Moleculin Biotech Inc

Notes to the Condensed 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.MBI is a late-stage pharmaceutical development company currently conducting a pivotal Phase3* trial evaluating Annamycin, also known by its non-proprietary name "naxtarubicin", in combination with Cytarabine for the treatment of subjects with released/refractory acute myeloid leukemia. Additionally, the Company hastwo portfolios of technologies for hard-to-treat cancers and viruses with clinical and preclinical research funded by investigators at academic institutions.

Each of itsthree core technologies is based substantially on discoveries made at and licensed from the University of Texas MD Anderson Cancer Center (MD Anderson) in Houston, Texas, and featuresone or more drugs that have successfully completed a Phase1 clinical trial. Three of itssix drug candidates have shown human activity in clinical trials and are currently or have been in Phase1B/2 or Phase2 clinical trials. Since MBI’s inception, its drugs have completed, are currently in, or have been permitted to proceed in,fourteen clinical trials. Annamycin, in a unique multilamellar lipid formulation, is the Company’s lead molecule, and MBI has recently concludedone Phase1B/2 clinical trial for treating Acute Myeloid Leukemia (AML) and has begun treating subjects in its Phase3 clinical trial for the treatment of AML. Annamycin is also intwo Phase1B/2 clinical trials for treating Soft Tissue Sarcoma metastasized to the lungs (STS lung metastases, STS lung mets, or Advanced STS), on physician sponsored. Additionally, there is another phase1B/2 clinical trial that is physician sponsored which is investigating usingWP1066 in combination with radiation for the treatment of glioblastoma, a form of brain cancer.

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.

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

Reverse Stock Split - On* March 22, 2024,the Company completed a reverse stock split of all the issued and outstanding share of the Company’s common stock at a ratio of1* to 15. 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 previously reported include rounding up of fractional shares as a result of the reverse stock split.

Basis of Presentation – Condensed Consolidated Financial Information - The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for financial information, and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) with respect to Form10-Q and Article8 of Regulation S-X. Accordingly, they donot include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements furnished reflect all normal adjustments, which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results arenot necessarily indicative of the results for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of* December 31, 2024* and for the year then ended, including the notes thereto contained in the Form10-K filed with the SEC on* March 21, 2025.*

Principles of Consolidation - The accompanying condensed 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.

Segment Information - Management has determined that the Company operates inone reportable segment, which is the development and commercialization of drug products. The Company's chief operating decision maker (CODM) is its Chief Executive Officer and Chairman, who reviews financial information presented on a consolidated basis. The CODM primarily uses consolidated net loss, which is also reported on the Consolidated Statements of Operations and Comprehensive Loss as net loss, to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the assessment of segment performance and allocation of resources. The significant expense categories within net loss from operations that the CODM regularly reviews are research and development expenses and general and administrative expenses. The significant expense categories and subcategories are reported on the Consolidated Statements of Operations and Comprehensive Loss. Other expenses included in the Company’s net loss include change in fair value of warrant liabilities, other income (expense), interest income, net, and any additional non-operating expenses that are reported on the Consolidated Statements of Operations and Comprehensive Loss.

Significant Accounting Policies- The Company's significant accounting policies are described in Note2, Basis of Presentation, principles of consolidation and significant accounting policies, to the consolidated financial statements included in the Company's Annual Report on Form10-K for the year ended* December 31, 2024*. There have beenno material changes to the significant accounting policies during thethree months ended* March 31, 2025*.

Use of Estimates - The preparation of these condensed 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 condensed 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 equity financing to continue operations and the attainment of profitable operations. As of * March 31, 2025*, the Company had an accumulated deficit of$159.8 million since inception and hadnot yet generated any revenues from operations. Additionally, management anticipates that its cash on hand of$7.7 million as of* March 31, 2025* 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 unaudited condensed 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 $0.02 million and $0.1 million in related general and administrative fees and expenses for thethree* months ended* March 31, 2025and2024*, respectively. 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 Company hasnot hit the retention limits, sono reimbursement is expected. Accordingly, the Company hasnot recorded any provision for insurance reimbursement as of* March 31, 2025*.

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 U.S., which at times,* mayexceed the Federal Deposit Insurance Corporation’s limit. 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.

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, which was completed as of* September 30, 2024,*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.

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

**Fair Value of Financial Instruments -**The Company's financial instruments consist primarily of non-trade receivables, accounts payable, accrued expenses and its warrant liability. The carrying amount of non-trade receivables, accounts payable, 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 into athree-level fair value hierarchy in accordance with U.S. 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 condensed consolidated 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 warrant liability discussed in Note4.

