’s operating leases.

Sublicense Arrangement - The Company has a sublicense arrangement which consists of an investment in ALI in which it doesnot have the ability to exercise significant influence over its operating and financial activities. Management evaluates this investment for possible impairment quarterly.

**Fair Value of Financial instruments -**The Company's financial instruments consist primarily of non-trade receivables, account payables, accrued expenses and a warrant liability. The carrying amount of non-trade receivables, accounts payables, and accrued expenses approximates their fair value because of the short-term maturity of such.

The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis intothree-level fair value hierarchy in accordance with US GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level1) and lowest priority to unobservable inputs (Level3).

Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:

Level1 – Unadjusted quoted prices in active markets of identical assets or liabilities.

Level2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level3 – Unobservable inputs for the asset or liability.

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of its warrant liability discussed in Note5.

The following table provides the financial assets and liabilities reported at fair value and measured on a recurring basis at* December 31, 2023* and2022 (in thousands):

The following table provides a summary of changes in fair value associated with the Level3 liabilities for the years ended* December 31, 2023* and2022 (in thousands):

The above table of Level3 liabilities begins with the valuation as of* December 31, 2021* and adjusts the balances for changes that occurred during the years. The ending balance of the Level3 financial instrument presented above represent the Company's best estimates and* may**not* be substantiated by comparison to independent markets and, in many cases, couldnot be realized in immediate settlement of the instruments.

Income Taxes - The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely thannot that some portion or all of a deferred tax asset willnot be realized.

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The Company accounts for uncertain tax positions in accordance with the provisions of ASC740-10 which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely thannot to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.

Translation of Foreign Currencies- The functional currency for the Company's foreign subsidiaries is the local currency. For the Company's non-US subsidiaries that transact in a functional currency other than the US dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency rates for the period. Adjustments resulting from the translation of the financial statements of the Company's foreign operations into US dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of equity.

Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested or expected to vest during the reporting period. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic718, Compensation—Stock Compensation (ASC718). ASC718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, modifications to existing stock options, and equity classified warrants to be recognized in the consolidated statements of operations based on their grant date fair values. The grant date fair value of stock options and equity classified warrants are calculated using the Black-Scholes option pricing model and the grant date fair value of restricted stock awards is determined using the closing price of the Company’s common stock on the date of grant (or if the date of grant isnot a business day, on the business day prior to the date of the grant). The awards are subject to service vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, net of forfeitures which are recognized as they occur. Compensation expense related to awards to non-employees with performance-based vesting conditions is recognized based on the grant date fair value.

Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock were considered to be common stock equivalents. Shares of the Company's common stock underlying pre-funded warrants are included in the calculation of basic and diluted earnings per share. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. For the years ended* December 31, 2023*, and2022, approximately 0.5 million and 0.4 million(taking into account the reverse stock splits we have completed) of potentially dilutive shares were excluded from the computation of diluted loss per share due to their antidilutive effect.

Research and Development Costs - Research and development costs are expensed as incurred. These costs consist primarily of salaries and benefits of research and development personnel, costs related to research activities, preclinical studies, clinical trials, drug manufacturing and allocated overhead and facility-related expenses.

Subsequent Events - The Company’s management reviewed all material events through the date these consolidated financial statements were issued for subsequent event disclosure consideration as described in Note9 and elsewhere in other notes to the financial statements.

Recent Accounting Pronouncements

In* December 2023,the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures. ASU2023-09 improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended* December 31, 2025.Early adoption is permitted. The Company is currently assessing the impact of ASU2023*-09 on its disclosures.

There areno other effective pronouncements, or pronouncements issued butnot yet effective, if adopted, would have a material effect on the accompanying financial statements.