The following table provides the financial liabilities reported at fair value and measured on a recurring basis at* March 31, 2025* and* December 31, 2024* (table in thousands):

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The table below of Level3 liabilities (table in thousands) begins with the valuation as of the beginning of thefirst quarter and then is adjusted for changes in fair value that occurred during thefirst quarter. The ending balance of the Level3 financial instrument presented above represents 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.* *

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 are considered to be common stock equivalents. 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 thethree months ended* March 31, 2025and2024*, approximately 14.0 million and 1.7 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

Subsequent Events - The Company’s management reviewed all material events through the date of these unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements - In* November 2024and January 2025,FASB issued ASU2024*-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after* December 15, 2026,and for interim periods within fiscal years beginning after December 15, 2027.Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may*have on its consolidated financial statements and related disclosures, but expects additional disclosures upon adoption.

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 is effective for the annual periods beginning after the year ended* December 31, 2024.There wasno* material impact upon adoption of ASU2023-09 on the Company's interim 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. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following components (in thousands):

Additionally, accounts payable includes$20,000 as of* March 31, 2025* and* December 31, 2024*, respectively, for related party payables.

4. Warrants and Equity

Warrant and Stock Issuances

In* February 2025,the Company entered into a securities purchase agreement with an institutional investor for the sale by the Company of 1,150,000 shares of common stock, and 2,121,029 pre-funded warrants to purchase shares of common stock, and series D warrants to purchase up to 6,543,058 shares of common stock. The combined purchase price for the securities was $1.07 per share of common stock (or pre-funded warrant in lieu thereof). Each pre-funded warrant was exercisable forone* share of common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and* maybe exercised at any time until all of the pre-funded warrants are exercised in full, subject to the beneficial ownership limitation. All of the pre-funded warrants were exercised during thethree* months ended* March 31, 2025.*Each common warrant will be exercisable upon the receipt of shareholder approval (which is anticipated to occur in the near term), will have an exercise price of $1.07 per share, and expire five years from the initial exercise date. The Company received gross proceeds of $3.5 million.

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In* February 2025,the Company entered into a warrant exercise inducement offer letter with a holder of certain existing warrants to receive new warrants to purchase up to a number of shares of common stock equal to200%* of the number of warrant shares issued pursuant to the exercise of such existing warrants to purchase up to 5,828,570 shares of common stock pursuant to which the holder agreed to exercise for cash their existing warrants at a reduced exercise price of $1.00 in exchange for the Company's agreement to issue the inducement warrants to purchase up to 11,657,140 shares (Series C warrants) of the Company's common stock. Each inducement warrant has an exercise price of $0.75 and is exercisable as of the date of issuance and* maybe exercised for a period offive years. The Company received gross proceeds of $5.8 million. Total gross proceeds received in February 2025*were $9.3 million.

In* August 2024,the Company entered into a securities purchase agreement with an institutional investor for the sale by the Company of 283,000 shares of common stock, and 2,183,368 pre-funded warrants to purchase shares of common stock, series A warrants to purchase up to 2,466,368 shares of common stock, series B warrants to purchase up to 2,466,368 shares of common stock, and placement agent warrants. The combined purchase price for the securities was $2.23 per share of common stock (or pre-funded warrant in lieu thereof). Each pre-funded warrant is exercisable forone* share of common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and* maybe exercised at any time until all of the pre-funded warrants are exercised in full, subject to the beneficial ownership limitation. Each common warrant has an exercise price of $2.23 per share and will be exercisable beginning on the effective date of shareholder approval. The series A warrants expire on the earlier of (i)two years from the initial exercise date, or (ii)60 days from the Company's public announcement that it has achieved the series A milestone event. The series B warrants expire on the earlier of (i)five years from the initial exercise date, or (ii)six months from the Company's public announcement that it has achieved the series B milestone event. The series A milestone event means the Company releases interim data for thefirst* subject group from the MIRACLE trial whereby the complete remission rate for either dose of the Company's study drug is greater than placebo; and series B milestone event means the Company releases final topline data from the MIRACLE trial and documented a statistically significant improvement in the primary efficacy endpoint. In addition, in* August 2024,the Company entered into a warrant amendment agreement, pursuant to which the Company agreed that effective upon closing of the offering, and subject to shareholder approval, to amend 895,834 existing warrants originally issued on December 26, 2023at an exercise price of $9.60 per share and a termination date of February 14, 2029,so that the amended warrants would have a reduced exercise price of $2.23 per share and would expire five years from the date of shareholder approval. The Company calculated the valuation of the warrant amendment immediately prior to the offering, as well as the valuation of the warrant amendment with the repriced terms, and a91%* probability of obtaining shareholder approval. The loss on modification of the warrants of $0.4 million was recorded as a loss on issuance of warrant liabilities during the year ended* December 31, 2024.In October 2024,the Company’s shareholders approved the issuance of both the August 2024warrants, as well as the warrant amendment. The Company received gross proceeds of $5.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. Proceeds of offerings are allocated between common shares and warrantsfirst* by allocating to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which would include pre-funded warrants. As the fair value of the liability classified warrants in the* August 2024offering exceeded the total proceeds,no consideration was allocated to the Common Shares or Pre-Funded Warrants. The full proceeds of the August 2024offering were recorded to warrant liabilities, with an initial liability of $6.1 million, and a loss on initial recognition of $0.8 million. Transaction costs related to the offering were correspondingly fully allocated to warrant liabilities, and $1.0 million in related transaction costs were expensed for the year ended December 31, 2024.In February 2025,the warrants associated with the August 2024*agreement were exercised in full as part of the warrant inducement, as discussed above.

Other Components of Equity

During thethree months ended* March 31, 2025,all remaining pre-funded warrants were exercised, leavingno remaining pre-funded warrants outstanding as of March 31, 2025.In March 2024,*the Company issued 6,834 shares of common stock to consultants in exchange for services to be provided.

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 thethree months ended* March 31, 2025* and related information follows:

For a summary of the changes in fair value associated with the Company's warrant liability for thethree months ended* March 31, 2025*, see Note2 - Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.

Equity Classified Warrants

In* January 2025,the Company granted equity-classified warrants totwo* consultants to purchase up to 50,000 shares each of Company common stock with aten-year term and an exercise price of $1.64. Thefirst 50,000 of these warrants vest based on performance of certain services, and the other 50,000 vest annually over four years.

In* October 2024,*the Company issued consultantsten-year warrants to purchase up to 36,000 shares of common stock.30,000 warrants vest annually over afour-year term,5,000 warrants vest monthly over athree-year term, and 1,000 warrants vested immediately.

In* March 2024,*the Company granted equity-classified warrants to purchase up to 3,334 shares of Company common stock with aten-year term and an exercise price of$9.15. The warrants vest annually over four years while services are being performed.

At* March 31, 2025*, the Company had 197,993 equity classified warrants outstanding and 50,512 warrants were exercisable. At* December 31, 2024*, the Company had 1,746,993 equity classified warrants outstanding and 1,697,744 warrants were exercisable.

5. Stock Based Compensation

As of* March 31, 2025*, there were 119,116 shares remaining to be issued under the Company's equity compensation plans.

Stock-based compensation expense for thethree months ended* March 31, 2025and2024*, respectively, is as follows (table in thousands):

The Company recorded stock compensation expense for the equity classified warrants relating to non-employee consulting agreements of $28,000 and $34,000 for thethree months ended* March 31, 2025and2024*, respectively, which are included in the table above. At* March 31, 2025*, there was $348,000 of unrecognized stock compensation expense related to the Company's equity classified warrants.

6. Income Taxes

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of 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 doesnot expect to pay any significant federal, state, or foreign income taxes in2025 as a result of the losses recorded during thethree months ended* March 31, 2025* and the additional losses expected for the remainder of2025 and cumulative net operating loss carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely thannot” that some component or all of the benefits of deferred tax assets willnot be realized. As a result, as of* March 31, 2025* and* December 31, 2024* the Company maintained a full valuation allowance for all deferred tax assets.

The Company recordedno income tax provision for thethree months ended* March 31, 2025and2024*, respectively. The effective tax rate for thethree months ended* March 31, 2025and2024* isnil. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants, Internal Revenue Code Section162(m) limitations and ISO activity, as well as the valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year whereno tax benefit can be recognized due to the valuation allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.

7. 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 as of* March 31, 2025*.

Lease Obligations Payable

The following summarizes quantitative information about the Company's operating leases for thethree months ended* March 31, 2025and2024*, respectively (table in thousands):

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.

In* June 2022,the Company extended the lab lease until September 30, 2027,withno* further right or option to renew. The Company recorded approximately $12,000 in sublease income from a related party for thethree months ended* March 31, 2025and2024*. Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss. Operating cash flows from operating leases was $39,000 and $29,000 for thethree months ended* March 31, 2025and2024*, respectively.

In* March 2025,the Company terminated theWP1122* license with MD Anderson. The upcoming annual maintenance fee on this license was previously expensed and accrued, as the annual fee is due annually in* April.*

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Licenses

MD Anderson -Total expenses related to the Company's license agreements with MD Anderson were $50,000 and $54,000 for thethree months ended March 31, 2025and2024, respectively.

HPI -The Company hastwo agreements with a related party, Houston Pharmaceuticals, Inc. (HPI) with total expenses of$59,000 for each of thethree months ended March 31, 2025and2024, respectively.

Sponsored Research Agreements - The expenses recognized under the agreements were$261,000 and $156,000 for thethree months ended* March 31, 2025and2024*, respectively.

8. Subsequent Events

In addition to the subsequent events discussed elsewhere in these notes,no other subsequent events were noted as occurring after* March 31, 2025*.