3. Intangible Assets

In conjunction with its acquisition of Moleculin, LLC in2016, the Company recognized an intangible asset for acquired in-process research and development (IPR&D) related to the acquiredWP1066 portfolio. As the Company'sWP1066 portfolio is currently in development, the Company’s IPR&D intangible asset willnot be amortized until development is complete. If the associated research and development effort is abandoned, the Company’s IPR&D intangible asset will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. IPR&D was $11.1 million as of* December 31, 2023* and2022, respectively.

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4. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities at* December 31, 2023* and2022 consist of the following components (in thousands):

Additionally, accounts payable includes $67,000 and $64,000 as of* December 31, 2023* and2022, respectively, for related party payables (operating costs reimbursements).

5. Warrants

Upon its issuance of warrants to purchase shares of common stock, the Company evaluates the terms of the warrant issue to determine the appropriate accounting and classification of the warrant issue pursuant to FASB ASC Topic480, Distinguishing Liabilities from Equity, FASB ASC Topic505, Equity, FASB ASC815, Derivatives and Hedging, and ASC718, Compensation - Stock Compensation. Warrants are classified as liabilities when the Company* may*be required to settle a warrant exercise in cash and classified as equity when the Company settles a warrant exercise in shares of its common stock.

Liability classified warrants are valued at fair value at the date of issue and at each reporting date pursuant to FASB ASC820, Fair Value Measurement, (ASC820) and are reflected as a warrant liability on the Company's consolidated balance sheet. The change in the warrant liability during each reporting period is reflected as a gain (loss) from change in fair value of warrant liability in the Company's consolidated statement of operations.

Equity classified warrants issued to non-employees in exchange for services are accounted for in accordance with ASC718 which requires all stock-based payments be recognized in the consolidated statements of operations based on their fair value. For further information, see Note2. Basis of presentation, principles of consolidation and significant accounting policies – Stock-based Compensation.

At* December 31, 2023* and2022, the Company has the following warrants outstanding:

(1) If the Company subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of its common stock into a smaller number of shares, the warrant exercise price is proportionately reduced and the number of shares under outstanding warrants is proportionately increased. Additionally, if the Company combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the warrant exercise price is proportionately increased and the number of shares under outstanding warrants is proportionately decreased. Also, the Company* mayvoluntarily reduce the warrant exercise price for its warrants issued in March 2019.*

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(2) Taking into account the reverse stock splits we have completed, includes warrants to purchase 7,892 shares at an exercise price of $181.80, expiring* December 22, 2023,and warrants to purchase 365 shares at an exercise price of $208.80, expiring June 21, 2023.*

In* March 2024,*the Company issued a consultant aten-year warrant to purchase up to 3,334 shares of common stock (taking into account the reverse stock splits we have completed). The warrants vest annually over afour-year term.

Liability Classified Warrants

The Company uses the Black-Scholes option pricing model (BSM) to determine the fair value of its warrants at the date of issue and outstanding at each reporting date. The risk-free interest rate assumption is based upon observed interest rates onzero coupon US Treasury bonds linearly interpolated to obtain a maturity period commensurate with the term of the warrants. Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants.

The assumptions used in determining the fair value of the Company’s outstanding liability classified warrants are as follows:

A summary of the Company's liability classified warrant activity during the year ended* December 31, 2023* and related information follows:

For a summary of the changes in fair value associated with the Company's warrant liability for the years ended* December 31, 2023* and2022, see Note2. Basis of presentation, principles of consolidation and significant accounting policies – Fair Value of Financial Instruments.

Equity Classified Warrants

In* December 2023,the Company entered into a Securities Purchase Agreement with an institutional investor and certain of the Company's executive officers, employees, advisors and a member of its board of directors for the sale by the Company of 240,151 shares (taking into account the reverse stock splits we have completed) of the Company's common stock, and pre-funded warrants to purchase 229,506 shares of common stock (taking into account the reverse stock splits we have completed) in lieu thereof in a registered direct offering (Pre-Funded Warrants). In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of 939,312 shares of common stock. Subject to certain ownership limitations, each of the Common Warrants will become exercisable on the effective date of such stockholder approval as maybe required by the applicable rules and regulations of the Nasdaq Stock Market with respect to issuance of all of the Common Warrants and the common stock upon the exercise thereof. Subject to certain ownership limitations, each Common Warrant will have an exercise price of $9.60 per share, expire five years from the date of stockholder approval and will become exercisable beginning on the effective date of stockholder approval for the shares issuable upon the exercise of the Common Warrants. Subject to certain ownership limitations, each Pre-Funded Warrant is exercisable intoone* share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). The combined purchase price ofone share of common stock (or pre-funded warrant in lieu thereof) and accompanying Common Warrant was $9.60 for the institutional investor, and $10.35 for the executive officers, employees, advisors and the member of the Company's board of directors who participated in the offering. The Company received gross proceeds of $4.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. Proceeds of the* December 2023Offering were allocated between common shares and warrantsfirst* by allocating proceeds to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which includes the Pre-Funded Warrants. Transaction costs related to the issuance of shares were recognized in stockholder's equity (deficit), while costs of $510,000 allocated to warrant liabilities were expensed for the year ended* December 31, 2023*.

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In* August 2023,the Company granted equity-classified warrants to a consultant to purchase up to 6,667 shares (taking into account the reverse stock splits we have completed) of Company common stock with afive-year term and an exercise price of $9.30. The warrants vest based on performance of certain services. As of December 31, 2023*, no related vesting criteria were met.

In* June 2023,the Company granted equity-classified warrants to purchase 10,000 shares of common stock with aten-year term and an exercise price of $9.00 vesting annually overfour* years while services are being performed.

In* September 2022,the Company entered into a portfolio advisory agreement with a related party entity, associated with Dr. Waldemar Priebe, and in connection with the agreement, the Company granted equity-classified warrants to purchase 16,667 shares of common stock (taking into account the reverse stock splits we have completed) with aten-year term and an exercise price of $18.60. The September 2022warrants vest as follows: (a)50% vests upon execution of the agreement, provided the advisor doesnot* terminate the agreement prior to thefirst anniversary of the agreement; and (b)50% vests60 days after the end of theone-year term, subject to the Company's Board of Directors determining that the services provided have been adequately performed.

In* June 2022,the Company granted equity-classified warrants to purchase 3,334 shares of common stock with aten-year term and an exercise price of $22.35 vesting annually overfour* years while services are being performed.

At* December 31, 2023* the Company had 289,276 equity classified warrants outstandingof which 266,350 warrants were exercisable (taking into account the reverse stock splits we have completed). At* December 31, 2022*, the Company had 43,103 equity classified warrants outstanding of which 26,724 were exercisable (taking into account the reverse stock splits we have completed).

The Company recorded stock compensation expense for the non-employee consulting agreements of $196,000 and $398,000 for the years ended* December 31, 2023* and2022, respectively. At* December 31, 2023*, there was $353,000 of unrecognized stock compensation expense related to the Company's equity-classified warrants.

6. Equity

Preferred Stock

The Company's certificate of incorporation authorizes the Company to issue these shares inone or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. No preferred stock was issued or outstanding as of* December 31, 2023*.

Common Stock

2023 Stock Issuances

In* December 2023,the Company entered into a Securities Purchase Agreement with an institutional investor and certain of the Company's executive officers, employees, advisors and a member of its board of directors for the sale by the Company of 240,151 shares of the Company's common stock, and pre-funded warrants to purchase 229,506 shares of common stock in lieu thereof in a registered direct offering. In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of 939,312 shares of common stock. Subject to certain ownership limitations, each of the Common Warrants will become exercisable on the effective date of such stockholder approval as maybe required by the applicable rules and regulations of the Nasdaq Stock Market with respect to issuance of all of the Common Warrants and the common stock upon the exercise thereof. Subject to certain ownership limitations, each Common Warrant will have an exercise price of $9.60 per share, expire five years from the date of stockholder approval and will become exercisable beginning on the effective date of stockholder approval for the shares issuable upon the exercise of the Common Warrants. Subject to certain ownership limitations, each Pre-Funded Warrant is exercisable intoone* share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). The combined purchase price ofone share of common stock (or pre-funded warrant in lieu thereof) and accompanying Common Warrant was $9.60 for the institutional investor, and $10.35 for the executive officers, employees, advisors and the member of the Company's board of directors who participated in the offering. The Company received gross proceeds of $4.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. All figures herein are taking into account theone-for-fifteen reverse stock split completed* March 22, 2024.*

Lincoln Park Equity Line

During the year ended* December 31, 2023*, pursuant to the2021 Lincoln Park purchase agreement, the Company issued to Lincoln Park 15,038 shares of common stock (taking into account the reverse stock splits we have completed) for gross proceeds of $0.2 million. The2021 Lincoln Park Agreement, which has $19.8 million available as of* December 31, 2023*, terminates on* July 1,2024. The Company is in discussions with Lincoln Park Capital to effect the extension of this agreement. The Company intends to seek an extension of this agreement prior to termination, howeverno agreement has been reached through to the date that these consolidated financial statements were issued. In the December 2023Offering, the Company agreednot* to utilize the Lincoln Park Agreement or any such extension thereof, until after* June 26, 2024.*

2015 Stock Plan, Stock-based Compensation and Outstanding Awards

In* December2015,* the Board of Directors of the Company approved the Company’s2015 Stock Plan, which was amended in* April2016,* * April 2018,** June 2020,** May 2022,and May 2023.The expiration date of the plan is December**5,* 2025. The awards under the2015 Stock Plan can be in the form of stock options, stock awards, stock unit awards, or stock appreciation rights. In* May 2023and2022,* the2015 Stock Plan (Plan) was amended to authorize an additional 116,667 shares and 133,334 shares, respectively, such that 366,667 total shares* maybe issued under the Plan. In March 2024,the Company issued 3,334 shares of common stock to a consultant. All figures herein are taking into account theone*-for-fifteen reverse stock split completed* March 22, 2024.*

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Under the terms of the Company’s2015 Stock Plan, as amended, and approved by its stockholders in* May 2023,366,667 shares of the Company’s common stock (taking into account the reverse stock splits we have completed) are available for grant to employees, non-employee directors and consultants. The2015* Stock Plan provides for the grant of stock options, stock awards, stock unit awards, or stock appreciation rights. As of* December 31, 2023*, there were 3,794 shares(taking into account the reverse stock splits we have completed)remaining to be granted under the2015 Stock Plan.

Stock-based compensation expense for the years ended* December 31, 2023* and2022 is as follows (in thousands):

Each of the Company’s stock-based compensation arrangements are discussed below.

Stock Options

Stock option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards generally have a 10-year contractual term and vest over a 4-year period for employees and over a 1 to 3-year period for directors from the grant date on a straight-line basis over the requisite service period. The grant-date fair value of stock options is determined using the Black-Scholes option-pricing model. Additionally, the Company’s stock options provide for full vesting of unvested outstanding options, in the event of a change of control of the Company.

The fair value of each stock option is estimated on the date of grant using the BSM model that uses the assumptions noted below. The expected term of the stock option awards was computed using the plain vanilla method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin107 because the Company doesnot have sufficient data regarding employee exercise behavior to estimate the expected term. Beginning in2020, the Company used the volatility of its own stock in the BSM as it now has sufficient historic data in its stock price. The risk-free rate for periods within the contractual life of the option is based on the US Treasury yield curve in effect at the time of grant.

The fair value of the option grants has been estimated, with the following weighted-average assumptions:

Stock option activity for the year ended* December 31, 2023* is as follows:

Options granted during2023 and2022 have an aggregated grant date fair valueof $0.7 million and $1.1 million, respectively, that was calculated using the Black-Scholes option-pricing model. At* December 31, 2023*, total compensation costnot yet recognized was $1.9 million and the weighted average period over which this amount is expected to be recognized is 2.3 years. The aggregate fair value of options vested was $1.3 million and $1.5 million in the years ended* December 31, 2023* and2022, respectively.

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Restricted Stock

Restricted stock units are granted with a grant date fair value determined using the closing price of the Company's common stock on the grant date. Restricted stock units vest annually infour equal installments. Additionally, the Company's restricted stock unit agreements provide for full vesting of the restricted stock award in the event of a change of control of the Company.

Restricted stock unit activity for the year ended* December 31, 2023* is as follows:

As of* December 31, 2023*, total compensation costnot yet recognized was $1.2 million and the weighted average period over which this amount is expected to be recognized is 2.7 years. In* June 2023,the Company granted 65,292 shares of restricted stock units with a weighted average fair value of $9.00 per share at the date of grant (taking into account the reverse stock splits we have completed), which vest annually infour installments. In June 2022,*the Company granted 30,156 shares of restricted stock units with a weighted average fair value of $22.35 per share (taking into account the reverse stock splits we have completed) at the date of grant, which vest annually infour equal installments.

In* December 2023,the Company granted to the Company's executive officers 73,334 performance-based restricted stock units(taking into account the reverse stock splits we have completed) (PSU). Each PSU will vest upon both (A) the approval of a plan amendment by the Company's stockholders; and (B) thefirst* of the following to occur: (a) a licensing transaction with a valuation, at the time, in excess of*$150* million, which valuation shall be determined by the Board; (b) the filing of a new drug application; or (c) upon a Change in Control (as defined in the Plan), in each case subject to the respective executive officer's continued service with the Company as of each such vesting date. Recognition of stock-based compensation expense associated with these performance-based stock options commences when the performance condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones. As of the date of issuance and through* December 31, 2023*,none of the performance goals were deemed probable, and as a result,no expense was recognized for these performance-based vesting awards.

7. Income Taxes

The provision for income taxes consists of the following components (in thousands):

The following summarizes activity related to the Company’s valuation allowance (in thousands):

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A reconciliation of the income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows (in thousands):

The principal components of the Company’s deferred tax assets and liabilities consist of the following (in thousands):

The Company has incurred net operating losses since inception. As of* December 31, 2023*, the Company had total US federal operating loss carry forwards of approximately $52 million. Of this, $6.1 million will expire commencing in2035, with the rest havingno set expiration date. The value of these carryforwards depends on the Company’s ability to generate taxable income. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards* maybe applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates of the carry forwards the Company may**not* be able to fully utilize the net operating loss carryforwards to reduce future income taxes. Under the new tax laws, net operating loss carry forwards willnot expire beginning for losses generated in the2018 tax year. However, these net operating losses will only be able to offset80% of future taxable income. Finally, the Company hasnot undertaken a detailed analysis of the application of IRC Section382 with respect to limitations on the utilization of net operating loss carryforwards and other deferred tax assets. However, the Company believes that this matter isnot material to the overall tax position within the financial statements due to the full valuation allowance against the net operating losses and the lack of utilization of the net operating losses during tax years open under statute.

The Company conducts business in various locations and, as a result, files income tax returns in the United States federal jurisdiction, in multiple state jurisdictions, and internationally as required. As of* December 31, 2023*, the Company had state operating losses of approximately $2.7 million which expire commencing in2036. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the US federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

Management has evaluated the positive and negative evidence for the realizability of its deferred tax assets. The Company has cumulative losses and there isno assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at* December 31, 2023*. A valuation allowance of $32.3 million and $25.7 million has been established at* December 31, 2023* and2022, respectively. The change in the valuation allowance for the year ended* December 31, 2023* was primarily due to additional operating losses and capitalized research costs.

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The Company undertakes research and development (R&D) activities that qualify for certain tax credits for US and Australian income tax purposes. The Company has a full valuation allowance against its US federal R&D tax credits. For the2023 tax year, there* maybe a potential Australian research and development tax credit, as the Company is increasing research and development activities in Australia. The Company estimates the amount of cash refund it expects to receive related to the Australian research and development tax incentive program and records the incentives when it is probable that1*) the Company will comply with relevant conditions of the program and2) there is reasonable assurance the claim will be recovered. During the years ended* December 31, 2023and2022*, respectively, the Company hasnot recorded the Australian tax incentive as it isnot yet probable that the terms and claim will be recovered. The federal research credits will begin to expire in the years2037 through2041, ifnot utilized.

The Company has a liability for unrecognized tax benefits of $0.3 million(excluding accrued interest and penalties) as of* December 31, 2023*. The Company's policy is to record interest and penalties related to income taxes as part of its income tax provision.

A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows (in thousands):

The Company doesnot believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to* December 31, 2023* within the next year.

Starting in2022, changes to Internal Revenue Code Section174 made by the Tax Cuts and Jobs Act of2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. As a result the Company capitalized such costs in its2023 and2022 income tax provision, resulting in an increase in deferred tax assets.

8. Commitments and Contingencies

In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of the Company's commitments and contingencies for the years ended* December 31, 2023*, and* December 31, 2022*, respectively.

Lease Obligations Payable

In* September 2023,the Company executed an amendment to extend the corporate office lease until August 31, 2029,*with an option to renew. The Company is required to remit base monthly rent of approximately $4,700 which will increase at an average approximate rate of 2% each year. The Company is also required to pay additional rent in the form of its pro-rata share of certain specified operating expenses of the building. The leased space is located in Houston, Texas. The corporate office lease is classified as an operating lease.

In* June 2022,the Company entered into a Second Amendment to its Lease Agreement (Lab Lease) which it uses for lab space. The term of the Lease will continue through September 30, 2027,withno* further right or option to renew. The Company is required to remit base monthly rent which will increase at an average approximate rate of 3% each year. The Lab Lease is classified as an operating lease. In* August 2019,the Company entered into a sublease (which was extended in2022* in connection with the lease extension) with a related party, Houston Pharmaceuticals, Inc. (HPI). The Company has granted HPI access to all of its Lab Lease space and HPI has agreed to pay the Company 50% of the Company's rent payable under the Lab Lease less 50% of any benefits from any sublease or other lab service agreement the Company* mayreceive from its Lab Lease. Although HPI has access to the Company's Lab Lease space, it is the intent of the parties that they equally share the Lab Lease space for research purposes. The Company recorded approximately $49,000 and $45,000 in sublease income from the related party for the years ended December 31, 2023* and* December 31, 2022*, respectively. Sublease income is recorded as other income on the Company's consolidated statement of operations and comprehensive loss.

The following summarizes quantitative information about the Company's operating leases for the years ended* December 31, 2023*, and* December 31, 2022*, respectively (in thousands):

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Other supplemental cash flow information for operating leases is as follows (in thousands):

As of* December 31, 2023*, future minimum leases under ASC842 under the Company's operating leases were as follows (in thousands):

As of* December 31, 2023*, the weighted average remaining lease term for operating leases is 4.6 years, and the weighted average discount rate is 9.6%. The interest rate implicit in lease contracts is typicallynot readily determinable and as such, the Company uses an incremental borrowing rate based on a peer analysis using information available at the commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

Licenses

MD Anderson

Under agreements associated with Annamycin, theWP1122 Portfolio and theWP1066 Portfolio all described below, the Company is responsible for certain license, milestone and royalty payments over the course of the agreements. Annual license fees can cost as high as $0.1 million depending upon the anniversary, milestone payments for the commencement of phase II and phase III clinical trials, for the submission of an NDA to the FDA and for the receipt of marketing approval for sale of a license product can cost as high as $0.6 million, depending upon certain terms and conditions.Not all of these payments are applicable to every drug. Total expenses under these agreements were $258,000 and $264,000, respectively, for the years ended* December 31, 2023* and2022.

Annamycin

On* June 29, 2017,the Company entered into a Patent and Technology License Agreement with MD Anderson licensing certain technology related to the method of preparing Liposomal Annamycin and on December 17, 2021the Company entered into an amendment to this agreement to include certain technology related to the method of reconstituting Liposomal Annamycin. On December 2, 2021,the Company entered into a Patent and Technology License Agreement with MD Anderson licensing certain technology related to lung targeted therapies with Annamycin. The terms and payments of these agreements are included in the summary above under Commitments and Contingencies – Licenses – MD Anderson. The terms of these agreements extend until the later of20* years from the effective date of the agreements, or the expiration of the last-to-expire licensed patent. In addition, commencing on thefour-year anniversary of each agreement, MD Anderson has the right to remove any jurisdiction from such agreement, upon90 days’ notice, if the Company hasnot commercialized or isnot using commercially reasonable efforts actively and effectively to attempt to commercialize a licensed invention in such jurisdiction.

WP1122 Portfolio

The rights and obligations to an* April 2012Patent and Technology License Agreement entered into by and between IntertechBio and MD Anderson (2012 Agreement) have been assigned to MBI. Therefore, MBI has obtained a royalty-bearing, worldwide, exclusive license to intellectual property, including patent rights, related to itsWP1122* Portfolio and to its drug product candidate,WP1122. On* October 21, 2022,the Company entered into a new patent and technology license agreement (2022 Agreement) with MD Anderson for an additional molecule under theWP1122* Portfolio. On* December 3, 2021,the Company entered into a new patent and technology license agreement (2021 Agreement) with MD Anderson licensing certain technology related toWP1122* anti-viral treatments. The2012 Agreement was amended in* May 2020to allow for the extension of certain milestones. The initial milestone required the Company to file an IND with the FDA for a Phase I study by February 20, 2021.The Company extended the deadline for this milestone bysix* months by making the required extension payment, and the Company has the right to receivetwo additionalsix-month extensions in the future by making additional extension payments. On* August 3, 2021,the Company filed a CTA for the application ofWP1122* in the United Kingdom to commence a Phase1a clinical trial ofWP1122. MD Anderson agreed that this CTA filing would further extend the deadline to file an IND with the FDA for a Phase I study until* February 2022.In December 2021,the Company submitted an IND for the treatment of GBM withWP1122* to the FDA, thus meeting the IND filing milestone. The term of the2012 agreement extends until the later of15 years from the effective date of the agreement, or the expiration of the last-to-expire licensed patent. In addition, MD Anderson* mayterminate the2012* agreement if the Company fails to commence a Phase2 study for licensed product prior to* November 20, 2024.The term of the2021* agreement extends until the later of20 years from the effective date of the agreement, or the expiration of the last-to-expire licensed patent.

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WP1066 Portfolio

The rights and obligations to a* June 2010Patent and Technology License Agreement entered into by and between Moleculin LLC and MD Anderson (2010 Agreement) have been assigned MBI. Therefore, MBI has obtained a royalty-bearing, worldwide, exclusive license to intellectual property rights, including patent rights, related to itsWP1066* drug product candidate. On* February 3, 2022,the Company entered into a new patent and technology license agreement (2022 Agreement) with MD Anderson licensing certain technology related toWP1066* checkpoint inhibitors. In* January 2024the Company notified MD Anderson that it was terminating this license. In consideration for these agreements, the Company must make payments to MD Anderson including an up-front payment, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. Annual Maintenance fee payments willno* longer be due upon marketing approval in any country of a licensed product under the2010 Agreement. One-time milestone payments are due upon commencement of thefirst Phase III study for a licensed product within the United States, Europe, China or Japan; upon submission of thefirst NDA for a licensed product in the United States; and upon receipt of thefirst marketing approval for sale of a licensed product in the United States. The term of the2010 Agreement extends until the later of15 years from the effective date of the agreement, or the expiration of the last-to-expire licensed patent.

HPI

MBI entered into an outlicensing agreement with HPI, pursuant to which it granted certain intellectual property rights to HPI, including rights covering the potential drug candidate,WP1066 (HPI Out-Licensing Agreement). Upon payment of the option repurchase payment in2019, the HPI Out-Licensing Agreement was terminated and MBI regained all rights to the licensed subject matter and rights to any and all development data and any regulatory submissions including any IND, NDA or ANDA related to the licensed subject matter and can end the license without any other obligation. The Company hastwo current agreements with HPI. Thefirst agreement, which was renewed in* May 2022,continues a prior consulting arrangement with HPI and requires payments for $43,500 per quarter. Thesecond* agreement, which can be cancelled with sixty days notice by either party, allows the Company's employees access to laboratory equipment owned by HPI and this requires a payment of $15,000 per quarter to HPI. Total expenses related to HPIwere $234,000 for the years ended* December 31, 2023* and2022.

Sponsored Research Agreements with MD Anderson

MBI has a Sponsored Laboratory Study Agreement with MD Anderson expiring* December 31, 2025.In October 2023,the Company entered into an amendment to the Sponsored Research Agreement with MD Anderson for total payments to MD Andersonof $0.8 million to support the continuation of the project. In addition, the Company also has Sponsored Research Agreements with other universities,one in the US andone* in Europe. The expenses recognized under the agreements were $775,000 and $1,133,000, respectively for the years ended* December 31, 2023* and2022.

Other Licenses

WPD Pharmaceuticals

Since* February 2019,the Company was party to a sublicense agreement with WPD Pharmaceuticals (WPD), pursuant to which it sublicensed to WPD certain intellectual property rights, including rights to Annamycin, itsWP1122* portfolio, and itsWP1066 portfolio (as amended, WPD Agreement). WPD is affiliated with Dr. Waldemar Priebe, the Company's founder. Under the WPD Agreement, the Company granted WPD a royalty-bearing, exclusive license to research, develop, manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of human therapeutics under the licensed intellectual property in the countries of Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan, Kazakhstan, Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland (licensed territories).

In* March 2023,the Company and WPD agreed to terminate the WPD Agreement. Pursuant to the termination, the Company agreed to pay WPD (or its designees) $700,000 in cash and shares of its common stock valued at $800,000. In connection with the termination, WPD agreed to assign all of its rights and obligations related to the Phase1b/2* clinical trial of Annamycin for the treatment of STS lung metastases being conducted at Maria Sklodowska-Curie National Research Institute.

With the termination of the WPD Agreement, the Company now holds the worldwide rights to all of its licensed intellectual property, other than the rights related to non-human animals.

Animal Life Sciences

In* February 2019,the Company sublicensed certain intellectual property rights, including rights to Annamycin, itsWP1122* portfolio, and itsWP1066 portfolio in the field of non-human animals to ALI (ALI Agreement). ALI is affiliated with Dr. Waldemar Priebe,one of its founders. Under the ALI Agreement, the Company granted ALI a worldwide royalty-bearing, exclusive license to research, develop, manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of non-human animals under the licensed intellectual property. This license is subject to the terms in the prior agreements entered into by the Company and MDA.

Other Guarantees

Bank Guarantee and Letter of Credit

In* December 2023,*the Company entered into a letter of credit with its primary banking relationship in the US, or bank guarantee, in the amount of $0.2 million, in connection to a value-added tax (VAT) registration in Poland. To date, there have beenno draws or claims against this bank guarantee.

Employment Agreements

** The Company has agreements with certain executive and other employees to provide benefits in the event of termination. The base salary and certain other benefits would aggregate approximately $5.5 million using the rate of compensation in effect at December 31, 2023.

9. Subsequent Events

Subsequent events occurring after* December 31, 2023* are discussed elsewhere in these notes.